<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 10, 1998
HARVARD INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Florida 0-21362 21-0715310
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3 Werner Way 08833
Lebanon, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (908) 437-4100
(Former name or former address, if changed from last report)
NONE
<PAGE>
Item 5. Other Events
On July 10, 1998, Harvard Industries, Inc. and its nine domestic
subsidiaries filed their Plan of Reorganization and Disclosure Statement with
the United States Bankruptcy Court for the District of Delaware. The Plan of
Reorganization, which is being jointly proposed and supported by the Official
Committee of Unsecured Creditors appointed in Harvard's Chapter 11 case
contemplates a conversion of virtually all pre-petition unsecured debt to
equity of the reorganized Harvard, subject to dilution for incentive options
and with respect to warrants to be issued under the Plan. Under the terms of
the Plan, holders of Harvard's PIK Preferred and Common Stock will receive
warrants to acquire up to 5% of the common stock in the reorganized Harvard.
Item 7. Financial Statements and Exhibits
(c) Exhibits:
Plan of Reorganization
Disclosure Statement
Press Release
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARVARD INDUSTRIES, INC.
By: /s/ Roger G. Pollazzi
--------------------------------
Name: Roger G. Pollazzi
Title: Chief Operating Officer
July 20, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
99.1 Plan of Reorganization
99.2 Disclosure Statement
99.3 Press Release
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
DOEHLER-JARVIS, INC., et al. ) Case Nos. 97-953 (SLR)
) through 97-962 (SLR)
)
Debtors. ) Jointly Administered
)
DEBTORS' CONSOLIDATED PLAN
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
July 10, 1998
WILLKIE FARR & GALLAGHER YOUNG CONAWAY STARGATT & TAYLOR, LLP
787 Seventh Avenue P.O. Box 391
New York, New York 10019 11th Floor, Rodney Square North
Myron Trepper, Esq. Wilmington, Delaware 19801
James L. Patton, Jr., Esq.
S. David Peress, Esq.
Co-Counsel to the Debtors Co-Counsel to the Debtors
FRIED, FRANK, HARRIS, ROSENTHAL, MONHAIT, GROSS & GODDESS
SHRIVER & JACOBSON 919 North Market Street
One New York Plaza Mellon Bank Center, Suite 1401
New York, New York 10004. Wilmington, DE 19801
Brad Eric Scheler, Esq. Kevin Gross, Esq.
Co-Counsel to the Official Committee Co-Counsel to the Official Committee of
of Unsecured Creditors of Unsecured Creditors
<PAGE>
TABLE OF CONTENTS
Article I. INTRODUCTION......................................................1
Article II. DEFINITIONS......................................................1
2.1. "Additional Post-Confirmation Term Loan Amount" ....................1
2.2. "Administrative Expense " ..........................................1
2.3. "Affiliate" ........................................................1
2.4. "Allowed" ..........................................................2
2.5. "Allowed [Class Designation] Claim or Allowed
[Class Designation] Interest.......................................2
2.6. "Alternative Financing Transaction" ................................2
2.7. "Ballots" ..........................................................2
2.8. "Bankruptcy Code" ..................................................2
2.9. "Bankruptcy Court" .................................................2
2.10. "Bankruptcy Rules" ................................................2
2.11. "Business Day" ....................................................3
2.12. "Canceled Security" ...............................................3
2.13. "Cash" ............................................................3
2.14. "Causes of Action" ................................................3
2.15. "Chapter 11 Cases" ................................................3
2.16. "CIT" .............................................................3
2.17. "Claim" ...........................................................3
2.18. "Class" ...........................................................3
2.19. "Combination Transactions" ........................................3
2.20. "Commission" ......................................................4
2.21. "Commitment Letter" ...............................................4
2.22. "Confirmation" ....................................................4
2.23. "Confirmation Date" ...............................................4
2.24. "Confirmation Hearing" ............................................4
2.25. "Confirmation Order" ..............................................4
2.26. "Consulting Agreement" ............................................4
2.27. "Convenience Claim" ...............................................4
2.28. "Creditor" ........................................................4
2.29. "Creditors' Committee" ............................................4
2.30. "Cure Amount Schedule" ............................................4
2.31. "DGCL" ............................................................5
2.32. "Debtors" .........................................................5
2.33. "Debtors-In-Possession" ...........................................5
2.34. "Deductible Claim" ................................................5
2.35. "Deficiency Claim" ................................................5
2.36. "Disallowed" ......................................................5
2.37. "Disbursing Agent" ................................................5
2.38. "Disclosure Statement" ............................................5
2.39. "Disclosure Statement Hearing" ....................................5
(i)
<PAGE>
2.40. "Disclosure Statement Order" ......................................6
2.41. "Disputed Claim" ..................................................6
2.42. "Disputed Interest" ...............................................6
2.43. "Distribution Date" ...............................................6
2.44. "Distribution Record Date" ........................................6
2.45. "Distributions" ...................................................6
2.46. "Doehler-Jarvis" ..................................................6
2.47. "Effective Date" ..................................................6
2.48. "11 1/8% Senior Notes" ............................................6
2.49. "11 1/8% Senior Notes Claims" .....................................7
2.50. "11 1/8% Senior Note Indenture" ...................................7
2.51. "Emergence Bonus Plan" ............................................7
2.52. "Entity" ..........................................................7
2.53. "Estates" .........................................................7
2.54. "Equity Factor" ...................................................7
2.55. "Exchange Act" ....................................................7
2.56. "Exercise Agreements" .............................................7
2.57. "Face Amount" .....................................................7
2.58. "Final Order" .....................................................8
2.59. "General Unsecured Claim" .........................................8
2.60. "Governmental Unit" ...............................................8
2.61. "Greeneville" .....................................................8
2.62. "Harman" ..........................................................8
2.63. "Harvard" .........................................................8
2.64. "Hayes-Albion" ....................................................8
2.65. "Impaired" ........................................................8
2.66. "Incentive Plan" ..................................................8
2.67. "Indentures" ......................................................8
2.68. "Indenture Trustee" ...............................................9
2.69. "Indenture Trustee Claim" .........................................9
2.70. "Insured Claim" ...................................................9
2.71. "Insured Portion" .................................................9
2.72. "Intercompany Claim" ..............................................9
2.73. "Intercreditor Agreement" .........................................9
2.74. "Interest" ........................................................9
2.75. "Kingston-Warren" .................................................9
2.76. "Management Employment Agreements" ................................9
2.77. "Miscellaneous Secured Claim" ....................................10
2.78. "New Board of Directors" .........................................10
2.79. "New By-Laws" ....................................................10
2.80. "New Certificate of Incorporation" ...............................10
2.81. "New Common Stock" ...............................................10
2.82. "New Indenture Trustee" ..........................................10
2.83. "New Junior Secured Debentures" ..................................10
2.84. "New Junior Secured Debentures Indenture" ........................10
(ii)
<PAGE>
2.85. "New Warrant Agreement" ..........................................10
2.86. "New Warrants" ...................................................10
2.87. "Nondebtor Subsidiary" ...........................................11
2.88. "Old Common Stock" ...............................................11
2.89. "Old Other Interests " ...........................................11
2.90. "Oversubscription Options" .......................................11
2.91. "Paying Agent" ...................................................11
2.92. "PBGC" ...........................................................11
2.93. "PBGC Agreement" .................................................11
2.94. "PBGC Claims" ....................................................11
2.95. "Petition Date" ..................................................11
2.96. "PIK Preferred Stock" ............................................11
2.97. "Plan" ...........................................................12
2.98. "Plan Rate" ......................................................12
2.99. "Post-Confirmation Credit Agreement" .............................12
2.100. "Post-Confirmation Credit Facility" .............................12
2.101. "Pottstown" .....................................................12
2.102. "Prepetition Credit Agreement" ..................................12
2.103. "Prepetition Credit Facility" ...................................12
2.104. "Prepetition Lenders" ...........................................12
2.105. "Prepetition Lenders' Claims" ...................................12
2.106. "Priority Claim" ................................................12
2.107. "Priority Tax Claim" ............................................13
2.108. "Professionals" .................................................13
2.109. "Purchasers" ....................................................13
2.110. "Record Date" ...................................................13
2.111. "Registration Statement" ........................................13
2.112. "Registration Rights Agreement" .................................13
2.113. "Reorganization Securities" .....................................13
2.114. "Reorganized Debtors" ...........................................13
2.115. "Reorganized Doehler-Jarvis" ....................................13
2.116. "Reorganized Greeneville" .......................................13
2.117. "Reorganized Harman" ............................................13
2.118. "Reorganized Harvard" ...........................................14
2.119. "Reorganized Hayes-Albion" ......................................14
2.120. "Reorganized Kingston-Warren" ...................................14
2.121. "Reorganized Pottstown" .........................................14
2.122. "Reorganized Technologies" ......................................14
2.123. "Reorganized Toledo" ............................................14
2.124. "Reorganized Transportation" ....................................14
2.125. "Rights" ........................................................14
2.126. "Rights Expiration Date" ........................................14
2.127. "Rights Issue Date" .............................................14
2.128. "Rights Plan" ...................................................15
2.129. "Scheduled" .....................................................15
(iii)
<PAGE>
2.130. "Schedules" .....................................................15
2.131. "Secured Claim" .................................................15
2.132. "Secured Deductible Claim" ......................................15
2.133. "Securities Act" ................................................15
2.134. "Senior Notes" ..................................................15
2.135. "Senior Notes Claim" ............................................15
2.136. "Senior Notes Indenture" ........................................15
2.137. "Subsidiary Common Stock" .......................................15
2.138. "Technologies....................................................15
2.139. "Trust Indenture Act" ...........................................15
2.140. "Toledo" ........................................................15
2.141. "Transportation" ................................................16
2.142. "12% Senior Notes" ..............................................16
2.143. "12% Senior Note Claims" ........................................16
2.144. "12% Senior Note Indenture" .....................................16
2.145. "Unimpaired" ....................................................16
2.146. "Unclaimed Property" ............................................16
2.147. "Workers Compensation Claims" ...................................16
2.148. "Workers Compensation Programs" .................................16
Article III. METHOD OF CLASSIFICATION OF CLAIMS AND INTERESTS
AND GENERAL PROVISIONS.......................................17
3.1. Administrative Expense Claims, Priority Tax Claims and
Nontax Priority Claims...........................................17
3.2. Intercompany Claims..............................................17
Article IV. TREATMENT OF ADMINISTRATIVE EXPENSES AND PRIORITY TAX CLAIMS....17
4.1. Treatment of Allowed Administrative Expense........................17
4.2. Treatment of Allowed Priority Tax Claims...........................17
Article V. CLASSIFICATION OF CLAIMS AND INTERESTS...........................18
5.1. Class 1............................................................18
5.2. Class 2............................................................18
5.3. Class 3............................................................18
5.4. Class 4............................................................18
5.5. Class 5............................................................18
5.6. Class 6............................................................18
5.7. Class 7............................................................18
5.8. Class 8............................................................18
5.9. Class 9............................................................18
5.10. Class 10..........................................................18
Article VI. TREATMENT OF CLAIMS AND INTERESTS...............................19
6.1. Treatment of Allowed Class 1 Claims (Priority Claims)..............19
(iv)
<PAGE>
6.2. Treatment of Allowed Class 2 Claims (Prepetition Lenders' Claims)..19
6.3. Treatment of Allowed Class 3 Claims (Miscellaneous Secured Claims).19
6.4. Treatment of Allowed Class 4 Claims (PBGC Claims)..................20
6.5. Treatment of Allowed Class 5 Claims (General Unsecured Claims).....21
6.6. Treatment of Allowed Class 6 Claims (Convenience Claims)...........21
6.7. Treatment of Allowed Class 7 Interests (PIK Preferred Claims)......22
6.8. Treatment of Allowed Class 8 Interests (Old Common Stock)..........22
6.9. Treatment of Allowed Class 9 Interests (Subsidiary Common Stock)...23
6.10. Treatment of Allowed Class 10 Interests (Old Other Interests).....23
6.11. Allowance of Senior Notes Claims..................................23
Article VII. MEANS FOR IMPLEMENTATION OF THE PLAN...........................23
7.1. Post-Confirmation Financing........................................23
7.2. Issuance and Exercise of Rights....................................24
7.3. New Common Stock...................................................24
7.4. New Warrants.......................................................25
7.5. Registration Rights................................................25
7.6. Corporate Action for Reorganized Debtors...........................25
7.7. Directors of the Reorganized Debtors...............................26
7.8. Emergence Bonus Plan...............................................26
7.9. Incentive Plan.....................................................26
7.10. Management Employment Agreements..................................26
7.11. Consulting Agreement..............................................26
7.12. Approval of Agreements............................................27
7.13. Retiree Benefits..................................................27
7.14. Employee Benefit Plans............................................27
7.15. Listing of New Common Stock; Registration of Securities...........27
7.16. Distributions to Holders of Allowed Claims and Interests;
Source of Cash and Reorganization Securities for Distributions..27
7.17. Distribution to Holders of Senior Notes...........................28
7.18. Cancellation and Surrender of Existing Securities;
Cancellation of Indentures......................................28
7.19. Release of Liens and Perfection of Liens..........................29
7.20. Election of Treatment in Class 6..................................30
7.21. Terms of New Junior Secured Debentures............................30
Article VIII. DISPUTED CLAIMS, DISPUTED INTERESTS, RESERVES
AND MISCELLANEOUS DISTRIBUTION PROVISIONS.....................33
8.1. Objections.........................................................33
8.2. Amendments to Claims; Claims filed after the Confirmation Date.....33
8.3. Reserves for Disputed Claims and Disputed Interests................33
8.4. Fluctuation in Value of Securities.................................34
8.5. Payment or Distribution of Disputed Claim or Disputed Interest.....34
8.6. Timing of Payment or Distribution When a Disputed
Claim or Disputed Interest Becomes an Allowed Claim
or Allowed Interest..............................................34
8.7. Excess Reserves....................................................35
(v)
<PAGE>
8.8. Undeliverable or Unclaimed Distributions...........................35
8.9. Allocation of Consideration........................................35
8.10. Distributions to the Holders of General Unsecured Claims..........35
8.11. Limitations on Amounts to be Distributed to Holders of
Allowed Deductible Claims.......................................36
8.12. Transmittal of Distributions and Notices..........................36
8.13. Method of Cash Distributions......................................37
8.14. Distributions on Non-Business Days................................37
8.15. Rounding..........................................................37
8.16. Withholding Taxes.................................................37
8.17. Disputed Distribution.............................................37
8.18. Retention of Rights to Pursue Causes of Action....................38
Article IX. SUBSTANTIVE CONSOLIDATION........................................38
Article X. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES............39
10.1. Assumption Generally..............................................39
10.2. Approval of Assumptions...........................................39
10.3. Objections to Assumption of Executory Contracts and
Unexpired Leases................................................39
10.4. Objections To Proposed "Cure" Amounts.............................40
10.5. Payments Related to Assumption of Executory Contracts
and Unexpired Leases............................................41
10.6. Executory Contracts and Unexpired Leases to be Rejected...........41
10.7. Bar Date for Rejection Damages....................................41
10.8. Contracts Entered Into on or After the Petition Date..............42
Article XI. DISCHARGE, RELEASES AND INDEMNIFICATION.........................42
11.1. Discharge of All Claims and Interests and Releases................42
11.2. Claims of Subordination...........................................43
11.3. Indemnification...................................................44
11.4. Conclusion of Chapter 11 Cases and Dissolution of
Creditors' Committee............................................44
11.5. Compromise, Settlement & Release of Potential Claims
Asserted and Reserved Against CIT...............................44
Article XII. CONDITIONS TO CONFIRMATION AND CONSUMMATION....................44
12.1. Conditions to Confirmation........................................45
12.2. Conditions to the Consummation....................................45
12.3. Waiver of Conditions to Confirmation and Consumption..............46
Article XIII. EFFECTS OF PLAN CONFIRMATION..................................46
13.1. Reorganized Debtors as Separate Corporate Entities................46
13.2. Revesting and Vesting.............................................46
13.3. Injunction........................................................46
Article XIV. ADMINISTRATIVE PROVISIONS......................................47
(vi)
<PAGE>
14.1. Retention of Jurisdiction.........................................47
14.2. Jurisdiction Over the Reorganized Debtors.........................48
14.3. Cram Down.........................................................49
14.4. Modification of the Plan..........................................49
14.5. Exemption from Certain Transfer Taxes.............................49
14.6. Setoffs...........................................................49
14.7. Compromise of Controversies.......................................49
14.8. Withdrawal or Revocation of the Plan..............................50
14.9. Successors and Assigns............................................50
14.10. Governing Law....................................................50
14.11. Notices..........................................................50
14.12. Severability.....................................................51
14.13. Interpretation, Rules of Construction, Computation of Time,
and Choice of Law..............................................51
14.14. No Admissions....................................................52
14.15. Effectuating Documents and Further Transactions..................52
14.16. Section 1125 of the Bankruptcy Code..............................52
(vii)
<PAGE>
EXHIBIT A Commitment Letter
EXHIBIT B Exercise Agreement
EXHIBIT C Rights Plan
EXHIBIT D New Warrant Agreement
EXHIBIT E Combination Transactions
EXHIBIT F New Certificates of Incorporation
EXHIBIT G New By-Laws
EXHIBIT H List of New Board of Directors of Reorganized Harvard
EXHIBIT I Emergence Bonus Plan
EXHIBIT J Incentive Plan
EXHIBIT K Management Employment Agreements
EXHIBIT K-1. Management Employment Agreement of Roger Pollazzi
EXHIBIT K-2. Management Employment Agreement of Theodore Vogtman
EXHIBIT K-3: Management Employment Agreement of Vincent Toscano
EXHIBIT K-4. [Management Employment Agreement of Joseph Gagliardi]
EXHIBIT L Consulting Agreement
(viii)
<PAGE>
Article I.
INTRODUCTION
This Chapter 11 Plan, dated July 10, 1998, is proposed by
(i) Harvard Industries, Inc., a Florida corporation, and its directly or
indirectly owned subsidiaries, Harvard Transportation, Inc., a Michigan
corporation, Doehler-Jarvis, Inc., a Delaware corporation, Doehler-Jarvis
Greeneville, Inc., a Delaware corporation, Doehler-Jarvis Pottstown, a
Delaware corporation, Doehler-Jarvis Technologies, Inc., a Delaware
corporation, Doehler-Jarvis Toledo, Inc., a Delaware corporation, Harman
Automotive, Inc., a Michigan corporation, Hayes-Albion Corporation, a Michigan
corporation and The Kingston-Warren Corporation, a New Hampshire corporation
in the above-captioned cases currently pending in the United States Bankruptcy
Court for the District of Delaware under chapter 11 of title 11 of the United
States Code and (ii) the Creditors' Committee (collectively, the
"Proponents"). Reference is made to the Disclosure Statement accompanying the
Plan for a discussion of the Debtors' history, results of operations,
historical financial information and properties, and for a summary and
analysis of this chapter 11 Plan. All holders of Claims against and Interests
in the Debtors are encouraged to read this chapter 11 Plan and the Disclosure
Statement in their entirety before voting to accept or reject the Plan.
Article II.
DEFINITIONS
Whenever from the context it appears appropriate, each term
stated in either the singular or the plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter gender. In addition to such
other terms as are defined in other Articles of the Plan, the following terms
(which appear in the Plan as capitalized terms) have the following meanings as
used in the Plan:
2.1. "Additional Post-Confirmation Term Loan Amount" means the
amount, if any, by which the term loan component of the Post-Confirmation Credit
Facility exceeds $50 million.
2.2 "Administrative Expense" means (a) any cost and expense of
administration (including, without limitation, the fees and expenses of
Professionals) asserted or arising under sections 503(b) or 507(b) of the
Bankruptcy Code, (b) a Claim given the status of an Administrative Expense by
Final Order of the Bankruptcy Court, and (c) all fees or charges assessed
against the Debtors' estates under 28 U.S.C. ss. 1930.
2.3 "Affilitate" means an affiliate as such term is defined in
section 101(2) of the Bankruptcy Code.
<PAGE>
2.4. "Allowed" means with respect to Claims and Interests, (a) any
Claim against, or Interest in, any Debtor, proof of which is timely filed or
by order of the Bankruptcy Court is not or will not be required to be filed,
(b) any Claim or Interest that has been or is hereafter listed in the
Schedules as neither disputed, contingent or unliquidated, and for which no
timely filed proof of claim has been filed, (c) any Interest registered in the
stock register maintained by or on behalf of the applicable Debtor as of the
Record Date or (d) any Claim allowed pursuant to this Plan and, in each such
case in (a), (b) and (c) above, as to which either (i) no objection to the
allowance thereof has been interposed within the applicable period of time
fixed by this Plan, the Bankruptcy Code, the Bankruptcy Rules or the
Bankruptcy Court or (ii) such an objection is so interposed and the Claim and
Interest shall have been allowed by a Final Order (but only to the extent so
allowed).
2.5. "Allowed [Class Designation] Claim" or "Allowed [Class
Designation] Interest" means an Allowed Claim or an Allowed Interest in a
specified class. For example, an Allowed General Unsecured Claim is an Allowed
Claim in the General Unsecured Claims Class and an Allowed Old Common Stock
Interest is an Allowed Interest in the Old Common Stock Class, as the context
requires.
2.6. "Alternative Financing Transaction" means any financing
transaction which, provides the necessary operating funds for the Reorganized
Debtors after the Effective Date on better terms than the Post-Confirmation
Credit Facility and/or the New Junior Secured Debentures.
2.7. "Ballots" means the ballots that accompany the Plan and
Disclosure Statement upon which holders of Impaired Claims and Impaired
Interests entitled to vote on the Plan shall indicate their acceptance or
rejection of the Plan.
2.8. "Bankruptcy Code" means title 11 of the United States Code,
as amended from time to time (to the extent any such amendment is applicable
to these Chapter 11 Cases).
2.9. "Bankruptcy Court" means the United States District Court
for the District of Delaware or, to the extent that such court ceases to
exercise jurisdiction over these Chapter 11 Cases, such other court or adjunct
thereof that exercises jurisdiction over these Chapter 11 Cases.
2.10. "Bankruptcy Rules" means, collectively, the Federal Rules of
Bankruptcy Procedure, as amended, promulgated under section 2075 of title 28
of the United States Code and the general and local rules of the Bankruptcy
Court, as now in effect or hereafter amended (to the extent any such amendment
is applicable to these Chapter 11 Cases).
-2-
<PAGE>
2.11. "Business Day" means any day, other than a Saturday, Sunday
or "legal holiday" (as such term is defined in Bankruptcy Rule 9006(a)).
2.12. "Canceled Security" means a security, note or other
instrument evidencing a Claim or Interest outstanding immediately prior to the
Effective Date, which security, note or other instrument represents a Claim or
Interest that is Impaired under this Plan.
2.13. "Cash" means currency, a certified check, a cashier's check
or a wire transfer of good funds from any source or a check drawn on a
domestic bank from the Debtors, Reorganized Debtors or other Entity making any
distribution under this Plan.
2.14. "Causes of Action" means any and all actions, causes of
action, suits, accounts, controversies, agreements, promises, rights to legal
remedies, rights to equitable remedies, rights to payment, and claims, whether
known or unknown, reduced to judgment, not reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, unsecured and whether asserted or assertable directly or
derivatively, in law, equity or otherwise.
2.15. "Chapter 11 Cases" means the cases under chapter 11 of the
Bankruptcy Code concerning the Debtors under case numbers 97-953 through
97-962, inclusive, which were commenced on the Petition Date.
2.16. "CIT" means The CIT Group/Business Credit, Inc.
2.17. "Claim" means any right to (a) payment from a Debtor,
whether or not such right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured or (b) an equitable remedy for breach of performance if
such breach gives rise to a right to payment from a Debtor, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured.
2.18. "Class" means one of the classes of Claims or Interests
which are substantially similar in nature to each other, established under
Article V of the Plan pursuant to section 1122 of the Bankruptcy Code.
2.19. "Combination Transactions" shall mean the mergers,
dissolutions and other actions as set forth on Exhibit "E" to the Plan which
may, at the Debtors' option, be implemented and become effective on the
Effective Date.
-3-
<PAGE>
2.20. "Commission" means The Securities and Exchange Commission.
2.21. "Commitment Letter" means the letter, dated _____ __, 1998
from CIT to the Debtors committing to provide the Post-Confirmation Credit
Facility under certain terms and conditions specified therein as set forth on
Exhibit "A" to the Plan.
2.22. "Confirmation" means the entry of the Confirmation Order.
2.23. "Confirmation Date" means the date on which the Confirmation
Order is entered on the docket maintained by the Clerk of the Bankruptcy Court
with respect to these Chapter 11 Cases.
2.24. "Confirmation Hearing" means the hearing held by the
Bankruptcy Court to consider confirmation of the Plan pursuant to section 1129
of the Bankruptcy Code.
2.25. "Confirmation Order" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
2.26. "Consulting Agreement" means the Consulting Agreement between
Reorganized Harvard and John Adams in the form of Exhibit "L" to the Plan.
2.27. "Convenience Claim" means any Claim, which would otherwise
be a General Unsecured Claim, against the Debtors that (i) is Allowed in an
amount of $500 or less, or (ii) is Allowed in an amount greater than $500, but
which is reduced pursuant to Section 7.20 of the Plan to an amount of $500.00
or less.
2.28. "Creditor" means any Entity that is the holder of a Claim
against any of the Debtors that arose on or before the Petition Date or a
Claim against any of the Debtors' estates of the kind specified in section
502(g), 502(h) or 502(i) of the Bankruptcy Code.
2.29. "Creditors' Committee" means the Official Committee of
Unsecured Creditors in these Chapter 11 Cases, as appointed by the Office of
the United States Trustee and reconstituted from time to time, which members
are identified in the Disclosure Statement.
2.30. "Cure Amount Schedule" means the schedule setting forth the
proposed amounts to cure all executory contracts to be assumed under Article X
of the Plan.
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2.31. "DGCL" means the Delaware General Corporation Law.
2.32. "Debtors" means Harvard, Doehler-Jarvis, Transportation,
Greeneville, Pottstown, Technologies, Toledo, Harman, Hayes-Albion,
Kingston-Warren, the debtors and Debtors-In-Possession in these Chapter 11
Cases.
2.33. "Debtors-In-Possession" means the Debtors as debtors-in-
possession pursuant to sections 1101, 1107 and 1108 of the Bankruptcy Code.
2.34. "Deductible Claim" means with respect to any Insured Claim,
an amount equal to the applicable deductible, self-insured retention or
retrospective rating under the relevant insurance policy and any reimbursement
obligation of the applicable Debtor to the insurance carrier for sums expended
by the insurance carrier on account of such Claim (including, without
limitation, any costs and expenses relating to the defense of such Claim). For
purposes hereof, the term "Deductible Claim" shall include any Secured
Deductible Claim.
2.35. "Deficiency Claim" means with respect to a Claim that is
partially secured, the amount by which the Allowed amount of such Claim
exceeds the value of the property owned or held by the Debtors which
collaterializes the Claim.
2.36. "Disallowed" means, with respect to Claims and Interests,
any Claim against, or Interest in, any of the Debtors, or a portion thereof,
which has been disallowed by a Final Order of the Bankruptcy Court.
2.37. "Disbursing Agent" means the Entity that is designated under
the Plan to disburse property pursuant to the Plan (which may be Reorganized
Harvard). The initial Disbursing Agent will be identified in the Disclosure
Statement.
2.38. "Disclosure Statement" means the Disclosure Statement that
relates to this Plan and has been approved by the Bankruptcy Court pursuant to
section 1125 of the Bankruptcy Code, as such Disclosure Statement may be
amended, modified, or supplemented (including all exhibits and schedules
annexed thereto or referred to therein).
2.39. "Disclosure Statement Hearing" means the hearing held by the
Bankruptcy Court to consider approval of the Disclosure Statement as
containing adequate information as required by section 1125 of the Bankruptcy
Code.
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2.40. "Disclosure Statement Order" means the order of the Court
approving the Disclosure Statement as containing adequate information pursuant
to section 1125 of the Bankruptcy Code.
2.41. "Disputed Claim" means the portion (including, when
appropriate, the whole) of a Claim that is not an Allowed Claim as to which:
(a) a proof of claim has been filed with the Bankruptcy Court, or deemed filed
under applicable law or order of the Bankruptcy Court; (b) an objection has
been or may be timely filed; and (c) such objection has not been: (i)
withdrawn, (ii) overruled or denied in whole or part by a Final Order, or
(iii) granted in whole or part by a Final Order. Before the time that an
objection has been or may be filed, a Claim shall be considered a Disputed
Claim (A) if the amount or classification of the Claim specified in the proof
of claim exceeds the amount or classification of any corresponding Claim
scheduled by the relevant Debtor in its Schedules; (B) in its entirety, if any
corresponding Claim scheduled by the relevant Debtor has been scheduled as
disputed, contingent or unliquidated; or (C) in its entirety, if no
corresponding Claim has been scheduled by the relevant Debtor in its
Schedules.
2.42. "Disputed Interest" means an Interest, or portion thereof,
that has not become an Allowed Interest.
2.43. "Distribution Date" means the Effective Date.
2.44. "Distribution Record Date" means 5:00 p.m. on the Business
Day immediately preceding the Confirmation Date or such other date and time
designated in the Confirmation Order.
2.45. "Distributions" means means the distributions in accordance
with the Plan of: (a) Cash; or (b) Reorganization Securities, as the case may
be.
2.46. "Doehler-Jarvis" means Doehler-Jarvis, Inc., one of the
Debtors herein.
2.47. "Effective Date" means either (a) the Business Day that is
not more than seven (7) Business Days after the date all of the conditions
precedent as provided in Section 12.2 of the Plan have been satisfied or duly
waived in accordance with Section 12.3 of this Plan or (b) such other Business
Day as the Proponents select.
2.48. "11 1/8% Senior Notes" means 11 1/8% Senior Notes due 2005,
issued by Harvard under the 11 1/8% Senior Note Indenture and guaranteed by
all of the Debtors other than Transportation.
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2.49. "11 1/8% Senior Notes Claims" means the Claims of holders of
11 1/8% Senior Notes (other than the Indenture Trustee Claim) arising under
the 11 1/8% Senior Note Indenture.
2.50. "11 1/8% Senior Note Indenture" means the Indenture, dated
as of July 28, 1995, between the Debtors and the Indenture Trustee to the 11
1/8% Senior Notes, as the same may have been amended as of the Petition Date.
2.51. "Emergence Bonus Plan" means the Emergence Bonus Plan, a
copy of which is attached as Exhibit "I" to this Plan.
2.52. "Entity" means any individual, corporation, limited or
general partnership, joint venture, association, joint stock company, limited
liability company, estate, entity, trust, trustee, United States Trustee,
unincorporated organization, government, governmental unit (as defined in the
Bankruptcy Code), agency or political subdivision thereof.
2.53. "Estates" means the estates created in these Chapter 11 Cases
for the Debtors by section 541 of the Bankruptcy Code.
2.54. "Equity Factor" means [ ], or such greater number that the
Debtors and the Creditors' Committee jointly determine on the Effective Date.
2.55. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.56. "Exercise Agreements" means those agreements attached as
Exhibit "B" among the Reorganized Debtors and the parties thereto.
2.57. "Face Amount" means, with respect to a particular Claim: (a)
if the Claim is listed in the Schedules and the holder of such Claim has not
filed a proof of Claim with the Bankruptcy Court within the applicable period
of limitation fixed by the Bankruptcy Court pursuant to the Bankruptcy Code,
the Bankruptcy Rules or other applicable law, the amount of such Claim that is
listed in the Schedules as not disputed, contingent or unliquidated; or (b) if
the holder of such Claim has filed a proof of Claim with the Bankruptcy Court
within the applicable period of limitation fixed by the Bankruptcy Court
pursuant to the Bankruptcy Code, the Bankruptcy Rules or other applicable law,
the liquidated amount stated in such proof of Claim, or such amount as is
determined by Final Order of the Bankruptcy Court; (c) in the case of an
Administrative Expense, the liquidated amount set forth in any application
filed with the Bankruptcy Court or the amount set forth in the Debtors' books
and records or such amount as is determined by a Final Order of the Bankruptcy
Court; or (d) in all other cases,
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zero (0) or such amount as shall be fixed or estimated by a Final Order of the
Bankruptcy Court.
2.58. "Final Order" means an order, ruling or judgment which is in
effect and is not stayed and as to which (a) the time to appeal or petition
for certiorari has expired and as to which no appeal, petition for certiorari
or other proceeding for reargument or rehearing shall then be pending, or (b)
in the event that an appeal, writ of certiorari or reargument or rehearing
thereof has been sought, such order of the Bankruptcy Court shall have been
affirmed by the highest court to which the order was appealed or certiorari,
reargument or rehearing has been denied, and the time to take any further
appeal, petition for certiorari, move for reargument or rehearing has expired.
2.59. "General Unsecured Claim" means any Claim (including, without
limitation, any Deductible Claim), that is not an Administrative Expense,
Priority Tax Claim, Priority Claim, Prepetition Lenders' Claim, Miscellaneous
Secured Claim, PBGC Claim, Insured Portion or Convenience Claim.
2.60. "Governmental Unit" means a governmental unit as such term
is defined in section 101(27) of the Bankruptcy Code.
2.61. "Greeneville" means Doehler-Jarvis Greeneville, Inc., one of
the Debtors herein.
2.62. "Harman" means Harman Automotive Inc., one of the Debtors
herein.
2.63. "Harvard" means Harvard Industries, Inc., one of the Debtors
herein.
2.64. "Hayes-Albion" means Hayes-Albion, Inc., one of the Debtors
herein.
2.65. "Impaired" means with respect to any Claim or Interest,
impaired within the meaning of section 1124 of the Bankruptcy Code.
2.66. "Incentive Plan" means the Incentive Plan, a copy of which
is attached as Exhibit "J" to this Plan.
2.67. "Indentures" means, collectively, the 11 1/8% Senior Notes
Indenture and the 12% Senior Notes Indenture.
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2.68. "Indenture Trustee" means any entity identified as the
trustee, paying agent or other similar fiduciary under a bond, note or other
debt instrument (including, but not limited to, the 12% Senior Notes and 11
1/8% Senior Notes and industrial development or similar bonds and notes for
which a Debtor is the obligor on any note, agreement, lease or similar
document or instrument, the proceeds of which are applied, in whole or in
part, to the payment of principal and/or interest on such industrial
development bond or note), whether or not the agreement evidencing the debt or
delineating its terms is denominated as an indenture.
2.69. "Indenture Trustee Claim" means the fees and expenses of
First Union National Bank, as indenture trustee, under the Indentures, or any
other successor Indenture Trustee, incurred in their capacity as such,
including the fees and expenses of its counsel.
2.70. "Insured Claim" means any Claim arising from an incident or
occurrence that is covered under an applicable Debtor's general liability
insurance policies but shall not include Workers' Compensation Claims arising
out of Workers' Compensation Programs and employee benefit plans.
2.71. "Insured Portion" means the portion of any Insured Claim
that is covered under an applicable Debtor's general liability insurance
policy and would not constitute a Deductible Claim.
2.72. "Intercompany Claim" means any Claim of any Debtor against
another Debtor arising prior to the Effective Date.
2.73. "Intercreditor Agreement" means an intercreditor agreement
between the lenders under the Post-Confirmation Credit Facility and the New
Indenture Trustee.
2.74. "Interests" means the equity interests in the Debtors,
including, without limitation, shares of common stock and shares of preferred
stock of the Debtors and any rights, options, warrants, calls, subscriptions
or other similar rights or agreements, commitments or outstanding securities
obligating the Debtors to issue, transfer or sell any shares of capital stock
of the Debtors.
2.75. "Kingston-Warren" means The Kingston-Warren Corporation,
one of the Debtors herein.
2.76. "Management Employment Agreements" means the Management
Employment Agreements between Reorganized Harvard and Roger Pollazzi, Theodore
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Vogtman, Vincent Toscano and [Joseph Gagliardi], substantially in the form of
Exhibit "K-1" through "K-4" annexed to this Plan.
2.77. "Miscellaneous Secured Claim" means any Secured Claim other
than the Prepetition Lenders' Claim.
2.78. "New Board of Directors" means the board of directors of
Reorganized Harvard, on or after the Effective Date.
2.79. "New By-Laws" means the by-laws for the Reorganized Debtors,
in form and substance reasonably satisfactory to the Creditors' Committee, as
set forth in Exhibit "G" to this Plan.
2.80. "New Certificates of Incorporation" means the Certificates
of Incorporation of the Reorganized Debtors, in form and substance reasonably
satisfactory to the Creditors' Committee, as set forth in Exhibit "F" to the
Plan.
2.81. "New Common Stock" means the shares of common stock, par
value $.01 per share, of Reorganized Harvard issued pursuant to the terms of
the Plan (or issuable after the Effective Date) and having the terms set forth
in the New Certificate of Incorporation of Reorganized Harvard.
2.82. "New Indenture Trustee" means the indenture trustee under
the New Junior Secured Debentures Indenture.
2.83. "New Junior Secured Debentures" means all junior secured
debentures issued under the Plan pursuant to the terms of the New Junior
Secured Debentures Indenture.
2.84. "New Junior Secured Debentures Indenture" means the
Indenture, among the Reorganized Debtors and the New Indenture Trustee to be
dated as of the Effective Date, which will govern the New Junior Secured
Debentures.
2.85. "New Warrant Agreement" means the document governing the
terms and conditions of the New Warrants substantially in the form of
Exhibit "D".
2.86. "New Warrants" means the warrants to purchase 5% of New
Common Stock at a price per share of New Common Stock based on a net equity
value of [$500] million
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which shall be exercisable commencing on the Effective Date and ending on the
fifth anniversary date of the Effective Date.
2.87. "Nondebtor Subsidiaries" means any direct and indirect
subsidiaries of any of the Debtors that are not debtors and Debtors-In-
Possession in these Chapter 11 Cases.
2.88. "Old Common Stock" means all authorized, issued and
outstanding shares of the Class B common stock of Harvard, $0.01 par value, as
of the Petition Date.
2.89. "Old Other Interests" means any Interest, other than an Old
Common Stock Interest, a PIK Preferred Stock Interest or a Subsidiary Common
Stock Interest, including, without limitation, any preferred or other capital
stock of Harvard (other than PIK Preferred Stock) and all issued, outstanding
and unexpired options, warrants, conversion, privilege or other legal or
contractual right to acquire shares of PIK Preferred Stock and/or Old Common
Stock.
2.90. "Oversubscription Options" means the options granted to
holders of General Unsecured Claims to subscribe for and purchase, subject to
the terms and conditions of the Rights Plan, at par, up to 100% of the
principal amount of the New Junior Secured Debentures that are not subscribed
for upon exercise of the Rights.
2.91. "Paying Agent" means the Disbursing Agent, any Indenture
Trustee, or any other entity contractually authorized and/or obligated to make
Distributions to certain holders of Claims and Interests and similar
intermediaries and agents participating in making or conveying Distributions
as required by the Plan and the Rights Plan.
2.92. "PBGC" means the Pension Benefit Guaranty Corporation.
2.93. "PBGC Agreement" means the agreement dated __________ __,
1998 between the PBGC and certain of the Reorganized Debtors.
2.94. "PBGC Claims" means all Claims asserted by the PBGC.
2.95 "Petition Date" means May 8, 1997.
2.96 "PIK Preferred Stock" means all authorized, issued and
outstanding Payable-In-Kind Exchangeable Preferred Shares of Harvard as of the
Petition Date.
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2.97. "Plan" means the Debtors' Consolidated Plan of Reorganization
under Chapter 11 of the Bankruptcy Code (together with all exhibits thereto),
as the same may be amended from time to time in accordance with the
Confirmation Order, section 1127 of the Bankruptcy Code and the terms hereof.
2.98. "Plan Rate" means the interest rate available on ninety (90)
day United States Treasuries on the Effective Date but in no event greater than
7.0% interest per annum.
2.99. "Post-Confirmation Credit Agreement" means the credit
agreement which is to be executed as of the Effective Date by the Reorganized
Debtors and which shall contain those terms set forth in the Commitment Letter
and any and all documents related thereto unless an Alternative Financing
Transaction is pursued, in which case, it shall mean the documents,
instruments or other writings which evidence the indebtedness under such
Alternative Financing Transaction.
2.100. "Post-Confirmation Credit Facility" means the loans and
other financial accommodations provided to the Reorganized Debtors pursuant to
the Post-Confirmation Credit Agreement and/or an Alternative Financing
Transaction.
2.101. "Pottstown" means Doehler-Jarvis Pottstown, Inc., one of the
Debtors herein.
2.102. "Prepetition Credit Agreement" means the Prepetition Loan
Security Agreement dated October 4, 1996 and as amended December 20, 1996 and
April 21, 1997 between the Debtors and CIT as agent of the Prepetition
Lenders.
2.103. "Prepetition Credit Facility" means the loans and other
financial accommodations provided pursuant to the Prepetition Credit Agreement.
2.104. "Prepetition Lenders" mean CIT, Congress Financial
Corporation, General Electric Capital Corporation, Heller Financial, Inc.,
Finova Capital Corporation and Foothill Capital Corporation, in their capacity
as lenders under the Prepetition Credit Agreement.
2.105. "Prepetition Lenders' Claims" means the Secured Claims of
the Prepetition Lenders arising under the Prepetition Credit Facility.
2.106. "Priority Claim" means any Claim accorded priority in right
of payment under section 507(a) of the Bankruptcy Code, other than an
Administrative Expense or Priority Tax Claim.
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2.107. "Priority Tax Claim" means any Claim for taxes, interest and
penalties against any of the Debtors entitled to priority pursuant to section
507(a)(8) of the Bankruptcy Code.
2.108. "Professionals" means those persons or Entities: (a)
employed pursuant to an order of the Bankruptcy Court in accordance with
sections 327 or 1103 of the Bankruptcy Code providing for compensation for
services rendered prior to the Effective Date pursuant to sections 327, 328,
329, 330 and 331 of the Bankruptcy Code, or (b) for which compensation and
reimbursement has been allowed by the Bankruptcy Court pursuant to sections
503(b)(2) or (4) of the Bankruptcy Code.
2.109. "Purchasers" means those Entities so defined in the Exercise
Agreements.
2.110. "Record Date" means the applicable Voting Record Date and
Distribution Record Date established by Final Order of the Bankruptcy Court.
2.111. "Registration Statement" means a registration statement
pursuant to section 12 of the 1934 Act.
2.112. "Registration Rights Agreement" means the registration rights
agreement to be entered into on the Effective Date by and among Reorganized
Harvard and certain holders of New Common Stock as of the Effective Date.
2.113. "Reorganization Securities" means (a) New Common Stock, (b)
New Warrants, (c) Rights, (d) Oversubscription Options and (e) New Junior
Secured Debentures.
2.114. "Reorganized Debtors" means the Debtors and their successor
entities on and after the effectiveness of this Plan on the Effective Date.
2.115. "Reorganized Doehler-Jarvis" means Doehler-Jarvis on and
after the effectiveness of this Plan on the Effective Date.
2.116. "Reorganized Greeneville" means Greeneville on and after the
effectiveness of this Plan on the Effective Date.
2.117. "Reorganized Harman" means Harman on and after the
effectiveness of this Plan on the Effective Date.
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2.118. "Reorganized Harvard" means Harvard on and after the
effectiveness of this Plan on the Effective Date.
2.119. "Reorganized Hayes-Albion" means Hayes-Albion on and after
the effectiveness of this Plan on the Effective Date.
2.120. "Reorganized Kingston-Warren" means Kingston-Warren on and
after the effectiveness of this Plan on the Effective Date.
2.121. "Reorganized Pottstown" means Pottstown on and after the
effectiveness of this Plan on the Effective Date.
2.122. "Reorganized Technologies" means Technologies on and after
the effectiveness of this Plan on the Effective Date.
2.123. "Reorganized Toledo" means Toledo on and after the
effectiveness of this Plan on the Effective Date.
2.124. "Reorganized Transportation" means Transportation on and
after the effectiveness of this Plan on the Effective Date.
2.125. "Rights" means the rights granted to the holders of General
Unsecured Claims under the Rights Plan, and distributed pursuant to the Plan,
to purchase in the aggregate, at par, $44 million (less the Additional
Post-Confirmation Term Loan Amount) in principal amount of New Junior Secured
Debentures. Each Right will entitle a holder thereof to purchase, at par, to
the extent that such holder's General Unsecured Claim has not been Disallowed,
a percentage of the aggregate principal amount of New Junior Secured
Debentures that will be issued under the Plan, which percentage will be based
on a fraction, the numerator of which is the amount of such holder's General
Unsecured Claim as of the Confirmation Date and the denominator of which is
the aggregate amount of all General Unsecured Claims that have not been
Disallowed as of the Confirmation Date.
2.126. "Rights Expiration Date" means the date which is 30 days
following the Rights Issue Date or such later date that the Proponents jointly
decide.
2.127. "Rights Issue Date" means the day the Confirmation Order
becomes a Final Order.
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2.128. "Rights Plan" means the document governing the terms and
conditions of the Rights, substantially in the form of Exhibit "C" to this Plan.
2.129. "Scheduled" means set forth in the Schedules.
2.130. "Schedules" means the schedules of assets and liabilities,
respectively, filed by each of the Debtors in accordance with section 521(1) of
the Bankruptcy Code on or about July 7, 1997 as the same have been or may
hereafter be amended from time to time.
2.131. "Secured Claim" means any Claim that is a secured Claim
under section 506(a) of the Bankruptcy Code.
2.132. "Secured Deductible Claim" means any Deductible Claim
secured by a letter of credit, surety or similar instrument that is
collateralized by property of the Debtors.
2.133. "Securities Act" means the Securities Act of 1933, as
amended.
2.134. "Senior Notes" means, collectively, (a) the 12% Senior Notes
and (b) the 11 1/8% Senior Notes.
2.135. "Senior Notes Claims" means, collectively, the 12% Senior
Notes Claims and the 11 1/8% Senior Notes Claims.
2.136. "Senior Notes Indenture" means, collectively, the 12% Senior
Note Indenture and the 11 1/8% Senior Note Indenture.
2.137. "Subsidiary Common Stock" means collectively, any and all
authorized, issued and outstanding Interests in Doehler-Jarvis, Transportation,
Greeneville, Pottstown, Technologies, Toledo, Harman, Hayes-Albion and
Kingston-Warren, as of the Petition Date.
2.138. "Technologies" means Doehler-Jarvis Technologies, Inc., one
of the Debtors herein.
2.139. "Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
2.140. "Toledo" means Doehler-Jarvis Toledo, Inc., one of the
Debtors herein.
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2.141. "Transportation" means Harvard Transportation, Inc., one of
the Debtors herein.
2.142. "12% Senior Notes" means 12% Senior Notes due 2004, issued
by Harvard under the 12% Senior Note Indenture and guaranteed by all of the
Debtors other than Transportation.
2.143. "12% Senior Note Claims" means the Claims of holders of 12%
Senior Notes (other than Indenture Trustee Claims) arising under the 12% Senior
Note Indenture.
2.144. "12% Senior Note Indenture" means the Indenture, dated as of
July 26, 1994, between the Debtors and the Indenture Trustee, with respect to
the 12% Senior Notes, as the same may have been amended as of the Petition Date.
2.145. "Unimpaired" means a Claim that is not Impaired.
2.146. "Unclaimed Property" means any Cash and Reorganization
Securities unclaimed on or after the applicable Distribution Date made in
respect of the relevant Allowed Claim or Allowed Interest. Unclaimed Property
shall include: (a) checks (and the funds represented thereby) and Reorganization
Securities, mailed to an address of a holder of a Allowed Claim or Interest and
returned as undeliverable without a proper forwarding address; (b) funds for
uncashed checks; and (c) checks (and the funds represented thereby) and
Reorganization Securities not mailed or delivered because no address to mail or
deliver such property was available.
2.147. "Workers' Compensation Claims" means any Claim against the
Debtors held by (i) current and former employees of the Debtors, (ii)
beneficiaries of current and former employees of the Debtors and (iii)
Governmental Units, for payment or reimbursement under and according to the
terms of the Workers' Compensation Programs.
2.148 "Workers' Compensation Programs" means those statutorily
mandated programs in effect on the Petition Date providing compensation, paid
for by third parties, to employees of the Debtors for job-related injuries or
job related illnesses, which were required to be maintained under provisions
of non-bankruptcy law.
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Article III.
METHOD OF CLASSIFICATION OF CLAIMS
AND INTERESTS AND GENERAL PROVISIONS
3.1. Administrative Expenses, Priority Tax Claims. Administrative
Expenses and Priority Tax Claims have not been classified and are excluded
from the Classes set forth in Article V in accordance with Section 1123(a)(1)
of the Bankruptcy Code.
3.2 Intercompany Claims. Allowed Intercompany Claims of each
Debtor against all other Debtors and the Nondebtor Subsidiaries are not
classified and are extinguished in connection with the substantive
consolidation of the Debtors pursuant to Article IX.
Article IV.
TREATMENT OF ADMINISTRATIVE EXPENSES AND PRIORITY TAX CLAIMS
4.1 Treatment of Allowed Administrative Expenses. Unless
otherwise provided for herein, each holder of an allowed Administrative
Expense (including, without limitation, all compensation and reimbursement of
expenses of Professionals pursuant to sections 327, 328, 329, 330, 331,
503(b)(1), 503(b)(4) or 1103 of the Bankruptcy Code) shall be paid 100% of the
unpaid allowed amount of such Administrative Expense in Cash on or as soon as
reasonably practicable after the later of: (a) the Effective Date; and (b) the
date such Administrative Expense becomes allowed, provided, however, that an
allowed Administrative Expense representing obligations incurred in the
ordinary course of business consistent with past practices shall be paid in
full or performed by the Debtors or Reorganized Debtors, as the case may be,
in accordance with its terms and conditions, in the ordinary course of
business consistent with past practices, provided, further, however, that an
allowed Administrative Expense may be paid on such other terms and conditions
as are agreed to between the Debtors, and following the Effective Date, at the
option of the Reorganized Debtors, and the holder of such allowed
Administrative Expense and, prior to the Effective Date, upon prior written
consent of the Creditors' Committee.
4.2 Treatment of Allowed Priority Tax Claims. With respect to
each Allowed Priority Tax Claim, at the option of the Debtors, upon prior
written consent of the Creditors' Committee, and following the Effective Date,
at the option of the Reorganized Debtors, the holder of an Allowed Priority
Tax Claim will be entitled to receive on account of such Allowed Priority Tax
Claim: (a) equal Cash payments made on the last Business Day of every three
(3) month period following the Effective Date, over a period not exceeding six
(6) years after the assessment of the tax on which such Claim is based,
totaling the principal amount of such Claim plus simple interest on any
outstanding balance from the Effective Date calculated at the Plan Rate; (b)
such other treatment agreed to by the holder of such Allowed Priority Tax
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Claim and the Debtors or the Reorganized Debtors, as the case may be, provided
such treatment is on more favorable terms to the Debtors or the Reorganized
Debtors, as the case may be, than the treatment set forth in clause (a)
hereof; or (c) payment in full of such Allowed Priority Tax Claim on or as
soon as practicable after the later of: (i) the Effective Date, or (ii) the
date such Priority Tax Claim becomes an Allowed Priority Tax Claim. The
Debtors or Reorganized Debtors, as the case may be, shall have the right, in
their sole discretion, to prepay the Allowed Priority Tax Claim without
penalty of any sort or nature.
Article V.
CLASSIFICATION OF CLAIMS AND INTERESTS
Pursuant to section 1122 of the Bankruptcy Code, set forth
below is a designation of classes of Claims and Interests. Administrative
Expenses and Priority Tax Claims of the kinds specified in section 507(a)(1)
and 507(a)(8) of the Bankruptcy Code have not been classified and are excluded
from the following classes in accordance with section 1123(a)(1) of the
Bankruptcy Code.
5.1. Class 1 consists of all Priority Claims.
5.2. Class 2 consists of all Prepetition Lenders' Claims.
5.3. Class 3 consists of all Miscellaneous Secured Claims.
5.4. Class 4 consists of all the PBGC Claims.
5.5. Class 5 consists of all General Unsecured Claims.
5.6. Class 6 consists of all Convenience Claims.
5.7. Class 7 consists of all PIK Preferred Stock Interests.
5.8. Class 8 consists of all Old Common Stock Interests.
5.9. Class 9 consists of all Subsidiary Common Stock Interests.
5.10. Class 10 consists of all Old Other Interests.
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Article VI.
TREATMENT OF CLAIMS AND INTERESTS
6.1. Treatment of Allowed Class 1 Claims (Priority Claims).
(a) Unless otherwise agreed by the holder of an Allowed
Priority Claim and (i) the Debtors, upon prior written consent of the
Creditors' Committee, or (ii) following the Effective Date, the Reorganized
Debtors, each holder of an Allowed Priority Claim shall be paid 100% of the
unpaid Allowed amount of such Claim in Cash on or as soon as practicable after
the later of: (y) the Effective Date, or (z) the date such Priority Claim
becomes an Allowed Priority Claim.
(b) As more specifically set forth in, and without in any
way limiting, Section 11.1 of this Plan, the distributions provided in this
Section 6.1 are in full settlement, release and discharge of each holder's
Priority Claim.
(c) Class 1 is Unimpaired. Holders of Allowed Priority
Claims shall be deemed to have accepted the Plan.
6.2 Treatment of Allowed Class 2 Claims (Prepetition Lenders'
Claims) .
(a) With respect to each Allowed Prepetition Lenders' Claim,
at the option of the Debtors, upon the prior written consent of the Creditors'
Committee, and following the Effective Date, at the option of the Reorganized
Debtors: (i) the Debtors or Reorganized Debtors, as the case may be, shall pay
such Allowed Prepetition Lenders' Claim, in full, in Cash; or (ii) the Debtors
or Reorganized Debtors, as the case may be, shall provide such other treatment
agreed to by the holder of such Allowed Prepetition Lenders' Claim and the
Debtors or the Reorganized Debtors, as the case may be.
(b) As more specifically set forth in, and without in any
way limiting, Section 11.1 of this Plan, the distributions provided in this
Section 6.2 are in full settlement, release and discharge of each holder's
Prepetition Lenders' Claim.
(c) Class 2 is Impaired. Holders of Allowed Prepetition
Lenders' Claims shall be entitled to vote to accept the Plan.
6.3 Treatment of Allowed Class 3 Claims (Miscellaneous Secured
Claims)
(a) With respect to each Allowed Miscellaneous Secured
Claim, at the option of the Debtors, upon prior written consent of the
Creditors' Committee, to be exercised on the Effective Date, or such other
date as the Bankruptcy Court may determine, such Claim shall be treated
pursuant to any of the following alternatives: (A) the Debtors or Reorganized
Debtors, as the case may be, shall execute a written undertaking in favor of
the holder of such Claim, whereby the Debtors or Reorganized Debtors, as the
case may be, assume such Claim
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and leaves unaltered such holder's legal, equitable and contractual rights
with respect to such Claim, (B) notwithstanding any contractual provision or
applicable law that entitles the holder of such Claim to demand or receive
accelerated payment of such Claim after the occurrence of a default, the
Debtors or Reorganized Debtors, as the case may be, shall (1) cure any such
default that occurred before or after the Petition Date, other than a default
of a kind specified in section 365(b)(2) of the Bankruptcy Code, (2) reinstate
the maturity of such Claim as such maturity existed before such default, (3)
compensate the holder of such Claim for any damages incurred as a result of
any reasonable reliance by such holder on such contractual provision or such
applicable law and (4) execute a written undertaking in favor of such holder,
whereby the Debtors or Reorganized Debtors, as the case may be, assumes such
Claim and, except as permitted in clauses (1), (2) and (3) hereof, does not
otherwise alter the legal, equitable or contractual rights of such holder with
respect to such Claim, or (C) the Debtors or the Reorganized Debtors, as the
case may be, shall provide such other treatment agreed to by the holder of
such Allowed Miscellaneous Secured Claim and the Debtors or the Reorganized
Debtors, as the case may be.
(b) Notwithstanding the foregoing, the Debtors, upon prior
written consent of the Creditors' Committee, may elect by sending written
notice to the affected Claim holder on or before the Confirmation Date to (x)
pay the holder of such Allowed Miscellaneous Secured Claim the allowed Amount
thereof, in Cash; (y) distribute to the holder of an Allowed Claim in Class 3
the property securing such holder's Claim, in which event such holder shall be
entitled within thirty (30) days of such election to file a proof of claim for
any deficiency entitled to treatment as a Claim in Class 5 or 6, as
applicable, or be forever barred from thereafter asserting a Deficiency Claim
against the Debtors or Reorganized Debtors; or (z) provide to such holder such
treatment, including deferred Cash payments, as shall be consistent with
section 1129(b) of the Bankruptcy Code.
(c) As more specifically set forth in, and without in any
way limiting, Section 11.1 of this Plan, the distributions provided in this
Section 6.3 are in full settlement, release and discharge of each holder's
Miscellaneous Secured Claim.
(d) Class 3 is Impaired. Holders of such Claims shall be
entitled to vote to accept or reject the Plan. Each Miscellaneous Secured
Claim receiving treatment under Section 6.3(b) above shall be deemed to be in
a separate Class for classification, voting and distribution purposes.
6.4 Treatment of Allowed Class 4 Claims (PBGC Claims).
(a) On the Effective Date, the holder of the Allowed Claims
in Class 4 shall receive the treatment provided for in the PBGC Agreement.
(b) As more specifically set forth in, and without in any
way limiting, Section 11.1 of this Plan, the distributions provided in this
Section 6.4 are in full settlement, release and discharge of each holder's
PBGC Claim.
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(c) Class 4 is Impaired. Holders of such Claims shall be
entitled to vote to accept or reject the Plan.
6.5 Treatment of Allowed Class 5 Claims (General Unsecured
Claims)
(a) On the Effective Date, or as soon thereafter as is
practicable, each holder of an Allowed Claim in Class 5 shall receive shares
of New Common Stock equal to the product of such holder's Allowed General
Unsecured Claim multiplied by the Equity Factor.
(b) Additionally, on the Rights Issue Date, each holder of a
General Unsecured Claim that has not been Disallowed as of the Confirmation
Date shall be entitled to receive its pro rata share (determined by dividing
the amount of such holder's General Unsecured Claim to the extent it has not
been Disallowed as of the Confirmation Date by the total amount of General
Unsecured Claims that have not been Disallowed as of the Confirmation Date)
of:
(i) 100% of the Rights issued under the Rights Plan,
all of which shall be issued on the Rights Issue Date and exercisable on or
prior to the Rights Expiration Date, by any holder of such Right, to the extent
that such holder's General Unsecured Claim has not been Disallowed as of the
Confirmation Date, with the New Junior Secured Debentures underlying those
Rights exercised to be paid for in Cash at par and issued on the Effective
Date, all in accordance with the terms and conditions as set forth in the
Rights Plan; and
(ii) 100% of the Oversubscription Options issued under
the Rights Plan, all of which shall be issued on the Rights Issue Date and
exercisable on or prior to the Rights Expiration Date, by any holder of such
Oversubscription Option to the extent that such holder's General Unsecured
Claim has not been Disallowed as of the Confirmation Date, with the New Junior
Secured Debentures underlying those Oversubscription Options exercised to be
paid for in Cash at par and issued on the Effective Date, all in accordance
with the terms and conditions the Rights Plan.
(c) There shall not be a Rights Plan and no New Junior
Secured Debentures shall be issued to the extent that the Debtors enter into
an Alternative Financing Transaction in substitution for the New Junior
Secured Debentures pursuant to Section 7.1 of this Plan.
(d) As more specifically set forth in, and without in any
way limiting, Section 11.1 of this Plan, the distributions provided in this
Section 6.5 are in full settlement, release and discharge of each holder's
General Unsecured Claim.
(e) Class 5 is Impaired under the Plan. Holders of such
Claims shall be entitled to vote to accept or reject the Plan.
6.6 Treatment of Allowed Class 6 Claims (Convenience Claims).
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(a) On the Effective Date or as soon thereafter as is
practicable, each holder of an Allowed Convenience Claim shall be paid 100% of
its Allowed Convenience Claim (as reduced in accordance with Section 7.20 of
the Plan), without interest, in Cash.
(b) As more specifically set forth in, and without in any
way limiting, Section 11.1 of this Plan, the distributions provided in this
Section 6.6 are in full settlement, release and discharge of each holder's
General Unsecured Claim and Convenience Claim.
(c) Class 6 is Impaired under the Plan. Holders of such
Claims shall be entitled to vote to accept or reject the Plan.
6.7. Treatment of Allowed Class 7 Interests (PIK Preferred
Interests).
(a) If Class 7 votes to accept this Plan, on the Effective
Date, or as soon as thereafter as is practicable, each holder of an Allowed
Interest in Class 7 shall receive its pro rata share (determined by dividing
the amount of such holder's Allowed PIK Preferred Stock Interest by the total
amount of PIK Preferred Stock Interests that have not been Disallowed as of
the Effective Date) of 66.67% of New Warrants; provided, however, that in the
event Class 7 does not vote to accept the Plan, the holders of Interests in
Class 7 shall receive no distributions of any kind under the Plan in respect
of these Interests. [TO COME]
(b) As more specifically set forth in, and without in any
way limiting, Section 11.1 of this Plan, the distributions provided in this
Section 6.7 are in full settlement, release and discharge of each holder's PIK
Preferred Stock Interests and all other Claims against or Interests in any and
all of the Debtors, if any, directly or indirectly related to or arising out
of the transactions, agreements or instruments upon which such PIK Preferred
Stock Interest was based.
(c) Class 7 is Impaired. Holders of such Interests shall be
entitled to vote to accept or reject the Plan.
6.8 Treatment of Allowed Class 8 Interests (Old Common Stock
Interests).
(a) On the Effective Date or as soon thereafter as is
practicable, each holder of an Allowed Interest in Class 8 shall receive its
pro rata share (determined by dividing the amount of such holder's Allowed Old
Common Stock Interest by the total amount of Old Common Stock Interests that
have not been Disallowed as of the Effective Date) of 33.33% of New Warrants;
provided, however, that in the event Class 7 or Class 8 does not vote to
accept the Plan, the holders of Interests in Class 8 shall receive no
distributions of any kind under the Plan in respect of those Interests. [TO
COME]
(b) As more specifically set forth in, and without in any
way limiting, Section 11.1 of this Plan, the distributions provided in this
Section 6.8 shall be in full settlement, release and discharge of each
holder's Old Common Stock Interests and all other Claims against or Interests
in any and all of the Debtors, if any, of the holder directly or
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indirectly related to or arising out of the transactions, agreements or
instruments upon which such Old Common Stock Interests was based.
(c) Class 8 is Impaired. Holders of such Interests shall be
entitled to vote to accept or reject the Plan.
6.9. Treatment of Allowed Class 9 Interests (Subsidiary Common
Stock Interests).
(a) Subject to the Combination Transactions, each holder of
an Interest in Class 9 shall retain such Interest and its respective share or
shares of common stock of the Debtors representing such Interest.
(b) As more specifically set forth in, and without in any
way limiting, Section 11.1 of this Plan, the distributions provided in this
Section 6.9 are in full settlement, release and discharge of each holder's
Subsidiary Common Stock Interests and all other Claims against or Interests in
any and all of the Debtors, if any, directly or indirectly related to or
arising out of the transactions, agreements or instruments upon which such
Subsidiary Common Stock Interest was based.
(c) Class 9 is Impaired but the holders of Allowed
Subsidiary Common Stock Interests, who are the proponents of this Plan, are
deemed to have accepted the Plan.
6.10. Treatment of Allowed Class 10 Interests (Old Other
Interests).
(a) On the Effective Date, all Old Other Interests shall be
canceled and extinguished and holders shall not receive any distribution under
the Plan.
(b) Class 10 is Impaired. Holders of Class 10 Interests are
deemed to have rejected the Plan.
6.11 Allowance of Senior Notes Claims. The aggregate Senior Notes
Claims shall be deemed Allowed in the amount of $_________, consisting of an
aggregate Allowed Claim of $__________ in respect of the 12% Senior Notes
Claims and an aggregate Allowed Claim of $ _______ in respect of the 11 1/8%
Senior Notes Claims.
Article VII.
MEANS FOR IMPLEMENTATION OF THE PLAN
In addition to the provisions set forth elsewhere in this
Plan, the following shall constitute the means for implementation of this
Plan.
7.1. Post-Confirmation Financing. On the Effective Date, the
transactions contemplated by the Post-Confirmation Credit Facility and the New
Junior Secured Debentures and/or an Alternative Financing Transaction shall be
consummated and thereupon become effective. Attached as Exhibit A to this Plan
is a Commitment Letter with respect to the Post-
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Confirmation Credit Facility. In addition, attached as Exhibit B to this Plan
are the Exercise Agreements with respect to the Rights Plan. The Proponents
may elect to pursue an Alternative Financing Transactions to substitute for
all or a portion of the Post-Confirmation Credit Facility and/or the New
Junior Secured Debentures. It is the expectation of the Proponents, during the
period up to the Effective Date, that the Proponents, along with their
advisors, will actively solicit and obtain an Alternative Financing
Transaction which shall include more favorable terms to the Debtors than those
contained in the Post-Confirmation Credit Facility and/or the New Junior
Secured Debentures. There can be no assurances that the Proponents shall have
obtained such an Alternative Financing Transaction as of the Effective Date.
In the event the Debtors enter into an Alternative Financing Transaction,
copies of all loan documents in respect of any Alternative Financing
Transaction, if available, shall be filed with the Bankruptcy Court no later
than three (3) Business Days prior to the Confirmation Date and in no event
later than five (5) Business Days prior to the Effective Date.
7.2. Issuance and Exercise of Rights. The following provisions
will be effective to the extent that the New Junior Secured Debentures are not
substituted by an Alternative Financing Transaction pursuant to section 7.1
above.
(a) On the Rights Issue Date, 100% of the Rights and the
Oversubscription Options shall be issued to the holders of General Unsecured
Claims that have not been Disallowed as of the Confirmation Date. The Rights
and Oversubscription Options will not be transferable.
(b) On or before the Rights Expiration Date, each holder
that has exercised the Rights and/or Oversubscription Options held by such
holder shall deliver Cash to the rights agent under the Rights Plan in an
amount sufficient to exercise in full all of the Rights and Oversubscription
Options exercised by such holder in accordance with the terms of the Rights
Plan.
(c) Pursuant to the Exercise Agreements, the Purchasers will
exercise sufficient Oversubscription Options to ensure that following the
consummation of the Rights Plan, the Reorganized Debtors receive aggregate
cash proceeds equal to $44 million less the Additional Post-Confirmation Term
Loan Amount.
(d) To the extent that, as a result of the exercise of
Oversubscription Options, the issuance of the New Junior Secured Debentures is
oversubscribed, the principal amount of all New Junior Secured Debentures that
may be purchased upon the exercise of Oversubscription Options will be reduced
pro rata based on the amount of Unsecured Claims held by the holders of such
Oversubscription Options that have not been Disallowed as of the Confirmation
Date.
7.3. New Common Stock. On the Effective Date, Reorganized Harvard
shall reserve 20 million shares of New Common Stock to be issued to the
holders of a Class 5 Claim in accordance with the terms of the Plan.
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7.4. New Warrants. Attached as Exhibit D to this Plan is a copy
of the New Warrant Agreement.
(a) The New Warrants shall consist of warrants in the
aggregate of 5% of New Common Stock on a fully diluted basis at a price per
share of New Common Stock based on a net equity value of Reorganized Harvard
of [$500] million. The New Warrants shall be distributed to the holders of
Allowed Interests in Class 7 and Class 8 as set forth in Sections 6.7 and 6.8
above respectively. The New Warrants shall expire on the fifth anniversary of
the Effective Date.
(b) In the event that Class 7 does not vote to accept the
Plan, the holders of Interests in Class 7 and Class 8 shall receive no
distributions of any kind under the Plan on account of their Interests. In the
event that Class 7 votes to accept the Plan but Class 8 does not vote to
accept the Plan, the holders of Interests in Class 8 shall receive no
distributions of any kind under the Plan on account of their Interests.
7.5. Registration Rights. On the Effective Date, Reorganized
Harvard shall enter into a Registration Rights Agreement which shall be filed
by the Debtors with the Bankruptcy Court no later than a date which is five
(5) days prior to the first date set by the Bankruptcy Court as the deadline
for voting on the Plan.
7.6. Corporate Action for Reorganized Debtors. On the Effective
Date, Harvard shall be reincorporated in the State of Delaware as Reorganized
Harvard. Also on the Effective Date, the Debtors shall implement the
Combination Transactions described in Exhibit E of the Plan. On the Effective
Date, the issuance of the New Common Stock, the election or appointment, as
the case may be, of directors and officers pursuant to this Plan, and the
other matters provided in this Plan involving the corporate structure of the
Reorganized Debtors, shall be deemed to have occurred and shall be in effect
from and after the Effective Date pursuant to section 303 of the DGCL without
any requirement of further action by the stockholders or directors of the
Debtors or the Reorganized Debtors. Subject to the Combination Transactions,
on the Effective Date or as soon thereafter as is practicable, each of the
Reorganized Debtors shall file with the Secretary of State of the State of
Delaware in accordance with sections 103 and 303 of the DGCL, the New
Certificates of Incorporation. The New Certificate of Incorporation for
Reorganized Harvard shall provide for, among other things, (i) the
authorization of 50 million shares of New Common Stock, (ii) the
indemnification of officers and directors to the fullest extent permitted by
section 145 of the DGCL, (iii) the cancellation of the PIK Preferred Stock,
Old Common Stock and Old Other Interests and (iv) a prohibition on the
issuance of nonvoting equity securities to the extent, and only to the extent,
required by section 1123(a)(6) of the Bankruptcy Code. The New Certificates of
Incorporation for each of the other Reorganized Debtors shall contain a
prohibition on the issuance of nonvoting equity securities to the extent, and
only to the extent, required by section 1123(a)(6) of the Bankruptcy Code. The
New Certificates of Incorporation are annexed to this Plan as Exhibit F.
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7.7. Directors of the Reorganized Debtors. On the Effective Date,
the operation of Reorganized Harvard shall become the general responsibility
of its New Board of Directors, subject to, and in accordance with, the New
Certificate of Incorporation and the New By-Laws. The New By-Laws are annexed
to this Plan as Exhibit G. The initial New Board of Directors shall consist of
seven (7) members identified on Exhibit H to this Plan. Such directors shall
be deemed elected or appointed, as the case may be, pursuant to the
Confirmation Order, but shall not take office and shall not be deemed to be
elected or appointed until the occurrence of the Effective Date. Those
directors and officers not continuing in office shall be deemed to have
resigned therefrom as of the Effective Date pursuant to the Confirmation
Order. The New Board of Directors of Reorganized Harvard will promptly appoint
the members of the Board of Directors for each of the other Reorganized
Debtors.
7.8. Emergence Bonus Plan. On the Effective Date, Reorganized
Debtors shall be deemed to have adopted and shall implement, without further
corporate authority or action, the Emergence Bonus Plan.
7.9. Incentive Plan. The Incentive Plan shall become effective as
of the Effective Date. Grants under the Incentive Plan shall not be effective
until after the Effective Date. In accordance therewith, on the Effective
Date, Reorganized Harvard shall reserve 15% of the New Common Stock on a fully
diluted basis for issuance to consultants, directors, executives and other
employees of the Reorganized Debtors that may be granted under the Incentive
Plan.
7.10. Management Employment Agreements. The Management Employment
Agreements shall become effective as of the Effective Date. Such agreements
supersede all employment, severance, retention bonus and other agreements with
respect to Mr. Pollazzi, Mr. Vogtman, Mr. Toscano and [Mr. Gagliardi] in
effect prior to the Effective Date. On the Effective Date, all Claims and
Administrative Expenses of Mr. Pollazzi, Mr. Vogtman, Mr. Toscano and [Mr.
Gagliardi] against the Debtors under any employment, severance, retention
bonus and other agreements, if any, between such individual and the Debtors
will be governed by, and completely satisfied in accordance with, the terms
and conditions of each of their Management Employment Agreements.
7.11. Consulting Agreement. The Consulting Agreement shall become
effective as of the Effective Date. Such agreement supersedes all employment,
severance, retention bonus and other agreements with respect to Mr. Adams in
effect prior to the Effective Date. On the Effective Date, all Claims and
Administrative Expenses of Mr. Adams individually against the Debtors under any
employment, severance, retention bonus and other agreements, if any, between
John Adams and the Debtors, will be governed by, and completely satisfied in
accordance with, the terms and conditions of his Consulting Agreement.
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7.12 Approval of Agreements. The solicitation of votes on the Plan
shall be deemed a solicitation of the holders of New Common Stock for the
approval of the Emergence Bonus Plan, Incentive Plan and all other agreements
and transactions contemplated by this Plan, including, without limitation,
those set forth in Sections 7.1 through 7.7 and Section 7.21. Entry of the
Confirmation Order shall constitute approval of the Emergence Bonus Plan,
Incentive Plan and such other agreements and transactions as the Confirmation
Order shall so provide.
7.13. Retiree Benefits. After the Effective Date, the payment of
retiree benefits (as defined in section 1114 of the Bankruptcy Code), at the
level established pursuant to section 1114 of the Bankruptcy Code, shall
continue for the duration of the period that the applicable Debtor has
obligated itself to provide such benefits.
7.14 Employee Benefit Plans. Subject to the occurrence of the
Effective Date, all employee benefit plans, policies and programs of the
Debtors and the Debtors' obligations thereunder, shall survive confirmation of
the Plan, remain unaffected thereby, and not be discharged. Except as
otherwise provided in this Plan, employee benefit plans, policies, and
programs shall include, without limitations, all savings plans, retirement
pension plans (to the extent not otherwise affected by the PBGC Agreement),
health care plans, disability plans, severance benefit plans, life, accidental
death and dismemberment insurance plans (to the extent not executory contracts
assumed under the Plan) and Workers' Compensation Programs, but shall exclude
all employees' equity or equity-based incentive plans and Old Other Interests.
7.15 Listing of New Common Stock; Registration of Securities.
Reorganized Harvard shall use its best efforts to (i) maintain its status as a
reporting company under the Exchange Act and cause, on the Effective Date, the
shares of New Common Stock issued hereunder to be listed on a national
securities exchange or, as to the New Common Stock, quoted in the national
market system of the National Association of Securities Dealers' Automated
Quotation System, (ii) in accordance with the terms of the Registration Rights
Agreement, file and have declared effective as soon as possible thereafter a
registration statement or registration statements under the Securities Act for
the offering on a continuous or delayed basis in the future of the shares of
New Common Stock (the "Shelf Registration"), (iii) cause to be filed with the
Securities and Exchange Commission and have declared effective on or prior to
the Effective Date a registration statement on Form 10 under the Exchange Act
with respect to the New Common Stock, (iv) keep the Shelf Registration
effective for a three-year period and (v) supplement or make amendments to the
Shelf Registration, if required under the Securities Act or by the rules and
regulations promulgated thereunder, or in accordance with the terms of the
Registration Rights Agreement, and have such supplements and amendments
declared effective as soon as practicable after filing.
7.16 Distributions to Holders of Allowed Claims and Interests;
Source of Cash and Reorganization Securities for Distributions. On the
Effective Date, Reorganized Harvard shall deliver to the Disbursing Agent
sufficient Cash and Reorganization Securities to (a) make
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the Distributions to be made on the Effective Date to the holders of Allowed
Claims and Allowed Interests; and (b) established reserves for the Classes of
Disputed Claims (other than those in Class 5) and Disputed Interests as set
forth below. Payments and other distributions to be made pursuant to the Plan
will be available from (v) the Reorganized Debtors' funds, including funds
provided to the Debtors in connection with (i) the Post-Confirmation Credit
Facility and the New Junior Secured Debentures and/or (ii) Alternative
Financing Transactions and (w) New Common Stock, (x) New Warrants, (y) Rights
and (z) Oversubscription Options.
7.17. Distribution to Holders of Senior Notes. For the purpose of
Distributions to holders of Allowed Senior Notes Claims, the relevant
Indenture Trustee shall be deemed to be the sole holder of all Allowed Senior
Notes Claims evidenced by the Senior Notes under the relevant Indentures. All
Distributions on account of Allowed Senior Notes Claims shall be distributed
to such Indenture Trustee, for further Distribution to holders of Senior Notes
pursuant to the terms of the applicable Indentures. The provisions of the
relevant Indenture shall govern the holding of undeliverable Distributions and
the delivery of Distributions to holders of Allowed Senior Notes Claims. No
later than five (5) Business Days prior to the Effective Date, the Indenture
Trustee shall provide the Debtors with a statement of the Indenture Trustee
Claim projected through the effective Date. To the extent the Indenture Trustee
Claim exceeds $275,000, such excess portion shall be subject to Bankruptcy
Court approval. On the Effective Date, the Indenture Trustee Claim in an
amount up to [$275,000] shall be paid in Cash by the Reorganized Debtors upon
receipt of an invoice and the Reorganized Debtors shall reserve Cash on the
Effective Date in the amount by which the Indenture Trustee Claim exceeds
[$275,000]. On the Effective Date, subject to the payment of the Indenture
Trustee Claim up to [$275,000], the establishment of the reserve set forth in
the preceding sentence and confirmation of this Plan occurring on or before
December 31, 1998, all liens of the Indenture Trustee in any Distributions
shall be forever released and discharged. Once each Indenture Trustee has
completed performance of all duties set forth in this Plan and the
Confirmation Order and under the terms of the respective Indentures, such
Indenture Trustee, and its successors and assigns, shall be relieved of all
obligations as Indenture Trustee under the relevant Indentures.
7.18 Cancellation and Surrender of Existing Securities;
Cancellation of Indentures.
(a) Cancellation of Existing Securities and Agreements. On
the Effective Date, the 12% Senior Notes, the 11 1/8% Senior Notes, the PIK
Preferred Stock, the Old Common Stock, the certificates of designations for
the PIK Preferred Stock and the Old Common Stock, and any options, warrants,
calls, subscriptions, or other similar rights or other agreements or
commitments, contractual or otherwise, obligating the Debtors to issue,
transfer, or sell any shares of PIK Preferred Stock, Old Common Stock, or any
other capital stock of the Debtors shall be canceled and the holders thereof
shall have no rights, and such instruments shall evidence no rights, except
the right to receive the Distributions to be made to holders of such
instruments under this Plan. After the Indenture Trustee or its agents perform
the Indenture Trustee's obligations under the Plan, the Indenture Trustee and
its agents,
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successors and assigns shall be discharged of all of its obligations
associated with the Indentures and related agreements and released from all
Claims arising in these Chapter 11 Cases, and as of the Effective Date, such
Indentures shall be deemed canceled, except that such cancellation shall not
impair the rights of the holders of the 12% Senior Notes Claims and the 11
1/8% Senior Notes Claims to receive Distributions under the Plan or the rights
of the Indenture Trustee under its charging lien pursuant to the Indentures to
the extent that the Indenture Trustee has not received payment and, to the
extent applicable, a reserve has been established on account of the Indenture
Trustee Claim.
(b) Surrender of Existing Securities. As a condition to
receiving any Distribution under the Plan, each holder of a promissory note,
share certificate, or other instrument evidencing a Claim or Interest must
surrender such promissory note, share certificate, or other instrument to the
Reorganized Debtors or their designee. The Reorganized Debtors appoint the
Indenture Trustees as their designees to receive the 12% Senior Notes and the
11 1/8% Senior Notes. Any holder of a Claim or Interest that fails to (a)
surrender such instrument or (b) execute and deliver and affidavit of loss
and/or indemnity reasonably satisfactory to the Reorganized Debtors and
furnish a bond in the form, substance, and amount reasonably satisfactory to
the Reorganized Debtors before the later to occur of (i) the second
anniversary of the Effective Date and (ii) six (6) months following the date
such holder's Claim becomes an Allowed Claim, shall be deemed to have
forfeited all rights, Claims, and/or Interests and may not participate in any
Distribution under the Plan.
7.19. Release of Liens and Perfection of Liens. Except as
otherwise provided in the Plan or in any contract, instrument or other
agreement or document entered into in connection with the consummation of the
Plan: (a) each holder of (i) a Miscellaneous Secured Claim, (ii) the
Prepetition Lenders' Claim; (iii) a Claim that is purportedly secured; and/or
(iv) a judgment, mechanics or similar lien, shall on or immediately before the
Effective Date: (x) turn over and release to the Reorganized Debtors any and
all property of the Debtors that secures or purportedly secures such Claim, as
they pertain to the properties currently owned or leased by the Debtors or
such lien shall automatically, and without further action by the Debtors or
Reorganized Debtors, be deemed released; and (y) execute such documents and
instruments as the Reorganized Debtors request to evidence such Claim holder's
release of such property or lien; and (b) on the Effective Date, all right,
title and interest in any and all property of the Debtors' estates shall
revert or be transferred to the Reorganized Debtors free and clear of all
Claims and Interests, including, without limitation, liens, escrows, charges,
pledges, encumbrances and/or security interests of any kind. No distribution
hereunder shall be made to or on behalf of any Claim holder unless and until
such holder executes and delivers to the Debtors or Reorganized Debtors such
release of liens or otherwise turns over and releases such Cash, pledge, or
other possessory lien. Any such holder that fails to execute and deliver such
release of liens within 120 days of the Effective Date shall be deemed to have
no further Claim against the Debtors, the Reorganized Debtors or their assets
or property in respect of such Claim and shall not participate in any
distribution hereunder. Notwithstanding the immediately preceding sentence,
any such holder of a Disputed Claim shall not be required to execute and
deliver such release until such time as the Claim is Allowed or Disallowed.
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7.20. Election of Treatment in Class 6. Each holder of a Claim in
Class 5 may elect, in the ballot by which it votes to accept or reject the
Plan, to reduce the amount of its Claim to $500.00 or less and thereby be
deemed a holder of a Claim in Class 6 for purposes of voting and payment under
the Plan. Any such election shall be effective only upon the receipt thereof
by the Debtors prior to the Confirmation Date. Once the election is made, and
received by the Debtors, such election shall be irrevocable, but shall not
preclude the Debtors or other parties in interest from objecting to such Claim
as reduced.
7.21. Terms of New Junior Secured Debentures. The following is a
summary of certain of the principal economic terms of the New Junior Secured
Debentures which shall be issued by the Reorganized Debtors under the Rights
Plan. There will not be a Rights Plan and no New Junior Secured Debentures
shall be issued to the extent the Debtors enter into an Alternative Financing
Transaction in substitution of the New Junior Secured Debentures. If New
Junior Secured Debentures are to be issued under this Plan, a copy of the New
Junior Secured Debentures Indenture will be filed and served at least three
(3) Business Days before the Confirmation Hearing.
Issuer Reorganized Debtors
Aggregate Principal Amount $44 million, consisting of $40
million loan Cash proceeds on the
Effective Date plus $4 million
closing fee (as described below).
To the extent that the term loan
component of the Post-Confirmation
Credit Facility exceeds $50 million
or the Debtors enter into an
Alternative Financing Transaction
in substitution of the New Junior
Secured Debentures, the cash
proceeds portion of the New Junior
Secured Debentures will be reduced
on a dollar for dollar basis and
the amount of the closing fee will
be reduced proportionately.
Stated Maturity Fifth anniversary of the Effective
Date.
Closing Fee $4 million. The closing fee shall be
payable on the Effective Date and
shall be fully earned and
non-refundable as of the Effective
Date.
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Annual Facility Fee Annual facility fee of (i) 2% of the
initial aggregate principal amount
of New Junior Secured Debentures
outstanding on the Effective Date
and (ii) for each subsequent
payment on each anniversary of the
Effective Date, 1% of the aggregate
principal amount of the New Junior
Secured Debentures then outstanding
on such anniversary. The annual
facility fee will be payable
annually in cash in advance.
Interest Rate Greater of (i) 150 basis points above
the highest rate in effect from
time to time on any term loan under
the Post-Confirmation Credit
Facility and (ii) 13% annum.
Interest Payment On each interest payment date,
interest (as determined above) will
be payable as follows: (i) 7% in
Cash, and (ii) 6%, at the
Reorganized Debtors' option, (a) in
the form of New Junior Secured
Debentures in lieu of cash equal to
the amount of such interest or (b)
in cash. Interest will be payable on
a quarterly basis in arrears.
To the extent the interest rate
exceeds 13% per annum in accordance
with clause (i) of the Interest
Rate provision above, the Cash and
pay-in-kind portion of the interest
payment would be increased
proportionally.
Prepayment The Reorganized Debtors may prepay
the New Junior Secured Debentures
at any time with a prepayment
premium of 3% of the initial
aggregate principal amount of New
Junior Secured Debentures to be
prepaid.
Collateral A lien on all assets and properties
of Reorganized Harvard and its
subsidiaries, subject only to the
liens that will secure their
obligations to the lenders under
the Post- Confirmation Credit
Facility and such other liens as
may be acceptable to the holders of
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the New Junior Secured Debentures.
Intercreditor Agreement The lenders under the Post-
Confirmation Credit Facility and
the New Indenture Trustee will
enter into the Intercreditor
Agreement. Under the Intercreditor
Agreement, the Reorganized Debtors
will be permitted to prepay the New
Junior Secured Debentures with any
proceeds received from the issuance
by the Reorganized Debtors of (i)
equity or (ii) indebtedness that
would rank either pari passu with,
or subordinate to, the New Junior
Secured Debentures.
Covenant on Limitation on The New Junior Securied Debentures
Liens and Debt Indenture contains customary
covenants including, without
limitation, the following:
(i) No granting of additional
liens, except for liens for
financing new equipment and
machinery purchases and
acquisitions, provided, that such
liens are only against the purchase
or acquired assets.
(ii) No Issuer shall incur, create,
assume, become or be liable in any
manner with respect to, or permit
to exist, any indebtedness, except
(i) indebtedness to the lenders
under the Post-Confirmation Credit
Facility, (ii) indebtedness
permitted under the Post-Confirmation
Credit Facility, and (iii)
indebtedness outstanding under the
New Junior Secured Debentures.
(iii) Without the prior written
consent of the holders of the New
Junior Secured Debentures, (i) no
Issuer shall request or become
liable in any manner with respect
to, or permit to exist any advance
under the Post-Confirmation Credit
Facility that would, after giving
effect thereto, cause all such
advances under the Post-
Confirmation Credit Facility to
exceed the aggregate amount of
advances permitted under the
borrowing base formula in effect
under the Post-Confirmation Credit
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Facility as of the Effective Date
(the "Effective Date Formula"),
plus an agreed upon overadvance
amount, and (ii) no Issuer shall
request, permit or consent to any
waiver, modification or amendment
to the Effective Date Formula or
any other provision of the
Post-Confirmation Credit Facility.
Article VIII.
DISPUTED CLAIMS, DISPUTED INTERESTS, RESERVES
AND MISCELLANEOUS DISTRIBUTION PROVISIONS
8.1. Objections. An objection to the allowance of a Claim or
Interest shall be in writing and may be filed with the Court by the Debtors or
Reorganized Debtors, as the case may be, or any other party in interest, at
any time on or before the Objection Deadline. The "Objection Deadline" is the
later of (a) the 120th day following the Effective Date unless such period is
extended by order of the Bankruptcy Court, (b) sixty (60) days after the
filing of the proof of such Claim or Interest or (c) such other date set by
order of the Bankruptcy Court (the application for which may be made on an ex
parte basis). The objecting party shall serve a copy of each such objection
upon the holder of the Claim or Interest to which it pertains and upon the
Debtors or Reorganized Debtors, as the case may be and, prior to the Effective
Date, the Creditors' Committee. The Debtors or the Reorganized Debtors will
prosecute each objection to a Claim or Interest until determined by a Final
Order unless the Debtors or Reorganized Debtors (i) compromise and settle an
objection to a Claim or Interest by written stipulation, subject to Bankruptcy
Court approval, if necessary or (ii) withdraw an objection to a Claim or
Interest.
8.2. Amendments to Claims; Claims filed after the Confirmation
Date. Except as otherwise provided in this Plan, after the Confirmation Date,
a Claim may not be filed or amended without the authorization of the
Bankruptcy Court and, even with such Bankruptcy Court authorization, may be
amended by the holder of such Claim solely to decrease, but not to increase,
the Face Amount or priority. Except as otherwise provided in this Plan, any
new or amended Claim filed after the Confirmation Date shall be deemed
disallowed in full and expunged without any action by the Debtors or
Reorganized Companies, unless the Claim holder has obtained prior Bankruptcy
Court authorization for the filing.
8.3. Reserves for Disputed Claims and Disputed Interests.
(a) On the Effective Date, Reorganized Harvard shall reserve
20 million shares of New Common Stock to be issued to the holders of Class 5
Claims in accordance with the terms of the Plan.
(b) On the Effective Date, Reorganized Harvard shall
transmit to the Disbursing Agent, and the Disbursing Agent shall reserve for
the account of each holder of a Disputed Claim (other than Class 5 Claims) or
Interest, (i) the property which would otherwise
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be distributable to such holder on such date in accordance with the Plan were
such Disputed Claim or Disputed Interest an Allowed Claim or Allowed Interest,
as applicable, on such date, in the Face Amount thereof, or such other amount
as ordered by the Bankruptcy Court or (ii) such other property as such holder
and the Reorganized Debtors may agree. Property reserved under this Section
8.3(b) shall be set aside and segregated by Class of Claims and Interests and,
in the case of Cash, Cash payments in respect thereof, to the extent
practicable, held by the Disbursing Agent in an interest bearing escrow fund
(which may be a single account for each Class, provided that separate book
entries for each Claim or Interest be maintained by the Disbursing Agent) to
be established and maintained by the Disbursing Agent pending resolution of
such Disputed Claims or Disputed Interests, provided, however, that Cash shall
be invested in a manner consistent with the requirements of section 345 of the
Bankruptcy Code or otherwise ordered by the Bankruptcy Court. To the extent
such Disputed Claim or Disputed Interest becomes an Allowed Claim or Allowed
Interest, the property so reserved for the holder thereof, together with any
proceeds thereon, shall be distributed by the Disbursing Agent to such holder
pursuant to, and to the extent provided for in, the Plan.
(c) Any voting rights of Reorganization Securities held in
reserve in respect of a Disputed Claim or Disputed Interest shall be suspended
until such securities are released from such reserve.
8.4 Fluctuation in Value of Securities. The value of the
Reorganization Securities held in reserve under Section 8.3 of the Plan is
likely to fluctuate. The Debtors and Reorganized Debtors do not represent or
warrant that the value of any Reorganized Securities will not decline after
the Effective Date and they do not otherwise assume any liability or risk of
loss which the holder of a Disputed Claim or Disputed Interest which becomes
an Allowed Claim or Allowed Interest, as applicable, after the Effective Date
may suffer by reason of any decline in value of a reserved Reorganized
Securities pending determination of the amount of such Disputed Claim. The
risk or benefit of any appreciation or depreciation in the value of any
reserved Reorganized Securities shall be borne by the party to whom such
Reorganized Securities is ultimately distributed.
8.5 Payment or Distribution of Disputed Claim or Disputed
Interest. No payment or distribution will be made in respect of a Disputed Claim
or Disputed Interest unless and until such Disputed Claim or Disputed Interest
becomes an Allowed Claim or Allowed Interest. Notwithstanding the foregoing,
on or as soon as practicable after the Objection Deadline, the Reorganized
Debtors shall make Distributions to holders of Disputed Claims or Disputed
Interests to the extent, and only to the extent, the portion of such Claim or
Interest is not subject to a pending objection.
8.6 Timing of Payment or Distribution When a Disputed Claim or
Disputed Interest Becomes an Allowed Claim or Allowed Interest. Subject to the
provisions of this Plan, Cash payments and Distributions with respect to each
Disputed Claim or Disputed Interest that becomes an Allowed Claim or Allowed
Interest that would have otherwise been made had the Claim or Interest been an
Allowed Claim or Allowed Interest on the Effective Date shall be
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made within thirty (30) days after the date that such Disputed Claim or
Disputed Interest becomes an Allowed Claim or Allowed Interest.
8.7. Excess Reserves. Upon any Disputed Claim or Disputed
Interest becoming a Disallowed Claim or Disallowed Interest, as applicable, in
whole or in part, the Cash and Reorganization Securities reserved for the
payment of or distribution on the disallowed portion of such Disputed Claim or
Disputed Interest including any interest attributable thereto, together with
any Cash and non-Cash dividends and interest earned thereon, shall immediately
and irrevocably vest in the Reorganized Debtors and the Disbursing Agent shall
transmit such property to the Reorganized Debtors, whereupon the Reorganized
Debtors shall thereafter be empowered to take whatever steps may be necessary
to exercise control over such property. Shares of New Common Stock that are
reserved pursuant to section 8.3 for issuance but not issued shall remain
authorized but unissued New Common Stock.
8.8 Undeliverable or Unclaimed Distributions. Any Entity that is
entitled to receive a Cash Distribution under this Plan but that fails to cash
a check within 120 days of its issuance shall be entitled to receive a
reissued check from the Reorganized Debtors for the amount of the original
check, without any interest, if such Entity requests the Reorganized Debtors
or their designee to reissue such check and provides the Reorganized Debtors
or their designee, as the case may be, with such documentation as the
Reorganized Debtors or their designee requests to verify that such Entity is
entitled to such check, prior to the later of (a) the second anniversary of the
Effective Date or (b) six (6) months after such Claim becomes an Allowed
Claim. If an Entity fails to cash a check within 120 days of its issuance and
fails to request reissuance of such check prior to the later to occur of (a)
the second anniversary of the Effective Date or (b) six months following the
date such Entity's Claim becomes an Allowed Claim, such Entity shall not be
entitled to receive any distribution under this Plan with respect to the
amount of such check. If the distribution to any holder of an Allowed Claim or
Interest is returned to the Reorganized Debtors or their designee as
undeliverable, no further distributions will be made to such holder unless and
until the Reorganized Debtors or their designee is notified in writing of such
holder's then-current address.
All claims for undeliverable distributions must be made on
or before the later to occur of (i) the second anniversary of the Effective
Date and (ii) six months following the date such Entity's Claim becomes an
Allowed Claim or Allowed Interest. After such date, all unclaimed property
shall revert to the Reorganized Debtors and the claim of any holder or
successor to such holder with respect to such property shall be discharged and
forever barred notwithstanding any federal or state escheatment laws to the
contrary.
8.9. Allocation of Consideration. The aggregate consideration to
be distributed to the holders of Allowed Claims in each Class under this Plan
shall be treated as first satisfying an amount equal to the stated principal
amount of the Allowed Claim for such holders and any remaining consideration
as satisfying accrued, but unpaid, interest if any.
8.10. Distributions to the Holders of General Unsecured Claims.
For purposes of formulating this Plan, the Debtors have estimated the
aggregate total of Allowed General
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Unsecured Claims, after the resolution of all disputes, to be approximately
$[500,000,000]. In connection with the process of resolution of Disputed
Claims, the Bankruptcy Court will determine the amount of ultimately Allowed
General Unsecured Claims and consequently, the final distributions to holders
of Allowed General Unsecured Claims pursuant to this Plan.
8.11 Limitations on Amounts to be Distributed to Holders of
Allowed Deductible Claims. Distributions under the Plan to each holder of an
Allowed Deductible Claim shall be in accordance with the treatment provided
under the Plan for the Class in which such Allowed Deductible Claim is
classified and such distribution shall be in full settlement, release and
discharge of each holder's Allowed Deductible Claim. A holder of an Allowed
Deductible Claim shall be barred from attempts to collect on such Deductible
Claim from the applicable insurance carrier or administrator. Nothing in this
section or this Plan shall constitute a waiver of any claim, debt, right,
cause of action or liability that any entity may hold with respect to the
Insured Portion against any other entity, including the Debtors' insurance
carriers. To the extent permitted by applicable law, the holder of an Insured
Claim shall have the right with respect to the Insured Portion of such Claim
to proceed directly against the applicable Debtor's or Reorganized Debtor's
insurance carrier. In addition, in jurisdictions where a holder of an Insured
Portion is prevented from proceeding directly against the applicable Debtor's
insurance carrier, the applicable Debtor or Reorganized Debtor, as the case
may be, will proceed against the insurance carrier. Any proceeds that are
received by the Debtor or Reorganized Debtor, as the case may be, from the
insurance carrier with respect to such Insured Portion will be distributed to
the holder of such Insured Portion. Other than as set forth in this Section
8.11, the Debtors and Reorganized Debtors will have no liability with respect
to the Insured Claims and no Distributions will be made to holders of Insured
Claims or the Debtors' insurance carriers with respect to such Claims.
Notwithstanding anything in this Plan to the contrary, in their sole
discretion, the Debtors or Reorganized Debtors, as the case may be, may pay
any Secured Deductible Claim, in Cash, even where no proof of claim is timely
filed to prevent any insurance carrier from executing on collateral held by or
for the benefit of such insurance carrier. The treatment set forth in this
Section 8.11 shall be in full settlement, release and discharge of Insured
Claims.
8.12 Transmittal of Distributions and Notices.
(a) Any property or notice other than Cash Distributions
made through Section 8.13 which an Entity is or becomes entitled to receive
pursuant to the Plan shall be delivered by regular mail, postage prepaid, in
an envelope addressed to that Entity at the address indicated on any notice of
appearance filed by that Entity or his authorized agent prior to the Effective
Date. If no notice of appearance has been filed, notice shall be sent to the
address indicated on a properly filed proof of Claim or Interest or, absent
such a proof of Claim or Interest, the address that is Scheduled for that
Entity or register maintained for register securities. The date of
distribution shall be the date of mailing, and property distributed in
accordance with this Section shall be deemed delivered to such Entity
regardless of whether such property is actually received by that Entity.
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(b) A holder of a Claim or Interest may designate a
different address for notices and distributions by notifying the Debtors or
the Reorganized Debtors, or with respect to a holder of a Senior Notes Claim,
the Indenture Trustee, of that address in writing. The new address shall be
effective upon receipt by the Debtors or Reorganized Debtors, as the case may
be.
(c) Notwithstanding anything contrary herein and above, to
the extent that a Distribution is required to be made to a Paying Agent, the
address for the relevant Claim or Interest shall be the address of the
relevant Paying Agent.
8.13. Method of Cash Distributions. Any Cash payment to be made
pursuant to this Plan may be made by draft, check, wire transfer, or as
otherwise required or provided in any relevant agreement or applicable law.
8.14 Distributions on Non-Business Days. Any Distribution due on
a day other than a Business Day shall be made, without interest, on the next
Business Day.
8.15. Rounding. Notwithstanding any other provision of the Plan,
only whole numbers of shares of Reorganization Securities shall be
distributed. All Allowed Claims or Allowed Interests of a holder in a
particular Class shall be aggregated and treated as one Allowed Claim or
Allowed Interest for purposes of distribution. If any calculated distribution
on account of such Allowed Claim or Allowed Interest would otherwise result in
the distribution of a number of shares of New Common Stock or New Warrants
that is not a whole number, then the actual distribution of shares of such
stock or such warrants shall be rounded to the nearest whole number, with
one-half being rounded up to the nearest whole number, unless, in the case of
Interests, such rounding results in a Class of Allowed Interests receiving
more than the aggregate number of New Warrants allotted for distribution to
that Class. In such a case, the actual distribution of New Warrants shall be
rounded so that the total amount of New Warrants distributed to the Class will
be no more than the amount allotted for distribution in that Class. Holders of
Allowed Claims or Allowed Interests that would be entitled to fractional
shares of New Common Stock or to fractional New Warrants but for this
provision shall receive no consideration therefor because such amount would be
de minimis.
8.16. Withholding Taxes. Any federal, state or local withholding
taxes or other amounts required to be withheld under applicable law shall be
deducted from distributions hereunder. All Entities holding Claims shall be
required to provide any information necessary to effect the withholding of
such taxes.
8.17. Disputed Distribution. If any dispute arises as to the
identity of a holder of an Allowed Claim or an Allowed Interest who is to
receive any distribution, the Disbursing Agent or the Indenture Trustee, as
the case may be, may, in lieu of making such distribution to such Entity, make
such distribution into an escrow account until the disposition thereof shall
be determined by Final Order of the Bankruptcy Court or by written agreement
among the interested parties to such dispute.
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8.18 Retention of Rights to Pursue Causes of Action. Pursuant to
section 1123(b)(3) of the Bankruptcy Code, the Reorganized Debtors (as
representatives of the Debtors' estates) will retain and have the exclusive
right to enforce against any Entity any and all Causes of Action (including,
without limitation, all Causes of Action arising under sections 510, 544
through 550 and 553 of the Bankruptcy Code or otherwise arising under the
Bankruptcy Code and/or those arising under other applicable law) that arose
before the Effective Date, including all Causes of Action of a trustee and
debtor-in-possession under the Bankruptcy Code, other than those expressly
released or compromised as part of or pursuant to this Plan.
Article IX.
SUBSTANTIVE CONSOLIDATION
The Plan contemplates and is predicated upon entry of the
Confirmation Order effecting the substantive consolidation of the Cases of the
Debtors into a single chapter 11 case solely for the purposes of all actions
associated with confirmation and consummation of the Plan. On the Confirmation
Date or such other date as may be set by a Final Order of the Bankruptcy
Court, but subject to the occurrence of the Effective Date: (i) all
Intercompany Claims by and among the Debtors shall be eliminated and
extinguished; (ii) solely for the purposes of this Plan and the distributions
and transactions contemplated hereby, all assets and liabilities of the
Debtors shall be treated as though they were merged; (iii) all prepetition
cross-corporate guarantees of the Debtors shall be eliminated; (iv) any
obligation of any Debtor and all guarantees thereof executed by one or more of
the Debtors shall be deemed to be one obligation of the consolidated Debtors;
(v) any Claims filed or to be filed in connection with any such obligation and
such guarantees shall be deemed one Claim against the consolidated Debtors;
(vi) each and every Claim filed in the individual Chapter 11 Case of any of
the Debtors shall be deemed Filed against the consolidated Debtors in the
consolidated Case and shall be deemed a single obligation of all of the
Debtors under the Plan on and after the Confirmation Date; (vii) all
duplicative claims (identical in both amount and subject matter) filed against
more than one of the Debtors will be automatically expunged so that only one
Claim survives against the consolidated Debtors but in no way shall be deemed
Allowed by reason of this Section 9.1; and (viii) the consolidated Debtors
will be deemed, for purposes of determining the availability of the right of
set-off under section 553 of the Bankruptcy Code, to be one entity, so that,
subject to other provisions of section 553 of the Bankruptcy Code, the debts
due to a particular Debtor may be offset against claims against such Debtor or
another Debtor. On the Confirmation Date, and in accordance with the terms of
the Plan and the consolidation of the assets and liabilities of the Debtors,
all Claims based upon guarantees of collection, payment or performance made by
the Debtors as to the obligations of another Debtor or of any other Person
shall be discharged, released and of no further force and effect; provided,
however, that nothing herein shall affect the obligations of each of the
Debtors under the Plan. Upon separate motion to the Bankruptcy Court, the
Debtors will seek entry of an order (which may be the Confirmation Order)
providing for the substantive consolidation of the Chapter 11 Cases and the
assets and liabilities of the Debtors. Notwithstanding the provisions of this
paragraph, subject to the Combination Transactions, each of the Debtors
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shall, as Reorganized Debtors, continue to exist after the Effective Date as
separate corporate entities.
Article X.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
10.1. Assumption Generally . Except as otherwise provided in this
Plan or in any order of the Bankruptcy Court, subject to the occurrence of the
Effective Date, on the Effective Date, pursuant to Section 365 of the
Bankruptcy Code, all executory contracts and unexpired leases not listed on
the Schedule of Rejected Contracts to be served and filed by the Debtors at
least five days before the Confirmation Hearing (the "Schedule of Rejected
Contracts"), or which is not the subject of a motion to reject as of the
Confirmation Date, and is not rejected under Section 10.6 hereof, are assumed,
subject to the same rights that the Debtors or the Reorganized Debtors held or
hold at, on, or after the Petition Date to modify or terminate such agreements
under applicable nonbankruptcy law. Each contract and lease assumed under this
Section shall be assumed only to the extent, if any, that it constitutes an
executory contract or unexpired lease, and nothing contained herein shall
constitute an admission by the Debtors or the Reorganized Debtors that such
contract or lease is an executory contract or unexpired lease or that the
Debtors or the Reorganized Debtors have any liability thereunder. To the
extent the Bankruptcy Court, or any other court of competent jurisdiction,
determines, either before, on, or after the Effective Date, that any agreement
in the form of a lease of real or personal property identified for assumption
in this Article X of the Plan, is, in fact, a secured transaction, the
resulting secured indebtedness arising from such determination shall be
treated in accordance with the applicable section of the Plan. Each executory
contract and unexpired lease assumed pursuant to this Article X by any Debtor
shall revest in and be fully enforceable by such Reorganized Debtor in
accordance with its terms, except as modified by the provisions of the Plan,
any order of the Bankruptcy Court authorizing and providing for its
assumption, or applicable federal law.
10.2. Approval of Assumptions. Subject to the occurrence of the
Effective Date, the Confirmation Order (except as otherwise provided therein)
shall constitute an order of the Bankruptcy Court approving the assumptions,
revestments and, to the extent not subject to dispute as set forth in Section
10.4 hereof, the "cure" amounts described in this Article X and the Cure
Amount Schedule attached to the Schedule of Rejected Contracts pursuant to
Section 365 of the Bankruptcy Code effective as of the Effective Date.
10.3. Objections to Assumption of Executory Contracts and
Unexpired Leases.
(a) Any party objecting to the Debtors' proposed assumption
of an executory contract or unexpired lease based on a lack of adequate
assurance of future performance or on any ground other than the adequacy of
the "cure" amount set forth in the Cure Amount Schedule, shall file and serve
a written objection to the assumption of such contract or lease within the
same deadline and in the same manner established for filing objections to
Confirmation of this Plan. Failure to file an objection within the time period
set
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forth above shall constitute consent to the assumption and revestment of
those contracts and leases, including an acknowledgment that the proposed
assumption provides adequate assurance of future performance.
(b) If any party files an objection to assumption based on
any ground other than the adequacy of the "cure" amount set forth in the Cure
Amount Schedule, and the Bankruptcy Court ultimately determines that the Debtors
cannot assume the executory contract or lease or that the Debtors cannot
provide adequate assurance of future performance as proposed or in any
modified proposal submitted by the Debtors or the Reorganized Debtors, then
the unexpired lease or executory contract shall automatically thereupon be
deemed to have been included on the Schedule of Rejected Contracts and shall
be rejected pursuant to Section 10.6 hereof.
10.4 Objections To Proposed "Cure" Amounts.
(a) The Debtors believe that any executory contract of the
Debtors that is not listed on the Schedule of Rejected Contracts or in the
Cure Amount Schedule may be assumed by the Debtors without the payment of any
monetary cure amount. Any party to an executory contract or unexpired lease to
be assumed that asserts arrearages or damages pursuant to section 365(b)(1) of
the Bankruptcy Code that exceeds the amount set forth in the Cure Amount
Schedule, or which is not listed therein and pertains to an executory contract
not listed in the Schedule of Rejected Contracts must file and serve an
objection to the proposed cure amount within the same deadline and in the same
manner established for filing objections to Confirmation of this Plan. Failure
to assert arrearages different from the amount set forth on the Cure Amount
Schedule or which pertains to an executory contract not listed in the Schedule
of Rejected Contracts or the Cure Amount Schedule within the time period set
forth above shall constitute consent to the cure amount set forth in the Cure
Amount Schedule or to the Debtors' position that no cure amount must be paid
and an acknowledgment that the amount identified for "cure" on the Cure Amount
Schedule is the only amount necessary to cover any and all outstanding
defaults under the respective executory contract or unexpired lease to be
assumed and an acknowledgment that no other defaults exist under said contract
or lease.
(b) To the extent that any objections to the amounts set
forth in the Cure Amount Schedule are timely filed and served and such
objections are not resolved between the Debtors and the objecting parties, the
Bankruptcy Court shall resolve such disputes at a hearing to be held at a date
to be determined by the Bankruptcy Court at the Confirmation Hearing. The
resolution of such disputes shall not affect the Debtors' assumption of the
contracts or leases that are subject of such a dispute, but rather shall
affect only the "cure" amount the Debtors must pay in order to assume such
contract or lease. Notwithstanding the immediately preceding sentence, if the
Debtors in their discretion (with the prior written consent of the Creditors
Committee) determine that the amount asserted to be the necessary "cure"
amount would, if ordered by the Bankruptcy Court, make the assumption of the
contract or lease imprudent, then the Debtors may, prior to or at the
Confirmation Hearing, elect to (1) reject the contract or lease pursuant to
Section 10.6 hereof, or (2) request an
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expedited hearing on the resolution of the "cure" dispute, exclude assumption
or rejection of the contract or lease from the scope of the Confirmation
Order, and retain the right to reject the contract or lease pursuant to
Section 10.6 hereof pending the outcome of such dispute.
10.5. Payments Related to Assumption of Executory Contracts and
Unexpired Leases. If not the subject of dispute pursuant to Section 10.4
hereof as of Confirmation Date, any monetary defaults under each executory
contract and unexpired lease to be assumed under the Plan shall be satisfied
by the Debtors, pursuant to Section 365(b)(l) of the Bankruptcy Code, by
payment of the amount set forth in the Cure Amount Schedule or such other
amount as ordered by the Bankruptcy Court or agreed upon by the Debtors in
Cash within 60 days following the Effective Date or on such other terms as
agreed to by the parties to such executory contract or unexpired lease. In the
event of a dispute pursuant to Section 10.4, payment of the amount otherwise
payable hereunder shall be made following entry of a Final Order or agreement
by the Debtors or the Reorganized Debtors, as the case may be, with the
consent of the Creditors' Committee if such agreement is reached prior to the
Effective Date, as the case may be, and the party to the contract or lease.
10.6. Executory Contracts and Unexpired Leases to be Rejected.
(a) Effective as of, and subject to the occurrence of, the
Effective Date, the executory contracts and unexpired leases listed on the
Schedule of Rejected Contracts shall be rejected as of the Effective Date. The
Debtors may amend the Schedule of Rejected Contracts at any time prior to the
Confirmation Hearing (i) with the prior written consent of the Creditors
Committee) by filing such amendment with the Bankruptcy Court and serving it
on parties directly affected by the amendment; or (ii) with Bankruptcy Court
approval after a hearing on notice to the Creditors' Committee and the
affected parties. Listing a contract or lease by category above or on the
Schedule of Rejected Contracts shall not constitute an admission by the
Debtors or the Reorganized Debtors that such contract or lease, including
related agreements, is an executory contract or unexpired lease or that the
Debtors or the Reorganized Debtors have any liability thereunder.
(b) The Confirmation Order shall constitute an order of the
Bankruptcy Court approving such rejections on the Confirmation Date, pursuant
to Section 365 of the Bankruptcy Code, effective as of the Effective Date. Any
party to an executory contract or unexpired lease identified for rejection as
provided herein may, within the same deadline and in the same manner
established for filing objections to Confirmation, file any objection thereto.
Failure to file any such objection within the time period set forth above
shall constitute consent and agreement to the rejection.
10.7. Bar Date for Rejection Damages. If the rejection of an
executory contract or unexpired lease pursuant to Section 10.6 above gives
rise to a Claim by the other party or parties to such contract or lease, such
Claim, to the extent that it is timely filed and is a Miscellaneous Secured
Claim, shall be classified in Class 4, and to the extent that it is timely
filed and is a General Unsecured Claim, shall be classified in Class 5 or
Class 6, as the case may be; provided, however, that in either event any Claim
arising from the rejection shall be
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forever barred and shall not be enforceable against the Debtors, the
Reorganized Debtors, their affiliates, their successors, estates, or their
properties, unless a proof of claim is filed and served on the Debtors or the
Reorganized Debtors within thirty (30) days after the earlier of (a) the date
of the entry of the first order of the Bankruptcy Court rejecting the
executory contract or unexpired lease, or (b) the Confirmation Date.
10.8. Contracts Entered Into on or After the Petition Date. On the
Effective Date, all contracts, leases, and other agreements entered into by
the Debtors on or after the Petition Date, which agreements have not been
terminated in accordance with their terms on or before the Confirmation Date
shall revest in and remain in full force and effect as against the Reorganized
Debtors and the other parties to such contracts, leases and other agreements.
Article XI.
DISCHARGE, RELEASES AND INDEMNIFICATION
11.1. Discharge of All Claims and Interests and Releases
(a) Except as otherwise specifically provided by this Plan,
the confirmation of this Plan (subject to the occurrence of the Effective
Date) shall discharge the Debtors and Reorganized Debtors from any debt that
arose before the Confirmation Date, and any debt of the kind specified in
sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not a
proof of Claim is filed or is deemed filed, whether or not such Claim is an
Allowed Claim, and whether or not the holder or such Claim has voted on this
Plan.
(b) Except as otherwise specifically provided by this Plan,
the distributions and rights that are provided in this Plan shall be in
complete satisfaction, discharge and release, effective as of the Confirmation
Date (but subject to the occurrence of the Effective Date) of (i) all Claims
and Causes of Action against, liabilities of, liens on, obligations of and
Interests in the Debtors or Reorganized Debtors or the direct or indirect
assets and properties of the Debtors or Reorganized Debtors whether known or
unknown, and (ii) all Causes of Action (whether known or unknown, either
directly or derivatively through the Debtors or Reorganized Debtors) against,
claims (as defined in section 101 of the Bankruptcy Code) against, liabilities
(as guarantor of a Claim or otherwise) of, liens on the direct or indirect
assets and properties of, and obligations of successors and assigns of, the
Debtors, Reorganized Debtors and their successors and assigns based on the
same subject matter as any Claim or Interest or based on any act or omission,
transaction or other activity or security, instrument or other agreement of
any kind or nature occurring, arising or existing prior to the Effective Date
that was or could have been the subject of any Claim or Interest, in each case
regardless of whether a proof of Claim or Interest was filed, whether or not
Allowed and whether or not the holder of the Claim or Interest has voted on
this Plan.
(c) Except as otherwise specifically provided by this Plan,
any Entity accepting any distribution pursuant to this Plan shall be presumed
conclusively to have released the Debtors, Reorganized Debtors and successors
and assigns of the Debtors from any Cause of Action based on the same subject
matter as the Claim or Interest on which the distribution is
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received. The release described in the preceding sentence shall be enforceable
as a matter of contract against any Entity that accepts any distribution
pursuant to this Plan.
(d) On the Effective Date, the Debtors, in consideration
for, among other things, their voluntary resignation, support of the Plan
and/or their waiver of distributions as set forth in Section 11.1(f), hereby
release the officers and directors of the Debtors either holding such office
(i) nimmediately prior to the Effective Date; or (ii) on December 16, 1997
(collectively, the "Releasees") from any and all Claims or liability based
upon any act or omission related to service prior to the Effective Date with,
for or on behalf of the Debtors or Debtors-In-Possession, except that the
Releasees shall not be released with respect to:
(i) any indebtedness of any such Releasee to the
Debtors or Debtors-In-Possession for money borrowed by such
Releasee;
(ii) any setoff or counterclaim the Debtors or
Debtors-In-Possession may have or assert against any such
Releasee, provided that the aggregate amount thereof shall
not exceed the aggregate amount of any Claims held or
asserted by such Releasee against the Debtors or
Debtors-In-Possession, as the case may be;
(iii) claims arising from the fraud, willful misconduct
or gross negligence of such Releasee.
(e) The releases provided by Section 11.1(d) shall not
extend, and not be deemed to extend, to any person or entity other than the
Releasees (including without limitation, any affiliate of any Releasees).
(f) Upon the occurrence of the Effective Date, in exchange
for the releases provided by Section 11.1(d), the Releasees shall be deemed to
have waived any and all Claims and Administrative Expenses except in the case
of officers, for direct or indirect compensation and benefits and
reimbursement of expenses relating to their employment.
Notwithstanding anything to the contrary herein, the Creditors' Committee
shall reserve its rights to conduct an investigation of any officer or
director holding offices as of December 16, 1997 and no longer holding office
immediately prior to the Effective Date and to deliver a written report to the
Board of Directors of Harvard prior to the Confirmation Date, setting forth
the details of any alleged claim against any such officer or director which in
the view of the Creditors' Committee would warrant elimination of a release
for such person. The Board of Directors of Harvard shall, prior to the
Effective Date, determine whether, in view of any Creditors' Committee report,
a release provided herein should be granted. The releases embodied in this
Plan are in addition to, and not in lieu of, any other release separately
given, conditionally or unconditionally, by the Debtors or
Debtors-In-Possession to any other person or entity.
11.2. Claims of Subordination. All Claims against and Interests in
the Debtors, and all rights and Claims between or among holders of Claims or
Interests relating in any
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manner whatsoever to Claims against or Interests in the Debtors based on any
contractual, legal or equitable subordination rights, shall be terminated upon
confirmation of this Plan by the Bankruptcy Court (subject only to the
occurrence of the Effective Date) and discharged in the manner provided in
this Plan, and all such Claims, Interests and rights so based and all such
contractual, legal and equitable subordination rights to which any Entity may
be entitled shall be irrevocably waived upon confirmation of this Plan by the
Bankruptcy Court (subject only to the occurrence of the Effective Date).
Except as otherwise provided in this Plan and to the fullest extent permitted
by applicable law, the rights afforded and the Distributions that are made in
respect of any Claims hereunder shall not be subject to levy, garnishment,
attachment or like legal process by any holder of a Claim or Interest by
reason of any contractual, legal or equitable subordination rights, so that,
notwithstanding any such contractual, legal or equitable subordination, each
holder shall have and receive the benefit of the rights and Distributions set
forth in this Plan.
11.3. Indemnification. Subject to the occurrence of the Effective
Date, the obligations of Harvard to indemnify officers and directors, holding
such offices from and including the Petition Date through and including the
Confirmation Date, against any obligation pursuant to Harvard's certificate of
incorporation, bylaws, or applicable state law shall survive confirmation of
the Plan, remain unaffected by this Plan, and not be discharged.
11.4 Conclusion of Chapter 11 Cases and Dissolution of Creditors'
Committee.
(a) Except with respect to any appeal of an order in the
Chapter 11 Cases, and any matters related to any proposed modification of the
Plan, on the Effective Date, the Creditors' Committee shall be dissolved and
the members, employees, agents, advisors and representatives (including,
without limitation, attorneys, financial advisors, and other Professionals)
thereof shall thereupon be released from and discharged of and from all
further authority, duties, responsibilities and obligations related to,
arising from and in connection with the Chapter 11 Cases and shall be
indemnified (including for reasonable attorneys' fees and costs) by the
Reorganized Debtors for any and all acts performed, or omissions, in
connection with the Chapter 11 Cases, except for acts or omissions as shall
constitute fraud, willful misconduct or gross negligence of their duties.
(b) In consideration of the distributions under this Plan,
upon the Effective Date, each Holder of a Claim or Interest will be deemed to
have released the Debtors, Reorganized Debtors, the Releasees, the Creditors'
Committee and all Professionals from any and all Causes of Action (other than
the right to enforce the Debtor's obligations under this Plan and the right to
pursue a Claim based on any willful misconduct) arising out of actions or
omissions during the administration of the Debtors' estates.
11.5 Compromise, Settlement & Release of Potential Claims Asserted
and Reserved Against CIT. [TO COME].
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Article XII.
CONDITIONS TO CONFIRMATION AND CONSUMMATION
12.1. Conditions to Confirmation. The following conditions shall
be met prior to Confirmation of the Plan.
(a) An order finding that the Disclosure Statement contains
adequate information pursuant to section 1125 of the Bankruptcy Code shall
have been entered.
(b) As of the Confirmation Date, General Unsecured Claims
against the Debtors (whether Disputed or Allowed), in the aggregate, do not
exceed $[ ].
12.2. Conditions to the Consummation. The following are conditions
precedent to consummation of the Plan.
(a) A Confirmation Order confirming the Plan, as such Plan
may have been modified, shall have been entered and become a Final Order in
form and substance reasonably satisfactory to the Proponents.
(b) The Confirmation Order shall authorize and approve
substantive consolidation of the Debtors.
(c) The Registration Statement shall have been filed with
the Commission and no stop order in respect thereof shall have been issued.
(d) The Debtors shall have sufficient Cash, through
implementation of the Post-Confirmation Credit Facility, the issuance of the
New Junior Secured Debentures and/or an Alternative Financing Transaction, to
satisfy all Cash obligations under the Plan due on the Effective Date.
(e) Subject to the Combination Transactions, the New
Certificates of Incorporation shall have been filed with the Secretary of
State of the State of each such Entity's State of incorporation in accordance
with such State's corporation laws;
(f) All authorizations, consents and regulatory approvals
required, if any, in connection with the Plan's effectiveness shall have been
obtained;
(g) No order of a court shall have been entered and shall
remain in effect restraining the Debtors from consummating the Plan.
(h) The Debtors shall have received the written consent of
the Creditors' Committee, to the extent required, for any modifications to the
Exhibits and Schedules attached to the Plan.
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(i) If New Junior Secured Debentures are to be issued under
this Plan, the New Junior Secured Debentures Indenture shall have been duly
qualified under the Trust Indenture Act.
(j) As of the Effective Date, General Unsecured Claims
against the Debtors (whether Disputed or Allowed), in the aggregate, do not
exceed $[ ].
12.3. Waiver of Conditions to Confirmation and Consummation. The
Debtors may waive, by a writing signed by an authorized representative and
subsequently filed with the Court, one or more of the conditions to
confirmation or consummation of the Plan, provided, that the Debtors must
obtain the prior written consent of the Creditors' Committee in order to waive
any of the conditions set forth in Section 12.1(a) and 12.2(a) through (i).
Article XIII.
EFFECTS OF PLAN CONFIRMATION
13.1. Reorganized Debtors as Separate Corporate Entities.
Notwithstanding Article IX of this Plan, subject to the Combination
Transactions, each of the Debtors shall, as Reorganized Debtors, continue to
exist after the Effective Date as a separate corporate entity, with all the
powers of a corporation under applicable law, without prejudice to any right
to terminate such existence (whether by merger or otherwise) under applicable
law after the Effective Date.
13.2. Revesting and Vesting. Except as otherwise provided in this
Plan and subject to the Combination Transaction, pursuant to section
1123(a)(5) and 1141 of the Bankruptcy Code, all property comprising the
Estates of each Debtor shall revest in the relevant Reorganized Debtors or
their successors, free and clear of all Claims, liens, charges, encumbrances
and Interests of creditors and equity security holders on the Effective Date.
As of the Effective Date, each Reorganized Debtor may operate its businesses
and use, acquire and dispose of property and settle and compromise claims or
interests without supervision of the Court free of any restrictions of the
Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly
imposed by the Plan and Confirmation Order. Without limiting the foregoing,
each Reorganized Debtor may pay the charges it incurs for professional fees,
disbursements, expenses, or related support services after the Effective Date
without any application to the Court.
13.3. Injunction. Except as otherwise provided in the Plan, the
Confirmation Order shall provide, among other things, that all Entities who
have held, hold or may hold Claims against or Interests in any of the Debtors
are, with respect to any such Claims or Interests, permanently enjoined from
and after the Confirmation Date from: (a) commencing, conducting or continuing
in any manner, directly or indirectly, any suit, action or other proceeding of
any kind (including, without limitation, any proceeding in a judicial,
arbitral, administrative or other forum) against or affecting the Debtors or
the Reorganized Debtors, any of their property, or any direct or indirect
transferee of any property of, or direct or indirect successor in interest to,
any of the foregoing Entities, or any property of any such
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transferee or successor; (b) enforcing, levying, attaching (including, without
limitation, any pre-judgment attachment), collecting or otherwise recovering
by any manner or means, whether directly or indirectly, of any judgment,
award, decree or order against the Debtors or the Reorganized Debtors, any of
their property, or any direct or indirect transferee of any property of, or
direct or indirect successor in interest to, any of the foregoing Entities, or
any property of any such transferee or successor; (c) creating, perfecting or
otherwise enforcing in any manner, directly or indirectly, any encumbrance of
any kind against the Debtors or the Reorganized Debtors, any of their
property, or any direct or indirect transferee of any property of, or
successor in interest to, any of the foregoing Entities; (d) asserting any
right of setoff, subrogation, or recoupment of any kind, directly or
indirectly, against any obligation due the Debtors or the Reorganized Debtors,
any of their property, or any direct or indirect transferee of any property
of, or successor in interest to, any of the foregoing Entities; and (e) acting
or proceeding in any manner, in any place whatsoever, that does not conform to
or comply with the provisions of the Plan.
Article XIV.
ADMINISTRATIVE PROVISIONS
14.1 Retention of Jurisdiction. Notwithstanding entry of the
Confirmation Order, the Bankruptcy Court shall retain jurisdiction as is
legally permissible, including, without limitation, for the following
purposes:
(a) to determine (i) any Disputed Claims, Disputed Interests
and all related Claims accruing after the Confirmation Date including rights
and liabilities under contracts giving rise to such Claims, (ii) the validity,
extent, priority and nonavoidability of consensual and nonconsensual liens and
other encumbrances and (iii) preconfirmation tax liability pursuant to section
505 of the Bankruptcy Code;
(b) to allow, disallow, estimate, liquidate or determine any
Claim or Interest against the Debtors and to enter or enforce any order
requiring the filing of any such Claim or Interest before a particular date;
(c) to approve all matters related to the assumption,
assumption and assignment, or rejection of any executory contract or unexpired
lease of any of the Debtors pursuant to section 365 of the Bankruptcy Code and
Article X herein;
(d) to determine requests for payment of administrative
expenses entitled to priority under section 507(a)(1) of the Bankruptcy Code,
including compensation of parties entitled thereto;
(e) to resolve controversies and disputes regarding the
interpretation and implementation of this Plan, any disputes relating to
whether or not a timely and proper proof of claim was filed or whether a
Disallowed Claim or Disallowed Interest should be reinstated;
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(f) to implement the provisions of this Plan and entry of
orders in aid of confirmation and consummation of this Plan;
(g) to modify the Plan pursuant to section 1127 of the
Bankruptcy Code;
(h) to adjudicate any and all Causes of Action that arose in
these Chapter 11 Cases preconfirmation or in connection with the
implementation of this Plan, whether or not pending on the Confirmation Date,
including without limitation, any remands of appeals;
(i) to resolve disputes concerning any reserves with respect
to Disputed Claims, Disputed Interests or the administration thereof;
(j) to resolve of any disputes concerning whether a person
or entity had sufficient notice of the Chapter 11 Cases, the applicable claims
bar date, the hearing on the approval of the Disclosure Statement as
containing adequate information, the hearing on the confirmation of this Plan
for the purpose of determining whether a Claim or Interest is discharged
hereunder or for any other purpose;
(k) to determine any and all applications, Claims,
Interests, pending adversary proceedings and contested matters (including,
without limitation, any adversary proceeding or other proceeding to
recharacterize agreements or reclassify Claims or Interests) in these Chapter
11 Cases;
(l) to enter and implement such orders as may be
appropriate in the event the Confirmation Order is for any reason stayed,
revoked, modified, or vacated;
(m) to seek the issuance of such orders in aid of execution
of the Plan, to the extent authorized by section 1142 of the Bankruptcy Code;
(n) to consider any modifications of the Plan, to cure any
defect or omission, or reconcile any inconsistency in any order of the Court,
including, without limitation, the Confirmation Order;
(o) to recover all assets of the Debtors and property of
their estates, wherever located, including any Causes of Action under sections
544 through 550 of the Bankruptcy Code;
(p) to hear and resolve matters concerning state, local,
and federal taxes in accordance with sections 346, 505, and 1146 of the
Bankruptcy Code;
(q) to hear any other matter not inconsistent with the
Bankruptcy Code;
(r) to resolve any and all disputes or controversies
relating to Distributions to be made, and/or reserves to be established, under
this Plan; and
(s) to enter a final decree closing the Chapter 11 Cases.
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14.2. Jurisdiction Over the Reorganized Debtors. Notwithstanding
the jurisdiction retained in Section 14.1 hereof, from and after the Effective
Date, the Bankruptcy Court shall not have the power to issue any order in the
Chapter 11 Cases which modifies the Reorganization Securities or the rights of
the holders thereof with respect to such Reorganization Securities.
14.3. Cram Down. If all of the applicable requirements for
confirmation of the Plan are met as set forth in section 1129(a) of the
Bankruptcy Code except subsection (8) thereof, the Debtors may request the
Court to confirm the Plan pursuant to section 1129(b) of the Bankruptcy Code,
notwithstanding the requirements of such subsection (8), on the basis that the
Plan is fair and equitable and does not discriminate unfairly with respect to
any Impaired Class that does not vote to accept this Plan as described in the
Disclosure Statement.
14.4. Modification of the Plan. The Debtors reserve the right, in
accordance with the Bankruptcy Code, to alter, amend or modify the Plan prior
to the entry of the Confirmation Order. After the entry of the Confirmation
Order, the Debtors may, upon order of the Bankruptcy Court, alter, amend or
modify the Plan in accordance with section 1127(b) of the Bankruptcy Code, or
remedy any defect or omission or reconcile any inconsistency in the Plan in
such manner as may be necessary to carry out the purpose and intent of the
Plan.
14.5. Exemption from Certain Transfer Taxes. Pursuant to section
1146(c) of the Bankruptcy Code: (i) the issuance, transfer or exchange of any
securities, instruments or documents; (ii) the creation of any other lien,
mortgage, deed of trust or other security interest; or (iii) the making or
assignment of any lease or sublease or the making or delivery of any deed or
other instrument of transfer under, pursuant to, in furtherance of or in
connection with, the Plan, including any deeds, bills of sale or assignments
executed in connection with the Plan or the Confirmation Order shall not be
subject to any stamp tax, transfer tax, intangible tax, recording fee, or
similar tax, charge or expense to the fullest extent provided for under
Section 1146(c) of the Bankruptcy Code.
14.6. Setoffs. Except for distributions to holders of Allowed
Senior Note Claims (as to which the Debtors and Reorganized Debtors shall have
no right of setoff and/or recoupment) and as otherwise provided in the Plan,
agreements entered into in connection with the Plan, the Confirmation Order,
or in agreements previously approved by Final Order of the Bankruptcy Court,
the Debtors or Reorganized Debtors, as the case may be, may but will not be
required to, set off against any Claim and the Distributions made with respect
to the Claim, before any distribution is made on account of such Claim, any
and all of the claims, rights and causes of action of any nature that the
Debtors or the Reorganized Debtors may hold against the holder of such Claim;
provided, however, that neither the failure to effect such a setoff, the
allowance of any Claim hereunder, any other action or omission of the Debtors
or Reorganized Debtors, nor any provision of this Plan shall constitute a
waiver or release by the Debtors or the Reorganized Debtors of any such
claims, rights and causes of action that the Debtors or the Reorganized
Debtors may possess against such holder. To the extent the Reorganized Debtors
fail to set off against a holder of a Claim or Interest and seek to collect a
claim from the holder of such Claim or Interest after a distribution to the
holder of such Claim or Interest pursuant to
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the Plan, the Reorganized Debtors shall be entitled to full recovery on their
claim against the holder of such Claim or Interest.
14.7. Compromise of Controversies. Pursuant to Bankruptcy Rule
9019, and in consideration for the classification, distribution and other
benefits provided under the Plan, the provisions of this Plan shall constitute
a good faith compromise and settlement of all Claims or controversies resolved
pursuant to the Plan. The entry of the Confirmation Order shall constitute the
Bankruptcy Court's approval of each of the foregoing compromises or
settlements, and all other compromises and settlements provided for in the
Plan, and the Bankruptcy Court's findings shall constitute its determination
that such compromises and settlements are in the best interests of the
Debtors, the Reorganized Debtors, the Estates, and any Entity holding Claims
against the Debtors.
14.8. Withdrawal or Revocation of the Plan. The Debtors reserve
the right to revoke or withdraw the Plan prior to the Confirmation Date. If
the Plan is revoked or withdrawn, or if the Confirmation Date does not occur,
the Plan shall have no force and effect.
14.9. Successors and Assigns. The rights, benefits and obligations
of any Entity named or referred to in the Plan shall be binding on, and shall
inure to the benefit of, the heirs, executors, administrators, successors and/or
assigns of such Person.
14.10. Governing Law. Except to the extent that the Bankruptcy Code
or Bankruptcy Rules are applicable, the rights and obligations arising under
this Plan shall be governed by and construed and enforced in accordance with
the laws of the State of Delaware.
14.11 Notices. All notices, requests or demands for payments
provided for in this Plan shall be in writing and shall be deemed to have been
received, by mail, addressed to:
Harvard Industries, Inc.
3 Werner Way
Lebanon, NJ 08833
Attn.: Roger Pollazzi
with copies to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
Attn.: Myron Trepper, Esq.
and:
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Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attn.: Brad Eric Scheler, Esq.
Any of the above may, from time to time, change its address for future notices
and other communications hereunder by filing a notice of the change of address
with the Bankruptcy Court. Any and all notices given under this Plan shall be
effective when received.
14.12. Severability. Except as to terms which would frustrate the
overall purpose of this Plan, should any provision in this Plan be determined
to be unenforceable, such determination shall in no way limit or affect the
enforceability and operative effect of any or all other provisions of this
Plan.
14.13. Interpretation, Rules of Construction, Computation of Time,
and Choice of Law.
(a) The provisions of the Plan shall control over any
descriptions thereof contained in the Disclosure Statement.
(b) Any term used in the Plan that is not defined in the
Plan, either in Article II (Definitions) or elsewhere, but that is used in the
Bankruptcy Code or the Bankruptcy Rules shall have the meaning assigned to
that term in (and shall be construed in accordance with the rules of
construction under) the Bankruptcy Code or the Bankruptcy Rules. Without
limiting the foregoing, the rules of construction set forth in section 102 of
the Bankruptcy Code shall apply to the Plan, unless superseded herein.
(c) Unless specified otherwise in a particular reference,
all references in the Plan to Articles, Sections and Exhibits are references
to Articles, Sections and Exhibits of or to the Plan.
(d) Any reference in the Plan to a contract, document,
instrument, release, bylaw, certificate, indenture or other agreement being in
a particular form or on particular terms and conditions means that such
document shall be substantially in such form or substantially on such terms
and conditions.
(e) Any reference in the Plan to an existing document or
Exhibit means such document or Exhibit as it may have been amended, restated,
modified or supplemented as of the Effective Date without limitation to the
provisions set forth in Article VII of this Plan.
(f) Captions and headings to Articles and Sections in the
Plan are inserted for convenience of reference only and shall neither
constitute a part of the Plan nor in any way affect the interpretation of any
provisions hereof.
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(g) Whenever from the context it is appropriate, each term
stated in either the singular or the plural shall include both the singular
and the plural, and each pronoun stated in the masculine, feminine or neuter
includes the masculine, feminine and neuter.
(h) In computing any period of time prescribed or allowed by
the Plan, the provisions of Bankruptcy Rule 9006(a) shall apply.
(i) All Exhibits to the Plan are incorporated into the Plan,
and shall be deemed to be included in the Plan, regardless of when filed.
(j) Subject to the provisions of any contract, certificate,
bylaws, instrument, release, indenture or other agreement or document entered
into in connection with the Plan, the rights and obligations arising under the
Plan shall be governed by, and construed and enforced in accordance with,
federal law, including the Bankruptcy Code and Bankruptcy Rules.
14.14. No Admissions. Notwithstanding anything herein to the
contrary, nothing contained in the Plan shall be deemed as an admission by the
Debtors with respect to any matter set forth herein, including, without
limitation, liability on any Claim or the propriety of a Claims' classification.
14.15. Effectuating Documents and Further Transactions. The Debtors
and Reorganized Debtors shall be authorized to execute, deliver, file or
record such documents, contracts, instruments, releases, and other agreements
and take such other action as may be necessary to effectuate and further
evidence the terms and conditions of the Plan.
14.16. Section 1125 of the Bankruptcy Code. (i) The Debtors and the
Creditors' Committee have, and upon Confirmation of this Plan shall be deemed
to have, solicited acceptances of this Plan in good faith and in compliance
with the applicable provisions of the Bankruptcy Code and (ii) the Debtors and
each of the members of the Creditors' Committee (and each of their respective
affiliates, agents, directors, officers, employees, advisors, and attorneys)
have participated in good faith and in compliance with the applicable
provisions of the Bankruptcy Code in the offer, issuance, sale, and purchase
of the securities offered and sold under this Plan, and therefore are not, and
on account of such offer, issuance, sale, solicitation, and/or purchase will
not be, liable at any time for the violation of any applicable law, rule, or
regulation governing the solicitation of acceptances or rejections of this
Plan or the offer, issuance, sale, or purchase of the securities offered and
sold under this Plan.
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Dated: Wilmington, Delaware
July 10, 1998
DOEHLER-JARVIS, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
----------------------------
Vice President
HARVARD INDUSTRIES, INC.
Debtor and Debtor in Possession
By: /s/ Roger Pollazzi
----------------------------
Chief Operating Officer
HARVARD TRANSPORTATION, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
----------------------------
Vice President
DOEHLER-JARVIS GREENEVILLE, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
----------------------------
Vice President
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DOEHLER-JARVIS POTTSTOWN, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
----------------------------
Vice President
DOEHLER-JARVIS TECHNOLOGIES, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
----------------------------
Vice President
DOEHLER-JARVIS TOLEDO, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
----------------------------
Vice President
HARMAN AUTOMOTIVE, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
----------------------------
Vice President
HAYES-ALBION CORPORATION
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
----------------------------
Vice President
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THE KINGSTON-WARREN CORPORATION
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
----------------------------
Vice President
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THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS
BY:
FRIED, FRANK, HARRIS SHRIVER &
JACOBSON
Co-Counsel to the Official Committee
of Unsecured Creditors
By: /s/ Brad Eric Scheler, Esq.
----------------------------
Name: Brad Eric Scheler
A Member of the Firm
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
DOEHLER-JARVIS, INC., et al., ) Case Nos. 97-953 (SLR)
) through 97-962 (SLR)
) (Jointly Administered)
Debtors. )
DISCLOSURE STATEMENT FOR DEBTORS' CONSOLIDATED PLAN
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
July 10, 1998
THIS IS NOT A SOLICITATION OF YOUR VOTE
RESPECTING THE PLAN. VOTES MAY NOT BE SOLICITED
UNTIL A DISCLOSURE STATEMENT HAS BEEN APPROVED
BY THE BANKRUPTCY COURT. THIS DISCLOSURE
STATEMENT IS BEING SUBMITTED FOR APPROVAL BY THE
BANKRUPTCY COURT BUT HAS NOT YET BEEN APPROVED.
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WILLKIE FARR & GALLAGHER YOUNG CONAWAY STARGATT & TAYLOR, LLP
Co-Counsel for Debtors-in-Possession Co-Counsel for Debtors-in-Possession
787 Seventh Avenue P.O. Box 391
New York, New York 10019 11th Floor, Rodney Square North
Attn: Myron Trepper, Esq. Wilmington, Delaware 19899.
Phone: (212) 728-8000 Attn: James L. Patton, Jr., Esq.
S. David Peress, Esq.
Phone: (302) 571-6600
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON ROSENTHAL, MONHAIT, GROSS & GODDESS
Co-Counsel for the Official Committee of Unsecured Co-Counsel for the Official Committee of Unsecured Creditors
Creditors
One New York Plaza 919 North Market Street
New York, New York 10004 Mellon Bank Center, Suite 1401
Attn: Brad Eric Scheler, Esq. Wilmington, Delaware 19801
Phone: (212) 859-8000 Attn: Kevin Gross, Esq.
Phone: (302) 656-4433
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Doehler-Jarvis, Inc. ("Doehler-Jarvis"), Harvard Industries, Inc.
("Harvard"), Harvard Transportation, Inc. ("Harvard Transportation"),
Doehler-Jarvis Greeneville, Inc. ("Greeneville"), Doehler-Jarvis Pottstown,
Inc. ("Pottstown"), Doehler-Jarvis Technologies, Inc. ("Technologies"),
Doehler-Jarvis Toledo, Inc. ("Toledo"), Harman Automotive, Inc. ("Harman"),
Hayes-Albion Corporation ("Hayes-Albion") and The Kingston-Warren Corporation
("Kingston-Warren" and collectively, the "Debtors"), as debtors in possession
under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code")
and the Official Committee of Unsecured Creditors (the "Creditors' Committee"
and together with the Debtors, the "Proponents"), hereby propose and file this
Disclosure Statement (the "Disclosure Statement") for the Debtors'
Consolidated Plan under Chapter 11 of the Bankruptcy Code, dated July 10, 1998
(the "Plan").
THE DEBTORS AND THE CREDITORS' COMMITTEE STRONGLY URGE ALL HOLDERS OF
CLAIMS AND INTERESTS IN IMPAIRED CLASSES RECEIVING BALLOTS TO ACCEPT THE PLAN.
THIS DISCLOSURE STATEMENT IS DESIGNED TO PROVIDE ADEQUATE INFORMATION
TO ENABLE HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS TO MAKE AN
INFORMED JUDGMENT ON WHETHER TO ACCEPT OR REJECT THE PLAN. ALL HOLDERS OF
CLAIMS AND INTERESTS ARE HEREBY ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE
STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE
PLAN. PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE
QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN, WHICH IS ANNEXED HERETO
AS APPENDIX "1", OTHER APPENDICES ANNEXED HERETO AND OTHER DOCUMENTS
REFERENCED AS FILED WITH THE COURT BEFORE OR CONCURRENTLY WITH THE FILING OF
THIS DISCLOSURE STATEMENT. FURTHERMORE, THE PROJECTED FINANCIAL INFORMATION
CONTAINED HEREIN HAS NOT BEEN THE SUBJECT OF AN AUDIT. SUBSEQUENT TO THE DATE
HEREOF, THERE CAN BE NO ASSURANCE THAT: (A) THE INFORMATION AND
REPRESENTATIONS CONTAINED HEREIN WILL CONTINUE TO BE MATERIALLY ACCURATE; OR
(B) THIS DISCLOSURE STATEMENT CONTAINS ALL MATERIAL INFORMATION.
ALL HOLDERS OF IMPAIRED CLAIMS AND IMPAIRED INTERESTS SHOULD READ AND
CONSIDER CAREFULLY THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT AS A
WHOLE, INCLUDING THE SECTION ENTITLED "RISK FACTORS," PRIOR TO VOTING ON THE
PLAN. IN MAKING A DECISION TO ACCEPT OR REJECT THE PLAN, EACH HOLDER OF A
CLAIM OR INTEREST MUST RELY ON ITS OWN EXAMINATION OF THE DEBTORS AS DESCRIBED
IN THIS DISCLOSURE STATEMENT AND THE TERMS OF THE PLAN, INCLUDING THE MERITS
AND RISKS INVOLVED. IN ADDITION, CONFIRMATION AND CONSUMMATION OF THE PLAN ARE
SUBJECT TO CONDITIONS PRECEDENT THAT COULD LEAD TO DELAYS IN
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CONSUMMATION OF THE PLAN. ALSO, THERE CAN BE NO ASSURANCE THAT EACH OF THESE
CONDITIONS WILL BE SATISFIED OR WAIVED (AS PROVIDED IN THE PLAN) OR THAT THE
PLAN WILL BE CONSUMMATED. EVEN AFTER THE EFFECTIVE DATE, DISTRIBUTIONS UNDER
THE PLAN MAY BE SUBJECT TO SUBSTANTIAL DELAYS FOR HOLDERS OF CLAIMS AND
INTERESTS THAT ARE DISPUTED.
[THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY ORDER OF THE
BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION OF A KIND AND IN
SUFFICIENT DETAIL TO ENABLE HOLDERS OF CLAIMS AND INTERESTS TO MAKE AN
INFORMED JUDGMENT WITH RESPECT TO VOTING TO ACCEPT OR REJECT THE PLAN.
HOWEVER, THE BANKRUPTCY COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT
CONSTITUTE A RECOMMENDATION OR DETERMINATION BY THE BANKRUPTCY COURT WITH
RESPECT TO THE MERITS OF THE PLAN.]
NO PARTY IS AUTHORIZED BY THE DEBTORS TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATIONS WITH RESPECT TO THE PLAN OR THE REORGANIZATION SECURITIES
OTHER THAN THAT WHICH IS CONTAINED IN THIS DISCLOSURE STATEMENT. NO
REPRESENTATIONS OR INFORMATION CONCERNING THE DEBTORS, THEIR FUTURE BUSINESS
OPERATIONS OR THE VALUE OF THEIR PROPERTIES HAVE BEEN AUTHORIZED BY THE
DEBTORS OTHER THAN AS SET FORTH HEREIN. ANY INFORMATION OR REPRESENTATIONS
GIVEN TO OBTAIN YOUR ACCEPTANCE OR REJECTION OF THE PLAN WHICH ARE DIFFERENT
FROM OR INCONSISTENT WITH THE INFORMATION OR REPRESENTATIONS CONTAINED HEREIN
AND IN THE PLAN SHOULD NOT BE RELIED UPON BY ANY HOLDERS OF CLAIMS AND
INTERESTS IN VOTING ON THE PLAN.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
SECTION 1125 OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL OR
STATE SECURITIES LAWS OR OTHER APPLICABLE NONBANKRUPTCY LAW. ENTITIES HOLDING
OR TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING CLAIMS AGAINST,
INTERESTS IN OR SECURITIES OF, THE DEBTORS SHOULD EVALUATE THIS DISCLOSURE
STATEMENT ONLY IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR BY ANY STATE
SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL OR REGULATORY AUTHORITY,
AND NEITHER SUCH COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
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WITH RESPECT TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER
PENDING OR THREATENED ACTIONS (WHETHER OR NOT PENDING) THIS DISCLOSURE
STATEMENT AND THE INFORMATION CONTAINED HEREIN SHALL NOT BE CONSTRUED AS AN
ADMISSION OR STIPULATION, BUT RATHER AS STATEMENTS MADE IN SETTLEMENT
NEGOTIATIONS GOVERNED BY RULE 408 OF THE FEDERAL RULES OF EVIDENCE AND ANY
OTHER RULE OR STATUTE OF SIMILAR IMPORT.
THIS DISCLOSURE STATEMENT SHALL NEITHER BE ADMISSIBLE IN ANY
PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY NOR BE CONSTRUED TO BE
PROVIDING ANY LEGAL, BUSINESS, FINANCIAL OR TAX ADVICE. EACH HOLDER OF A CLAIM
OR INTEREST SHOULD, THEREFORE, CONSULT WITH ITS OWN LEGAL, BUSINESS, FINANCIAL
AND TAX ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE SOLICITATION, THE PLAN
OR THE TRANSACTIONS CONTEMPLATED THEREBY.
This Disclosure Statement, the Plan annexed hereto as Appendix "1"
(and the other appendices hereto), the accompanying form of Ballot, if any,
and the related materials delivered together herewith are being furnished by
the Debtors to holders of Impaired Claims and Impaired Interests pursuant to
section 1125 of the Bankruptcy Code, in connection with the solicitation by
the Debtors of votes to accept or reject the Plan (and the transactions
contemplated thereby), as described herein.
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TABLE OF CONTENTS
Page
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I. INTRODUCTION AND SUMMARY......................................................................................1
A. The Solicitation.....................................................................................1
B. Recommendations......................................................................................2
C. Summary of the Plan..................................................................................2
TABLE I -- A Quick Reference Guide to Classification of Claims..................................5
TABLE II -- Projected Property Distributions Under the Plan.....................................7
D. Voting Procedures and Requirements...................................................................8
E. Vote Required for Acceptance; Confirmation..........................................................10
F. Effective Date of the Plan..........................................................................11
II. BACKGROUND..................................................................................................12
A. Executive Offices; Financial Information............................................................12
B. Corporate Structure of the Debtors..................................................................12
C. Capital Structure of the Debtors....................................................................12
1. Equity.....................................................................................12
2. Debt...................................................................................... 14
D. The Debtors.........................................................................................15
E. Operations Description..............................................................................16
1. Overview...................................................................................16
2. Subsidiaries...............................................................................16
F. Events Leading To Chapter 11 Filings................................................................18
III. THE CHAPTER 11 CASES.......................................................................................19
A. Continuation of Business; Stay of Litigation........................................................19
B. Significant Events During the Chapter 11 Cases......................................................20
1. First Day Orders...........................................................................20
(a) Prepetition Wage and Benefits Order.................................................20
(b) DIP Facility........................................................................21
2. Appointment of Creditors' Committee........................................................22
3. Retentions of Professionals................................................................23
4. Management Transition......................................................................24
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5. Junior DIP Facility........................................................................25
6. Discontinuing Unprofitable Operations......................................................25
(a) The Toledo Facility.................................................................25
(b) Other Underperforming Facilities....................................................28
7. Asset Sales and Dispositions...............................................................28
8. Extensions of Exclusivity..................................................................32
9. Claims Process and Bar Date................................................................33
10. Potential Doehler-Jarvis Acquisition Claims...............................................34
11. Employee Arrangements.....................................................................34
(a) Employee Severance and Retention Programs...........................................34
(b) Shutdown Agreements.................................................................36
12. Reclamation Program.......................................................................37
IV. THE PLAN....................................................................................................37
A. General.............................................................................................37
B. Discussions with Constituencies.....................................................................38
C. Classification and Treatment of Claims and Interests Under the Plan.................................40
1. Treatment of Administrative Expenses and Certain Priority Claims...........................41
(a) Administrative Expenses.............................................................41
(b) Priority Tax Claims.................................................................42
2. Class 1--Priority Claims...................................................................42
3. Class 2--Prepetition Lenders' Claims.......................................................43
4. Class 3--Miscellaneous Secured Claims......................................................43
5. Class 4--PBGC Claims.......................................................................44
6. Class 5--General Unsecured Claims..........................................................45
7. Class 6--Convenience Claims................................................................46
8. Class 7--PIK Preferred Stock...............................................................46
9. Class 8--Old Common Stock..................................................................47
10. Class 9--Subsidiary Common Stock..........................................................47
11. Class 10--Old Other Interests.............................................................47
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D. Conditions to and Means for Consummation of the Plan................................................48
1. Substantive Consolidation..................................................................48
2. Principal Plan Documents...................................................................50
(a) New Certificate of Incorporation....................................................51
(b) PBGC Agreement......................................................................51
(c) Post-Confirmation Credit Agreement..................................................52
(d) New Junior Secured Debentures Indenture.............................................53
(e) Alternative Financing Transaction Documents.........................................55
3. Reorganization Securities..................................................................55
(a) New Common Stock....................................................................55
(b) Rights and Oversubscription Options.................................................56
(c) New Junior Secured Debentures.......................................................56
(d) New Warrants........................................................................57
4. Cancellation and Surrender of Instruments..................................................57
5. Retiree Benefits...........................................................................58
6. Employee Benefit Plans.....................................................................58
7. Conditions to Confirmation and Consummation of the Plan....................................58
E. Securities Law Matters..............................................................................60
1. Exemption from Securities Act Regulations..................................................60
2. Registration Rights........................................................................61
3. Registration of Securities; Listing of New Common Stock....................................61
4. Exemption From Certain Transfer Taxes......................................................62
5. Section 1125 of the Bankruptcy Code........................................................62
F. Executory Contracts and Unexpired Leases............................................................63
G. Environmental Matters...............................................................................63
1. Consent Decrees and Settlement Agreements..................................................64
2. State Agency Claims........................................................................68
3. Other......................................................................................69
4. Treatment of Environmental Matters Under Plan..............................................70
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H. Effects of Plan Confirmation........................................................................71
1. Discharge..................................................................................71
2. Binding Effect.............................................................................71
3. Releases...................................................................................71
4. Claims of Subordination....................................................................73
5. Indemnification............................................................................73
6. Injunction.................................................................................74
7. Revesting..................................................................................74
8. Retention and Enforcement of Causes of Action..............................................74
I. Distributions Under the Plan........................................................................75
1. Time of Distributions Under the Plan.......................................................75
2. Rounding...................................................................................75
3. Compliance with Tax Requirements...........................................................76
4. Distribution of Undeliverable or Unclaimed Property........................................77
5. Set-Offs...................................................................................77
6. Allocation of Consideration................................................................77
7. Manner of Payment..........................................................................78
8. Disbursing Agent...........................................................................78
J. Procedures for Resolving Disputed Claims............................................................78
1. Objections to Claims.......................................................................78
2. Payments and Distributions With Respect to Disputed Claims or Interest.....................78
K. Dissolution of Creditors' Committee.................................................................79
L. Other Provisions of the Plan........................................................................79
1. Retention of Jurisdiction..................................................................79
2. Jurisdiction Over the Reorganized Debtors..................................................81
3. Amendment and Modification to the Plan.....................................................81
4. Withdrawal and Revocation of the Plan......................................................81
5. Approval of Agreements.....................................................................81
V. PROJECTIONS AND VALUATION....................................................................................81
A. Projections.........................................................................................81
1. Pro Forma Projected Capitalization.........................................................81
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2. Pro Forma Projected Balance Sheet..........................................................82
3. Pro Forma Projected Statements.............................................................83
4. Pro Forma Projected Cash Flow..............................................................85
5. Business Strategies........................................................................86
6. Material Assumptions.......................................................................89
B. Valuation of the Reorganized Debtors................................................................92
VI. RISK FACTORS................................................................................................93
A. Business Risks......................................................................................93
1. Tax Issues.................................................................................93
2. Financial Condition of the Debtor; Payment at Maturity; Dividends..........................94
3. Contractual Restrictions in Post-Confirmation Environment..................................94
4. Substantial Leverage and Ability to Service Debt...........................................95
5. Successful Execution of the Turnaround Business Strategy...................................96
6. Capital Expenditure Program................................................................97
7. Environmental Regulation and Litigation....................................................97
8. Competition................................................................................98
9. Collective Bargaining Agreements...........................................................98
10. Underfunded Pension Plans.................................................................98
11. Significance of the Automotive Industry...................................................98
B. Bankruptcy Risks....................................................................................99
1. Objection to Classifications...............................................................99
2. Risk of Nonconfirmation of the Plan........................................................99
3. Nonoccurance of Effective Date of the Plan.................................................99
4. Potential Effect of Bankruptcy on Certain Relationships....................................99
C. Liquidity Risks....................................................................................100
1. Restrictions on Transfer..................................................................100
2. Potential Illiquidity of Plan Securities..................................................100
VII. CONFIRMATION OF THE PLAN..................................................................................100
A. Voting Procedures and Requirements.................................................................100
B. Acceptance.........................................................................................104
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C. Confirmation of the Plan...........................................................................104
1. The Best Interests Test...................................................................105
(a) The Debtors' Estimate of Liquidation Value.........................................106
(b) Comparison of Liquidation Values with Recoveries under Plan........................107
(c) Conclusion.........................................................................107
2. Feasibility...............................................................................107
D. Non-Acceptance and Cramdown........................................................................108
1. The Plan is Fair and Equitable............................................................108
2.. No Unfair Discrimination.................................................................109
E. Confirmation Hearing...............................................................................109
VIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF PLAN....................................................109
A. Liquidation Under Chapter 7........................................................................109
B. Alternative Plan...................................................................................110
IX. SELECTED HISTORICAL FINANCIAL DATA.........................................................................110
A. Selected Financial Data............................................................................110
B. Management's Discussion And Analysis Of Results Of Operations......................................110
X. MANAGEMENT OF REORGANIZED DEBTORS...........................................................................110
A. New Board of Directors.............................................................................110
B. Senior Management of Reorganized Debtors...........................................................111
C. Management Employment Agreements...................................................................114
D. Emergence Bonus Plan...............................................................................114
E. Consulting Agreements..............................................................................115
F. Incentive Plan.....................................................................................115
XI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................................................115
A. Federal Income Tax Consequences To The Debtors.....................................................116
1. Utilization by the Debtors of Existing Tax Attributes.....................................116
(a) Discharge of Indebtedness Income...................................................116
(b) Effect of Section 382 of the Tax Code..............................................117
(c) The Bankruptcy Exception...........................................................118
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2. Alternative Minimum Tax...................................................................119
B. Federal Income Tax Consequences To Creditors.......................................................119
1. Generally.................................................................................119
2. Creditors Who Receive Solely Cash.........................................................120
3. Creditors Who Receive New Harvard Common Stock, Rights and
Oversubscription Options.............................................................120
(a) Generally..........................................................................120
(b) Tax Consequences of an Exchange....................................................121
4. Receipt of Interest.......................................................................122
C. Federal Income Tax Consequences To Holders of PIK Preferred Stock and Old Common Stock............123
1. Exchange..................................................................................123
2. Exercise..................................................................................123
3. Sale of New Warrants......................................................................123
4. Lapse.....................................................................................124
D. Federal Income Tax Consequences Of Owning New Junior Secured Debentures...........................124
1. Original Issue Discount...................................................................124
2. Disposition of New Junior Secured Debentures..............................................124
E. Importance of Obtaining Professional Tax Assistance................................................125
XII. CONCLUSION AND RECOMMENDATION.............................................................................125
APPENDICES
Appendix "1" Debtors' Consolidated Plan Under Chapter 11 of the Bankruptcy
Code
Appendix "2" Debtors' 10-K for the Fiscal Year ended September 30, 1997
and 10-Q for the Fiscal Quarter ended March 31, 1998
Appendix "3" Corporate Structure of the Debtors
Appendix "4" Liquidation Analysis and Contrasting Distributions under
Plan vs. Chapter 7 Liquidation
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I. INTRODUCTION AND SUMMARY.
The following introduction and summary is qualified in its entirety by,
and should be read in conjunction with, the more detailed information and
financial statements and notes thereto appearing elsewhere in this Disclosure
Statement. References herein to a "fiscal" year refer to the fiscal year of the
Debtors ended the last day of September in the calendar year indicated. All
capitalized terms used in this Disclosure Statement have the meanings ascribed
to such terms in the Plan, a copy of which is annexed hereto as Appendix "1,"
except as otherwise indicated.
A. The Solicitation.
On July 10, 1998, the Debtors filed their Plan with the United States
Bankruptcy Court for the District of Delaware, 824 N. Market Street, Marine
Midland Plaza, Wilmington, Delaware 19801 (the "Bankruptcy Court"). A copy of
the Plan is annexed hereto as Appendix "1". Simultaneously therewith, the
Debtors filed this Disclosure Statement with the Bankruptcy Court pursuant to
section 1125 of title 11 of the United States Code (the "Bankruptcy Code") and
in connection with the solicitation of votes (the "Solicitation") with respect
to the Plan.
On __________ __, 1998, the Bankruptcy Court determined that this
Disclosure Statement contains "adequate information" in accordance with section
1125 of the Bankruptcy Code. Pursuant to section 1125(a)(1) of the Bankruptcy
Code, "adequate information" is defined as "information of a kind, and in
sufficient detail, as far as reasonably practicable in light of the nature and
history of the debtor and the condition of the debtors' books and records, that
would enable a hypothetical reasonable investor typical of holders of claims or
interests of the relevant class to make an informed judgment about the plan . .
.." 11 U.S.C. ss. 1125(a)(1).
The Bankruptcy Court has scheduled a hearing to consider confirmation
of the Plan for __________ __, 1998 before the Honorable Sue L. Robinson, United
States District Court Judge, J. Caleb Boggs Federal Building, 844 King Street,
Wilmington, Delaware 19801, at ______ _.m. Eastern Standard Time ("EST"). The
hearing may be adjourned from time to time without further notice other than by
announcement in the Bankruptcy Court on the scheduled date of such hearing. Any
objections to confirmation of the Plan must be in writing and must be filed with
the Clerk of the Bankruptcy Court and served on the counsel listed below to
ensure RECEIPT by them on or before [______ __], 1998 at 4:30 p.m. (EST).
Bankruptcy Rule 3007 governs the form of any such objection. Counsel on whom
objections must be served are:
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Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attn: Myron Trepper, Esq......................................... Co-Counsel for the Debtors
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Young Conaway Stargatt & Taylor
P.O. Box 391
11th Floor, Rodney Square North
Wilmington, Delaware 19899
Attn: James L. Patton, Jr., Esq.
S. David Peress, Esq....................................... Co-Counsel for the Debtors
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attn: Brad Eric Scheler, Esq..................................... Co-Counsel for the Creditors'
Committee
Rosenthal, Monhait, Gross & Goddess
919 North Market Street
Mellon Bank Center, Suite 1401
Wilmington, Delaware 19801
Attn: Kevin Gross, Esq........................................... Co-Counsel for the Creditors'
Committee
United States Trustee for the District of Delaware
The Curtis Center
601 Walnut Street, Suite 950W
Philadelphia, Pennsylvania 19106
Attn: John McLaughlin, Jr., Esq.................................. United States Trustee
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B. Recommendations.
THE DEBTORS AND THE CREDITORS' COMMITTEE RECOMMEND THAT EACH ENTITY
ENTITLED TO VOTE ON THE PLAN VOTE TO ACCEPT THE PLAN. The Debtors and the
Creditors' Committee believe that:
1. the Plan provides the best possible result for the holders of
Claims and Interests;
2. with respect to each Impaired Class of Claims or Interests, the
distributions under the Plan are greater than the amounts that would be
received if the Debtors were liquidated under chapter 7 of the Bankruptcy
Code; and
3. acceptance of the Plan is in the best interest of holders of
Claims and Interests.
C. Summary of the Plan.
Set forth in detail elsewhere in this Disclosure Statement is a
description of the technical aspects of the classification of Claims and
Interests, the relative allocations of
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property to holders of such Claims and Interests, the methodology as to how
such property is to be distributed, the risks inherent in the proposed Plan,
and the applicable bankruptcy and tax consequences of the proposed
reorganization. The Plan is complex and contains numerous settlements and
compromises in which the Debtors' principal constituencies will relinquish,
upon confirmation of the Plan subject to the occurrence of the Effective Date,
asserted and potential legal and equitable claims, interests and arguments in
exchange for the treatment provided by the Plan. The Debtors believe that the
following broad overview of what creditors and equity holders will receive
under the Plan will be helpful in your consideration of whether you wish to
accept or reject the Plan. This summary does not purport to be complete and
should only be relied upon for voting purposes when read in conjunction with
the Plan and Disclosure Statement in their entirety.
The Debtors seek, solely for purposes of the Plan, the distribution and
other transactions contemplated thereby, to substantively consolidate the
Debtors and accordingly, the Plan provides for such substantive consolidation.
This means that for classification, voting and distribution purposes under the
Plan, a holder of Claims against any of the Debtors will share with creditors of
all of the other Debtors in a common pool of assets and will receive a pro rata
distribution with other similarly situated creditors asserting claims against
any of the Debtors. For a description of the requirements for a determination
of, and the consequences of substantive consolidation, see "THE PLAN-Substantive
Consolidation." As set forth in the Plan, Reorganized Harvard will continue to
own, directly or indirectly, all outstanding capital stock of the other Debtors
which it currently owns, except for those that are dissolved or merged into
other Debtors pursuant to the Combination Transactions.
The Plan provides generally that creditors of the Debtors will receive
distributions as follows: (i) holders of Allowed Priority Claims will receive
payment in full, in Cash; (ii) holders of Allowed Prepetition Lenders' Claims
will receive payment in full, in Cash; (iii) holders of Allowed Miscellaneous
Secured Claims will receive, at the option of the Debtors (a) such treatment as
will leave such holder Unimpaired, (b) payment in full, in Cash, or (c) return
of such holder's collateral in the possession of the Debtors; (iv) the holder of
the Allowed PBGC Claim will receive treatment provided under the PBGC Agreement;
(v) holders of General Unsecured Claims will receive (y) to the extent Allowed
their pro rata share of 100% of the New Common Stock of Reorganized Harvard
(subject to dilution pursuant to provisions of the Plan, including the Emergence
Bonus Plan, Incentive Plan and New Warrants) and (z) to the extent not
Disallowed by the Confirmation Date, the right to subscribe to Rights and
Oversubscription Options to purchase $44 million in New Junior Secured
Debentures; (vi) holders of Allowed Convenience Claims, including holders of
General Unsecured Claims that elect to reduce their claims to $500.00 or less,
will receive payment in full, in Cash; (vii) holders of PIK Preferred Stock will
receive, in the event their Class votes to accept the Plan, their pro rata share
of 66.67% of the New Warrants; (viii) holders of Allowed Old Common Stock will
receive, in the event both their Class and the Class of Allowed PIK Preferred
Stock vote to accept the Plan, their pro rata share of 33.33% of the New
Warrants; (ix) subject to the Combination Transactions, holders of Allowed
Subsidiary Common Stock (who are the Debtors) will retain their interests; and
(x) holders of Allowed Old Other Interests will receive no distributions under
the Plan.
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The terms of the Plan provide for the discharge and/or release of,
among other things, certain liability of the Debtors, the Reorganized Debtors
and their respective directors and officers who have held such office or
employment [from and including the Petition Date] and the members of the
Creditors' Committee solely in their capacity as members of such.
CONFIRMATION OF THE PLAN WILL CONSTITUTE APPROVAL OF THE EMERGENCE
BONUS PLAN, INCENTIVE PLAN, THE MANAGEMENT EMPLOYMENT AGREEMENTS AND THE
CONSULTING AGREEMENT BY HOLDERS OF CLAIMS AND INTERESTS.
The nature and magnitude of the distributions to the holders of Claims
against and Interests in the Debtors provided for in the Plan are generally
based on the value of the assets of the Debtors and the relative priorities of
the Claims against and Interests in the Debtors. The following tables set forth
a quick reference guide to the classification and treatment of Allowed Claims
against and Allowed Interests in the Debtors.
Table I sets forth a summary of the Classes of Claims and Interests
established by the Plan. Table I is a summary only and is subject in all
respects to the specific provisions of the Plan.
4
<PAGE>
<TABLE>
<CAPTION>
TABLE I
Quick Reference Guide to
Classification of Claims
Against and Interests in the Debtors
------------------------------------
Class Estimate of
Claims/Interests Description Allowed Claims/Interests General Description of Class
- ---------------- ----------- ------------------------ ----------------------------
<S> <C> <C> <C>
Class 1 Claims Priority Claims $0 Any Claim entitled to priority pursuant to
section 507(a) of the Bankruptcy Code, other
than: (a) an Administrative Claim; or (b) a
Priority Tax Claim.
Class 2 Claims Prepetition Lenders' Claims [$116,120,847] The Secured Claims of the Prepetition Lenders
arising under the Prepetition Facility.
Class 3 Claims Miscellaneous Secured Claims [$8,109,500] Any Claim that is an Allowed secured Claim
under section 506(a) of the Bankruptcy Code
other than the Prepetition Lenders' Claim.
Class 4 Claims PBGC Claims [TO COME] Any Claim asserted by the PBGC
Class 5 Claims General Unsecured Claims [$500,000,000]1 Any Claim (including, without limitation, any
Deductible Claim) that is not an
Administrative Expense, Priority Tax Claim,
Priority Claim, Prepetition Lenders' Claim,
Miscellaneous Secured Claim, PBGC Claim,
Insured Portion or Convenience Claim.
</TABLE>
- ------------------------
1. These figures do not assume that any holder of a General Unsecured Claim
exercises its rights under the Plan to reduce voluntarily its Claim to
$500 or less.
5
<PAGE>
<TABLE>
<CAPTION>
Class Estimate of
Claims/Interests Description Allowed Claims/Interests General Description of Class
- ---------------- ----------- ------------------------ ----------------------------
<S> <C> <C>
Class 6 Claims Convenience Claims [$355,000]2 Any unsecured, nonpriority Claim against the
Debtors either (a) in the Face Amount of $500
or less or (b) a Face Amount greater than $500
which the holder thereof has elected on its
ballot to reduce its Claim prior to the voting
deadline on the Plan to an amount of $500 or
less.
Class 7 Interests PIK Preferred Stock 4,609,987 shares All authorized, issued and outstanding PIK
Preferred Stock of Harvard, $0.01 par value,
as of the Petition Date.
Class 8 Interests Old Common Stock 7,026,437 shares All authorized, issued and outstanding shares
of the Class B common stock of Harvard, $0.01
par value, as of the Petition Date.
Class 9 Interests Subsidiary Common Stock -- Any and all authorized, issued and outstanding
interests in the Debtors other than Harvard as
of the Petition Date.
Class 10 Interests Old Other Interests -- Any Interest, other than Old Common Stock
Interest, PIK Preferred Stock Interest or a
Subsidiary Common Stock Interest, including
without limitation, any preferred stock (other
than PIK Preferred Stock) and all issued,
outstanding and unexpired options, warrants,
conversion privileges or other legal or
contractual rights to acquire shares of PIK
Preferred Stock or Old Common Stock.
</TABLE>
- --------------------
2. These figures do not assume that any holder of a General Unsecured Claim
exercises its rights under the Plan to reduce voluntarily its Claim to
$500 or less.
6
<PAGE>
Table II is a summary of estimated recoveries for the different
Classes under the Plan and is subject in all respects to the Plan.
TABLE II
Projected Property
Distributions Under the Plan3
<TABLE>
<CAPTION>
The Holder of a: In the Allowed Will receive:
Amount of:
<S> <C> <C>
Class 1 Claim $1,000 $1,000 in Cash, unless otherwise agreed by the holder of an Allowed
(Priority Claim) Priority Claim and the Debtors and, if such agreement is made prior
to the Effective Date, upon prior written consent to the Creditors'
Committee.
Class 2 Claim $1,000 Either (a) $1,000 in Cash, or (b) such other treatment
agreed to by (Prepetition Lenders' Claim) the holder of such Claim and the
Debtors and, if such agreement is made prior to the Effective Date, upon
prior written consent of the Creditors' Committee.
Class 3 Claim $1,000 At the option of the Debtors and prior to the Effective Date, upon
(Miscellaneous Secured Claims) prior written consent to the Creditors' Committee (a) such treatment
as will leave such holder Unimpaired, (b) $1,000, in Cash, or (c)
return of such holder's collateral in the possession of the
Debtors.
Class 4 Claim N/A The treatment provided under the PBGC Agreement.
(PBGC Claims)
Class 5 Claim $1,000 New Common Stock valued at $______ to $_____.
(General Unsecured Claims)
Rights valued at $_____ to $_____ and Oversubscription Options.
Class 6 Claim $500 $500 in Cash.4
(Convenience Claims)
</TABLE>
- ---------------------
1 The recoveries shown on Table II are based on the following assumptions:
(a) the Allowed Class 5 Claims aggregate $[500] million; and (b) the
aggregate value of New Common Stock is between [$ ] to [$ ]. There are no
assurances that the Claims will actually be allowed in the amounts assumed
or the non-cash property distributed under the Plan will actually have the
values assumed herein. There also can be no assurance that there will be a
market for the New Common Stock or, if there is a market, that the New
Common Stock will trade at or near the valuation set forth above. See
"PROJECTIONS AND VALUATION--Valuation of Reorganized Debtors"
2 Holders of Class 5 Claims of more than $500 who elect to reduce their Class
5 Claims to $500 or less in accordance with section 7.20 of the Plan will
receive 100% of the amount of such Allowed Claim, as so reduced.
7
<PAGE>
<TABLE>
<S> <C> <C>
Class 7 Interests 1,000 Shares If Class 7 votes to accept the Plan, New Warrants valued at $___ to
(PIK Preferred Stock) $____ and if Class 7 does not vote to accept the Plan, no
distribution.
Class 8 Interest 1,000 Shares If Class 7 and Class 8 vote to accept the Plan, new Warrants valued
(Old Common Stock) at $___ to $____ and if Class 7 or Class 8 does not vote to accept
the Plan, no distribution.
Class 9 Interest 1,000 Shares Subject to the Combination Transactions, holders of Subsidiary Common
(Subsidiary Common Stock) Stock shall retain their interests.
Class 10 Interest 1,000 Shares No distributions will be made in respect of Old Other Interests. All
(Old Other Interests) such Old Other Interests issued, outstanding, and unexercised as of
the Effective Date will be canceled.
</TABLE>
D. Voting Procedures and Requirements.
Pursuant to provisions of the Bankruptcy Code, only Classes of Claims
against or equity Interests in a debtor that are impaired and that may receive
distributions under the terms and provisions of a chapter 11 plan are entitled
to vote to accept or reject a plan. Classes of claims or interests that are not
impaired are deemed to have accepted the Plan and are not entitled to vote on
the Plan. By virtue of the provisions of the Plan, (i) the Claims in Class 1 are
not Impaired under the Plan and, therefore, such Class is presumed to have
accepted the Plan, (ii) the Claims in Classes 2, 3, 4, 5 and 6 and the Interests
in Classes 7 and 8 are Impaired under the Plan and the holders of such Claims
and Interests are therefore entitled to vote to accept or reject the Plan; (iii)
the Interests in Class 9 are Impaired but the holders of these Interests are
proponents of the Plan and thus, are deemed to have accepted the Plan and (iv)
the Interests in Class 10 are deemed not to have accepted the Plan by virtue of
not receiving any distributions under the Plan.
The voting procedures are set forth in a voting procedures order dated
August [ ], 1998 (the "Voting Procedures Order"). For a summary of the
procedures established in the Voting Procedures Order, see "CONFIRMATION OF
PLAN--Voting Procedures and Requirements".
Some holders of such Claims and Interests might hold Claims and/or
Interests in more than one impaired Class and must vote separately for each
Class. Such holders will receive a separate ballot (a "Ballot") for all of their
Claims and/or Interests in each Class (in accordance with the records of the
Debtors and Bankruptcy Services, LLP, the Bankruptcy Court appointed Claims
agent ("BSI") and should complete and sign each Ballot separately). For most
holders of Claims and Interests in Impaired Classes, the Ballot enclosed with
the Disclosure Statement has been encoded with the amount of such holder's
Allowed Claim or Allowed Interest for voting purposes and the Class to which the
Claim or Interest has been attributed.
8
<PAGE>
If you hold a Claim in Classes 2, 3, 4, 5 and 6 or an Interest in Class
7 or 8 below, a ballot form for your vote (a "Ballot") is included in the
materials forwarded to you along with this Disclosure Statement.
Class Description Color of Ballot
----- ----------- ---------------
Class 1 Priority Claims No Ballot
Class 2 Prepetition Lenders' Claims White
Class 3 Miscellaneous Secured Claims Blue
Class 4 PBGC Claims Light Green
Class 5 General Unsecured Claims Orange
Class 6 Convenience Claims Green
Class 7 PIK Preferred Stock Yellow
Class 8 Old Common Stock Pink
Class 9 Subsidiary Common Stock No Ballot
Class 10 Old Other Interests No Ballot
If you hold Claims or Interests in more than one Class, you will
receive a separate Ballot for each such Claim or Interest.
After reviewing the Disclosure Statement and the Plan, please indicate
your vote on the enclosed Ballot (or Ballots) and return it (them) in the
envelope provided in a manner calculated to ensure receipt no later than 4:30
p.m. EST on ______ __, 1998.
Except to the extent the Debtors so determine or as permitted by the
Bankruptcy Court pursuant to Bankruptcy Rule 3018, Ballots that are not received
by the Balloting Agent by 4:30 p.m. EST on _________ __, 1998 will not be
accepted or used by the Debtors in connection with the Debtors' request for
confirmation of the Plan. Consistent with the provisions of Bankruptcy Rule
3018, the Debtors have fixed the Record Date (_____) as the time and date for
determination of holders of record of Claims and Interests who are entitled to
vote on the Plan. If you are the beneficial but not record holder of a Senior
Note Claim or an Interest in Classes 7 and 8, your Ballots should be returned as
instructed by the agent of record holder, if any. All other Ballots should be
returned directly to the Debtors by mail in the pre-addressed, postage-paid
envelope provided herewith as follows:
9
<PAGE>
Doehler-Jarvis Balloting
c/o Bankruptcy Services, LLC
70 East 55th Street
New York, New York 10022
Attn: Laura Campbell
If your Ballot in not signed and returned as described, it will not be
counted.
Do not return any evidence of indebtedness of your Claim against the
Debtors (i.e., Senior Notes) or Interests in the Debtors (i.e., stock
certificates) with your Ballot. For further information on casting your Ballot,
please see Article VII of this Disclosure Statement -- "CONFIRMATION OF THE PLAN
- -- Voting Procedures and Requirements"
If you have any questions about the procedure for voting, if a Ballot
is not included and you believe you are a holder of a Claim or Interest in one
or more of the Classes listed above or if you have received a damaged Ballot or
have lost your Ballot, you should contact:
Doehler-Jarvis Balloting
c/o Bankruptcy Services, LLC
70 East 55th Street
New York, New York 10022
Attn: Laura Campbell
Telephone: 1-888-498-7764
-or-
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attn: Craig M. Johnson, Esq.
Telephone: (212) 728-8000
E. Vote Required for Acceptance; Confirmation.
The Bankruptcy Code defines acceptance of a plan by an impaired class
of claims as acceptance by holders of at least two-thirds in dollar amount, and
more than one-half in number, of the claims of that class which actually cast
ballots. The Bankruptcy Code defines acceptance of a plan by an impaired class
of equity interests as acceptance by holders of at least two-thirds in amount of
the equity interests of that class that actually cast ballots. The vote of a
holder of a claim or interest may be disregarded if the Bankruptcy Court
determines, after notice and hearing, that the acceptance or rejection was not
solicited or procured in good faith.
In addition to this voting requirement, section 1129 of the Bankruptcy
Code requires that a plan be accepted by each holder of a claim or interest in
an impaired class or that the plan be found by the Court to provide the holder
with at least as much value on account of its
10
<PAGE>
claim as it would receive on a liquidation of the debtor under chapter 7 of the
Bankruptcy Code. See Appendix "5" hereto, "Liquidation Analysis and Contrasting
Distributions under Plan vs. Chapter 7 Liquidation."
Confirmation of the Plan will make the Plan binding upon the Debtors,
holders of Claims against and Interests in the Debtors and other parties in
interest regardless of whether they have accepted the Plan, and such holders of
Claims and/or Interests will be prohibited from receiving payment from, or
seeking recourse against, any assets that are distributed to other such holders
of Claims and/or Interests under the Plan. In addition, confirmation of the Plan
will enjoin creditors and equity interest holders from taking a wide variety of
actions on account of a debt, claim, liability, interest or right that arose
prior to the Confirmation Date. As of the Effective Date of the Plan,
confirmation will also operate as a discharge of all Claims against and
Interests in each Debtor, to the full extent authorized by section 1141(d) of
the Bankruptcy Code. (Section 1141(d) of the Bankruptcy Code provides,
generally, that except as otherwise provided in a plan or order confirming a
plan, confirmation of a plan (i) discharges the debtor from any debt that arose
before the date of such confirmation, including a debt of a kind specified under
specified sections of the Bankruptcy Code (such as rejection damages claims),
whether or not a proof of claim based on such debt is filed or deemed filed,
whether or not such claim is allowed, and whether or not the holder of such
claim has accepted the plan, and (ii) terminates all rights and interests of
equity security holders provided for by the plan.) See "THE PLAN -- Effects of
Plan Confirmation."
F. Effective Date of the Plan.
The Plan will not be consummated immediately upon confirmation, but
only upon the Effective Date. The Effective Date will not occur unless various
conditions to confirmation and consummation are satisfied (or waived pursuant
to, and in accordance with, the terms in the Plan). Certain of the conditions to
confirmation and consummation may be waived by the Debtors with the prior
written consent of the Creditors' Committee. There is no assurance, however,
that the Debtors would waive any such conditions or the Creditors' Committee
would consent to the waiver. The Confirmation Order may be vacated if the
conditions to the Effective Date are not timely met or waived.
Because of the conditions to the Effective Date provided in the Plan, a
delay will occur between confirmation of the Plan and the Effective Date. There
is no assurance that the conditions to the Effective Date will be fulfilled, or
that any waivable condition which is not fulfilled will in fact be waived. The
Plan provides that it is a condition to consummation of the Plan that each of
the conditions set forth in Sections 12.1 and 12.2 of the Plan has been
satisfied or waived in accordance with Section 12.3 of the Plan.
The implementation of the Plan includes certain risks and, similarly,
the businesses in which the Reorganized Debtors are and will continue to be
engaged involve certain risks. For a discussion of these risks, see Article VI,
"RISK FACTORS."
11
<PAGE>
The Debtors currently believe that all conditions to the Effective Date
of the Plan will likely be satisfied within sixty (60) days of the Confirmation
Date, and that the Effective Date of the Plan may occur by ________ 1998.
II. BACKGROUND
A. Executive Offices; Financial Information.
The Debtors' chief executive offices are currently located at 3 Werner
Way, Lebanon, New Jersey 08833. Until December 1997, the executive offices were
located at 2502 N. Rocky Point Drive, Suite 960, Tampa, Florida 33607.
Financial information regarding the Debtors is set forth in Appendix
"2" hereto, consisting of the Debtors' Form 10-K for fiscal year 1998 and the
Debtors' Form 10-Q for the second quarter of fiscal year 1998, which contain
audited consolidated financial statements for Harvard and its subsidiaries at
September 30, 1997 and unaudited financial statements for the six months ended
March 31, 1998.
B. Corporate Structure of the Debtors.
Harvard is both an operating company and a holding company which has
operating and non-operating subsidiaries in the United States and abroad,
including the other Debtors. All of Harvard's direct and indirect domestic
subsidiaries filed chapter 11 petitions on the Petition Date. Harvard directly
or indirectly owns 100% of the outstanding voting securities of all of the
Debtor subsidiaries, as set forth on Appendix "3" annexed hereto. Two Canadian
subsidiaries of Harvard are not debtors under the Bankruptcy Code and, absent a
specific order of the Bankruptcy Court, neither of such Canadian subsidiaries
are subject to the jurisdiction of the Bankruptcy Court.
C. Capital Structure of the Debtors.
1. Equity.
The equity portion of Harvard's capital structure is comprised of Old
Common Stock, PIK Preferred Stock and Preferred Stock.
Common Stock. Harvard's Old 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 Old Common Stock was traded on the NASDAQ
National Market under the symbol "HAVA". As of December 15, 1997, there were
7,026,437 shares of Old Common Stock outstanding held by approximately 145
holders of record. Harvard's Certificate of Incorporation authorizes the
issuance of 15,000,000 shares. The table below sets forth the high and low bid
quotations for Harvard's Old Common Stock from October 1, 1995 through March 31,
1997. These bid prices, which were obtained from NASDAQ Trading and Market
Service or Bloomberg, L.P., represent prices between dealers without adjustment
for retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
12
<PAGE>
Common Stock Price Range
------------------------
Fiscal Year High Low
- ----------- ---- ---
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 $ 4.50 $ 0.6875
Third Quarter $ 1.1875 $ 0.4375
Fourth Quarter $ 0.96875 $ 0.28125
1998:
First Quarter $ 1.25 $ 0.375
Second Quarter $ 1.00 $ 0.5625
Third Quarter $ 0.71875. $ 0.531
PIK Preferred Stock. Under its Certificate of Incorporation, Harvard is
authorized to issue 12,000,000 shares of PIK Preferred Stock par value $.01 per
share. As of December 31, 1997, there were 4,609,987 shares issued and
outstanding. The PIK Preferred Stock on liquidation, winding up and dissolution
ranks senior to Old 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 holders of Common Stock. Holders of PIK Preferred Stock are entitled to
cumulative dividends at the rate per annum of $3.5625 per share, payable at
Harvard's option in cash or in additional shares of PIK Preferred Stock. Harvard
may, at its option, at any time, exchange for all of its issued and outstanding
shares of PIK Preferred Stock, 14 1/4% subordinated notes due November 16, 1998.
Upon exercise of such option, holders would be entitled to receive $25 principal
amount of such notes for each share of PIK Preferred Stock. On November 16,
1998, Harvard is entitled to redeem all shares of PIK Preferred Stock
outstanding at the liquidation preference price which is estimated to be $151
million in the aggregate.
Preferred Stock. Pursuant to its Certificate of Incorporation, Harvard
is authorized to issue 500,000 shares of Series A, Junior Preferred Stock, par
value $.01 per share ("Preferred Stock"). The shares were authorized by the
Board of Directors of Harvard in October 1994 in connection with a "poison pill"
plan designed to deter coercive takeover tactics at an unfair price by entitling
each holder of Old Common Stock to receive, in the form of a dividend, a right
to purchase a fraction of a share of Preferred Stock for each share of Old
Common Stock under certain terms and conditions. There are presently no shares
of Preferred Stock outstanding.
13
<PAGE>
2. Debt.
On July 26, 1994, Harvard consummated a public offering relating to
$100 million aggregate principal amount of 12% Senior Notes due 2004 (the "12%
Senior Notes") and on July 28, 1995, Harvard consummated a private placement
offering of $200 million principal amount of 11 1/8% Senior Notes Due 2005 (the
"11 1/8% Senior Notes" and together with the 12% Notes, the "Senior Notes"). The
net proceeds for the sale of 12% Notes were used (i) to prepay all indebtedness
outstanding under the Debtors' then existing bank credit agreement, (ii) to pay
certain trade payables that were incurred by Harvard prior to Harvard's 1991
bankruptcy filing and (iii) for general corporate purposes. No principal
payments have been made on the 12% Senior Notes. The net proceeds from the sale
of the 11 1/8% Senior Notes, together with Cash on hand, were used to finance
the acquisition of the Doehler-Jarvis Entities. No principal payments on the 11
1/8% Senior Notes have been made. All of the other Debtors are guarantors of the
Senior Notes. Both tranches of Senior Notes were issued pursuant to indentures
with First Union National Bank of North Carolina acting as Indenture Trustee.
Prior to the Petition Date, the Debtors had financed their working and
other capital needs through the Prepetition Financing Facility (as defined
below), which provided the Debtors with an aggregate credit line of up to $130
million, consisting of a $30,000,000 term loan facility and revolving loans and
letters of credit of up to $100,000,000 (of which up to $25,000,000 could have
been extended in the form of letters of credit). As of the Petition Date, the
Debtors' borrowing under the Prepetition Financing Facility totaled
approximately $116 million, consisting of approximately $30 million aggregate
principal amount outstanding under the term loan facility and $86 million
aggregate principal amount outstanding under the revolving loan facility,
including letters of credit outstanding of approximately $12 million.
On May 8, 1997, Harvard and certain of its subsidiaries obtained loans
pursuant to the Post-Petition Loan and Security Agreement to enable them to
continue operations during the Chapter 11 Cases. The Post-Petition Loan and
Security Agreement provides for $65 million of term loans and $110 million of
revolving credit loans, which includes a $25 million sub-limit principally for
standby letters of credit. As collateral, the Debtors have pledged substantially
all of their assets. The CIT Group/Business Credit, Inc. acts as agent for the
lenders under the Post-Petition Loan and Security Agreement. Subject to the
Creditors' Committee's rights to challenge the validity, priority and extent of
liens granted pursuant to Post-Petition Loan and Security Agreement, and in
conjunction with the Post-Petition Loan and Security Agreement, the proceeds
were used, in part, to satisfy the Debtors' obligations under their Pre-Petition
Credit Agreement with the identical lenders. See "THE PLAN -- Discussion with
Constituencies."
In January 1998, to afford the Debtors greater liquidity and
availability under their existing DIP Facility, the Debtors entered into a term
loan agreement for a $25 million term loan facility (the "Junior DIP Facility")
which is secured by substantially all of the assets of the Debtors but
subordinate to the security interests under the DIP Facility. There are fourteen
lenders under the Junior DIP Facility, all of whom are members or affiliates of
members of
14
<PAGE>
the Creditors' Committee. See "THE CHAPTER 11 Cases -- Significant Events During
The Chapter 11 Cases -- Junior DIP Facility."
D. The Debtors.
On May 8, 1997, each of the Debtors filed a voluntary petition under
Chapter 11 of the Bankruptcy Code. Each Debtor has continued to retain its
property and manage its business as a debtor-in-possession pursuant to sections
1107(a) and 1108 of the Bankruptcy Code. No trustee or examiner has been
appointed for any of the Debtors or their property. The Debtors' Chapter 11
Cases have been consolidated for procedural purposes and are being jointly
administered pursuant to an order of the Court.
Harvard was incorporated in the State of Delaware in 1932, and
reincorporated in the State of Florida in 1996 through a merger with a
wholly-owned subsidiary. Together with its subsidiaries, 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 "Big Three"). During the Debtors' Chapter 11
Cases, the Debtors moved their chief executive offices from Tampa, Florida to 3
Werner Way, Lebanon, New Jersey 08833.
Consolidated net sales for the fiscal year ended September 30, 1997
were $810.8 million. Of such sales, approximately 43%, 33% and 7% were
attributable to GM, Ford and Chrysler, respectively. The Debtors' automotive
sales represented 98% of consolidated net sales for fiscal year 1997.
The Debtors conduct their automotive businesses primarily through four
wholly-owned subsidiaries, Kingston-Warren, Harman, Hayes-Albion and
Doehler-Jarvis. Doehler-Jarvis, in turn, conducts its activities through four
direct subsidiaries, namely, Toledo, Pottstown, Greeneville and Technologies
(collectively, including Doehler-Jarvis, the "Doehler-Jarvis Entities"). The
Debtors 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.
In general, the Debtors' current strategy is directed toward
diversifying their product mix and broadening their base of business away from
OEM and more toward the aftermarket and industrial segments. While OEM business
will still constitute a major portion of the Debtors' businesses, they currently
intend to implement an aggressive capital investment program directed toward
upgrading equipment to not only increase efficiency in manufacturing for the
OEMs but to create excess capacity to produce higher margin aftermarket and
industrial products. See "RISK FACTORS -- Business Risks -- Capital
Expenditures."
15
<PAGE>
E. Operations Description.
1. Overview.
In general, automotive component manufacturers, like the Debtors, 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 toward 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
partners see their new products incorporated into new platforms. 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 a result of the long delay between being awarded a contract for a
new platform and the considerable designing and planning obligations required of
the successful bidder during this period of delay, the OEMs have been reluctant
to award new business to the Debtors prior to the Debtors demonstrating that
their reorganization has been successfully completed and such reorganization has
assured the long-term viability of the Debtors' operations. The failure to be
awarded new business is beginning to be felt by the Debtors and a delay in
emerging from chapter 11 could have serious effect on the financial strength of
the Debtors in the next several years when the new platforms being awarded today
commence production.
2. 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 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 Motor Company ("Toyota"). Until a sale of the business unit in
November 1997, Kingston-Warren manufactured flow-through material storage racks
and electronic order-
16
<PAGE>
picking systems primarily for warehouses and distribution centers. See "THE
CHAPTER 11 Cases -- Significant Events During Chapter 11 Cases -- Asset Sales."
Kingston-Warren has three manufacturing locations: Newfields, New Hampshire;
Wytheville, Virginia; and Church Hill, Tennessee.
Doehler-Jarvis Entities.
The Doehler-Jarvis Entities have conducted their businesses since 1907.
The Doehler-Jarvis Entities specialize in complex, high volume aluminum castings
primarily for use in the automobile industry. The Doehler-Jarvis Entities
conduct their operations primarily at three manufacturing facilities located in
Toledo, Ohio; Pottstown, Pennsylvania; and Greeneville, Tennessee. Management is
in the process of winding-up the Toledo facility and is considering a sale of
the Greeneville facility. See "THE CHAPTER 11 CASES -- Significant Events During
Chapter 11 Cases -- Asset Sales."
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. 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. The Doehler-Jarvis Entities use primarily the high pressure die
casting and semi-permanent and permanent mold casting processes in addition to
their proprietary DoehlerCore(C) process for their current production.
Doehler-Jarvis became a wholly owned subsidiary of Harvard pursuant to
a merger transaction on July 28, 1995. The purchase price paid by Harvard for
Doehler-Jarvis totaled more than $218,000,000, comprised of $107,000,000 in Cash
and assumption of $111,000,000 in liabilities. Consolidated sales of the
Doehler-Jarvis Entities amounted to $294.5 million for fiscal year 1997 and a
negative gross profit in excess of $21 million was incurred for the same period,
which management believes was caused primarily by operational inefficiencies
partially offset by curtailment gains with respect to post-retirement
obligations. See "THE CHAPTER 11 CASES -- Significant Events During the Chapter
11 Cases -- Potential Doehler-Jarvis Acquisition Claims."
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 also
manufactured for the automotive, transportation, construction and machinery
industries. Hayes-Albion's principal customers are the Big Three, Caterpillar,
Inc., Toyota Motor Company and Dana
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Corporation. 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.
Hayes-Albion's Trim Trends division is a full-line producer of
functional and decorative metal stamped and roll form products for use as
original equipment by the Big Three. The Trim Trends division operates out of an
additional four facilities located in Deckerville and Snover, Michigan;
Spencerville and Bryan, Ohio.
F. Events Leading To Chapter 11 Filings.
Increasingly in fiscal year 1996 and the first two quarters of fiscal
year of 1997, the purchase of the Doehler-Jarvis Entities created a tremendous
strain on the Debtors' liquidity and financial well-being. The Debtors
experienced a deficiency of earnings over fixed charges as a result of the
unprofitable operations of the Doehler-Jarvis Entities and the increased
interest cost associated with the transaction. The inability of the Toledo plant
to maintain delivery dates compatible with customer demands resulted in Ford
transferring approximately $8 million in business to a competitor of the Debtors
during fiscal year 1996. In addition to operating losses of approximately $14
million before interest expense and goodwill amortization, for fiscal year 1996
at the Doehler-Jarvis Entities' facilities, Doehler-Jarvis spent additional sums
on capital expenditures. As a result of the Debtors' insufficient near term and
long term liquidity, the Debtors believed that the Big Three would have been
reluctant to enter into new long-term purchase orders unless the Debtors could
have adequately demonstrated their on-going long term viability.
The Debtors believed that Doehler-Jarvis had long term intrinsic value,
but only if infused with substantial capital to fund near term operating losses
and capital expenditures. The Debtors, however, lacked access to the investment
capital necessary to return Doehler-Jarvis to profitability. The Debtors had
financed their working and other capital needs through a financing agreement
dated as of October 4, 1996, as amended on December 20, 1996 and April 21, 1997,
(the "Prepetition Financing Facility") with The CIT Group/Business Credit, Inc.
("CIT"), as lender and as agent for a group of lenders (collectively, the
"Prepetition Lenders"). The Prepetition Financing Facility provided the Debtors
with an aggregate credit line of up to $130 million, consisting of a $30 million
term loan facility (the "Prepetition Term Loan") and revolving loans (the
"Prepetition Revolving Loans") and letters of credit of up to $100 million (of
which up to $25 million could have been extended in the form of letters of
credit). As security for the Prepetition Financing Facility, the Debtors granted
to the Prepetition Lenders a security interest and general lien on, inter alia,
all present and future accounts receivable, inventories, bank accounts and
general intangibles, together with the proceeds thereof. As additional
collateral for the term loan portion of the Prepetition Financing Facility, the
Debtors granted the lenders a security interest and general lien on present and
future acquired equipment and other pledged collateral, including the issued and
outstanding shares of stock of the Debtors (other than 177192 Canada, Inc., Trim
Trends Canada, Ltd. and Transportation). As of May 8, 1997, the Debtors'
borrowing under the Prepetition Financing Facility totaled approximately $116
million, consisting of approximately
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$30 million on the Prepetition Term Loan and $86 million on the Prepetition
Revolving Loans, including letters of credit outstanding of approximately $12
million. See "THE PLAN -- Discussions with Constituencies."
The Debtors had expected to borrow the maximum amount available under
the Financing Agreement by the end of fiscal year 1997. Even with such
availability, the Debtors did not have sufficient cash to make necessary
capital expenditures to enhance their viability, to make the July and August
1997 interest payments due under the 12% Notes and 11 1/8% Notes,
respectively, as well as to continue to fund the anticipated operating losses
at Doehler-Jarvis.
In the six months ended March 31, 1997, compared to the six months
ended March 31, 1996, consolidated sales decreased approximately $15 million
or approximately 4%. A number of factors contributed to the decline in sales,
including the effects of an October 1996 GM strike and lower than projected
sales of tooling. Furthermore, the Debtors suffered a negative gross profit of
approximately $4 million for the first six months of fiscal year 1997, as
compared to a gross profit of approximately $26 million during the first six
months of fiscal year 1996, with the result that the Debtors then forecast a
net loss for fiscal year 1997. These adverse results created potential
defaults under the Debtors' lending arrangements and caused the Prepetition
Lenders to reevaluate their lending arrangements and to tighten already
burdensome covenants.
As a result of the Debtors' inability to obtain additional credit
under the Prepetition Financing Facility beyond $130 million in a pre-chapter
11 environment and the imposition of tighter financial covenants, the Debtors
concluded that they would not have sufficient liquidity to (i) make the
semi-annual interest payments on the Senior Notes, (ii) to make the projected
capital expenditures necessary to improve the facilities utilized by the
Doehler-Jarvis Entities and (iii) to provide liquidity in the event of an
unexpected downturn in the automotive component manufacturing industry.
Accordingly, the Debtors determined in May 1997 that the filing of voluntary
petitions for relief under chapter 11 of the Bankruptcy Code was in their best
interests.
III. THE CHAPTER 11 CASES.
A. Continuation of Business; Stay of Litigation.
On May 8, 1997 (the "Petition Date"), each of the Debtors commenced a
voluntary Chapter 11 Case. The Chapter 11 Cases are being jointly administered
for procedural purposes only. Since the Petition Date, the Debtors have
continued to operate as debtors in possession subject to the supervision of the
Bankruptcy Court in accordance with the Bankruptcy Code. The Debtors are
authorized to operate in the ordinary course of business. Transactions out of
the ordinary course of business have required Bankruptcy Court approval. In
addition, the Bankruptcy Court has supervised the Debtors' employment of
attorneys, accountants and other professionals.
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An immediate effect of the filing of the bankruptcy petition was the
imposition of the automatic stay under the Bankruptcy Code which, with limited
exceptions, enjoined the commencement or continuation of all collection efforts
by creditors, the enforcement of liens against the Debtors and litigation
against the Debtors. This injunction remains in effect, unless modified or
lifted by order of the Bankruptcy Court, until consummation of a plan of
reorganization.
B. Significant Events During the Chapter 11 Cases.
1. First Day Orders.
The Debtors submitted numerous so-called "first day orders," along with
supporting motions, to the Bankruptcy Court on the Petition Date, which were
approved. These first day orders include, among others: (i) orders authorizing
the retention of Young Conaway Stargatt & Taylor, LLP and Willkie Farr &
Gallagher as bankruptcy counsel to the Debtors; (ii) an order authorizing the
retention of Price Waterhouse LLP as accountants and consultants to the Debtors;
(iii) an order authorizing the Debtors to pay certain prepetition employee
wages, reimbursable expenses and benefits and workers' compensation benefits
(further discussed below); (iv) an order authorizing the Debtors to maintain
their prepetition bank accounts, business forms, stationery, checks, and cash
management system and granting additional time to comply with the investment
guidelines of section 345 of the Bankruptcy Code; (v) an order extending the
time by which the Debtors have been required to file certain information,
including schedules and lists; (vi) an order authorizing the Debtors to continue
certain customer warranty practices; (vii) an order determining adequate
assurance of payment for future utility services and restraining utility
companies from discontinuing, altering or refusing service; (viii) an interim
order authorizing the incurrence of post-petition debt; (ix) an order
authorizing the Debtors to retain certain ordinary course professionals; (x) an
order authorizing the Debtors to honor certain customer advance payments; (xi)
an order authorizing the Debtors to mail initial notices and to file a list of
creditors in lieu of a matrix; and (xii) an order directing the joint
administration of the Debtors' Chapter 11 Cases. Some of the First Day Orders
are summarized below:
(a) Prepetition Wage and Benefits Order.
On the Petition Date, the Bankruptcy Court approved an order
authorizing the Debtors to pay certain prepetition (i) employee wages,
salaries and other compensation and reimbursable employee expenses, (ii)
employee medical, dental and similar benefits and (iii) workers' compensation
benefits (the "Prepetition Wage and Benefits Order"). The Debtors believe such
relief was necessary to avoid serious disruption to their business at a
critical juncture in the Debtors' reorganization. Payments made pursuant to
such order will reduce the amount of Priority Claims and General Unsecured
Claims. See "THE PLAN -- Classification and Treatment of Claim and Interests
Under the Plan -- Class 1 -- Priority Claims."
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(b) DIP Facility.
On May 9, 1997, the Bankruptcy Court granted interim approval of a
debtor-in-possession financing facility pursuant to which CIT, as agent for a
consortium of lenders identical to the prepetition lenders (as substituted from
time to time, the "DIP Lenders") provided the Debtors with post-petition
financing of up to $175 million in the form of a $65 million term loan and a
$110 million revolving credit facility (which includes a $25 million sub-limit
of credit facility principally for stand-by letters of credit) to be used by the
Debtors for their working capital and general corporate requirements
(collectively, the "DIP Facility"). As collateral for the DIP Facility, the
Debtors pledged substantially all of their assets. The interim approval allowed
the Debtors to immediately make borrowings of up to $80 million under the credit
facility. On June 12, 1997, the Bankruptcy Court granted final approval of the
DIP Facility (the "Final DIP Order"). The DIP Facility will mature on the
earliest of (i) May 8, 1999, (ii) the effective date of a plan of reorganization
for the Debtors or (iii) the date of substantial consummation of such plan of
reorganization. Pursuant to the Bankruptcy Court's approval of the DIP Facility,
CIT, for the benefit of CIT and the other lenders, has an administrative claim
with priority over virtually all other Claims in the Chapter 11 Cases, including
Administrative Expenses (subject to certain carve-outs) and a lien that is
senior to substantially all liens, claims, interests and encumbrances arising
before or after the Petition Date. See "THE PLAN -- Discussion with
Constituencies."
The revolving credit loans bear interest at the rate of 1.5% in excess
of the base rate (i.e., prime rate) and the term loans bear interest at the rate
of 1.75% in excess of the base rate. The DIP Lenders also earn a fee of 2% per
annum on the face amount of each standby letter of credit they issue on behalf
of the Debtors. 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. The DIP Lenders also received a $1.375 million closing fee.
The term loans provide for quarterly principal payments of $3.25 million
beginning November 30, 1997 through February 28, 1999, with a final installment
of $45.5 million due on May 8, 1999.
The DIP Facility provides that the net proceeds from asset sales are to
be utilized to repay principal in respect of the revolving credit loans to the
extent of the value of the collateral sold, with any excess proceeds to be
applied to the term loans.
The DIP Facility includes certain restrictive covenants that apply to
the Debtors, including restrictions on other indebtedness, liens, sales of
assets, dividends and distributions, capital expenditures, mergers,
acquisitions, divestitures, reorganizations, payments of pre- petition debt
(with certain exceptions) and transactions with affiliates, and requirements
regarding satisfaction of certain financial ratios and insurance coverage. The
DIP Facility also includes typical events of default, including entry of an
order granting relief to prepetition creditors from the automatic stay, a
conversion of the Chapter 11 Cases into cases under chapter 7 of the Bankruptcy
Code and/or a change of ownership or control of the Debtors.
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The proceeds from the revolving credit loan component of the DIP
Facility have been used to pay for, among other things: (i) the postpetition
operating expenses incurred by the Debtors in the ordinary course of business;
(ii) the fees of Professionals retained by the Debtors and the Creditors'
Committee in these Chapter 11 Cases; and (iii) Permitted Pre-Petition Claim
Payments (as defined in the DIP Facility). Additionally, subject to the rights
of the Creditors' Committee to challenge, among other things, the extent,
validity and priority of the Prepetition Lenders' liens, the proceeds have been
used to satisfy obligations under the Prepetition Credit Facility, resulting in
concomitant increases in borrowings under the DIP Facility. The proceeds from
the term loan component of the DIP Facility were used first to repay the
outstanding Prepetition Term Loan including unpaid interest at the non-default
rate and then to repay the outstanding Prepetition Revolving Loans including
unpaid interest on the amount prepaid.
Subsequent to the entry of the Final DIP Order, the DIP Facility and
the Post-Petition Loan and Security Agreement have been the subject of four
amendments. On December 29, 1997, the Debtors entered into Amendment No. 1
Waiver and Consent ("Amendment No. 1") to the DIP Facility Agreement with the
DIP Lenders whereby the DIP Lenders waived all defaults or events of default
which occurred prior to December 29, 1997 as a result of the Debtors' failure to
meet the fixed charge ratio financial covenant during October and November 1997.
Amendment No. 1 also replaced the fixed charge ratio covenant with monthly
consolidated earnings before interest, taxes, depreciation and amortization
("EBITDA") and consolidated tangible net worth covenants, commencing
calculations at December 31, 1997. Amendment No. 1 also provided that the DIP
Lenders' consent is required for capital expenditures, in excess of $30 million
for fiscal year 1998.
The Debtors also entered into Amendment No. 2 and Consent to the
Post-Petition Loan and Security Agreement, dated January 16, 1998 ("Amendment
No. 2"), whereby the DIP Lenders consented to the Junior DIP Facility, the grant
of subordinated liens thereunder and the sale of certain assets by the Debtors.
In addition, the Debtors entered into Amendment No. 3 to the
Post-Petition Loan and Security Agreement, dated as of April 30, 1998, whereby
the DIP Lenders extended to May 31, 1998, the date by which the Debtors were
required to have Bankruptcy Court approval of an agreement with Ford regarding
the wind-down of the Toledo facility. Amendment No. 4 to the Post-Petition Loan
and Security Agreement, dated as of June 23, 1998, further extended the deadline
for Bankruptcy Court approval of an agreement with Ford until June 30, 1998 and
modified the required terms of such for what such agreement must provide.
2. Appointment of Creditors' Committee.
On May 19, 1997, the United States Trustee for the District of Delaware
appointed the following Entities to the Official Committee of Unsecured
Creditors of the Debtors (the "Creditors' Committee"): (i) Franklin Age High
Income Fund (Co-chair); (ii) Imco Recycling, Inc. (Co-chair); (iii) Atlantic
Richfield Co.; (iv) First Union National Bank, as Indenture Trustee; (v)
International Union, United Autoworkers Union ("UAW"); (vi) M.A. Hanna
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Rubber Company; (vii) Magten Asset Management Corp.; (viii) Pacholder
Associates; (ix) the Pension Benefit Guaranty Corporation (the "PBGC") and (x)
PPG Industries, Inc. On October 27, 1997, PPG resigned from the Creditors'
Committee. The Creditors' Committee is represented by the law firms of Fried,
Frank, Harris, Shriver & Jacobson and Rosenthal Monhait Gross & Goddess P.A.
Chanin, Kirkland, Messina, LLC has been retained as financial advisors to the
Creditors' Committee. On July 10, 1997, the Creditors' Committee retained Roger
Pollazzi as an automotive industry consultant. Mr. Pollazzi acted in this
capacity until November 1997 when he resigned to become Chief Operating Officer
of Harvard.
3. Retentions of Professionals.
At the commencement of the Chapter 11 Cases, the Debtors retained
Willkie Farr & Gallagher and Young Conaway Stargatt & Taylor, LLP as bankruptcy
co-counsel. In addition, the Debtors retained following professionals to assist
in a variety of areas and issues relating to the Chapter 11 Cases:
o Houlihan, Lokey, Howard & Zukin. Financial Advisors to assist the
Debtors in connection with all aspects of a restructuring,
reorganization and/or liquidation of assets under a plan of
reorganization.
o Price Waterhouse LLP. Independent accountants/auditors.
o Public Communication, Inc. Public relations consultants in connection
with these Chapter 11 Cases.
o Bankruptcy Services, LLC. Agent for the Clerk of the Bankruptcy Court
for the purposes of mailing, receiving, docketing and maintaining
proofs of claim filed against the Debtors and assisting the Debtors in
soliciting votes on their Plan through the distribution, review and
tabulation of the Ballots.
The Debtors also retained various special counsel and other
professionals relating to among other things: (i) tax preparation and other tax
advice, (ii) legal advice and representing the Debtors in connection with
routine litigation, (iii) patent, trademark and customs advice, (iv) appraisals
and valuation of property, (v) regulatory compliance matters, (vi) actuarial
services in connection with employee benefit plans, (vii) financial audits and
(ix) other matters requiring the expertise and assistance of professionals not
directly related to the Chapter 11 Cases.
During the pendency of these Chapter 11 Cases, it has also been
necessary for the Debtors to retain other professionals to assist in a variety
of discrete projects:
o Skadden, Arps, Slate, Meager & Flom LLP. Special defense counsel to
represent Harvard in matters relating to the United States
Government's investigation of Harvard's ESNA Facility.
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o Jones, Day, Reavis & Pogue. Special environmental counsel to represent
the Debtors in matters arising out of the American Littoral Society's
claim in the Debtors' Chapter 11 Cases.
o Frost & Jacobs. Special Labor Counsel to represent the Debtors in
various labor matters in the Debtors' Chapter 11 Cases.
o Stump and Company. Financial advisors to assist Harvard in the
disposition of the assets of Harvard's Harvard Interiors Manufacturing
Company division ("Harvard Interiors").
o Coopers & Lybrand, LLP. Advisors to assist the Debtors with the
implementation and installation of certain software designed to
resolve Year 2000 problems.
Section 328 of the Bankruptcy Code authorizes any official committee
(i.e., the Creditors' Committee) to employ professionals. The following are the
professionals who have been retained by the Creditors' Committee by order of the
Court:
o Fried, Frank, Harris, Shriver & Jacobson. Co-Counsel to the Creditors'
Committee.
o Rosenthal, Monhait, Gross & Goddess. Co-Counsel to the Creditors'
Committee.
o Chanin, Kirkland, Messina, LLC. Financial Advisor to the Creditors'
Committee.
o Roger Pollazzi. Automotive Industry Consultant (until November 16,
1997 when Mr. Pollazzi resigned to become Chief Operating Officer of
the Debtors). See "Significant Events During Chapter 11 Cases --
Management Transaction."
4. Management Transition.
In November 1997, with the support of the Creditors' Committee, the
Board of Directors of Harvard appointed Roger Pollazzi as its Chief Operating
Officer. Mr. Pollazzi has extensive experience in the automotive parts and
industrial castings industries. Mr. Pollazzi had served as Chairman of the Board
and Chief Executive Officer of the Pullman Company from 1992 until 1997. Prior
to his retention by the Creditors' Committee, Mr. Pollazzi was associated with
Concord Investment Partners, an investment firm based in Concord, Massachusetts.
As noted above, Mr. Pollazzi formerly served as an automotive industry
consultant to the Creditors' Committee and resigned that engagement upon his
appointment as Chief Operating Officer.
Shortly after his appointment, Mr. Pollazzi hired approximately ten
professionals as employees of Harvard to assist him in analyzing the Debtors'
operations, eliminating on-going negative cash flows associated with cash drains
at several of the Debtors' operations and coordinating and implementing the
Debtors' restructuring efforts. It is contemplated that Mr.
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Pollazzi and his management team will be the management team of the Reorganized
Debtors. See "MANAGEMENT OF REORGANIZED DEBTORS."
5. Junior DIP Facility.
In connection with the appointment of Roger Pollazzi as Chief Operating
Officer, certain members of the Creditors' Committee and/or their affiliates
(the "Junior DIP Lenders") expressed a willingness to lend, on a subordinated
basis, $25 million to the Debtors in the form of a term loan to support the
Debtors' restructuring efforts and various initiatives proposed by Mr. Pollazzi.
On January 16, 1998, the Bankruptcy Court approved the Junior DIP Facility and
the $25 million was funded shortly thereafter. The Junior DIP Facility bears
interest at a rate equal to 3% over the interest payable on the term loan
portion of the DIP Facility. The Debtors paid to the Junior DIP Lenders a
funding fee of $2 million and a facility fee of $500,000. The net proceeds of
the Junior DIP Facility were immediately paid to CIT to reduce obligations under
the DIP Facility thereby increasing availability under the DIP Facility and
alleviating potential liquidity shortfalls facing the Debtors. Obtaining the
Junior DIP Facility was also instrumental in the DIP Lenders' decision to waive
certain financial covenant defaults existing under the DIP Facility.
6. Discontinuing Unprofitable Operations.
Of significant concern to the Debtors in the early stages of the
Chapter 11 Cases was the need to stem continuing operational cash losses at
certain of the Debtors' manufacturing facilities. Specifically, during fiscal
year 1997, the Debtors experienced cash losses totaling $46.7 million at their
Toledo, Ohio; Tiffin, Ohio; Bolivar, Tennessee; and St. Louis, Missouri
facilities (collectively, the "Underperforming Facilities"). The Debtors
determined that they could no longer support the Underperforming Facilities and
that the Debtors' survival was dependent on a prompt sale or closure.
(a) The Toledo Facility.
The largest losses were suffered at Doehler-Jarvis's Toledo, Ohio
facility (the "Toledo Facility"), which incurred approximately $31 million in
cash losses in fiscal year 1997. The Debtors first attempted to sell the Toledo
Facility together with the assets of the other Doehler-Jarvis Entities. As
discussed below, the Debtors were unable to secure a meaningful offer to
purchase these assets. See "Significant Events During the Chapter 11 Cases --
Asset Sales." Moreover, Ford and GM's dependence on Toledo's production
precluded an immediate closure of the Toledo Facility without jeopardizing the
Debtors' critical relationships with these customers. Accordingly, the Debtors
engaged in negotiations with Ford and GM over the effects of an orderly wind-up
of the Debtors' affairs at the Toledo Facility. The resulting agreements were
designed to assure the continued supply of component parts from the Toledo
Facility while the customers endeavored to re-source their component part
requirements with alternative suppliers. In return for those assurances, the
customers agreed to pay for amounts which the Debtors' management believes were
sufficient to offset the operating leases and shut-down costs incurred by Toledo
from December 1997 through the end of production at the Toledo Facility.
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By Order dated February 19, 1998, the Bankruptcy Court approved an
agreement between Toledo and GM related to the termination of Toledo's PV6
engine program (the "PV6 Agreement"). Toledo had been developing an engine block
for use by GM in its PV6 engine program. To ensure a steady supply of molds and
casts for this program, GM decided to re-source its PV6 engine block casting
requirements to other manufacturers. Under the terms of the PV6 Agreement, GM
and Toledo mutually agreed to terminate the outstanding purchase orders related
to the PV6 engine block. A new purchase order was issued whereby Toledo agreed
to supply GM with up to 8,000 engine blocks (with GM granted an option to
purchase up to 2,000 additional engine blocks) at an increased purchase price.
In addition, the PV6 Agreement obligated GM to purchase certain equipment
related to the production of these engine blocks for $2,650,000, and required
Toledo to deliver certain other previously leased equipment to GM. The lessor of
such equipment consented to the termination of the leases covering such
equipment. Finally, the PV6 Agreement provided for the mutual release by GM and
Toledo of all claims arising out of the termination of the purchase orders
except as set forth in the PV6 Agreement.
During the process of winding-up its business, Toledo sought to sell
certain equipment no longer necessary to Toledo's estate due to the wind-up of
the Toledo Facility. Toledo sold certain equipment to Ryobi, a designee of
General Motors, for $320,000. By order dated March 5, 1998, the Bankruptcy court
approved the sale. Toledo closed this transaction on or about March 14, 1998,
the proceeds of this sale was paid to the DIP Lenders and were used to reduce
the debt under the DIP Facility.
By Order dated May 11, 1998, the Bankruptcy Court approved an agreement
between Toledo and GM (the "GM Agreement") and an agreement between Toledo and
Linex Manufacturing ("Linex"), a division of the Linamar Company (the "Linex
Agreement"). Under the GM Agreement and Linex Agreement, Toledo agreed to meet
GM's requirements for certain component parts and as well as to build an
inventory bank of the component parts (the "Inventory Bank") for GM and Linex
during the wind-up of the Toledo Facility. In addition, the GM Agreement and
Linex Agreement allowed GM and Linex to request additional component parts
during the wind-up as long as production could be accomplished during such
period and the customers paid Toledo's overtime costs. The component parts sold
to GM and Linex were at the purchase prices reflected in the parties'
outstanding purchase orders but in the quantities and at the delivery times set
forth in the Agreements.
In consideration for Toledo's performance under the GM Agreement and
the outstanding purchase orders, GM agreed to pay Toledo (a) $1,900,000 in four
equal monthly installments, (b) $300,000 to cover premium overtime costs
incurred by Toledo to produce the Inventory Bank and (c) any monies for parts
shipped and delivered through the end of the wind-up of the Toledo Facility at
the contractual piece price plus agreed upon overtime costs for additional parts
in excess of the Inventory Bank. Under the Linex Agreement, Linex agreed to make
payment for component parts shipped and delivered through the end of the wind-up
of the Toledo Facility at the contractual piece price plus agreed upon overtime
costs for additional parts in excess of the Inventory Bank.
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The GM Agreement and Linex Agreement each provide for the mutual
release by GM and Toledo and Linex and Toledo of all claims arising out of the
rejection or termination of the purchase orders except for (i) a general
unsecured claim of $2,000,000 granted to GM as GM's sole claim against Toledo
for damages arising out of the rejection of the purchase orders or Toledo's
failure to meet its obligations under such orders (the "GM Claim") and (ii)
certain carve-outs for quality-related claims as set forth in the GM Agreement
and Linex Agreement. The GM Agreement expressly provides that the Creditors'
Committee reserves its right to object to the GM Claim, but, in the event that
the Creditors' Committee or any other third party does so object, GM would be
entitled to assert the full amount of its Claims against Toledo.
By Order dated January 16, 1998, the Bankruptcy Court approved Toledo's
assumption of a lease with USL Capital Corporation (the "USL Lease") and its
assignment to Ford. The USL Lease covered seven die cast machines and related
equipment used to manufacture certain automotive parts for Ford. The machines
and equipment were no longer necessary due to wind-up of the Toledo Facility.
The assumption and assignment of the USL Lease to Ford eliminated Toledo's
requirement to pay $14.3 million of lease payments for the remainder of the term
of the USL Lease.
By Order dated June 22, 1998, the Bankruptcy Court approved Toledo's
transition supply agreement with Ford (the "Ford Agreement"). Similar to the
terms of the GM and Linex Agreements, the Ford Agreement covered Toledo's and
Ford's obligations during the wind-up of the Toledo Facility. Under the terms
and conditions of the Ford Agreement, Toledo agreed to continue to supply Ford's
requirements of component parts through June 30, 1998, pursuant to the terms and
conditions of the parties' existing purchase orders. After completing production
of such parts, Toledo is required to return all Ford-owned equipment and
machinery used to manufacture the component parts to Ford (the "Ford
Equipment").
In consideration for Toledo's performance under the Ford Agreement and
the purchase orders, Ford agreed to pay Toledo the sum of $10 million in the
following manner: (a) $5 million credited against a $5 million payment made by
Ford in December 1997 when the parties entered into a letter of intent regarding
the Ford Agreement; (b) $1 million by July 2, 1998 and (c) $4 million upon
removal of the Ford Equipment (less an amount equal to any sabotage damage to
the Equipment). The Ford Agreement also provides that the outstanding purchase
orders will be deemed rejected as of July 1, 1998 and requires Ford to release
Toledo from all claims arising out of such purchase orders except for (a) offset
claims related to Ford's postpetition sale of aluminum shipped to Toledo and (b)
certain claims related to the quality of the component parts sold to Ford. The
$10 million payment, along with payments received under the PV6 Agreement, the
GM Agreement and the Linex Agreement, were sufficient to offset the operating
losses and shut-down costs incurred by Toledo from December 1997 through the end
of production at the Toledo Facility.
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(b) Other Underperforming Facilities.
During the first and second quarters of fiscal year 1998, the Debtors
ceased operations at Harman's Bolivar, Tennessee facility (the "Bolivar
Facility") and liquidated the assets of Harvard Interiors's furniture business
conducted at the St. Louis, Missouri facility (the "St. Louis Facility"). These
plant closures enabled the Debtors to maximize the value of related assets
through Bankruptcy Court approved sales and liquidations. See "Significant
Events During the Chapter 11 Cases -- Asset Sales." The Debtors continue to
evaluate a possible sale or disposition of the Tiffin, Ohio facility.
7. Asset Sales and Dispositions.
As part of the restructuring efforts involving the Debtors' core
automotive parts business, the Debtors embarked on a parallel course to
evaluate, market and if, appropriate, sell certain non-core businesses and
properties. The following are the major asset sales consummated or sought to be
consummated by the Debtors during the Chapter 11 Cases:
The Doehler-Jarvis Entities. Even prior to the commencement of their
Chapter 11 Cases, the Debtors believed that a disposition of the Doehler-Jarvis
Entities, especially Toledo, was essential to any successful restructuring of
the Debtors and the maximization of the value of those assets. Prior to the
Petition Date, the Debtors actively pursued potential buyers who may be
interested in acquiring some or all of the Doehler-Jarvis Entities as a going
concern. Houlihan, Lokey, Howard & Zukin ("Houlihan Lokey") managed the sales
effort for the Debtors. Houlihan Lokey's responsibilities included, among other
things, assisting the Doehler-Jarvis Entities in identifying and contacting
potential purchasers, assisting in the preparation of descriptive data
concerning the Doehler-Jarvis Entities and managing the extensive due diligence
process. In addition, the Debtors sought Bankruptcy Court approval of a sale and
bidding procedure designed to expedite the sales process and remove
uncertainties often found in the process of disposing assets via a public sale.
By Order dated July 24, 1997, the Bankruptcy Court approved the implementation
of the sale and bidding procedures.
In marketing the Doehler-Jarvis Entities, Houlihan Lokey contacted
approximately 140 parties and actively solicited offers to purchase the
Doehler-Jarvis Entities as going concerns. A number of these bidders presented
offers to purchase one or all of the Doehler-Jarvis Entities and Houlihan Lokey
attempted to negotiate the terms of an agreement with several of these
prospective buyers. Despite these efforts, the Debtors and their advisors, in
consultation with the Creditors' Committee and its advisors, determined none of
these bidders conveyed a reasonable offer for the purchase of Doehler-Jarvis
Entities, as a single unit or otherwise.
After investigating all possible alternatives, management of the
Debtors determined that it was in their best interests to cease operations at
Toledo. Management is in the process of implementing a comprehensive wind-up
plan designed to maximize the value and return on Toledo's assets. As discussed
above, the Debtors have reached separate agreements with Ford and GM regarding
the supply of certain component part requirements during Toledo's wind-up
period. The Debtors are presently contemplating the most effective and efficient
method to
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liquidate Toledo's assets. See "Significant Events During the Chapter 11 Cases
- -- Discontinuing Unprofitable Operations -- The Toledo Facility."
Through the efforts of the Debtors' management, the Debtors have been
able to stabilize the businesses of Greeneville and Pottstown to substantially
reduce cash drains. The Debtors continue to evaluate any offers to buy the
assets of Greeneville.
King-Way Business and Assets. In early 1997, Kingston-Warren determined
that its operations would be better served if its King-Way material handling
business (the "King-Way Business") and substantially all of its assets
(collectively with the King-Way Business, the "King-Way Assets") were sold. The
King-Way Business was a non-core division of Kingston-Warren operating out of
Kingston-Warren's Newfields, New Hampshire facility. The King-Way Business
represented less than 3% of the aggregate book value of Kingston-Warren and was
unnecessary to its production of automobile parts.
Prior to the Petition Date, Kingston-Warren entered into negotiations
with Reunion Industries, Inc. to sell the King-Way Assets. Reunion formed
Stanwich Acquisition Corp. ("Stanwich") for the sole purpose of acquiring the
King-Way Assets. Subsequent to the Petition Date, the parties completed
negotiations and entered into an asset purchase agreement. By Order, dated
October 27, 1997, the Bankruptcy Court approved the agreement and the sale of
the King-Way Assets to Stanwich for approximately $18 million. The transaction
contemplated by the agreement to sell the King-Way Assets closed on or about
November 3, 1997. The proceeds of the sale of the King-Way Assets were paid to
the DIP Lenders, which went to reduce the amount outstanding under the DIP
Facility.
Harvard Interiors Furniture Business and Assets. As part of the
Debtors' efforts to restructure its core automotive parts businesses, Harvard
embarked on a parallel course to evaluate, market and, if appropriate, sell the
furniture business of its Harvard Interiors division (the "Furniture Business").
The St. Louis Facility housed the Furniture Business. Due to a fundamental
change in the production of office furniture and the domestic furniture market,
the Furniture Business's competitive advantages and profit margins had eroded
significantly in recent years. The total percentage of the Furniture Business
attributable to its largest customer, the United States government, had also
sharply declined. Efforts to sell the Furniture Business, either as part of a
sale of all of the businesses of Harvard Interiors or as a stand-alone business,
were unsuccessful. Thus, it became increasingly clear to Harvard that the
operations of the Furniture Business should be wound up and its assets
liquidated.
As it became evident that the Furniture Business did not have a viable
future, Harvard intensified its efforts to sell the St. Louis Facility. In
August 1997, Harvard and its professionals negotiated a real estate purchase
agreement with the DMD Group Inc. ("DMD") whereby DMD agreed to purchase the St.
Louis Facility, its surrounding real estate and certain fixtures and certain
other personal property. The agreement, however, provided Harvard with a lease
of a certain amount of space in the St. Louis Facility for six months (with an
option to extend the lease for an additional ninety days). The six-month lease
granted Harvard the time to properly market and dispose of the Furniture
Business and its assets, as well as relocate
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other Harvard Interiors businesses operating in the St. Louis Facility to other
sites. By Order dated December 18, 1997, the Bankruptcy Court approved the sale
of the St. Louis Facility to DMD for $2,700,000 and authorized Harvard to lease
the St. Louis Facility from DMD to conduct the Furniture Business operations
while Harvard sought to dispose of the Furniture Business assets. On January 9,
1998, DMD and Harvard closed the sale of the St. Louis Facility. The proceeds of
the sale were paid to the DIP Lenders, which went to reduce the outstanding debt
under the DIP Facility.
Since the first quarter of Fiscal year 1998, a number of parties
presented offers to purchase certain assets of the Furniture Business. One of
these parties was Neutral Posture Ergonomics, Inc. ("NPE"), which contacted
Harvard and presented an offer to purchase chair components, machinery, tooling
and other assets related to the Furniture Business. By Order, dated March 5,
1998, the Bankruptcy Court authorized Harvard to sell certain chair components,
machinery, tooling and other assets related to the Furniture Business to Neutral
Posture Ergonomics Inc. for $760,000. On or about March 19, 1998, NPE and
Harvard closed the sale and the proceeds therefrom were paid to the DIP Lenders
to reduce the outstanding debt under the DIP Facility.
In addition, by Order dated March 5, 1998, the Bankruptcy Court
authorized Harvard to retain National Industrial Services Incorporated ("NISI")
to conduct a public auction of the remaining assets of the Furniture Business.
NISI conducted a public auction on May 14, 1998, completely liquidating the
remaining assets of the Furniture Business. The auction generated approximately
$600,000.
Union, New Jersey Real Estate. Harvard historically operated its
Elastic Stop Nut division ("ESNA") from a manufacturing facility located in
Union, New Jersey (the "Union Facility"). The Union Facility consists of (a) two
parcels of nonresidential real property and (b) all buildings and structures and
certain fixtures and improvements. In March 1995, Harvard sold the assets of the
ESNA business and, by July 1995, had completely ceased manufacturing operations
at this facility. As a result of the ESNA sale, Harvard "mothballed" the Union
Facility in anticipation of a sale. Prior to the Petition Date, Harvard had
entered into an agreement of sale ("Prepetition Hovnanian Agreement") for the
Union Facility with K. Hovnanian Acquisitions, Inc. ("Hovnanian"). The
Prepetition Hovnanian Agreement contained a walk-away right in the event that
environmental remediation costs exceeded $300,000. When Harvard's professionals
concluded that environmental remediation costs could exceed $2 million, Harvard
exercised its walk-away rights and sought a new purchaser for the Union
Facility.
Subsequent to the Petition Date, Harvard entered into negotiations with
Chadwick Partners, LLC ("Chadwick"). After several months of negotiations,
Chadwick agreed that its designee, Vauxhall '98, would purchase the Union
Facility, as is, for $1.5 million, subject to higher or better offers for the
Union Facility. Hovnanian, and an additional party, ENTACT, Inc., each submitted
a competing bid for $1.6 million for the Union Facility. An auction was held and
Hovnanian ultimately, made the highest bid of $1.9 million. By Order dated May
13, 1998, the Bankruptcy Court approved Harvard's sale of the Union Facility to
Hovnanian
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for $1.9 million. On June 26, 1998, the parties closed the transaction involving
the sale of the Union Facility. The proceeds from the sale were paid to the DIP
Lenders, which went to reduce the outstanding debt on the DIP Facility.
Harman. Harman's financial prospects have, in part, been constrained by
changes in its industry away from the use of die cast zinc outside rearview
mirrors towards mirror casings composed of plastic and other composites. Due to
the large number of companies, including foreign companies, capable of producing
low cost plastic molding, Harman's market became increasingly competitive.
Increased competition resulted in a concomitant decrease in operating margins.
For the fiscal year ending September 30, 1997, Harman incurred losses of
approximately $12 million. Assuming continued operations, Harman projected sales
of approximately $37 million for the fiscal year ending September 30, 1998 with
an additional net loss of approximately $7.5 million, of which approximately
$5.5 million would have been direct cash losses.
Early in the Chapter 11 Cases, the Debtors, in consultation with
Houlihan Lokey, reached the conclusion that Harman and/or substantially all of
Harman's assets (the "Harman Assets") should be sold. While Harman could have
long-term intrinsic value if it could obtain new business and contracts, this
value could not be realized absent a substantial and immediate infusion of
capital to fund near-term operating losses and the necessary capital
expenditures. Harman did not have access to this necessary investment capital.
Even if Harman had the necessary capital, there would be no assurance that it
could ever obtain the new business required to return its operations to
profitability.
During the course of their Chapter 11 Cases, the Debtors also sought a
purchaser for Harman as a going concern. The Debtors and Houlihan Lokey engaged
in extensive efforts to market the Harman business and its assets. More than
fifteen potential bidders contacted Houlihan Lokey regarding the potential
purchase of the Harman business and its assets and more than ten bidders
executed confidentiality agreements. Several potential bidders conducted due
diligence regarding the potential purchase of Harman and Houlihan Lokey
attempted to solicit offers for the purchase of Harman from these prospective
buyers. Despite these efforts, no bidder conveyed a reasonable offer for the
purchase of Harman as a going concern or demonstrated the financial wherewithal
to consummate a transaction. Due to the lack of reasonable offers for Harman,
the Debtors determined that it would be in Harman's best interests to wind-up
its operations and liquidate its assets.
During the process of winding-up its business, Harman sought to sell
certain of its tooling used to manufacture certain types of automobile component
parts. Such tooling was no longer necessary to Harman's estate due to the
wind-up of operations at its Bolivar Facility. Harman sold certain tooling to
Eaton Corporation for $810,000. The Bankruptcy Court approved this tooling sale
by Order dated April 8, 1998. Harman closed its transaction with Eaton
Corporation on or about April 20, 1998. The proceeds of this transaction was
paid to the DIP Lenders and was used to reduce the debt under the DIP Facility.
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During the Chapter 11 Cases, Harman also sold a manufacturing plant in
Sevierville, Tennessee which had been idle since 1996. The Debtors' marketing
efforts, which commenced prior to the Petition Date, resulted in an agreement
with BSJ Enterprises, L.P. ("BSJ") to purchase the property for $975,000. By
Order dated July 24, 1997, the Bankruptcy Court authorized Harman to sell the
Sevierville Real Estate to BSJ. Harman's transaction with BSJ closed in early
August 1997. The proceeds of this transaction were paid to the DIP Lenders,
which used the proceeds to reduce the debt under the DIP Facility.
The Debtors expect a public auction of the remaining assets of Harman
to be conducted in the fourth quarter of fiscal year 1998.
The following chart summarizes the asset sales completed by the Debtors
during the Chapter 11 Cases (as of June 30, 1998):
<TABLE>
<S> <C> <C> <C>
Asset Sold Debtor Purchaser Purchase Price
Manufacturing Plant in Harman BSJ Enterprises, L.P. $975,000
Sevierville, Tennessee
Tooling for Automotive Toledo Ryobi Corporation $320,000
Component Parts
Tooling for Automotive Harman Eaton Corporation $810,000
Component Parts
Union Property Harvard K. Hovnanian Acquisitions, Inc. $1,900,000
Certain assets of Furniture Harvard Neutral Posture Ergonomics, Inc. $760,000
Business
Remaining assets of Harvard Sold at Public Auction $600,000
Furniture Business
St. Louis Facility Harvard DMD Group Inc. $2,700,000
King-Way Assets Kingston-Warren Stanwich Acquisition Corp. $18,050,000
-----------
Total: $26,115,000
</TABLE>
8. Extensions of Exclusivity.
Section 1121 of the Bankruptcy Code grants a debtor in possession the
exclusive right to file a plan of reorganization for 120 days after the filing
of a voluntary petition for relief under chapter 11 and the exclusive right to
solicit acceptances to that filed plan for 180 days after the petition's filing.
Each of these periods may be extended for cause before its expiration. On
several occasions, the Bankruptcy Court determined that cause existed to
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extend the Debtors' exclusive period. Thus, by Order dated August 21, 1997, the
Court extended the Debtors' exclusive plan filing period to December 4, 1997,
and their exclusive plan solicitation period to February 2, 1998; by Order dated
December 18, 1997, the Debtors obtained an additional extension of their
exclusive plan filing period to June 1, 1998, and their exclusive plan
solicitation period to August 1, 1998; by Order dated May 27, 1998, the Debtors
obtained an additional extension of their exclusive plan filing period to August
1, 1998, and their exclusive plan solicitation period to September 30, 1998.
9. Claims Process and Bar Date.
The Debtors filed with the Bankruptcy Court, their schedules of assets
and liabilities and statements of financial affairs (collectively, the
"Schedules") on July 7, 1997. Thereafter, the Bankruptcy Court established
February 9, 1998 (the "Bar Date") as the deadline for filing proofs of Claim,
except certain specified Claims, against the Debtors. Creditors filed
approximately 3,000 Claims prior to the Bar Date alleging liabilities in excess
of $6.9 billion plus unliquidated amounts. See "Classification and Treatment of
Claims and Interests Under the Plan -- Class 5 -- General Unsecured Claims."
The Debtors have (a) reviewed all Claims filed against the Debtors and
conducted settlement discussions with certain claimants; (b) developed and
analyzed a database of all Claims asserted against them; (c) prepared and filed
motions objecting to certain Claims; and (d) estimated the aggregate ultimately
allowable amount of all Claims against the Debtors, including unliquidated,
contingent and Disputed Claims, at approximately [ ] million. In addition, the
Debtors are currently analyzing and evaluating each proof of claim and proof of
interest to determine whether to object to the allowance of such Claims or
Interest.
The Claims asserted against the Debtors are materially in excess of the
total amount of Allowed Claims estimated by the Debtors in the development of
the Plan because, among other things, certain Claims: (i) are filed in
duplicate; (ii) consist of amendments to previously filed Claims; (iii) are
asserted against multiple Debtors or assert Claims in excess of the amount
actually owed; (iv) do not allege an obligation of any of the Debtors; (v)
assert contingent Claims against multiple Debtors; and/or (vi) include
postpetition interest and other disallowable charges.
The Debtors have filed and intend to file motions objecting to, among
others, those Claims that are: (A) duplicative; (B) superseded by amended
Claims; (C) erroneously asserted against multiple Debtors; (D) not obligations
of any of the Debtors; (E) filed after the Bar Date; or (F) in excess of the
amount actually owed, as evidenced by the Debtors' books and records.
The Debtors project that the Claims asserted against them will be
resolved in and reduced to an amount that approximates the Debtors' estimates of
Allowed Claims contained in this Disclosure Statement. But the actual aggregate
amount of Allowed Claims in any Class may differ significantly from the Debtors'
estimates thereof and any variance from such estimates will affect Distribution
in certain Classes.
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10. Potential Doehler-Jarvis Acquisition Claims.
As discussed above, the Doehler-Jarvis Entities were acquired by
Harvard pursuant to a merger transaction on July 28, 1995 (the "Doehler-Jarvis
Acquisition"). The Creditors' Committee, based on its preliminary review of
certain documents provided to it by the Debtors relating to the Doehler-Jarvis
Acquisition, believes that certain Causes of Action may exist against various
persons and Entities with respect to the Doehler-Jarvis Acquisition. These
Causes of Action may include, without limitation, potential Causes of Action
against the selling shareholders of Doehler-Jarvis, potential Causes of Action
against certain members of Harvard's then-existing Board of Directors (such as
Mr. Vincent Naimoli, who at the time of the Doehler-Jarvis Acquisition was the
Chief Executive Officer of both Harvard and Doehler-Jarvis, and Mr. Ronald
Stewart, former Chief Financial Officer of Doehler-Jarvis), as well as potential
Causes of Action against the financial advisors retained by Harvard in
connection with the Doehler-Jarvis Acquisition.
As provided in Section 8.8 of the Plan, the Reorganized Debtors will
retain from and after the Effective Date any and all Causes of Action they had
or may have had as Debtors-in-Possession, including those Causes of Action
relating to the Doehler-Jarvis Acquisition. As discussed in Section 11.1 of the
Plan, the Plan will release the officers and directors of the Debtors holding
office [from and including the Petition Date] from any and all claims or
liability based upon any act or omission related to past service with, for or on
behalf of the Debtors or Debtors-in-Possession (with certain exceptions
discussed in Section 8.8) in consideration for, among other things, their
voluntary resignation, support of the Plan and/or their waiver of Distributions.
The Plan does not provide waivers or releases to other potential defendants in
connection with the Causes of Action discussed above.
While the Creditors' Committee has reviewed certain documents relating
to the Doehler-Jarvis Acquisition, significant additional investigation and
analysis is required in order to determine whether any Causes of Action exist.
Due to the necessities of the Debtors' businesses, the Creditors' Committee and
the Debtors focused their attentions primarily on ensuring that the Debtors
emerge from Chapter 11 expeditiously. The fact that the Debtors and/or the
Creditors' Committee have not commenced litigation with respect to the potential
Causes of Action discussed above should in no way be construed as an indication
as to the lack of merit or validity of such Causes of Action, or be deemed to
waive or release any Cause of Action.
11. Employee Arrangements.
(a) Employee Severance and Retention Programs.
Since the Petition Date, the Debtors have been faced with a significant
level of attrition of key employees and executives. The financial uncertainties
of the Debtors' Chapter 11 Cases contributed to a significant turnover in the
ranks of the Debtors' full-time salaried employees since the Petition Date and
caused other employees to give thoughtful consideration to alternative
employment opportunities. It became obvious to the Debtors that they needed to
take steps to bolster their ability to retain key personnel who possessed the
knowledge, skills
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and experience in all areas vital to the Debtors' businesses. Several key
employees who left the Debtors' employ performed critical managerial and
operational tasks at the Debtors' manufacturing facilities. The levels of
attrition among critical employees was disruptive to the Debtors' ongoing
business operations and increased the burdens borne by existing employees and
executives, many of whom have been required to substantially increase their
responsibilities.
In order to retain these employees, the Debtors sought court
authorization to, inter alia: (i) implement a key employee retention incentive
plan and (ii) implement a retention severance plan. The Debtors' retention
incentive plan (the "Retention Incentive Plan") provides certain corporate
executives and key employees at the Underperforming Facilities and Harvard's
former Tampa, Florida headquarters with bonuses to be paid upon the earlier to
occur of (a) the consummation of a plan of reorganization or (b) the termination
of the employee without cause upon completion of all requested services. The
Retention Incentive Plan also provided for the payment of relocation costs of
three employees of Harvard who relocated from Tampa, Florida to work in the new
corporate headquarters in Lebanon, New Jersey. The total cost of this program
did not exceed $2,142,600.
During the Chapter 11 Cases, the Debtors also obtained Bankruptcy Court
approval for a severance plan (the "Severance Plan") covering all regular,
full-time salaried employees not otherwise covered by a collective bargaining
agreement. The Severance Plan provides a covered employee with an irrevocable
severance benefit in the event employment is terminated as a result of (a) a
general reduction in force, (b) job elimination, (c) acceptance of a
Debtor-initiated voluntary layoff program or (d) the closure, discontinuance of
operation, sale of asset or other corporate event, provided that the employee is
not offered employment with the successor.
Under the Severance Plan, payment of severance benefits to a
participant depends upon the length of service to the Debtors. The Severance
Plan continues the Debtors' prepetition practice of paying severance equal to
one week's salary per year or partial year of service. The maximum amount of
severance available to a participant equals 26 weeks' salary. The Debtors
project the estimated cost of this plan to be less than $1 million.
In addition, the Debtors entered into modified executive severance
agreements (the "Executive Agreements") with Joseph Gagliardi, Roger Burtraw and
Richard Dawson, the then Chief Financial Officer, President and General Counsel,
respectively. These agreements continued the severance arrangements previously
established for these covered executives but with certain modifications. These
modifications included changing the definition of "Change in Control" to prevent
a triggering based on the Debtors' reorganization itself, confirming and
supplementing certain prepetition pension arrangements and extending the
expiration date of the prepetition severance agreements. Richard Dawson, former
Senior Vice President for Law and Administration, left the Debtors' employ in
February 1998 and has been paid approximately $400,000 in benefits under his
Executive Agreement.
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The Retention Incentive Plan was approved by an Order of the Bankruptcy
Court dated January 16, 1998. The Severance Plan and Executive Agreements were
approved by an Order of the Bankruptcy Court dated December 30, 1997. The
Debtors believe these programs have been helpful in stemming the exodus of key
employees as well as attracting qualified replacements.
(b) Shutdown Agreements.
As previously discussed, during these Chapter 11 Cases, the Debtors
ceased manufacturing operations at the Bolivar Facility and the St. Louis
Facility and commenced an orderly wind-up of the businesses conducted at those
sites. In making the determination to close these plants, management was
concerned about the effect of the wind-up on its relationship with the union
employees working at these facilities. The Debtors were concerned that, without
any protections in place for its union employees, the Debtors would be unable to
maintain the work force necessary to implement an orderly wind-up of the
businesses, such as filling outstanding purchase orders and building inventory
banks for customers. As a result, the Debtors sought to enter into "shut-down"
agreements with representatives of the unions representing employees who would
be affected by the cessation of business at the Bolivar Facility and the St.
Louis Facility.
(i) Bolivar Shut-Down Agreement.
The Bolivar shut-down agreement (the "Bolivar Shut-Down Agreement") was
entered into in February 1998, among Harman and representatives of the UAW and
its Local, Number 1303 (the "Local" and, together with the UAW, the "Bolivar
Union"). The Bolivar Shut-Down Agreement provides certain financial benefits to,
and releases of possible claims from, approximately 350 active and 131 laid-off
Bolivar Union employees. The Bolivar Shut-Down Agreement provides to eligible
employees a retention bonus, severance, payment of COBRA premiums (for six
months), and continues certain programs provided under the employee's collective
bargaining agreement, such as vacation pay and an unemployment supplement.
Receipt of these benefits is conditioned upon each Bolivar Union employee
signing a waiver and general release. Such waiver discharges Harman from any and
all claims arising out of the Bolivar Union employees employment with Harman or
the employee's separation of employment, except as provided in the Bolivar
Shut-Down Agreement. By Order dated March 19, 1998, the Bankruptcy Court
approved the Bolivar Shut-Down Agreement, which has since been implemented by
Harman in connection with the wind-up of the Bolivar Facility.
(ii) St. Louis Shut-Down Agreement.
The shut-down agreement governing Harvard Interiors' St. Louis Facility
(the "St. Louis Shut-Down Agreement") was also entered into in February 1998,
among Harvard and (a) the International Association of Machinists and Aerospace
Workers District No. 9, (b) the Metal Polishers, Buffers, Platers and Helpers
International Union No. 13, (c) Local 25 of the Upholsterers International Union
and (d) the Carpenters District Council of St. Louis and Vicinity (collectively,
the "St. Louis Union"). The St. Louis Shut-Down Agreement covers approximately
93 St. Louis Union employees. Similar to the Bolivar Shut-Down Agreement,
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the St. Louis Shut-Down Agreement provides St. Louis Union employees with
financial benefits as a result of the termination of their employment, including
a retention bonus, severance and certain other benefits. As with the Bolivar
Shut-Down Agreement, the St. Louis Shut-Down Agreement requires a St. Louis
Union employee to sign a waiver and general release before he or she receives
these benefits. Such waiver and general release discharges and releases Harvard
from any and all claims arising out of the St. Louis Union employee's employment
with Harvard or his or her separation from employment with Harvard, except as
provided in the St. Louis Shut-Down Agreement. By Order dated March 19, 1998,
the Bankruptcy Court approved the St. Louis Shut-Down Agreement, which has since
been implemented by Harvard in connection with the wind-up of the St. Louis
Facility.
12. Reclamation Program.
On or shortly after the Petition Date, certain vendors that sold goods
to the Debtors in the ordinary course of the vendors' businesses made
reclamation demands under section 546(c) of the Bankruptcy Code and/or section
2-702 of the Uniform Commercial Code, for goods asserted to have been allegedly
received by the Debtors within the period for reclamation set forth in section
546 of the Bankruptcy Code. In the aggregate, vendors made reclamation demands
upon the Debtors in the amount of approximately $9.1 million. By Order of the
Bankruptcy Court, dated February 18, 1998, the Debtors obtained authorization to
adopt and implement certain procedures for the treatment of valid reclamation
claims. The global reclamation program requires the Debtors to provide a vendor
holding a valid reclamation claim an administrative claim for the full amount of
such claim. In the event that a vendor objects to the proposed amount or
treatment of its reclamation claim, the program establishes procedures for
resolution of the dispute through litigation or settlement.
Of the approximately $9.1 million of reclamation demands made upon the
Debtors, approximately $2.1 million of such demands have been allowed by the
Debtors. To date, an additional $1.8 million remain in dispute.
IV. THE PLAN.
THE FOLLOWING IS A SUMMARY OF CERTAIN SIGNIFICANT PROVISIONS OF THE
PLAN. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION SET FORTH IN THE PLAN WHICH IS ATTACHED TO THIS DISCLOSURE
STATEMENT AS APPENDIX "1." TO THE EXTENT THAT THE TERMS OF THIS DISCLOSURE
STATEMENT VARY WITH THE TERMS OF THE PLAN, THE TERMS OF THE PLAN SHALL BE
CONTROLLING.
A. General.
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to reorganize its
business for the benefit of itself and its creditors and stockholders.
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Formulation of a plan of reorganization is the principal objective of a
chapter 11 reorganization case. In general, a chapter 11 plan of reorganization
(i) divides claims and equity interests into separate classes, (ii) specifies
the property that each class is to receive under the plan and (iii) contains
other provisions necessary to the reorganization of the debtor. Chapter 11 does
not require each holder of a claim or interest to vote in favor of the plan of
reorganization in order for the Bankruptcy Court to confirm the plan. However, a
plan of reorganization must be accepted by the holders of at least one class of
claims that is impaired (as defined above) without considering the votes of
"insiders" within the meaning of the Bankruptcy Code.
Distributions to be made under the Plan will be made after confirmation
of the Plan, on the Effective Date or as soon thereafter as is practicable, or
at such other time or times specified in the Plan.
B. Discussions with Constituencies.
The Debtors believe that the best prospects for their successful
emergence from chapter 11 would be through a stand alone plan of reorganization
and the confirmation of such a plan under an expedited timetable. Since the
Petition Date, the Debtors have sought to achieve this objective by focusing
their efforts in four areas: (a) engaging a new management team to lend
structure and vision to the restructuring efforts; (b) selling or otherwise
disposing of business units that are not core to the Debtors' automotive
operations; (c) ceasing operations at facilities that cannot generate a positive
return in the foreseeable future and which, in the aggregate, have been
responsible for approximately $46.7 million in cash losses during fiscal year
1997; and (d) exploring new business opportunities and new avenues of
restructuring designed to augment future cash flow through expansion into more
profitable business sectors. See "SELECTED HISTORICAL FINANCIAL DATA --
Management's Discussion and Analysis of Results of Operations" and "PROJECTIONS
- -- Projections -- Pro Forma Forecasted Cash Flow." The Debtors have actively
solicited, on a worldwide basis, third-party investors or purchasers for certain
operating units such as the Doehler-Jarvis Entities. Although offers to acquire
the Debtors or segments thereof have been received from several sources, none
offers the prospects of a consensual plan with recoveries regarded as acceptable
to representatives of all the major constituencies in the Chapter 11 Cases.
Moreover, the nature of the Debtors' businesses is such that new business is
awarded years in advance of the commencement of production. See "BACKGROUND --
Operations Description." The Debtors believe that a protracted period in chapter
11 will preclude the Debtors from successfully bidding on new programs, thus
reducing the value of the Debtors in future years. The Debtors have,
accordingly, concluded that the transactions contemplated by the Plan are the
most expeditious means of providing for the Debtors' emergence from chapter 11
and preserving the value of their assets as a going concern for all parties in
interest.
During the course of the Debtors' Chapter 11 Cases, numerous
discussions concerning the formulation of the Plan have taken place between and
among the Debtors and the Debtors' principal creditor constituencies, primarily
the Creditors' Committee and CIT. The discussions with the Creditors' Committee
and CIT have included negotiations regarding, inter
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alia, the amount and nature of claims asserted in different classes (including
the amount and nature of Disputed Claims and alternative treatment of such
claims), the feasibility of various capital structures, the appropriateness of
various levels of time and expense involved in resolving Plan disputes, the
terms and amount of exit financing and the potential adverse impact of prolonged
Chapter 11 Cases on the Debtors' businesses. The Plan is the result of numerous
formal and informal discussions regarding the matters described above over a
period of several months involving numerous constituencies in an attempt to
derive a proposal acceptable to both secured and unsecured creditors of the
Debtors.
The Plan represents a compromise and settlement reached among the
Debtors' principal creditor constituencies, most of which will relinquish,
effective upon consummation of the Plan, potential legal and equitable arguments
in exchange for the treatment and certainty provided by the Plan.
Pursuant to the Final DIP Order, the Creditors' Committee reserved its
right to object to and/or challenge: (i) the perfection of the liens and
security interests of CIT, as agent for the Prepetition Lenders (the
"Prepetition Agent"), and the Prepetition Lenders in and to the collateral under
the Prepetition Financing Facility (collectively, the "Perfection Matters")
within the earlier of (a) 60 days from the date of the Final DIP Order and (b)
ten days preceding the date of the hearing to consider approval of any
disclosure statement in any of the Debtors' Chapter 11 Cases; and (ii) the
validity, allowability or status of the indebtedness incurred under the
Prepetition Financing Facility, or the validity, extent or priority (other than
to the extent any of the foregoing related to the Perfection Matters) of the
liens and security interests of the Prepetition Agent and the Prepetition
Lenders in and to the collateral under the Prepetition Financing Facility
(collectively, the "Avoidance Matters") within the earlier of (y) 270 days from
the date of the Final DIP Order (which was March 9, 1998) and (z) ten days
preceding the date of the hearing to consider approval of any disclosure
statement in any of the Debtors Chapter 11 Cases.
On August 8, 1997, the Creditors' Committee filed a complaint with
respect to the Perfection Matters that challenged the perfection of certain of
the liens and security interests of the Prepetition Agent and the Prepetition
Lenders in and to the collateral under the Prepetition Financing Facility (the
"Complaint"). The Creditors' Committee subsequently entered into several letter
agreements with the Prepetition Agent extending the time within which the
Prepetition Agent and the Prepetition Lenders had to file an answer to the
Complaint. The Creditors' Committee and the Prepetition Lenders at that time
wanted to avoid the costs and expenses of litigation while at the same time
preserving all of their respective rights. In this regard, pursuant to a
stipulation and order entered by the Bankruptcy Court on March 5, 1998 (the "CIT
Stipulation"), the Creditors' Committee withdrew its Complaint without prejudice
to its right to refile a complaint with respect to the Perfection Matters within
90 days from the entry of the CIT Stipulation or such later date as the
Creditors' Committee and the Prepetition Agent mutually agreed to (the "Filing
Deadline"). The CIT Stipulation provided that if the Creditors' Committee did
not file a complaint on Perfection Matters by the Filing Deadline, the Complaint
would be deemed dismissed with prejudice and the Creditors' Committee would no
longer have the right or power to object to and/or challenge any Perfection
Matters. The
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CIT Stipulation also extended the Creditors' Committee's deadline to object to
and/or challenge Avoidance Matters to be coterminous with the Filing Deadline.
Both the Filing Deadline and the deadline to object to and/or challenge
Avoidance Matters were subsequently extended by stipulation of the Creditors'
Committee and the Prepetition Agent to (i) the earlier of (a) September 30, 1998
or (b) ten days preceding the date of the hearing to consider approval of any
disclosure statement in any of the Debtors' Chapter 11 Cases or (ii) such later
date as may be mutually agreed to in writing by the Creditors' Committee and the
Prepetition Agent.
If the Commitment letter contains terms and conditions that are
acceptable to the Debtors and the Creditors' Committee, and if the Debtors and
the Creditors' Committee believe that it is fair and reasonable and in the best
interests of creditors and the Debtors to do so, the Plan will provide CIT (in
its capacity as the Prepetition Agent) and the Prepetition Lenders with a
release from any Causes of Action relating to the Perfection Matters and the
Avoidance Matters.
As a result of the negotiations between the Debtors and their advisors
and the Creditors' Committee and its advisors and the consensual nature of the
Plan, the Creditors' Committee has become a co-proponent of the Plan.
C. Classification and Treatment of Claims and Interests Under the Plan.
Section 1123(a)(1) of the Bankruptcy Code requires that a plan of
reorganization classify the claims of a debtor's creditors (other than
administrative expenses and priority tax claims) and the interests of its equity
holders. Section 1122 of the Bankruptcy Code also provides that, except for
certain claims classified for administrative convenience, a plan of
reorganization may place a claim or interest of a creditor or equity holder in a
particular class only if such claim or interest is substantially similar to the
other claims or interests of such class. The Plan places Priority Claims,
Prepetition Lenders' Claims, Miscellaneous Secured Claims, PBGC Claims, General
Unsecured Claims, Convenience Claims, PIK Preferred Stock, Old Common Stock,
Subsidiary Common Stock and Old Other Interests in separate Classes. The Debtors
believe they have classified all Claims and Interests in compliance with the
provisions of section 1122 of the Bankruptcy Code. If a creditor or equity
interest holder challenges such classification of Claims or Interests and the
Bankruptcy Court finds that a different classification is required for the Plan
to be confirmed, the Debtors, to the extent permitted by the Bankruptcy Court,
intend to make such reasonable modifications to the classification of Claims or
Interests under the Plan to provide for whatever classification might be
required by the Bankruptcy Court for confirmation.
Except to the extent that such modification of classification adversely
affects the treatment of a holder of a Claim or Interest and requires
resolicitation, acceptance of the Plan by any holder of a Claim or Interest
pursuant to this Solicitation will be deemed to be a consent to the Plan's
treatment of such holder of a Claim or Interest regardless of the Class as to
which such holder of a Claim or Interest is ultimately deemed to be a member.
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The Bankruptcy Code also requires that a plan of reorganization provide
the same treatment for each claim or interest of a particular class unless the
holder of a particular claim or interest agrees to a less favorable treatment of
its claim or interest. The Debtors believe that they have complied with such
standard. If the Bankruptcy Court finds otherwise, it could deny confirmation of
the Plan if the holders of Claims or Interests affected do not consent to the
treatment afforded them under the Plan.
The Plan categorizes the Claims against and Interests in the Debtors
into ten (10) Classes. In accordance with the Bankruptcy Code, Administrative
Expenses and Priority Tax Claims are not classified into Classes. The Plan also
provides that expenses incurred by the Debtors during the Chapter 11 Cases will
be paid in full and specifies the manner in which the Claims and Interests in
each Class are to be treated. To the extent that the terms of this Disclosure
Statement vary with the terms of the Plan, the terms of the Plan shall be
controlling.
1. Treatment of Administrative Expenses and Certain Priority
Claims.
(a) Administrative Expenses consist of (a) any cost or expense
of administration of the Chapter 11 Cases allowable under section 503(b) of the
Bankruptcy Code, including, without limitation, the fees and expenses of the
Professionals employed by the Debtors and the Creditors' Committee, (b) a Claim
given the status of an Administrative Expense by Final Order of the Bankruptcy
Court and (c) all fees or charges assessed against the Debtors' estates under
title 28, United States Code, section 1930. Such Administrative Expenses
include, for example, costs incurred in the operation of the Debtors' businesses
after the commencement of the Chapter 11 Cases, postpetition taxes, if any, and
certain other obligations arising after the commencement of the Chapter 11
Cases.
Assuming that neither significant litigation nor objections are
filed with respect to the Plan and assuming the Plan is confirmed in [ ] [ ],
1998, the Debtors estimate that unpaid Administrative Expenses as of the
Effective Date are not expected to exceed approximately $___ million. Such
amount also includes the statutory fees payable to the United States Trustee,
which the Debtors estimate should not exceed $___. The Debtors' estimate of
Administrative Expenses does not include amounts that will be payable in the
ordinary course of business by the Reorganized Debtors under the Debtors'
retiree health programs that will be assumed under the Plan.
Under the Plan, each holder of an allowed Administrative
Expense (including, without limitation, all compensation and reimbursement of
expenses pursuant to sections 327, 328, 329, 330, 331, 503(b)(1), 503(b)(4) or
1103 of the Bankruptcy Code) will be paid 100% of the unpaid allowed amount of
such Administrative Expense in Cash on or as soon as reasonably practicable
after the later of: (a) the Effective Date; or (b) the date such Administrative
Expense becomes allowed, provided, however, that an allowed Administrative
Expense representing obligations incurred in the ordinary course of
business consistent with past practices, shall be paid in full or performed by
the Debtors or Reorganized Debtors, as the case may be in accordance with its
terms and conditions, in the ordinary course of
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business, consistent with past practices, provided, further, however, that an
allowed Administrative Expense may be paid on such other terms and conditions as
are agreed to between holder of an allowed Administrative Expense and (i) the
Debtors, upon prior written consent of the Creditors' Committee, or (ii)
following the Effective Date, the Reorganized Debtors,.
(b) Priority Tax Claims. A Priority Tax Claim is any Claim
against the Debtor of the type specified in section 507(a)(8) of the Bankruptcy
Code. These Claims consist of certain unsecured Claims of governmental units for
taxes. The Debtors estimate that Priority Tax Claims will not exceed
[$3,068,000].
Under the Plan, with respect to each Allowed Priority Tax
Claim, at the option of the Debtors upon prior written consent of the Creditors'
Committee, and following the Effective Date, at the option of the Reorganized
Debtors, the holder of an Allowed Priority Tax Claim will be entitled to receive
on account of such Allowed Priority Tax Claim: (a) equal Cash payments made on
the last Business Day of every three (3) month period following the Effective
Date, over a period not exceeding six (6) years after the assessment of the tax
on which such Claim is based, totaling the principal amount of such Claim plus
simple interest on any outstanding balance from the Effective Date calculated at
the Plan Rate; (b) such other treatment agreed to by the holder of such Allowed
Priority Tax Claim and the Debtors or the Reorganized Debtors, as the case may
be, provided such treatment is on more favorable terms to the Debtors or the
Reorganized Debtors, as the case may be, than the treatment set forth in clause
(a) hereof, upon prior written notice to the Creditors' Committee; or (c)
payment in full, in cash, on or as soon as practicable after the later of (i)
the Effective Date or (ii) the date such Priority Tax Claim becomes an Allowed
Priority Tax Claim. The Debtors or Reorganized Debtors, as the case may be, will
have the right, in their sole discretion, to prepay the Allowed Priority Tax
Claim without penalty of any sort or nature.
2. Class 1--Priority Claims. Class 1 consists of all Claims
which are entitled to priority in payment under section 507(a) of the Bankruptcy
Code, other than Administrative Expenses and Priority Tax Claims. Priority
Claims include Claims for wages, salaries and contributions to employee benefit
plans, to the extent that such Claims are entitled to priority under section
507(a) of the Bankruptcy Code. In light of the payments already made pursuant to
the Prepetition Wage and Benefits Order (see "THE CHAPTER 11 CASE -- Prepetition
Wage and Benefits Order"), the Debtors believe that there will be no Priority
Claims against their estates.
Unless otherwise agreed by the holder of an Allowed Priority
Claim and (i) the Debtors, upon prior written consent of the Creditors'
Committee, or (ii) following the Effective Date, the Reorganized Debtors, each
holder of an Allowed Priority Claim will be paid 100% of the unpaid Allowed
amount of such Claim in Cash on or as soon as practicable after the later of:
(a) the Effective Date, or (b) the date such Priority Claim becomes an Allowed
Priority Claim.
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As more specifically set forth in, and without in any way
limiting, Section 11.1 of the Plan, the distributions provided to holders of
Priority Claim are in full settlement, release and discharge of each holder's
Priority Claim.
Class 1 is Unimpaired and holders of Priority Claims are
conclusively presumed to have accepted the Plan and solicitation of acceptances
from holders of Class 1 Claims is not required under the Bankruptcy Code.
3. Class 2--Prepetition Lenders' Claims. Class 2 consists of any
Claims against the Debtors by the Prepetition Lenders arising under the
Prepetition Credit Facility. The Prepetition Lenders' Claims are secured. The
Prepetition Lenders' Claims will be allowed in full. For purposes of the Plan,
the Debtors estimate that the aggregate principal amount of the Prepetition
Lenders' Claims will be approximately [$116] million (not including outstanding
letters of credit) which reflects amounts due and owing under the Prepetition
Credit Facility.
With respect to each Allowed Prepetition Lenders' Claim, at the
option of the Debtors, upon the prior written consent of the Creditors'
Committee, and following the Effective Date, at the option of the Reorganized
Debtors: (a) the Debtors or the Reorganized Debtors, as the case may be, will
pay such Allowed Prepetition Lenders' Claim, in full, in Cash; or (b) the
Debtors or the Reorganized Debtors, as the case may be, will provide such other
treatment agreed to by the holder of such Allowed Prepetition Lenders' Claim and
the Debtors or the Reorganized Debtors, as the case may be.
As more specifically set forth in, and without in any way
limiting, Section 11.1 of the Plan, the distributions provided to the holder of
an Allowed Prepetition Lenders' Claim are in full settlement, release and
discharge of each holder's Prepetition Lenders' Claim and all other Claims
against any and all of the Debtors, if any, of the holders directly or
indirectly related to or arising out of the transactions, agreements or
instruments upon which such Allowed Prepetition Lenders' Claim was based.
Class 2 is Impaired and holders of such Claims will be entitled to
vote to accept or reject the Plan. See "THE PLAN -- Discussion with
Constituencies."
4. Class 3--Miscellaneous Secured Claims. Class 3 consists of any
Claim against the Debtor that is a secured claim under section 506(a) of the
Bankruptcy Code other than a Prepetition Lenders' Claim. The Debtors estimate
that Miscellaneous Secured Claims will aggregate approximately $8.1 million.
Each holder of a Class 3 Miscellaneous Secured Claim will be
deemed to be in a separate Class for classification, voting and distribution
purposes under the Plan.
With respect to each Allowed Miscellaneous Secured Claim, at the
option of the Debtors, upon prior written consent of the Creditors' Committee,
to be exercised on the Effective Date, or such other date as the Bankruptcy
Court may determine, such Claim shall be treated pursuant to any of the
following alternatives: (A) the Debtors or Reorganized
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Debtors, as the case may be, will execute a written undertaking in favor of the
holder of such Claim, whereby the Debtors or Reorganized Debtors, as the case
may be, assumes such Claim and leaves unaltered such holder's legal, equitable
and contractual rights with respect to such Claim, (B) notwithstanding any
contractual provision or applicable law that entitles the holder of such Claim
to demand or receive accelerated payment of such Claim after the occurrence of a
default, the Debtors or Reorganized Debtors, as the case may be, will (1) cure
any such default that occurred before or after the Petition Date, other than a
default of a kind specified in section 365(b)(2) of the Bankruptcy Code, (2)
reinstate the maturity of such Claim as such maturity existed before such
default, (3) compensate the holder of such Claim for any damages incurred as a
result of any reasonable reliance by such holder on such contractual provision
or such applicable law and (4) execute a written undertaking in favor of such
holder, whereby the Debtors or Reorganized Debtors, as the case may be, assumes
such Claim and, except as permitted in clauses (1), (2) and (3) hereof, does not
otherwise alter the legal, equitable or contractual rights of such holder with
respect to such Claim, or (C) the Debtors or Reorganized Debtors, as the case
may be, will provide such other treatment agreed to by the holder of such
Allowed Miscellaneous Secured Claim and the Debtors or the Reorganized Debtors.
Notwithstanding the foregoing, the Debtors, upon prior written
consent of the Creditors' Committee, and following the Effective Date, the
Reorganized Debtors, may elect by sending written notice to the affected
creditor on or before the Confirmation Date to (x) pay the holder of such
Allowed Miscellaneous Secured Claim the Allowed Amount thereof, in Cash; (y)
distribute to the holder of an Allowed Claim in Class 3 the property securing
such holder's Claim, in which event such holder shall be entitled within thirty
(30) days of such election to file a proof of claim for any deficiency entitled
to treatment as a Claim in Class 5 or 6, as applicable, or be forever barred
from thereafter asserting a Deficiency Claim against the Debtors or Reorganized
Debtors; or (z) provide to such holder such treatment, including deferred Cash
payments, as shall be consistent with section 1129(b) of the Bankruptcy Code.
As more specifically set forth in, and without in any way
limiting, Section 11.1 of the Plan, the distributions provided to holders of
Miscellaneous Secured Claims are in full settlement, release and discharge of
each holder's Miscellaneous Secured Claim.
Class 3 is Impaired and holders of such Claims shall be entitled
to vote to accept or reject the Plan.
5. Class 4--PBGC Claims. The holders of the Allowed PBGC Claims
will receive the treatment provided under the PBGC Agreement.
As more specifically set forth in, and without in any way
limiting, Section 11.1 of the Plan, the distributions provided to the holder of
a PBGC Claims are in full settlement, release and discharge of each holder's
PBGC Claim and all other Claims against any and all of the Debtors, if any, of
the holders directly or indirectly related to or arising out of the
transactions, agreements or instruments upon which such Allowed PBGC Claim was
based.
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Class 4 is Impaired and holders of the PBGC Claims are entitled to
vote to accept or reject the Plan.
6. Class 5--General Unsecured Claims. Class 5 consists of all
Unsecured Claims against the Debtors. The Debtors estimate that the aggregate
amount of General Unsecured Claims that will be Allowed is approximately $[500]
million. The aggregate Senior Notes Claims within Class 5 shall be deemed
Allowed in the amount of $_____, consisting of an aggregate Allowed Claim of
$______ in respect of the 12% Senior Notes Claims and an aggregate Allowed Claim
of $________ in respect of the 11 1/8% Senior Notes Claims.
On the Effective Date, or as soon thereafter as is practicable,
each holder of an Allowed Claim in Class 5 will receive a number of shares of
New Common Stock equal to the product of (a) such holder's Allowed General
Unsecured Claim multiplied by (b) the Equity Factor. The Equity Factor was
derived by taking the maximum shares authorized for distributions to Class 5
claimants (20 million) and dividing such number of shares by the maximum amount
of estimated Allowed Class 5 Claims (currently estimated at [$900 million]) (the
"Maximum Estimated Class 5 Claims"). As the Debtors continue to reconcile Claims
in Class 5, the Debtors shall, prior to the Effective Date and with the consent
of the Creditors' Committee, reduce the Maximum Estimated Class 5 Claims, thus
increasing the Equity Factor. An increase in the Equity Factor would result from
the Debtors' determination that Maximum Estimated Class 5 Claims are less than
$[900] million.
In addition, on the Rights Issue Date, each holder of a General
Unsecured Claim that has not been Disallowed as of the Confirmation Date will be
entitled to receive its pro rata share (determined by dividing the amount of
such holder's General Unsecured Claim to the extent it has not been Disallowed
as of the Confirmation Date by the total amount of General Unsecured Claims that
have not been Disallowed as of the Confirmation Date) of:
(a) 100% of the Rights issued under the Rights Plan, all of
which shall be issued on the Rights Issue Date and exercisable on or prior to
the Rights Expiration Date by any holder of such Right to the extent that such
holder's General Unsecured Claim has not been Disallowed as of the Confirmation
Date, with the New Junior Secured Debentures underlying those Rights exercised
to be paid for in Cash at par and issued on the Effective Date, all in
accordance with the terms and conditions as set forth in the Rights Plan; and
(b) 100% of the Oversubscription Options issued under the
Rights Plan, all of which shall be issued on the Rights Issue Date and
exercisable on or prior to the Rights Expiration Date, by any holder of such
Oversubscription Option to the extent that such holder's General Unsecured Claim
has not been Disallowed as of the Confirmation Date, with the New Junior Secured
Debentures underlying those Oversubscription Options exercised to be paid for in
Cash at par and issued on the Effective Date, all in accordance with the terms
and conditions as set forth in the Rights Plan.
There will not be a Rights Plan and no New Junior Secured
Debentures will be issued to the extent that the Debtors enter into an
Alternative Financing Transaction in substitution for the New Junior Secured
Debentures.
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For a description of the New Junior Secured Debentures, Rights and
Oversubscription Options, see "THE PLAN -- Reorganization Securities."
As more specifically set forth in, and without in any way
limiting, Section 11.1 of the Plan, the distributions provided to the holders of
General Unsecured Claims are in full settlement, release and discharge of each
holder's General Unsecured Claim.
Class 5 is Impaired and holders of General Unsecured Claims are
entitled to vote to accept or reject the Plan.
7. Class 6--Convenience Claims. Class 6 consists of any general
unsecured Claim which is (a) in an amount equal to $500 or less or (b) in an
amount greater than $500, but which is reduced pursuant to section 7.20 of the
Plan to an amount of $500 or less. The Debtors estimate that Allowed Convenience
Claims not including Claims that are reduced to $500 in accordance with Section
7.20 of the Plan, will total approximately $[355,000]. Each holder of an Allowed
Convenience Claim will receive cash, on the Effective Date or such later date as
such Claim becomes an Allowed Claim, equal to 100% of the Allowed amount of such
Claim.
Each holder of a claim in Class 5 may elect, in the ballot by
which it votes to accept or reject the Plan, to reduce the amount of its Claim
to $500 or less and thereby be deemed a holder of a Claim in Class 6 for
purposes of voting and payment under the Plan. Any such election shall be
effective only upon the receipt thereof by the Debtors prior to the Confirmation
Date. Once the election is made, and received by the Debtors, such election
shall be irrevocable, but shall not prevent the Debtors or other parties in
interest from objecting to such Claim as reduced.
As more specifically set forth in, and without in any way
limiting, Section 11.1 of the Plan, the distributions provided to the holders of
Convenience Claims are in full settlement, release and discharge of each
holder's General Unsecured Claim and Convenience Claim.
Class 6 is Impaired and holders of Convenience Claims are entitled
to vote to accept or reject the Plan.
8. Class 7--PIK Preferred Stock. Class 7 consists of all Interests
represented by PIK Preferred Stock. If Class 7 votes to accept this Plan, on the
Effective Date or as soon as thereafter as is practicable, each holder of an
Allowed Interest in Class 7 shall receive its pro rata share (determined by
dividing the amount of such holder's Allowed PIK Preferred Stock Interest by the
total amount of PIK Preferred Stock Interests that have not been Disallowed as
of the Effective Date) of 66.67% of New Warrants. In the event that Class 7 does
not vote to accept the Plan, the holders of Interests in Class 7 shall receive
no distributions of any kind under the Plan in respect of those Interests. [TO
COME]
As more specifically set forth in, and without in any way
limiting, Section 11.1 of the Plan, the distributions provided to the holders of
PIK Preferred Stock Interests shall be
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in full settlement, release and discharge of each holder's PIK Preferred Stock
Interests and all other Claims against or Interests in any and all of the
Debtors, if any, directly or indirectly related to or arising out of the
transactions, agreements or instruments upon which such PIK Preferred Stock
Interest was based.
Class 7 is Impaired and holders of PIK Preferred Stock Interests
are entitled to vote to accept or reject the Plan.
9. Class 8--Old Common Stock. Class 8 consists of all Interests
represented by the Old Common Stock. On the Effective Date, or as soon
thereafter as is practicable, each holder of an Allowed Interest in Class 8
shall receive its pro rata share (determined by dividing the amount of such
holder's Allowed PIK Preferred Stock Interest by the total amount of PIK
Preferred Stock Interests that have not been Disallowed as of the Effective
Date) of 33.33% of New Warrants, provided, however, that in the event Class 7 or
Class 8 does not vote to accept the Plan, the holders of Interests in Class 8
shall receive no distributions of any kind under the Plan in respect of those
Interests. [TO COME]
As more specifically set forth in, and without in any way
limiting, Section 11.1 of the Plan, the distributions provided to the holders of
Old Common Stock Interests are in full settlement, release and discharge of each
holder's Old Common Stock Interests and all other Claims against or Interests in
any and all of the Debtors, if any, of such holder directly or indirectly
related to or arising out of the transactions, agreements or instruments upon
which such Old Common Stock Interests was based.
Class 8 is Impaired and holders of Old Common Stock Interests are
entitled to vote to accept or reject the Plan.
10. Class 9--Subsidiary Common Stock. Class 9 consists of all
Subsidiary Common Stock. Subsidiary Common Stock consists of stock held by
Debtors in their various Debtor subsidiaries. Subject to the Combination
Transactions, each holder of an Interest in Class 9 shall retain such Interest
and its respective share or shares of common stock of the Debtors representing
such Interest.
As more specifically set forth in, and without in any way
limiting, Section 11.1 of the Plan, the distributions provided to the holder of
a Subsidiary Common Stock Interests are in full settlement, release and
discharge of each holder's Subsidiary Common Stock Interests and all other
Claims against any and all of the Debtors, if any, directly or indirectly
related to or arising out of the transactions, agreements or instruments upon
which such Subsidiary Common Stock Interests was based.
Class 9 is Impaired but holders of Subsidiary Common Stock
Interests are the proponents of this Plan and are conclusively presumed to have
accepted the Plan.
11. Class 10--Old Other Interests. Class 10 consists of all Old
Other Interests. On the Effective Date, all Old Other Interests will be canceled
and no distributions will be made in respect of Class 10.
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In accordance with the Bankruptcy Code, because Class 10 receives
no distribution under the Plan, holders of Old Other Interests are conclusively
presumed to reject the Plan and are not entitled to vote to accept or reject the
Plan.
D. Conditions to and Means for Consummation of the Plan.
1. Substantive Consolidation.
The Plan is predicated upon the Bankruptcy Court entering the
Confirmation Order, which, among other things, grants the substantive
consolidation of the Debtors' Chapter 11 Cases solely for the purposes of the
Plan, the distribution and other transactions contemplated thereby. Substantive
consolidation is an equitable remedy which a bankruptcy court may be asked to
apply in those chapter 11 cases involving affiliated debtors. As contrasted with
joint administration (see "The Chapter 11 Cases - Continuation of Business; Stay
of Litigation"), substantive consolidation may affect the substantive rights and
obligations of creditors and debtors. Substantive consolidation involves the
pooling of the assets and liabilities of the affected debtors (to be
substantively consolidated); all the debtors in the substantively consolidated
group are treated as if they were a single corporate/economic entity.
Consequently, a creditor of any of the substantively consolidated debtors is
treated as a creditor of the substantively consolidated group of debtors and
issues of individual corporate ownership of property and individual corporate
liability on obligations are ignored. However, substantive consolidation does
not affect the debtors' separate corporate existence or independent ownership of
property for any purpose other than for classification of the claims, voting on
the plan and making distributions of property under a plan of reorganization or
otherwise as necessary to implement such plan.
Factors evaluated by the Bankruptcy Court when deciding whether
substantive consolidation is appropriate include: (i) whether creditors dealt
with the entities as a single economic unit and did not rely on their separate
identity in extending credit; (ii) whether the affairs of the Debtors are so
entangled that consolidation would benefit creditors and (iii) whether prejudice
to the creditors would result from not consolidating the Debtors. The Bankruptcy
Court will review the record to determine whether substantive consolidation
results in fairness to creditors.
The Debtors believe that substantive consolidation is justified.
Throughout their history, the Debtors have operated as a single integrated
company. Publicly issued financial statements were presented on a consolidated
basis. Additionally, the Debtors marketed their products to customers as a
single business enterprise. Accordingly, the Debtors surmise that creditors
often ignored corporate distinctions between and among the Debtors and did not
rely on corporate distinctions in providing services and goods and extending
credit. Intercompany loans were numerous and strict observance of corporate
formalities did not exist. Other factors that weigh in favor of substantive
consolidation in these Chapter 11 Cases include combined business functions, a
consolidation of financial statements for the collective Debtors and the
prohibitive costs and resources that would be required to track all intercompany
transactions on a company-by-company basis. As evidence of the need for
substantive
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consolidation, creditors, unsure of the identify of their obligors, have filed
proofs of claim against each of the Debtors.
As discussed above, the Plan contemplates and is predicated upon the
substantive consolidation of the Chapter 11 Cases of all the Debtors into a
single Chapter 11 Case solely for the purposes of the Plan, the Distributions
and all actions with respect to confirmation and consummation of the Plan. On
the Confirmation Date or such other date as may be set by a Final Order of the
Court, but subject to the occurrence of the Effective Date: (i) all intercompany
Claims by and among the Debtors will be eliminated; (ii) solely for the purposes
of the Plan and the Distributions and transactions contemplated hereby, all
assets and liabilities of the Debtors will be treated as if they had been
merged; (iii) all cross-corporate guarantees of the Debtors will be eliminated;
(iv) any obligation of any Debtor and all guarantees thereof executed by one or
more of the Debtors will be deemed to be one obligation of the consolidated
Debtors; (v) any Claims filed or to be filed in connection with any such
obligation and any corresponding guarantees will be deemed one Claim against the
consolidated Debtors; (vi) each and every Claim filed in the individual Chapter
11 Case of any of the Debtors will be deemed filed against the consolidated
Debtors in the consolidated Chapter 11 Case and shall be deemed joint and
several obligations of all of the Debtors on the Confirmation Date; (vii) all
duplicative claims (identical in both amount and subject matter) filed against
more than one of the Debtors will be automatically expunged so that only one
claim survives against the consolidated Debtors but in no way shall be deemed
Allowed; and (viii) the consolidated Debtors will be deemed, for purposes of
determining the availability of the right of set-off, to be one entity so that,
the debts due to a particular Debtor may be offset against claims against such
Debtor or another Debtor. On the Confirmation Date, and in accordance with the
terms of the Plan and the consolidation of the assets and liabilities of the
Debtors, all Claims based upon guarantees of collection, payment or performance
made by the Debtors as to the obligations of another Debtor or of any other
person, shall be discharged, released and of no further force and effect.
Notwithstanding the provisions of this paragraph, subject to the Combination
Transactions, each of the Debtors shall, as Reorganized Debtors, continue to
exist after the Effective Date as separate corporate entities.
Certain holders of Claims against Kingston-Warren and Hayes-Albion have
contended and may contend that they would receive a greater distribution than
that contemplated by the Plan if the Chapter 11 Cases were not consolidated and,
instead, each of Kingston-Warren and Hayes-Albion filed its own chapter 11 plan.
Certain holders of Claims against Kingston-Warren and Hayes-Albion have argued
that they may have certain Causes of Action against various of the Debtors'
other creditor constituencies in connection with the Doehler-Jarvis Acquisition.
In addition, certain holders of Claims against the Doehler-Jarvis Entities have
asserted that due to certain prepetition practices of the Debtors (including,
without limitation, the practice of providing customers with price concessions
from the Doehler-Jarvis Entities for the benefit of Kingston-Warren and
Hayes-Albion), the holders of Claims against the Doehler-Jarvis Entities may be
entitled to a greater distribution than holders of Claims against the other
Debtors.
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The Debtors have demonstrated in the liquidation analysis attached
hereto that non-accepting holders of Claims against Kingston-Warren,
Hayes-Albion and the Doehler-Jarvis Entities would not receive more in a chapter
7 liquidation than they would be entitled to receive under the Plan. Moreover,
for the reasons described above, the Debtors and Creditors' Committee believe
that it is highly questionable whether holders of Claims against
Kingston-Warren, Hayes-Albion and the Doehler-Jarvis Entities would receive a
greater distribution on an unconsolidated basis.
In addition, the Debtors and the Creditors' Committee believe that the
Causes of Action would involve substantial discovery and litigation. Due to the
competitive nature of the Debtors' businesses, it is extremely important for the
Debtors to emerge from bankruptcy expeditiously. The delay that would inevitably
result from discovery and litigation of these issues would have significant
negative impact on the Debtors' ability to take advantage of new business
opportunities and successfully reorganize their business operations, and would
reduce the recoveries of creditors of all of the Debtors. The Debtors and the
Creditors' Committee also believe that it is clear that any confirmable chapter
11 plan for the Debtors would provide holders of Claims solely with equity in
the Reorganized Debtors. For this reason, even if the holders of Claims against
Kingston-Warren, Hayes-Albion and the Doehler-Jarvis Entities were successful in
their litigation efforts and managed to receive a larger proportion of the
equity than other unsecured creditors, the actual value of their recovery may be
diminished due to the attendant diminution in the value of the Reorganized
Debtors' equity resulting from the Debtors' delayed emergence from chapter 11,
as well as the significant expenses that would be incurred as a result of such
litigation. If a holder of a Claim against or Interest in any Debtor believes
that recoveries would be enhanced by pursuing Causes of Action taking into
account, among other reasons, the concomitant risks of any such course of
action, such holder should consider voting against the Plan.
Due to the Debtors' need to emerge from chapter 11 expeditiously and
the speculative nature of the Claims and Causes of Action discussed above, the
Debtors and the Creditors' Committee firmly believe that the Plan, and
substantive consolidation of the Debtors contemplated thereby, are in the best
interests of the Debtors, their estates and all of their creditor
constituencies.
2. Principal Plan Documents.
The following is a brief summary of the principal documents to be
entered into by the Reorganized Debtors in connection with the Plan. To the
extent available, the Debtors will file the principal Plan documents with the
Bankruptcy Court no later than five (5) Business Days prior to the hearing to
consider confirmation of the Plan.
On or before the Confirmation Date, the appropriate Debtors and the
other parties will execute and deliver the principal Plan documents. Such
documents will not be binding on the Debtors until the Effective Date has
occurred, at which time they shall become binding automatically on the
applicable Reorganized Debtors.
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The following description is qualified in its entirety by reference to
the definitive documents, the forms of which will be filed with the Bankruptcy
Court. With respect to any inconsistency between the following description and
the actual document, the actual document will control.
(a) New Certificate of Incorporation and New By-Laws.
On the Effective Date, Reorganized Harvard will adopt its New
Certificate of Incorporation, the principal effects of which are: (i) to
authorize 50,000,000 shares of New Common Stock (of which up to 20,000,000
shares will be reserved for issuance to holders of Class 5 Claims under the
Plan) and 50,000,000 shares of Preferred Stock (none of which will be issued or
outstanding upon the consummation of the Plan); (ii) to provide for the
cancellation of the PIK Preferred Stock, Old Common Stock and Old Other
Interests; (iii) to provide for the indemnification of officers and directors to
the fullest extent permitted by section 145 of the DGCL and (iv) to prohibit the
issuance of non-voting equity securities, as and to the extent required by
section 1123(a)(6) of the Bankruptcy Code. The New Certificates of Incorporation
for each of the other Reorganized Debtors shall contain a prohibition on the
issuance of nonvoting equity securities to the extent, and only to the extent,
required by section 1123(a)(6) of the Bankruptcy Code.
The New Certificate of Incorporation will also provide that a director
of Reorganized Harvard will not be personally liable to Reorganized Harvard or
its stockholders for monetary damages for any breach of fiduciary duty as a
director, except in certain cases where liability is mandated by the DGCL. The
provision has no effect on any non-monetary remedies that may be available to
Reorganized Harvard for non-compliance with federal or state securities laws.
Subject to the Combination Transactions, the Debtors will file with the
Bankruptcy Court prior to the Confirmation Hearing the New Certificate of
Incorporation and New By-Laws for each of the Reorganized Debtors. On the
Effective Date or as soon thereafter as is practicable, each of the Reorganized
Debtors shall file with the Secretary of State of the State of Delaware in
accordance with sections 103 and 303 of the DGCL, its New Certificate of
Incorporation and New By-Laws.
On the Effective Date, the New By-Laws shall become the by-laws of the
Reorganized Debtors.
(b) PBGC Agreement.
The PBGC and Debtors have entered into an agreement in principle under
which the 1994 PBGC Settlement Agreement will be terminated. In addition, as
part of that new agreement, the PBGC will forebear from asserting remedies under
ERISA against the Reorganized Debtors or the Doehler-Jarvis Pension Plan in
connection with the cessation of operations of Doehler-Jarvis' Toledo, Ohio
facility or upon the implementation of initial exit financing or certain
subsequent refinancings thereof. The PBGC's forebearance will be conditioned
upon the Reorganized Debtors meeting their minimum funding obligations to all
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Harvard Pension Plans on a timely basis, the Doehler-Jarvis Pension Plan not
being merged with any of the other Reorganized Harvard pension plans, and
certain other conditions. [The Debtors understand that the Creditors Committee
supports this agreement in principle.]
The new agreement calls for security to be provided to the PBGC in the
form of a pledge of New Common Stock. The amount of Common Stock pledged will be
determined as if the PBGC had a Class 5 Claim in the amount of $18.7 million.
The principal terms governing the pledged stock are as follows:
o The pledged stock will be held by an Escrow Agent approved
by the PBGC, the Debtors and the Creditors Committee;
o The pledged stock will be released from Escrow and returned
to Reorganized Harvard as contributions are made to the
Doehler-Jarvis Pension Plan;
o Unreleased pledged stock will be contributed to the
Doehler-Jarvis Pension Plan in satisfaction of unpaid
minimum funding contributions if contribution deadlines are
missed, or for use by the PBGC to satisfy unpaid termination
liabilities, if the Doehler-Jarvis Pension Plan is
terminated, or if the Reorganized Debtors fail or become
involved in subsequent reorganization proceedings;
o The pledged stock will be subject to sale at any time,
subject to, among other things, appropriate limitations as
to the manner, timing and amount of sales, with the proceeds
of such sale to continue to be held in escrow for release to
Reorganized Harvard or to the PBGC, as provided above. The
determination of whether to sell escrowed stock will be made
by a third party approved by the PBGC and Debtors, based on
prudent investment standards.
Provided certain conditions are satisfied, the PBGC agreement will
terminate when Reorganized Harvard obtains an investment grade credit rating, is
acquired by a company with an investment grade credit rating or when the plan's
underfunding has been substantially eliminated.
The Reorganized Debtors will be subject to typical notice obligations.
The terms described herein are subject to the negotiation and execution of a
definitive agreement.
(c) Post-Confirmation Credit Agreement.
The Debtors have received from CIT a commitment letter to provide a
Post-Confirmation Credit Facility to refinance present debt incurred under the
DIP Facility and
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provide working capital loans thereafter, subject to certain terms and
conditions. Pursuant to this commitment letter, CIT has committed to provide a
$125 million facility comprised of a $75 million revolving credit facility with
a $25 million sub-limit on letters of credit and a $50 million term loan. The
proposed CIT Facility has an initial term of five years from the Effective Date.
The loans are to be secured by substantially all the assets of the Reorganized
Debtors. The term loan portion of the commitment letter provides for
amortization on an annual basis as follows:
Year 1 $1,500,000
Year 2 $1,500,000
Year 3 $7,500,000
Year 4 $7,500,000
Year 5 $7,500,000
Maturity $24,500,000
-----------
Total $50,000,000
Interest is to be computed and payable monthly on (i) the outstanding
revolving loans at a rate equivalent to The Chase Manhattan Bank Rate plus 50
basis points (0.50%) per annum or, at the Borrowers' option, LIBOR plus two
hundred fifty basis points (2.50%) per annum; and (ii) the term loan at a rate
equivalent to The Chase Manhattan Bank Rate plus seventy-five basis points
(0.75%) per annum or, at the Borrowers' option, LIBOR plus three hundred basis
points (3.00%) per annum. The Debtors and the Creditors' Committee are reviewing
the terms and conditions of the commitment letter.
(d) New Junior Secured Debentures Indenture.
As part of the consideration to be distributed to holders of General
Unsecured Claims, such holders (so long as their Claims have not been Disallowed
prior to the Effective Date) may receive Rights and Oversubscription Options to
purchase New Junior Secured Debentures in a principal amount of $44 million. The
New Junior Secured Debentures Indenture, the principal terms of which are
summarized below under "Reorganization Securities -- New Junior Secured
Debentures," will be issued pursuant to the New Junior Secured Debentures
Indenture, substantially in the form to be attached as Exhibit "L" to the Plan.
The New Junior Secured Debentures Indenture will be qualified under the Trust
Indenture Act.
The New Junior Secured Debentures Indenture provides that the New
Junior Secured Debentures will be secured by substantially all of the assets and
properties of the Reorganized Debtors subject only to the liens that will secure
the Reorganized Debtors' obligations to the lenders under the Post-Confirmation
Credit Facility and such other liens as may be acceptable to the holders of the
New Junior Secured Debentures. The relative rights and priorities of the New
Indenture Trustee to exercise remedies with respect to such collateral will be
governed by the terms of the New Junior Secured Debentures Indenture and limited
by the Intercreditor Agreement.
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The New Junior Secured Debentures will bear interest at the greater of
(i) 13% per annum and (ii) 150 basis points above the highest rate in effect
from time to time on any term loan under the Post-Confirmation Credit Facility.
The New Junior Secured Debentures will mature on the fifth (5th) anniversary of
the Effective Date. The Reorganized Debtors may prepay the New Junior Secured
Debentures at any time with a prepayment premium of 3% of the aggregate
principal amount of New Junior Secured Debentures to be prepaid.
The New Junior Secured Debentures Indenture will contain the following
covenants, among others:
(i) The Reorganized Debtors will not grant additional
liens, except for lien for financing new equipment and machinery purchases and
acquisitions, provided that such liens are only against the purchased or
acquired assets.
(ii) The Reorganized Debtors will not incur, create,
assume become or be liable in any manner with respect to, or permit to exist,
any indebtedness except (x) indebtedness to the lenders under the
Post-Confirmation Credit Facility, (y) indebtedness permitted under the
Post-Confirmation Credit Facility and (z) indebtedness outstanding under the New
Junior Secured Debentures.
(iii) The Reorganized Debtors, without prior written
consent of the holders of the New Junior Secured Debentures, (y) shall not
request or become liable in any manner with respect to, or permit to exist any
advance under the Post-Confirmation Credit Facility that would, after giving
effect thereto, cause all such advances under the Post-Confirmation Credit
Facility to exceed the aggregate amount of advances permitted under the
borrowing base formula in effect under the Post-Confirmation Credit Facility as
of the Effective Date (the "Effective Date Formula"), plus an agreed upon
overadvance amount, and (z) shall not request, permit or consent to any waiver,
modification or amendment to the Effective Formula.
Other covenants applicable to the Reorganized Debtors will address,
among other things, dividends and restricted payments, incurrence of certain
indebtedness and restrictions on certain actions and liquidation priorities.
The New Junior Secured Debenture Indenture will contain customary
events of default, empowering the Indenture Trustee thereunder, if instructed by
the requisite holders of the New Junior Secured Debentures and subject to the
terms of the Intercreditor Agreement, to accelerate such obligations as provided
therein:
No New Junior Secured Debentures will be issued to the extent that the
Debtors enter into an Alternative Financing Transaction in substitution of the
New Junior Secured Debentures.
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(e) Alternative Financing Transaction Documents.
The Plan contemplates that prior to the Confirmation Date, (i) the
Debtors and the Creditors' Committee will seek to replace the Post-Confirmation
Credit Facility and/or the New Junior Secured Debentures with an Alternative
Financing Transaction. It is the expectation of the Proponents, during the
period up to the Effective Date, that the Proponents, along with their
respective advisors, will actively solicit and obtain an Alternative Financing
Transaction which shall include more favorable terms to the Debtors than those
contained in the Post-Confirmation Credit Facility and/or the New Junior Secured
Debentures. There can be no assurances that the Proponents shall have obtained
such an Alternative Financing Transaction as of the Effective Date. In the event
the Debtors enter into an Alternative Financing Transaction, copies of all loan
documents in respect of any Alternative Financing Transaction, if available,
will be filed no later than three (3) Business Days before the Confirmation
Hearing but in no event later than five (5) Business Days prior to the Effective
Date.
3. Reorganization Securities.
The following is a brief summary of the Reorganization Securities that
will be issued pursuant to the Plan. The issuance of New Common Stock, Rights,
Oversubscription Options, New Junior Secured Debentures and New Warrants by
Harvard or Reorganized Harvard will be authorized by and reserved under the Plan
without the need for any further corporate actions.
(a) New Common Stock.
Pursuant to the Plan, the Reorganized Debtors shall reserve for
issuance [20] million shares of New Common Stock having a par value of $0.01 per
share, for holders of Allowed Claims in Class 5. All PIK Preferred Stock, Old
Common Stock and Old Other Interests shall be canceled pursuant to the Plan.
Subject to the preferential rights of any series of Preferred Stock
which may be issued by Harvard, and to any restrictions on payment of dividends
imposed by the Post-Confirmation Credit Agreement, the New Junior Secured
Debentures Indenture or the Alternative Financing Transactions, as the case may
be, the holders of New Common Stock will be entitled to such dividends (whether
payable in cash, property or capital stock) as may be declared from time to time
by the New Board of Directors of Reorganized Harvard from funds, property or
stock legally available therefor, and will be entitled after payment of all
prior claims, to receive pro rata all assets of the Reorganized Debtors upon the
liquidation, dissolution or winding up of the Reorganized Debtors. Holders of
New Common Stock have no redemption, conversion or preemptive rights to purchase
or subscribe for securities of the Reorganized Debtors. Any offer to redeem,
purchase or acquire any shares of New Common Stock by Harvard shall be made pro
rata to all holders of New Common Stock.
Except as required by law, the respective holders of New Common Stock
shall vote on all matters as a single class and each holder of New Common Stock
shall be entitled to one
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vote for each share of the New Common Stock that it owns. Holders of New Common
Stock will not have cumulative voting rights.
(b) Rights and Oversubscription Options.
Rights and Oversubscription Options to purchase up to $44 million of
the New Junior Secured Debentures, at par, will be issued to holders of General
Unsecured Claims in Class 5 that have not been Disallowed as of the Confirmation
Date in accordance with the Rights Plan attached to the Plan as Exhibit "C".
Holders of General Unsecured Claims in Class 5 that have not been Disallowed as
of the Confirmation Date will also receive Oversubscription Options entitling
each such holder to subscribe for additional New Junior Secured Debentures in
any amount up to the full amount issued.
On the Confirmation Date, the board of directors of each of the Debtors
shall be deemed to have approved the Rights Plan and its implementation. On the
Rights Issue Date (the date upon which the Confirmation Order becomes a Final
Order), the Rights and Oversubscription Options shall be issued. On or before
the Rights Expiration Date, any holder of Rights or Oversubscription Options
that desires to exercise such Rights or Oversubscription Options to the extent
its Claim has not been Disallowed, as applicable, shall follow the procedures
for exercise of the Rights and/or Oversubscription Options contained in Section
__ of the Rights Plan. To properly exercise the Rights and/or Oversubscription
Options, each holder that has exercised the Rights and/or Oversubscription
Options held by such holder shall deliver to the Debtors Cash in an amount
sufficient to exercise in full all of the Rights and/or Oversubscription Options
exercised by such holder in accordance with the terms of the Rights Plan.
In the event the New Junior Secured Debentures are oversubscribed, the
Debtors or Reorganized Debtors, as the case may be, shall return any unused Cash
to the applicable holder.
Pursuant to the Exercise Agreement, a copy of which is annexed to the
Plan as Exhibit "B", the Purchasers have executed an Exercise Agreement,
obligating them to exercise their Oversubscription Options in full.
(c) New Junior Secured Debentures.
The New Junior Secured Debentures to be issued under the New Junior
Secured Debenture Indenture will represent secured obligations of the
Reorganized Debtors. The proceeds of the New Junior Secured Debentures will be
used in part to satisfy the Debtors obligations to the Junior DIP Lenders
arising under the Junior DIP Facility.
The following summary of certain provisions of the New Junior Secured
Debentures does not purport to be complete and is subject to and qualified in
its entirety by reference to all of the provisions of the New Junior Secured
Debenture Indenture including the definitions therein of certain terms not
defined herein and those terms made part of the New Junior Secured Debenture
Indenture by reference to the Trust Indenture Act, as amended. The New
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Junior Secured Debentures are subject to all such provisions, and holders of the
New Junior Secured Debentures are referred to the New Junior Secured Debenture
Indenture and the Trust Indenture Act for review thereof. All accounting terms
used in the New Junior Secured Debenture Indenture, unless otherwise defined
therein have the meanings customarily given thereto in accordance with generally
accepted accounting principles as in effect on the date that the New Junior
Secured Debenture Indenture becomes effective.
The New Junior Secured Debentures will be secured obligations of the
Reorganized Debtors, in the aggregate principal amount of up to $44 million. The
New Junior Secured Debentures will mature on the fifth anniversary of the
Effective Date. For a more complete description of the terms, covenants, events
of default and other provisions with respect to the New Junior Secured
Debentures, see "THE PLAN -- Conditions to and Means for Consummation of the
Plan -- Principal Plan Documents -- New Junior Secured Debentures Indenture."
(d) New Warrants.
If Class 7 votes accept the Plan, on the Effective Date, Reorganized
Harvard will issue to the holders of Class 7 Interests, an aggregate number of
New Warrants to purchase up to 3.333% of New Common Stock at a price per share
based on a net equity value of Reorganized Harvard of [$500] million. If Class 7
and Class 8 vote to accept the Plan, Reorganized Harvard will issue to the
holders of Class 8 Interests, an aggregate number of New Warrants to purchase up
to 1.667% of New Common Stock at a price per share based on a net equity value
of Reorganized Harvard of [$500] million. If Class 7 does not vote to accept the
Plan, holders of Interests in Class 7 and Class 8 will receive no distributions
under the Plan. If Class 7 votes to accept the Plan but Class 8 does not vote to
accept the Plan, holders of Interests in Class 8 will receive no distributions
under the Plan. The New Warrants will expire on the fifth anniversary of the
Effective Date. Although under the priority schemes estimated by the Bankruptcy
Code, holders of Class 7 and Class 8 Interests would not receive any
distributions under the Plan, the purpose of the issuance of the New Warrants is
to provide value to the holders of PIK Preferred Stock and Old Common Stock in
the event that the value of the New Common Stock appreciates significantly.
Specifically, the New Warrants will have no significant value until the New
Common Stock appreciates sufficiently to provide an approximate recovery to the
holders of Allowed Claims in Class 5 of 100%. The likelihood of such
appreciation cannot be determined at this time and there can be no assurance
that it will occur, if at all. A copy of the New Warrant Agreement is annexed as
Exhibit "D" to the Plan.
4. Cancellation and Surrender of Instruments.
On the Effective Date, the 12% Senior Notes, the 11 1/8% Senior Notes,
the PIK Preferred Stock, Old Common Stock, the certificates of designations for
the PIK Preferred Stock and the Old Common Stock, and any options, warrants,
calls, subscriptions, or other similar rights or other agreements or
commitments, contractual or otherwise, obligating the Debtors to issue,
transfer, or sell any shares of PIK Preferred Stock, Old Common Stock, or any
other capital stock of the Debtors will be canceled and extinguished. Except for
purposes
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of effectuating the Distributions under the Plan, on the Effective Date, the 12%
Senior Note Indenture and the 11 1/8% Senior Note Indenture will be deemed to be
canceled. As a condition to receiving any distribution under the Plan, each
holder of a promissory note, share certificate or other instrument evidencing a
Claim or Interest must surrender such promissory note, share certificate or
other instrument to the Reorganized Debtors or their designee. The Reorganized
Debtors appoint the Indenture Trustees as their designees to receive the 12%
Senior Notes and the 11 1/8% Senior Notes, Any holder of a Claim or Interest
that fails to (a) surrender such instrument or (b) execute and deliver an
affidavit of loss and/or indemnity reasonably satisfactory to the Reorganized
Debtors and furnish a bond in the form, substance and amount reasonably
satisfactory to the Reorganized Debtors before the later to occur of (a) the
second anniversary of the Effective Date and (ii) six (6) months following the
date such holder's Claim becomes an Allowed Claim, shall be deemed to have
forfeited all rights, Claims and/or Interests and may not participate in any
distribution under the Plan.
5. Retiree Benefits.
After the Effective Date, the payment of retiree benefits (as defined
in section 1114 of the Bankruptcy Code), at the level established pursuant to
section 1114 of the Bankruptcy Code, will continue for the duration of the
period that the applicable Debtor has obligated itself to provide such benefits.
6. Employee Benefit Plans.
Except as otherwise provided in the Plan, subject to the occurrence
of the Effective Date, all employee benefit plans, policies and programs of
the Debtors, and the Debtors' obligations thereunder, shall survive
confirmation of the Plan, remain unaltered thereby, and not be discharged.
Except as otherwise provided in the Plan, employee benefit plans, policies and
programs shall include, without limitation, all savings plans, retirement
pension plans (to the extent not otherwise affected by the PBGC Agreement),
health care plans, disability plans, severance benefit plans, life, accidental
death and dismemberment insurance plans (to the extent not executory contracts
assumed under the Plan) and Workers' Compensation Programs, but will exclude
all employees' equity or equity-based incentive plans.
7. Conditions to Confirmation and Consummation of the Plan.
(a) Prior to confirmation of the Plan, the following conditions
must occur and be satisfied:
(i) An order finding that the Disclosure Statement contains
adequate information pursuant to section 1125 of the Bankruptcy Court will have
been entered.
(ii) As of the Confirmation Date, General Unsecured Claims
against the Debtors (whether Disputed or Allowed), in the aggregate, do not
exceed $____.
(b) Before the Effective Date occurs, the following conditions
must occur and be satisfied:
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(i) A Confirmation Order confirming the Plan, as such Plan
may have been modified, will have been entered and become a Final Order.
(ii) The Confirmation Order will authorize and approve
substantive consolidation of the Debtors.
(iii) The Registration Statement will have been filed with
the Commission and no stop order in respect thereof shall have been issued.
(iv) The Debtors will have sufficient Cash, through
implementation of the Post-Confirmation Credit Facility, the issuance of the New
Junior Secured Debentures and/or an Alternative Financing Transaction, to
satisfy all Cash obligations under the Plan due on the Effective Date.
(v) Subject to the Combination Transactions, the New
Certificates of Incorporation will have been filed with the Secretary of State
of the State of each such Entity's State of Incorporation in accordance with
such state's corporation laws;
(vi) All authorizations, consents and regulatory approvals
required, if any, in connection with the Plan's effectiveness will have been
obtained;
(vii) No order of a court will have been entered and shall
remain in effect restraining the Debtors from consummating the Plan.
(viii) The Debtors will have received the written consent
of the Creditors' Committee for any modifications to the Exhibits and Schedules
attached to the Plan.
(ix) If New Junior Secured Debentures are to be issued
under the Plan, the New Junior Secured Debentures Indenture will have been duly
qualified under the Trust Indenture Act.
(x) As of the Effective Date, General Unsecured Claims
against the Debtors (whether Disputed or Allowed), in the aggregate, do not
exceed $____.
The Debtors may waive, by a writing signed by an authorized
representative and subsequently filed with the Bankruptcy Court, one or more of
the conditions to confirmation or consummation of the Plan, provided, however,
that the Debtors must obtain the prior written consent of the Creditors'
Committee in order to waive any of the conditions set forth 7(a)(i) and 7(b)(i)
through (ix).
The Effective Date of the Plan shall be (a) the Business Day that is
not more than seven (7) Business Days after the date all of the conditions to
the occurrence of the Effective Date of the Plan have been satisfied or duly
waived or (b) such other Business Day as the Proponents select.
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A hearing to consider confirmation of the Plan has been scheduled for
_____ __, 1998 at __:__ _.m., as a result of which, if all conditions to
confirmation of the Plan have occurred or been waived by that time, the
Confirmation Order may be entered by the Bankruptcy Court.
The Debtors believe that all conditions to the Effective Date of the
Plan will likely be satisfied within sixty (60) days of the Confirmation Date,
and that the Effective Date of the Plan could occur by _________________.
E. Securities Law Matters.
1. Exemption from Securities Act Regulations.
The New Common Stock and the New Warrants to be issued on the Effective
Date will be issued pursuant to the exemption from the registration requirements
of the Securities Act of 1933 (and of equivalent state securities or "blue sky"
laws) provided by section 1145(a)(1) of the Bankruptcy Code. Generally, section
1145(a)(1) of the Bankruptcy Code exempts from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws the
issuance of securities directly or through a warrant to purchase such securities
if the following conditions are satisfied: (a) the securities are issued by a
debtor (or its successor) under a chapter 11 plan; (b) the recipients of the
securities hold a claim against, an interest in, or a claim for an
administrative expense against, the debtor and (c) the securities are issued
entirely in exchange for the recipient's claim against or interest in the debtor
or are issued "principally" in such exchange and "partly" for cash or property.
Section 1145(a)(2) of the Bankruptcy Code also exempts from such registration
requirements offers of securities through warrants and similar rights
distributed pursuant to the exemption set forth in section 1145(a)(1). The
Debtors believes that the issuance of the New Common Stock, the Rights,
Oversubscription Options, New Junior Secured Debentures, and the New Warrants
will satisfy the aforementioned requirements.
The New Common Stock, New Junior Secured Debentures and the New
Warrants may be resold by the holders thereof without registration unless, as
more fully described below, any such holder is deemed to be an "underwriter"
with respect to such securities, as defined in section 1145(b)(1) of the
Bankruptcy Code. Generally, section 1145(b)(1) of the Bankruptcy Code defines an
"underwriter" as any person who (a) purchases a claim against, or interest in, a
bankruptcy case, with a view towards the distribution of any security to be
received in exchange for such claim or interest, (b) offers to sell securities
issued under a bankruptcy plan on behalf of the holders of such securities, (c)
offers to buy securities issued under a bankruptcy plan from persons receiving
such securities, if the offer to buy is made with a view towards distribution of
such securities and under an agreement made in connection with the plan, with
the consummation of the plan or with the offer of sale of securities under the
plan, or (d) is an issuer within the meaning of section 2(11) of the Securities
Act. Although the definition of the term "issuer" appears in section 2(4) of the
Securities Act, the reference (contained in section 1145(b)(1)(D) of the
Bankruptcy Code) to section 2(11) of the Securities Act purports to include as
"underwriters" all persons who, directly or indirectly, through one or more
intermediaries, control, are controlled by, or are under common control with, an
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issuer of securities. "Control" (as such term is defined in Rule 405 of
Regulation C under the Securities Act) means the possession, direct or indirect,
of the power to direct or cause the direction of the policies of a person,
whether through the ownership of voting securities by contract, or otherwise.
THE FOREGOING SUMMARY DISCUSSION IS GENERAL IN NATURE AND HAS BEEN
INCLUDED IN THIS DISCLOSURE STATEMENT SOLELY FOR INFORMATIONAL PURPOSES. THE
DEBTORS MAKE NO REPRESENTATIONS CONCERNING, AND DO NOT HEREBY PROVIDE ANY
OPINION OR ADVICE WITH RESPECT TO, THE SECURITIES LAW AND BANKRUPTCY LAW MATTERS
DESCRIBED ABOVE. IN LIGHT OF THE COMPLEX AND SUBJECTIVE INTERPRETIVE NATURE OF
WHETHER A PARTICULAR RECIPIENT OF NEW COMMON STOCK, RIGHTS, OVERSUBSCRIPTION
OPTIONS, NEW JUNIOR SECURED DEBENTURES OR NEW WARRANTS MAY BE DEEMED TO BE AN
"UNDERWRITER" WITHIN THE MEANING OF SECTION 1145(b)(1) OF THE BANKRUPTCY CODE
UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND, CONSEQUENTLY, THE
UNCERTAINTY CONCERNING THE AVAILABILITY OF EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND EQUIVALENT STATE SECURITIES AND "BLUE
SKY" LAWS, THE DEBTORS ENCOURAGE EACH HOLDER OF A CLAIM OR INTEREST POTENTIALLY
ENTITLED TO RECEIVE A REORGANIZATION SECURITY UNDER THE PLAN TO CONSIDER
CAREFULLY AND CONSULT WITH ITS OWN LEGAL ADVISOR(S) WITH RESPECT TO SUCH (AND
ANY RELATED) MATTERS.
2. Registration Rights.
The final drafts of such Registration Rights Agreements will be filed
by the Debtors with the Bankruptcy Court no later than a date which is five (5)
days prior to the first date set by the Bankruptcy Court as the Voting Deadline.
Such Registration Rights Agreements will be in form and substance reasonably
satisfactory to the Creditors' Committee.
[TO COME]
3. Registration of Securities; Listing of New Common Stock.
Reorganized Harvard shall use its best efforts to (i) to maintain its
status as a reporting company under the Exchange Act and cause, on the Effective
Date, the shares of New Common Stock issued hereunder to be listed on a national
securities exchange or on the National Market System of the National Association
of Securities Dealers Inc. Automated Quotation System ("NASDAQ"), (ii) in
accordance with the terms of the Registration Rights Agreement, file, on or
prior to the Effective Date, and have declared effective as soon as possible
thereafter, a registration statement or registration statements under the
Securities Act of 1933, as amended (the "Securities Act") for the offering on a
continuous or delayed basis in the future of the shares of New Common Stock (the
"Shelf Registration"), (iii) cause to be filed with the Securities and Exchange
Commission and have declared effective on or prior to
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the Effective Date a registration statement on Form 10 under the Exchange Act
with respect to the New Common Stock, (iv) keep the Shelf Registration effective
for a three-year period and (v) supplement or make amendments to the Shelf
Registration, if required under the Securities Act or by the rules and
regulations promulgated thereunder, or in accordance with the terms of the
Registration Rights Agreement, and have such supplements and amendments declared
effective as soon as practicable after filing.
Registration of New Common Stock under the Exchange Act will
facilitate the trading of the New Common Stock on a national securities
exchange or on the National Market System of the NASDAQ as applicable. There
can be no assurance, however, that the New Common Stock or New Warrants will
be listed on any stock exchange or quoted on the National Market System.
Moreover, no assurance can be given that a trading market for such securities
will develop following the effectiveness of the Plan or, if a trading market
for the New Common Stock or the New Warrants develops, no assurance can be
given as to the liquidity of such a trading market.
4. Exemption From Certain Transfer Taxes.
The Plan provides that, pursuant to Bankruptcy Code section 1146(c),
the issuance, transfer, or exchange of a security, or the making or delivery of
an instrument of transfer, shall not be subject to any stamp tax, real estate
transfer tax or similar tax. Transfers under the Plan that are exempt from
taxation pursuant to section 1146(c) of the Bankruptcy Code include, but are not
limited to, the issuance, transfer, assignment or exchange of the New Common
Stock, New Junior Secured Debentures, Rights, Oversubscription Options and New
Warrants; the creation of any mortgage, deed of trust, lien or other security
interest; the making, reinvestment, or delivery of any deed or instrument or
transfer under, in furtherance of, or in connection with, the Plan, including
any deeds, bills of sale, pledges, mortgages, deeds of trust or assignments
executed in connection with the Plan, agreements entered into in connection with
the Plan or the Confirmation Order.
5. Section 1125 of the Bankruptcy Code.
The Plan provides that the Debtors and the Creditors' Committee have,
and upon confirmation of the Plan shall be deemed to have, solicited acceptances
of the Plan in good faith and in compliance with the applicable provisions of
the Bankruptcy Code and that the Debtors (and their respective affiliates,
agents, directors, officers, employees, members, advisors and attorneys) have
participated in good faith and in compliance with the applicable provisions of
the Bankruptcy Code in the offer, issuance, sale and purchase of the securities
offered and sold under the Plan, and therefore are not, and on account of such
offer, issuance, sale, solicitation and/or purchase will not be, liable at any
time for the violation of any applicable law, rule or regulation governing the
solicitation of acceptances or rejections of the Plan or the offer, issuance,
sale or purchase of the securities offered and sold under the Plan.
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F. Executory Contracts and Unexpired Leases.
Subject to the approval of the Bankruptcy Court, the Bankruptcy Code
empowers a debtor in possession to assume or reject executory contracts and
unexpired leases. Generally, an "executory contract" is a contract under which
material performance is due from both parties as of the Petition Date. If an
executory contract or unexpired lease is rejected by a debtor in possession,
such rejection will constitute a prepetition breach under Sections 365(g) and
502(g) of the Bankruptcy Code and the other parties to the agreement may file a
claim for damages incurred by reason of such rejection, which claim is treated
as a prepetition claim. If an executory contract or unexpired lease is assumed
by a debtor in possession, the debtor in possession has the obligation to cure
all prepetition defaults and perform its obligations thereunder in accordance
with the terms of such agreement and failure to perform such obligations could
result in a claim for damages which may be entitled to administrative expense
status.
On the Effective Date, all executory contracts and unexpired leases of
the Debtors shall be assumed by the Debtors (subject to the same rights that the
Debtors or the Reorganized Debtors held or hold at, on, or after the Petition
Date to modify or terminate such agreements under applicable nonbankruptcy law)
pursuant to the provisions of sections 365 and 1123 of the Bankruptcy Code,
except: (a) any executory contract or unexpired lease that is the subject of a
separate motion to reject filed pursuant to section 365 of the Bankruptcy Code
by the Debtors before the entry of the Confirmation Order; (b) executory
contracts and unexpired leases listed in the "Schedule of Rejected Executory
Contracts and Unexpired Leases" (the "Schedule of Rejected Contracts") annexed
to the Plan which shall be served and filed by the Debtors at least five (5)
business days before the Confirmation Hearing. Each executory contract and
unexpired lease assumed pursuant to the Plan by any Debtor shall revest in and
be fully enforceable by such Reorganized Debtor in accordance with its terms,
except as modified by the provisions of the Plan, any Bankruptcy Court Order
authorizing and providing for its assumption, or applicable federal law.
The Debtors estimate that rejection of the executory contracts and
unexpired leases set forth on the Schedule of Rejected Contracts will give rise
to General Unsecured Claims aggregating no more than $__ million. The Debtors
estimate that the assumption of executory contracts and unexpired leases will
require the Debtors to spend in the aggregate no more than $_____ million to
cure prepetition defaults under certain of those contracts and leases.
G. Environmental Matters.
Debtors are subject to various federal, state and local environmental
laws and regulations, including those relating to air emissions, wastewater
discharges, the handling and disposal of solid and hazardous wastes and the
remediation of contamination associated with the use and disposal of hazardous
substances. Certain of the Debtors have received information requests or have
been named potentially responsible parties ("PRPs") by the United States
Environmental Protection Agency ("EPA"), state environmental agencies, or PRP
groups under the Comprehensive Environmental Response, Compensation and
Liability
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Act ("CERCLA"), 42 U.S.C. ss.ss. 9601 et seq., or analogous state laws with
respect to approximately 25 sites. Furthermore, given the Debtors' historic
operations involving the use and disposal of hazardous substances, additional
environmental issues may arise in the future the precise nature and magnitude of
which the Debtors cannot predict.
A number of governmental agencies, PRP groups, and individual claimants
have filed proofs of claim against certain of the Debtors with respect to
liabilities relating to environmental matters, including liabilities arising
under CERCLA and analogous state laws. Debtors believe that the aggregate costs
of resolving such Environmental Claims (as defined below), subject to Bankruptcy
Court approval, will in all likelihood range between approximately $8 million
and $20 million. This range reflects a number of factors which may influence the
ultimate outcome of the claims resolution process, such as the amount of such
Claims paid in Cash, the assertion of factual or legal defenses to certain
Claims, and the willingness of certain claimants to compromise their Claims. No
assurance can be given that the potential liabilities associated with such
claims will not ultimately prove to be more than the current estimates. The
potentially significant Environmental Claims (as defined below) presently
asserted against the Debtors and the proposed treatment of all Environmental
Claims are as follows:
1. Consent Decrees and Settlement Agreements.
The Debtors are parties to several consent decrees and settlement
agreements relating to environmental matters and executed prior to the Petition
Date (collectively, the "Consent Decrees and Settlement Agreements"). The
potentially significant Environmental Claims relating to the Consent Decrees and
Settlement Agreements include the following:
(a) American Littoral Society.
In February 1997, the American Littoral Society ("ALS"), a public
interest group, filed a lawsuit against Doehler-Jarvis in the United States
District Court of the Eastern District of Pennsylvania, based upon past and
anticipated future discharges to the Schuylkill River in excess of the limits
established in the National Pollutant Discharge Elimination System permit
("NPDES") for the Pottstown, Pennsylvania plant. On February 14, 1997,
Doehler-Jarvis entered into a Consent Order and Agreement ("ALS Consent Order")
resolving the citizen suit brought by the ALS. Pursuant to the ALS Consent
Order, Doehler-Jarvis agreed to construct a wastewater recycling system that
eliminates discharges to the Schuylkill River and to undertake various other
minor projects addressing potential pollution at the facility. The wastewater
recycling system has been constructed and is currently operational. In addition,
the ALS Consent Order required Doehler-Jarvis to pay civil penalties of
approximately $1 million, of which $375,000 could be allocated to the costs of
installing the new system and $50,000 could be allocated to the cost of
pollution prevention. Of the remaining penalty amount, $425,000 was to be paid
to the Environmental Endowment of New Jersey, $25,000 to the EPA, $125,000 to
the Pennsylvania Clean Water Fund, and $25,000 to the Township of West
Pottsgrove. In addition, Doehler-Jarvis agreed to pay $55,000 to the
Environmental Law
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Center of New Jersey for litigation costs and $20,000 to the ALS for anticipated
monitoring costs. These penalty amounts have not been paid.
A number of claimants have filed Claims in the current bankruptcy
proceeding in connection with the ALS Consent Order. BT Holdings (New York),
Inc. (as assignee of certain monetary rights under the ALS Consent Order) has
made a Claim for amounts due under the ALS Consent Order to the Environmental
Endowment of New Jersey, the Environmental Law Center of New Jersey, and the
ALS. In addition, the EPA and the Township of West Pottsgrove have each asserted
Claims for amounts due under the ALS Consent Order. Finally, the ALS has
asserted a proof of claim against Doehler-Jarvis seeking to require
Doehler-Jarvis to perform its non-monetary obligations required under the ALS
Consent Order.
(b) PADEP Consent Decree.
In March 1997, the Pennsylvania Department of Environmental Protection
("PADEP") filed an action against Doehler-Jarvis seeking penalties in connection
with the NPDES permit violations alleged by the ALS. Doehler-Jarvis entered into
a Consent Decree with PADEP (the "PADEP Consent Decree") in April 1997. The
PADEP Consent Decree required Doehler-Jarvis to pay a civil penalty of $125,000
to PADEP. PADEP has made a Claim for the penalty due under the PADEP Consent
Decree.
(c) Vega Alta Superfund Site.
A Record of Decision ("ROD") was issued on November 10, 1987 naming
Harman Automotive - Puerto Rico, Inc., a wholly owned subsidiary of Harman, 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 ("Unisys"), was
identified by General Electric as an additional PRP at the Vega Alta Site.
There are currently two phases of administrative proceedings in
progress. The first phase, known as Operable Unit I ("OUI"), involves a
Unilateral Order requiring the named PRPs to implement the 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 filed a complaint in
the United States District Court for the District of Puerto Rico seeking damages
and recovery of costs from the PRPs, as well as a declaratory judgment that the
PRPs were liable for future response costs.
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 Company and Motorola was $557,297,
payable in twenty equal
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quarterly installments. Payments have been suspended due to the current
bankruptcy proceedings. West Company and Motorola have each made Claims for
$139,324.25 for the remaining costs due pursuant to the cost-sharing arrangement
for construction of the OUI remedy.
As to Harman's share of all other costs, pursuant to a Settlement
Agreement, dated June 30, 1993, Harman, Motorola and West Company each agreed to
pay General Electric the sum of $800,000 in return for General Electric's and
Unisys' 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 concerning further phases of work at the Vega Alta
Site. 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. 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 were suspended. General Electric has made a Claim in
Debtor's current bankruptcy proceeding for the remaining amount which General
Electric believes is owed pursuant to the Settlement Agreement.
In light of the Settlement Agreement described above, the PRPs
(including Harman) have stipulated with the EPA as to liability in order to
avoid further litigation. 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.
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. In addition, on March 27, 1998 and April 8, 1998, the EPA
requested all of the PRPs (including Harman) to reimburse the EPA for
approximately $940,000 in past costs related to the Vega Alta Site. Harman has
notified both General Electric and the EPA that pursuant to the Settlement
Agreement described above, Harman expects General Electric and Unisys to comply
with all of EPA's further requirements.
(d) Alsco-Anaconda Superfund Site.
Alsco Inc., a predecessor of Harvard, was the former owner and operator
of a manufacturing facility located in Gnadenhutten, Ohio. The Alsco division of
Harvard was sold in August 1971 to the Anaconda Inc. Subsequently, Alsco became
Alsco-Anaconda, Inc., a predecessor to an entity now merged with and survived by
the Atlantic Richfield Company ("ARCO"). The facility, when acquired by ARCO's
predecessor, consisted of an architectural manufacturing plant, office
buildings, a wastewater treatment plant, two sludge settling basins and a sludge
pit. The basins and pit were used for treatment and disposal of substances
generated from the manufacturing processes. The basins, pit and adjacent wooded
marsh were
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proposed for inclusion on EPA's National Priorities List in October 1984. Those
areas were formally listed by the EPA as the "Alsco-Anaconda Superfund Site" in
June 1986.
On December 28, 1989, EPA issued a Unilateral Administrative Order to
Harvard and ARCO for implementation of the remedy at the Alsco-Anaconda
Superfund Site. Litigation between Harvard and ARCO subsequently commenced in
the United States District Court for the Northern District of Ohio regarding
allocation of response costs. Pursuant to a Settlement Agreement, dated January
16, 1995, Harvard agreed to pay ARCO $6.25 million (as its share of up to $25
million of the cleanup and environmental costs at the Alsco-Anaconda Superfund
Site) in twenty equal quarterly installments with accrued interest at the rate
of 9% per annum, of which nine installments were paid through May 7, 1997. In
return, ARCO assumed responsibility for cleanup activities at the site and is
obligated to indemnify Harvard from any environmental claims below the cap. If
cleanup costs should exceed $25 million, the parties will be in the same
position as if the litigation was not settled. Based on information provided by
ARCO, Harvard believes that ARCO has completed 100% of the cleanup of the
4.8-acre National Priorities List site and 80% of the cleanup of the property
adjacent to the National Priorities List site. Total costs are expected to be in
the range of $19 million. Due to the current bankruptcy proceedings, payments to
ARCO, pursuant to the Settlement Agreement, have been suspended. ARCO
Environmental Remediation, LLC has made a Claim in the current bankruptcy
proceeding for all amounts that ARCO is owed under the Settlement Agreement or,
in the alternative, for all amounts that ARCO has expended or may expend for
cleanup of the site.
(e) Town of Newmarket, New Hampshire.
Kingston-Warren allegedly disposed of waste at the Newmarket Landfill
in New Hampshire from 1952-1975. After the State of New Hampshire ordered the
Town of Newmarket (the "Town") to close the landfill, the Town sought
contribution for cleanup costs from Kingston-Warren and other local
manufacturers. The Town completed closure of the landfill in 1996. Pursuant to a
Settlement Agreement between Harvard, Kingston-Warren, and the Town as
subsequently amended, Harvard made a lump sum payment of $480,000 to the Town to
satisfy its outstanding cleanup liability. No further sums are due from Harvard
and Kingston-Warren unless there is a catastrophic failure of the geomembrane
cap of the landfill. In the event of a catastrophic failure, Harvard and
Kingston-Warren may be called upon to contribute further, based on a
task-by-task maximum allocation. Based on the recent accounting provided by the
Town, Kingston-Warren's future potential liability is presently capped at a
maximum amount of approximately $655,000. The Town is required to pursue all
other PRPs before seeking further payments from Harvard and Kingston-Warren. In
addition, the Town is required to indemnify Harvard and Kingston-Warren from all
claims and costs relating to the landfill. The Town has made a contingent Claim
in the current bankruptcy proceeding in the event there is a catastrophic
failure of the landfill's geomembrane cap.
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2. State Agency Claims.
A number of state environmental agencies have asserted Environmental
Claims against the Debtors. The potentially significant Environmental Claims are
described below:
(a) Groundwater at West Jackson, Michigan Facility.
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. Hayes-Albion
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. The MDEQ has made a Claim in
the current bankruptcy proceeding that Hayes-Albion is responsible for
groundwater contamination at the Site and seeks recovery of past and future
response costs.
(b) Air Emissions at Tiffin, Ohio Facility.
The State of Ohio is seeking civil penalties for alleged violations of
air emissions regulations at Hayes-Albion's Tiffin, Ohio facility from 1990 to
the present. Hayes-Albion disputes Ohio's method of calculating the allowable
emission rate and believes that, using a different method of calculation, the
facility should have no liability. The State of Ohio has made a Claim in the
current bankruptcy proceeding for penalties related to the alleged air
violations, and provided notice on July 1, 1998 that it intended to commence a
civil action in state court for civil penalties and injunctive relief.
(c) PJP Landfill Site.
Pursuant to a 1985 Asset Purchase Agreement, Harvard acquired certain
assets of the Elastic Stop Nut Division ("ESNA") from the Amerace Corporation
("Amerace") and agreed to indemnify Amerace for certain environmental
liabilities related to the purchased assets. Although ESNA had facilities in
several locations, including Union and Elizabeth, New Jersey, Harvard purchased
only the Union Facility. See "Significant Events During the Chapter 11 Cases
- --Asset Sales."
In 1992, the New Jersey Department of Environmental Protection
("NJDEP") filed a complaint in the Superior Court of New Jersey seeking cleanup
costs against a number of PRPs, including Amerace, which allegedly sent waste to
the PJP Landfill in New Jersey. Amerace is one of 57 generator defendants who
signed an Administrative Consent Order, dated June 2, 1997, agreeing to perform
and fund the future remedy at the PJP Landfill.
The NJDEP has made a Claim in the current bankruptcy proceeding for
past and future response costs relating to the PJP Landfill. Amerace has also
asserted a Claim in the current bankruptcy proceeding that it is entitled to
indemnification from Harvard pursuant to the 1985
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Asset Purchase Agreement for response costs it incurs in connection with the PJP
Landfill. However, because there is no proof specifically connecting the Union
facility (as opposed to the Elizabeth facility) to the PJP Landfill, Harvard
believes that it should have no liability with respect to the site.
(d) Stratford Industrial Park Facility
Hayes-Albion operated a facility at the Stratford Industrial Park in
Forsyth County, North Carolina from 1968 until 1982 when the facility and
assets were sold to Sonoco Products Company ("Sonoco Products"). The North
Carolina Department of Environment and Natural Resources ("NCDENR") has made a
Claim in the current bankruptcy proceeding that Hayes-Albion may be
responsible for possible soil contamination in connection with the removal of
a 20,000-gallon underground storage tank in 1984 at the facility. According to
the NCDENR, there is no evidence of confirmation sampling to ensure that all
contamination was removed at the time of the removal of the underground
storage tank. Hayes-Albion believes that Sonoco Products is solely responsible
for all matters related to the operation and closure of the tank.
3. Other.
(a) Groundwater Contamination in Union, New Jersey.
Groundwater contamination was discovered at and around ESNA's Union
facility in 1985. A downgradient property owner (Daniel Winters) filed a lawsuit
against a number of nearby property owners (including Harvard, Amerace, and the
Red Devil Corporation) alleging that contamination had migrated onto his
property. The lawsuit ultimately settled and Winters subsequently dismissed his
claim. A predecessor in title to the Winters' property (the Pneumo Abex
Corporation) did not dismiss its counterclaims and crossclaims made against
Harvard and others. The case has been on the inactive list for a considerable
period of time.
The Pneumo Abex Corporation made a Claim in the current bankruptcy
proceeding for past investigation and monitoring costs and any future response
costs that may be required. In addition, Amerace has made a Claim in the
current bankruptcy proceeding that it is entitled to indemnification from
Harvard for groundwater contamination associated with the Union, NJ facility
pursuant to the 1985 Asset Purchase Agreement. However, in May 1998, Harvard
received a letter from the NJDEP stating that (i) the groundwater
contamination at the Harvard facility is the result of an offsite source; (ii)
Harvard has not contributed to the groundwater contamination; and (iii)
Harvard has demonstrated that no further action is required. Therefore,
Harvard believes that it should have no liability with respect to the
groundwater contamination in Union, New Jersey and has formally requested
Pneumo Abex to dismiss its Claim.
(b) Vega Alta Toxic Tort.
In October 1997, several property owners in Puerto Rico filed an action
against Harvard, Harman, General Electric, West Company, Motorola, Unisys, and
the EPA in the
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U.S. District Court for the District of Puerto Rico seeking to recover costs and
property damage arising from contamination of the groundwater in Vega Alta,
Puerto Rico. The complaint alleges that damages exceed $50 million. Although
Harvard and Harman were named defendants in this action, neither entity was
served. A Claim, however, was filed in the current bankruptcy proceeding by the
property owner plaintiffs for environmental and property damage associated with
the Vega Alta groundwater contamination. However, at this time, Harman has no
information which would support such Claim and, therefore, believes it to be
speculative.
In addition, Unisys, on its own behalf and on behalf of Owens-Illinois
de Puerto Rico, has asserted several Claims in the current bankruptcy proceeding
against Harman and Harvard for contribution in the event Unisys is held liable
to (i) the property owner plaintiffs in the Vega Alta toxic tort, (ii)
Owens-Illinois de Puerto Rico in its threatened claim related to groundwater
contamination in Vega Alta, and (iii) any other third party to whom Unisys may
be held liable in connection with groundwater contamination at the Vega Alta
Superfund Site.
4. Treatment of Environmental Matters Under Plan.
Other than the executory contracts listed below, the Debtors believe
that none of the outstanding Consent Decrees and Settlement Agreements which
were entered into prior to the Petition Date by any of the Debtors relating to
environmental matters constitute executory contracts subject to assumption or
rejection. The Debtors are assuming the following executory contract: (1) the
Settlement Agreement with the Town of Newmarket (dated July 8, 1992, as amended
March 11, 1997). The Debtors are rejecting the following contracts which the
Debtors believe may be considered executory: (1) the GE Vega Alta Settlement
Agreement, and (2) the ARCO Alsco-Anaconda Settlement Agreement. All monetary
obligations arising out of the Consent Decrees and Settlement Agreements (other
than those listed above as being assumed) will be discharged under the Plan.
All Claims relating to environmental matters (including, without
limitation, any Claims relating to consent decrees or settlement agreements
which are not being assumed) ("Environmental Claims") will be discharged under
the Plan. Such Environmental Claims include any Claim by any governmental unit,
person, or other entity, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, rule or regulation,
ordinance, permit, authorization, license, order, or judicial or administrative
decision, arising out of, relating to, or resulting from pollution,
contamination, protection of the environment, human health or safety, or health
or safety of employees, including without limitation (i) the presence, release,
or threatened release of any hazardous substance that is regulated by or forms
the basis of liability under any environmental law (including, without
limitation, CERCLA, 42 U.S.C. ss.ss. 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., the Clean Air Act, 42 U.S.C. ss.ss.
7401 et. seq., the Clean Water Act (Federal Water Pollution Control Act), 33
U.S.C. ss.ss. 1251 et seq., and any analogous state or local law) ("Hazardous
Substance") on, in, under, within, or migrating to or from any real property
currently or formerly owned, leased, operated, or controlled by a Debtor or any
predecessor of a Debtor, (ii) the transportation, disposal or arranging for the
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disposal of any Hazardous Substances by a Debtor or any predecessor of a Debtor
at or to any offsite location, and (iii) any harm, injury or damage to any real
or personal property, natural resources, the environment or any person or other
entity alleged to have resulted from any of the foregoing. The Debtors believe
that all of the proofs of claim relating to environmental matters asserted in
the current bankruptcy proceeding constitute "claims" within the meaning of the
section 101(5) of the Bankruptcy Code, 11 U.S.C. ss. 101(5), and, therefore, all
such claims are dischargeable within the meaning of section 1141 of the
Bankruptcy Code. In addition, the Debtors believe that all claims and
obligations relating to Hazardous Substance contamination on, in, under, within,
or migrating to or from any real property formerly owned, leased, operated, or
controlled by a Debtor or any predecessor of a Debtor or any other offsite
location constitute "claims" within the meaning of section 101(5) of the
Bankruptcy Code, 11 U.S.C. ss. 101(5), and, therefore, all such claims are
dischargeable within the meaning of section 1141 of the Bankruptcy Code, 11
U.S.C. ss. 1141.
Holders of Allowed Claims arising out of Environmental Claims shall be
treated as Claims in Class 5 or Class 6, as appropriate.
H. Effects of Plan Confirmation.
1. Discharge.
Except as otherwise specifically provided by the Plan, the confirmation
of the Plan (subject to the occurrence of the Effective Date) will discharge the
Debtors and the Reorganized Debtors from any debt that arose before the
Confirmation Date, and any debt of the kind specified in sections 502(g), 502(h)
and 502(i) of the Bankruptcy Code, whether or not a proof of claim for such debt
is filed or is deemed filed, whether or not such Claim is Allowed, and whether
or not the holder of such Claim has voted on the Plan. The effect of discharging
a Claim is to release the Debtors and the Reorganized Debtors from any
obligations to make payments with respect to such debt, other than those
specifically provided by the Plan, and to prohibit any collection efforts by the
holder of the Claim.
2. Binding Effect.
The provisions of the Plan will be binding upon and inure to the
benefit of the Debtors, the Reorganized Debtors, any holder of a Claim or
Interest, their respective predecessors, successors, assigns, agents, officers
and directors and any other Entity affected by the Plan.
3. Releases.
Except as otherwise specifically provided by the Plan, the
distributions and rights that are provided in the Plan will be in complete
satisfaction, discharge and release, effective as of the Confirmation Date (but
subject to the occurrence of the Effective Date) of (i) all Claims and Causes of
Action against, liabilities of, liens on, obligations of and Interests in the
Debtors or the Reorganized Debtors or the direct or indirect assets and
properties of the Debtors or the Reorganized Debtors, whether known or unknown,
and (ii) all Causes of Action (whether known or unknown, either directly or
derivatively through the Debtors or the Reorganized
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Debtors) against, claims (as defined in section 101 of the Bankruptcy Code)
against, liabilities (as guarantor of a Claim or otherwise) of, liens on the
direct or indirect assets and properties of, and obligations of successors and
assigns of, the Debtors, the Reorganized Debtors and their successors and
assigns, or based on any act or omission, transaction or other activity or
security, instrument or other agreement of any kind or nature occurring, arising
or existing prior to the Effective Date that was or could have been the subject
of any Claim or Interest, in each case regardless of whether a proof of claim or
interest was filed, whether or not Allowed and whether or not the holder of the
Claim or Interest has voted on the Plan.
Further, except as otherwise specifically provided by the Plan, any
Entity accepting any distribution pursuant to the Plan will be presumed
conclusively to have released the Debtors, the Reorganized Debtors, and
successors and assigns of the Debtors from any Cause of Action based on the same
subject matter as the Claim or Interest on which a distribution is received. The
release described in the preceding sentence will be enforceable as a matter of
contract against any Entity that accepts any distribution pursuant to the Plan.
On the Effective Date, the Debtors, in consideration for, among other
things, their voluntary resignation, support of the Plan and/or their waiver of
distributions as set forth in Section 11.1(f), hereby release the officers and
directors of the Debtors either holding such office (i) nimmediately prior to
the Effective Date; or (ii) on December 16, 1997 (collectively, the "Releasees")
from any and all Claims or liability based upon any act or omission related to
service prior to the Effective Date with, for or on behalf of the Debtors or
Debtors-In-Possession, except that the Releasees shall not be released with
respect to:
(a) any indebtedness of any such Releasee to the Debtors or
Debtors-In-Possession for money borrowed by such Releasee;
(b) any setoff or counterclaim the Debtors or
Debtors-In-Possession may have or assert against any such Releasee, provided
that the aggregate amount thereof shall not exceed the aggregate amount of any
Claims held or asserted by such Releasee against the Debtors or
Debtors-In-Possession, as the case may be;
(c) claims arising from the fraud, willful misconduct or
gross negligence of such Releasee.
The releases provided above shall not extend, and not be deemed to
extend, to any person or entity other than the Releasees (including without
limitation, any affiliate of any Releasees).
Moreover, upon the occurrence of the Effective Date, in exchange for
their releases, the Releasees shall be deemed to have waived any and all Claims
and Administrative Expenses except in the case of officers for direct and
indirect compensation and benefits and reimbursement of expenses relating to
their employment.
Notwithstanding anything to the contrary herein, the Creditors'
Committee shall reserve its rights to conduct an investigation of any officer or
director holding offices as of
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December 16, 1997 and no longer holding office immediately prior to the
Effective Date and to deliver a written report to the Board of Directors of
Harvard prior to the Confirmation Date, setting forth the details of any alleged
claim against any such officer or director which in the view of the Creditors'
Committee would warrant elimination of a release for such person. The Board of
Directors of Harvard shall, prior to the Effective Date, determine whether, in
view of any Creditors' Committee report, a release provided herein should be
granted.
The releases embodied in the Plan are in addition to, and not in lieu
of, any other release separately given, conditionally or unconditionally, by the
Debtors or Debtors-In-Possession to any other person or entity.
In consideration of the distributions under this Plan, upon the
Effective Date, each holder of a Claim or Interest will be deemed to have
released the Debtors, Reorganized Debtors, the Releasees, the Creditors'
Committee and their Professionals from any and all Causes of Action (other than
the right to enforce the Debtors' obligations under this Plan and the right to
pursue a Claim based on any willful misconduct) arising out of actions or
omissions during the administration of the Debtors' estates.
4. Claims of Subordination.
The Plan provides that all Claims against and Interests in the Debtors,
and all rights and Claims between or among holders of Claims or Interests
relating in any manner whatsoever to Claims against or Interest in the Debtors
based on any contractual, legal or equitable subordination rights, shall be
terminated upon confirmation of this Plan by the Bankruptcy Court (subject only
to the occurrence of the Effective Date) and discharged in the manner provided
in this Plan, and all such Claims, Interests and rights so based and all such
contractual, legal and equitable subordination rights to which any Entity may be
entitled shall be irrevocably waived upon confirmation of this Plan by the
Bankruptcy Court (subject only to the occurrence of the Effective Date). Except
as otherwise provided in this Plan and to the fullest extent permitted by
applicable law, the rights afforded and the Distributions that are made in
respect of any Claims hereunder shall not be subject to levy, garnishment,
attachment or like legal process by any holder of a Claim or Interest by reason
of any contractual, legal or equitable subordination rights, so that,
notwithstanding any such contractual, legal or equitable subordination, each
holder shall have and receive the benefit of the rights and Distributions set
forth in this Plan.
5. Indemnification.
Subject to the occurrence of the Effective Date, the obligations of
Harvard to indemnify officers and directors, holding such offices from and
including the Petition Date through and including the Confirmation Date, against
any obligation pursuant to Harvard's certificate of incorporation, bylaws, or
applicable state law shall survive confirmation of the Plan, remain unaffected
by this Plan, and not be discharged.
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6. Injunction.
Except as otherwise provided in the Plan, the Confirmation Order shall
provide, among other things, that all Entities who have held, hold or may hold
Claims against or Interests in any of the Debtors are, with respect to any such
Claims or Interests, permanently enjoined from and after the Confirmation Date
from: (a) commencing, conducting or continuing in any manner, directly or
indirectly, any suit, action or other proceeding of any kind (including, without
limitation, any proceeding in a judicial, arbitral, administrative or other
forum) against or affecting the Debtors or the Reorganized Debtors, any of their
property, or any direct or indirect transferee of any property of, or direct or
indirect successor in interest to, any of the foregoing Entities, or any
property of any such transferee or successor; (b) enforcing, levying, attaching
(including, without limitation, any pre-judgment attachment), collecting or
otherwise recovering by any manner or means, whether directly or indirectly, of
any judgment, award, decree or order against the Debtors or the Reorganized
Debtors, any of their property, or any direct or indirect transferee of any
property of, or direct or indirect successor in interest to, any of the
foregoing Entities, or any property of any such transferee or successor; (c)
creating, perfecting or otherwise enforcing in any manner, directly or
indirectly, any encumbrance of any kind against the Debtors or the Reorganized
Debtors, any of their property, or any direct or indirect transferee of any
property of, or successor in interest to, any of the foregoing Entities; (d)
asserting any right of setoff, subrogation, or recoupment of any kind, directly
or indirectly, against any obligation due the Debtors or the Reorganized
Debtors, any of their property, or any direct or indirect transferee of any
property of, or successor in interest to, any of the foregoing Entities; and (e)
acting or proceeding in any manner, in any place whatsoever, that does not
conform to or comply with the provisions of the Plan.
7. Revesting.
Subject to the Combination Transactions, on the Effective Date,
pursuant to section 1123(a) (5) and 1141 of the Bankruptcy Code, title to all
property of the Debtors' estates will pass to the Reorganized Debtors, free and
clear of all Claims, liens, charges, encumbrances and Interests (except as
otherwise provided in the Plan). As of the Effective Date, each Reorganized
Debtor may operate its businesses and use, acquire and dispose of property and
settle and compromise claims or interests without supervision of the Court free
of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those
restrictions expressly imposed by the Plan and Confirmation Order. Without
limiting the foregoing, the Reorganized Debtors may pay any expenses, including
any fees and expenses of professionals, accruing from and after the Confirmation
Date without any application to the Bankruptcy Court. Confirmation of the Plan
(subject to occurrence of the Effective Date) will be binding and the Debtors'
debts will be discharged as provided in section 1141 of the Bankruptcy Code.
8. Retention and Enforcement of Causes of Action.
Except as otherwise provided in the Plan, pursuant to section
1123(b)(3) of the Bankruptcy Code, the Reorganized Debtors (as representatives
of the Debtor's estates) will retain and have the exclusive right to enforce
against any entity, any and all Causes of Action
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(including all Causes of Action which may exist under sections 510, 544 through
550 and 553 of the Bankruptcy Code or otherwise arising under the Bankruptcy
Code and/or those arising under other applicable law) that arise before the
Effective Date including all Causes of Action of a trustee and debtor in
possession under the Bankruptcy Code other than those released or compromised as
part of or pursuant to this Plan.
In this connection, the Debtors and the Creditors' Committee continue
to review payments made by and transactions involving the Debtors prior to the
Petition Date to determine whether preference and other actions to avoid such
payments and transactions should be brought. Failure to specifically identify
potential actions in this Disclosure Statement shall not be deemed a waiver of
such action by the Debtors, the Creditors' Committee or any other party.
In the 90 days prior to the Petition Date, the Debtors expended
approximately [$ ], excluding salaries and benefits. The Debtors or the
Reorganized Debtors, as the case may be, and the Creditors' Committee will be
reviewing these payments to determine whether any of these payments constitute
recoverable preferences and whether any preference actions would result in
significant recoveries in view of any defenses that may exist. The Debtors do
not expect that preference recoveries will be material. When voting on the Plan,
holders of Claims and/or Interests that received payments from the Debtors,
directly or indirectly, within 90 days prior to the Petition Date (one year for
insiders of the Debtors) should take into account that they may be named by the
Debtors or the Reorganized Debtors as defendants in preference actions.
I. Distributions Under the Plan.
1. Time of Distributions Under the Plan.
Except as otherwise provided in the Plan, payments and distributions in
respect of Allowed Claims and Allowed Interests will be made by the Reorganized
Debtors (or its designee) on or as promptly as practicable after the Effective
Date. Cash or Reorganization Securities otherwise distributable with respect to
Disputed Claims and Disputed Interests will be held by the Reorganized Debtors
pending resolution of all objections to each such Claim. When such objections
have been resolved and the Claim or Interest has become an Allowed Claim or
Allowed Interest, the Reorganized Debtors will make an appropriate distribution
with respect to such Allowed Claim or Allowed Interest. See "THE PLAN--Timing of
Distribution When a Disputed Claim or Disputed Interest Becomes an Allowed Claim
or Allowed Interest."
2. Rounding
Only whole numbers of shares of Reorganization Securities will be
distributed. All Allowed Claims or Allowed Interests of a holder in a particular
Class will be aggregated and treated as an Allowed Claim or Allowed Interest for
purposes of distribution. If any calculated distribution on account of such
Allowed Claim or Allowed Interest would otherwise result in the distribution of
a number of New Common Stock or New Warrants that is not a whole number, then
the actual distribution of shares of such stock or such warrants will be rounded
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to the nearest whole number unless such rounding results in a class of Allowed
Interests receiving more than the aggregate number of New Warrants allotted for
distribution to that Class. In such a case, the actual distribution of New
Warrants shall be rounded so that the total amount of New Warrants distributed
to the Class will be no more than the amount allotted for distribution in that
Class. Holders of Allowed Claims or Allowed Interests that would be entitled to
fractional shares of New Common Stock or to fractional New Warrants but for this
provision shall receive no consideration therefor because such amount would be
de minimis.
3. Compliance with Tax Requirements.
The Reorganized Debtors will comply with all withholding and reporting
requirements imposed by federal, state or local taxing authorities in connection
with making distributions pursuant to the Plan.
In connection with each distribution with respect to which the filing
of an information return (such as an Internal Revenue Service Form 1099 or 1042)
and/or withholding is required, the Reorganized Debtors will file such
information return with the Internal Revenue Service or other taxing authority
and provide any required statements in connection therewith to the recipients of
such distribution, and/or effect any such withholding and deposit all moneys so
withheld to the extent required by law. With respect to any Entity from whom a
tax identification number, certified tax identification number or other tax
information required by law to avoid withholding has not been received by the
Reorganized Debtors (or distribution agent), the Reorganized Debtors shall, at
their sole option, withhold the amount required and distribute the balance to
such Entity or decline to make such distribution until the information is
received; provided, however, the Reorganized Debtors will not be obligated to
liquidate New Warrants or New Common Stock to perform such withholding.
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4. Distribution of Undeliverable or Unclaimed Property.
Any Entity that is entitled to receive a Cash Distribution under the
Plan but that fails to cash a check within 120 days of its issuance shall be
entitled to receive a reissued check from the Reorganized Debtors for the amount
of the original check, with any interest, if such Entity requests the
Reorganized Debtors or their designee to reissue such check and provides the
Reorganized Debtors or their designee, as the case may be, with such
documentation as the Reorganized Debtors or their designee requests to verify
that such Entity is entitled to such check, prior to the later of (a) the second
anniversary of the Effective Date or (b) six (6) months after such Claim becomes
an Allowed Claim. If an Entity fails to cash a check within 120 days of its
issuance and fails to request reissuance of such check prior to the later to
occur of (a) the second anniversary of the Effective Date or (b) six months
following the date such Entity's Claim becomes an Allowed Claim, such Entity
shall not be entitled to receive any distribution under the Plan with respect to
the amount of such check. If the distribution to any holder of an Allowed Claim
or Interest is returned to the Reorganized Debtors or their designee an
undeliverable, no further distributions will be made to such holder unless and
until the Reorganized Debtors or their designee is notified in writing of such
holder's then current address.
All claims for undeliverable distributions must be made on or before
the later to occur of (i) the second anniversary of the Effective Date and (ii)
six months following the date such Entity's Claim becomes an Allowed Claim or
Allowed Interest. After such date, all unclaimed property shall revert to the
Reorganized Debtors and the claim of any holder or successor to such holder with
respect to such property shall be discharged and forever barred notwithstanding
any federal or state escheatment laws.
5. Set-Offs.
Except as otherwise expressly provided in the Plan, agreements entered
into in connection with the Plan, the Confirmation Order or in agreements
previously approved by Final Order of the Bankruptcy Court, the Debtors or the
Reorganized Debtors, as the case may be, may, but will not be required to,
setoff against any Claim and the Distributions to be made pursuant to the Plan
in respect of such Claim, any claims of any nature whatsoever which the Debtors
or Debtors-in-Possession may have against the holder of such Claim, but neither
the failure to do so nor the allowance of any Claim under the Plan will
constitute a waiver or release of any such claim the Debtors or
Debtors-in-Possession may have against such holder except for distributions to
holders of Allowed Senior Note Claims (as to which the Debtors and Reorganized
Debtors shall have no right of setoff of recoupment). To the extent the
Reorganized Debtors fail to set off against a creditor and seek to collect a
claim from such creditor after a distribution to such creditor pursuant to the
Plan, the Reorganized Debtors shall be entitled to full recovery on their claim
against such creditor.
6. Allocation of Consideration.
The aggregate consideration to be distributed to the holders of Allowed
Claims in each Class under the Plan shall be treated as first satisfying an
amount equal to the stated principal
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amount of the Allowed Claim for such holders and any remaining consideration as
satisfying accrued, but unpaid, interest if any.
7. Manner of Payment.
Except with respect to the Prepetition Lenders' Claims, payment of
which will be made by wire transfer of same day funds, payments provided under
the Plan may be made, at the option of the Debtor or the Reorganized Debtors, in
cash, by wire transfer or by check drawn on any money center bank.
8. Disbursing Agent.
Reorganized Harvard shall be the initial Disbursing Agent for making
Distributions under the Plan.
J. Procedures for Resolving Disputed Claims.
1. Objections to Claims.
An objection to the allowance of a Claim or Interest shall be in
writing and may be filed with the Court by the Debtors or Reorganized Debtors,
as the case may be, or any other party in interest, at any time on or before the
Objection Deadline. The "Objection Deadline" is the later of (a) the 120th day
following the Effective Date unless such period is extended by order of the
Bankruptcy Court, (b) sixty (60) days after the filing of the proof of such
Claim or Interest or (c) such other date set by order of the Bankruptcy Court
(the application for which may be made on an ex parte basis). The objecting
party shall serve a copy of each such objection upon the holder of the Claim or
Interest to which it pertains and upon the Debtors or Reorganized Debtors, as
the case may be. The Debtors or the Reorganized Debtors will prosecute each
objection to a Claim or Interest until determined by a Final Order unless the
Debtors or the Reorganized Debtors (i) compromise and settle an objection to a
Claim or Interest by written stipulation, subject to Bankruptcy Court approval,
if necessary or (ii) withdraw an objection to a Claim or Interest,
2. Payments and Distributions With Respect to Disputed Claims
or Interests.
No payments or distributions will be made in respect of a Disputed
Claim or Disputed Interest unless and until such Disputed Claim or Disputed
Interest becomes an Allowed Claim or Allowed Interest. Notwithstanding the
foregoing, on or soon as practicable after the Objection Deadline, the
Reorganized Debtors will make Distributions to the holders of Disputed Claims or
Disputed Interests to the extent, and only to the extent, the portion of such
Claim or Interest is not the subject of a pending objection.
Subject to the provisions of the Plan, (a) Cash payments and
Distributions with respect to each Disputed Claim or Disputed Interest that
becomes an Allowed Claim or Allowed
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Interest shall be made within thirty (30) days after the date
that such Disputed Claim or Allowed Interest becomes an Allowed Claim or Allowed
Interest.
K. Dissolution of Creditors' Committee.
Except with respect to any appeal of an order in the Chapter 11 Cases,
and any matters related to any proposed modification of the Plan, on the
Effective Date, the Creditors' Committee shall be dissolved and the members,
employees, agents, advisors and representatives (including without limitation,
attorneys, financial advisors, and other Professionals) thereof shall thereupon
be released from and discharged of and from all further authority, duties,
responsibilities and obligations related to, arising from and in connection with
the Chapter 11 Cases and shall be indemnified (including reasonable attorneys'
fees and costs) by the Reorganized Debtors for any and all acts performed, or
omissions, in connection with the Chapter 11 Cases, except for acts or omissions
as shall constitute fraud, willful misconduct, or gross negligence.
L. Other Provisions of the Plan.
1. Retention of Jurisdiction.
Notwithstanding entry of the Confirmation Order, the Bankruptcy Court
shall retain jurisdiction as is legally permissible, including, without
limitation, for the following purposes:
(a) to determine (i) any Disputed Claims, Disputed
Interests and all related Claims accruing after the Confirmation Date including
rights and liabilities under contracts giving rise to such Claims, (ii) the
validity, extent, priority and nonavoidability of consensual and nonconsensual
liens and other encumbrances, (iii) preconfirmation tax liability pursuant to
section 505 of the Bankruptcy Code and (iv) controversies and disputes regarding
the interpretation of the Plan and any other documents executed in connection
therewith;
(b) to allow, disallow, estimate, liquidate or determine
any Claim or Interest against the Debtors and to enter or enforce any order
requiring the filing of any such Claim or Interest before a particular date;
(c) to approve all matters related to the assumption,
assumption and assignment, or rejection of any executory contract or unexpired
lease of any of the Debtors pursuant to section 365 of the Bankruptcy Code and
Article IX herein;
(d) to determine requests for payment of administrative
expenses entitled to priority under section 507(a)(1) of the Bankruptcy Code,
including compensation of parties entitled thereto;
(e) to resolve controversies and disputes regarding the
interpretation and implementation of the Plan, any disputes relating to whether
or not a timely and proper proof of claim was filed or whether a Disallowed
Claim or Disallowed Interest should be reinstated;
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(f) to implement the provisions of the Plan and to enter
orders in aid of confirmation and consummation of the Plan;
(g) to modify the Plan pursuant to section 1127 of the
Bankruptcy Code;
(h) to adjudicate any and all Causes of Action that arose
in these Chapter 11 Cases pre-confirmation or in connection with the
implementation of the Plan, whether or not pending on the Confirmation Date,
including without limitation, any remands of appeals;
(i) to resolve disputes concerning any reserves with
respect to Disputed Claims, Disputed Interests or the administration thereof;
(j) to resolve any disputes concerning whether a person or
entity had sufficient notice of the Chapter 11 Cases, the applicable claims bar
date, the hearing on the approval of the Disclosure Statement as containing
adequate information, the hearing on the confirmation of Plan for the purpose of
determining whether a Claim or Interest is discharged thereby or for any other
purpose;
(k) to determine any and all applications, Claims,
Interests, pending adversary proceedings and contested matters (including,
without limitation, any adversary proceeding or other proceeding to
recharacterize agreements or reclassify Claims or Interests) in the Chapter 11
Cases;
(l) to enter and implement such orders as may be
appropriate in the event the Confirmation Order is for any reason stayed,
revoked, modified, or vacated;
(m) to seek the issuance of such orders in aid of execution
of the Plan, to the extent authorized by section 1142 of the Bankruptcy Code;
(n) to consider any modifications of the Plan, to cure any
defect or omission, or reconcile any inconsistency in any order of the Court,
including, without limitation, the Confirmation Order;
(o) to recover all assets of the Debtors and property of
their estates, wherever located, including any Causes of Action under sections
544 through 550 of the Bankruptcy Code.
(p) to hear and resolve matters concerning state, local,
and federal taxes in accordance with sections 346, 505, and 1146 of the
Bankruptcy Code;
(q) to hear any other matter not inconsistent with the
Bankruptcy Code;
(r) to resolve any and all disputes or controversies
relating to Distributions to be made, and/or reserves to be established, under
the Plan; and
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(s) to enter a final decree closing the Chapter 11 Cases.
2. Jurisdiction Over the Reorganized Debtors.
Notwithstanding the jurisdiction retained in Section 14.1 of the Plan,
from and after the Effective Date, the Bankruptcy Court shall not have the power
to issue any order in the Chapter 11 Cases which modifies the Reorganization
Securities or the rights of the holders thereof with respect to such
Reorganization Securities.
3. Amendment and Modification to the Plan.
In accordance with the provisions of Section 14.4 of the Plan, the
Debtors reserve the right, in accordance with the Bankruptcy Code, to alter,
amend or modify the Plan prior to the entry of the Confirmation Order. After the
entry of the Confirmation Order, the Debtors may, upon order of the Bankruptcy
Court, alter, amend or modify the Plan in accordance with section 1127(b) of the
Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency
in the Plan in such manner as may be necessary to carry out the purpose and
intent of the Plan.
4. Withdrawal and Revocation of the Plan.
In accordance with the provisions of Section 14.8 of the Plan, the
Debtors reserve the right to revoke or withdraw the Plan prior to the
Confirmation Date. If the Debtors revoke or withdraw the Plan or if the
Confirmation Date does not occur, the Plan shall have no force and effect.
5. Approval of Agreements.
The solicitation of votes to accept or reject the Plan shall be deemed
a solicitation of the holders of New Common Stock for the approval of the
Emergence Bonus Plan, Incentive Plan and all other agreements and transactions
contemplated by this Plan, including, without limitation, those set forth in
Article VII of the Plan. Entry of the Confirmation Order shall constitute
approval of the Emergence Bonus Plan, Incentive Plan and such other agreements
and transactions and the Confirmation Order shall so provide. See "MANAGEMENT OF
THE REORGANIZED DEBTORS."
V. PROJECTIONS AND VALUATION.
A. Projections.
1. Pro Forma Projected Capitalization.
The following table summarizes (i) the consolidated capitalization of
the Debtors projected at September 30, 1998 before giving effect to the
transactions contemplated by the Plan, (ii) the pro forma adjustments to the
Debtors' consolidated capitalization that would result from the transactions
contemplated by the Plan and (iii) the consolidated capitalization of
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the Reorganized Debtors at September 30, 1998 as adjusted to give effect to the
transactions contemplated by the Plan.
This statement has been prepared based on unaudited financial
statements of the Debtors which, in the opinion of the Debtors, contain all
adjustments necessary for a fair presentation of this information.
Amounts in millions:
<TABLE>
<CAPTION>
Unaudited Pro Forma
Projected Pro Forma Projected
September 30, Adjustments September 30,
1998 1998
------------- ------------ --------------
<S> <C> <C> <C>
Senior Debt:
Term Loan
Revolving Loan
Total Senior Debt
Subordinated Debentures:
11-1/8% Notes
12% Notes
Total Subordinated Debt
Other Long Term Debt:
Shareholders' Equity/(Deficit):
New Common Stock
Common Stock
Additional Paid-In Capital
Accumulated deficit
Total Shareholders' Equity/(Deficit)
Total Capitalization
</TABLE>
2. Pro Forma Projected Balance Sheets.
The following table summarizes (i) the unaudited projected consolidated
balance sheet of the Debtors as of September 30, 1998 before giving effect to
the transactions contemplated by the Plan, (ii) the pro forma adjustments to the
Debtors' projected consolidated balance sheet that would result from the
transactions contemplated by the Plan and (iii) the projected consolidated
balance sheet of the Reorganized Debtors at September 30, 1998 as adjusted to
give effect to the transactions contemplated by the Plan.
Harvard Industries, Inc.
Projected Balance Sheets
As of September 30, 1998
(Unaudited)
(In thousands)
1998
ASSETS
Current Assets:
Cash and cash equivalents
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Accounts receivable, net
Inventories
Prepaid expenses and other
current assets
Total
Property, plant and equipment,
net
Reorganization asset
Other assets, net
LIABILITIES AND EQUITY
Current Liabilities:
Revolver
Current portion of long-term
debt
Accounts payable
Accrued expenses
Total
Long-term debt
Subordinated debt
Pre-petition liabilities
Post-retirement benefits other
than pensions
Other liabilities
Total liabilities
Shareholders' Equity
Common stock and additional
paid-in capital
Accumulated deficit
Total
Total liabilities and equity
3. Pro Forma Projected Statements.
The following table sets forth forecasted unaudited income statement
data for the Reorganized Debtors on a pro forma basis to give effect to the
transactions contemplated in the Plan, and the assumptions on which the
forecasts are based.
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<TABLE>
<CAPTION>
Harvard Industries, Inc.
Projected Statements of Operations
Fiscal Years Ended September 30, 1998 through 2002
(Unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Sales
Costs & expenses:
Cost of sales
Selling, general and
administrative
Impairment of long-lived assets
and restructuring costs
Gain on sale of operations
Amortization of excess
reorganization value
Interest expense
Total
Income (loss) before reorganization
items and income taxes
Reorganization items
Income (loss) before income taxes
Benefit (provision) for income taxes
Net income (loss)
</TABLE>
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4. Pro Forma Projected Cash Flow.
The following table sets forth forecasted cash flow data for the
Reorganized Debtors on a pro forma basis to give effect to the transactions
contemplated in the Plan, and the assumptions on which the forecasts are based.
Harvard Industries, Inc.
Projected Statements of Cash Flows
Fiscal Years Ended September 30, 1998 through 2002
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income
Adjustments to reconcile net
(loss) income to net cash
provided by operating
activities:
Depreciation
Amortization
Deferred taxes
Other
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other
current assets
Accounts payable
Accrued expenses
Other assets and liabilities,
net
Net cash (used for) provided by
operations
INVESTING ACTIVITIES:
Capital expenditures
Proceeds from sales of
operations, net
Net cash used for investment
activities
</TABLE>
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<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Issuance (repayment) of long-term
debt
Revolver (repayments) draws
Other financing activities
Net cash provided by (used for)
financing activities
(Decrease) Increase in cash and cash
equivalents
Cash and cash equivalents beginning
of period
Cash and cash equivalents end of
period
Noncash investing and financing
activities:
Third party assumption of capital
lease obligations
</TABLE>
All of the foregoing projected financial information is unaudited.
5. Business Strategies.
In November 1997, Harvard installed a new management team led by Roger
Pollazzi, the current Chief Operating Officer. See "Significant Events During
the Chapter 11 Case -- Management Transition." Shortly thereafter, Mr.
Pollazzi's team reviewed Harvard's customer and product base. Upon such
analysis, Mr. Pollazzi's team formulated a business strategy designed to expand
the Debtors' customer base, diversify the sales base and increase and operating
margins while cutting overhead and manufacturing costs (the "Turnaround Business
Strategy"). The current management, which will be the management of Reorganized
Harvard, is mindful of the trends that currently affect participants in the OEM
automotive parts manufacturing industry. These trends include, among others, the
increasing global scale of competition, consolidation of participants, higher
levels of resource commitment and reduced profit margins. Because of the
competitive pressures, Harvard intends to diversify the Debtors' revenue base
into other related and potentially more profitable manufacturing sectors. The
Debtors' management hopes that this effort will mitigate the effects of
competitive pressures in the OEM automotive parts manufacturing industry.
Bearing this in mind, management has developed the Turnaround Business
Strategy incorporating a business plan and sales forecast through fiscal year
2002. The Turnaround Business Strategy is comprised of three general elements:
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a. Selling or closing unprofitable divisions or plants. The
Debtors' management has already begun this effort with the wind-up of Toledo,
the closure of Harman and the sale of Harvard Interiors' Furniture Business
assets.
b. Rationalizing the Debtors' current product base to increase
profitability through increasing prices or eliminating unprofitable programs.
c. Expansion of the Debtors' customer and revenue base
providing additional manufacturing services for its OEM automotive customers,
and entering the industrial and automotive aftermarket product manufacturing
segments.
The Turnaround Business Strategy recognizes and capitalizes on the
following: (i) the Debtors' manufacturing processes and labor currently produce
high quality parts for the Debtors' current customers; (ii) given the Debtors'
manufacturing and production base, the Debtors can produce products that employ
the same or similar manufacturing processes for other markets; (iii) the
Debtors' high volume production capabilities and scale may provide the Debtors
with the ability to produce such products for new markets at lower costs and
with higher profit margins; and (iv) the Debtors will be able to use the free
cash flow previously invested in underperforming assets to fuel the growth of
the continuing operations and to pay fixed charges.
The following provides a summarized description of the impact of the
Turnaround Business Strategy on the specific operations of the Reorganized
Debtors:
Kingston-Warren
o Kingston-Warren is a technological leader in the production of
single and multi-durameter sealing products and systems. While
Kingston-Warren currently is responsible for producing such
products for its automotive OEM customers, such design and
production skills are transferable into the design and production
of similar parts and systems for other consumer and industrial
markets.
o In cooperation with the Trim Trends division of Hayes-Albion,
Kingston-Warren has previously produced prototypes of modular
assemblies for OEM customers. Management intends to increase the
development of the production of such products. These
pre-fabricated assemblies may be sold to customers with a higher
profit margin than might otherwise be obtained by selling the
component parts to OEM's for them to assemble into similar
modules.
o It is currently intended that Kingston-Warren's revenue base will
be expanded into the industrial and automotive aftermarket
segments. This division produces parts for OEM manufacturers that
have the potential to be sold in these other segments at higher
prices and margins.
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Hayes-Albion
o It is currently intended that Hayes-Albion will leverage its
lower manufacturing cost structure through the provision of
increased value-added services for its OEM customers. By
performing additional machining, assembly and other such services
prior to shipping parts to its customers, Hayes-Albion may be
able successfully to increase the prices and margins of its
products.
o It is currently intended that Hayes-Albion will expand its
revenue base into the industrial products and automotive
aftermarket segments. Several Hayes-Albion plants produce parts
for OEM manufacturers that have the potential to be sold in the
automotive aftermarket segment at higher prices and margins.
Additionally, these facilities possess the skills that may be
transferred into the production of parts for industrial consumers
at higher margins.
o The revenue base of Hayes-Albion's Trim Trends division will be
expanded through increased penetration into both the automotive
OEM customer market, as well as other industrial and consumer
markets. Trim Trends is a technological leader in roll-forming
high tensile strength steel and other such metal raw materials.
Such production skills are readily transferable into the
production of parts, assemblies and modules for other markets.
Doehler-Jarvis
o Management believes the remaining portion of the Doehler-Jarvis
Entities will leverage its lower manufacturing cost structure
through the provision of increased value-added services for its
OEM customers. By performing additional machining, assembly and
other services prior to shipping parts to its customers,
Doehler-Jarvis can increase the prices and margins for its parts.
o Management believes Doehler-Jarvis will expand its revenue base
into the industrial products and automotive aftermarket segments.
This division can produce parts for OEM manufacturers that have
the potential to be sold to the automotive aftermarket segment at
higher prices and margins. Additionally, these facilities possess
skills that can be transferred into the production of parts for
industrial consumers at higher margins.
Harvard Interiors
o Harvard Interiors is primarily involved in the manufacturing of
rocket launchers for the United States Government and other
customers. Harvard had previously announced its intention to sell
this division. However, over the past 18 months, Interiors has
attracted a substantial amount of contract orders which
management believes will keep the division cash flow positive for
the next several years.
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With the exception of Trim Trends and Doehler-Jarvis, Harvard's
subsidiaries, affiliates and divisions currently operate at or near capacity
fulfilling the terms of purchase orders with its OEM customers. Harvard does not
currently have the capacity to produce parts for the industrial and automotive
aftermarket segments in addition to its contractual obligations for the OEM
segment. Management intends to relinquish some of its current OEM business to
create capacity for the production of new products and systems. There can be no
assurance that management of Reorganized Debtors will be able to relinquish such
business without temporarily or permanently impairing its relations with its OEM
customers. Additionally, there can be no assurance that the Reorganized Debtors
will attract new business from current or new customers over the projected time
frame on or at the projected levels of sales and profitability.
Harvard does not currently have the access to the capital resources
necessary to expand immediately its production base to implement such production
initiatives. Moreover, management does not believe that Harvard should expand
its production base and expose itself to substantial operating risk should the
automotive industry experience a substantial reduction in automotive and related
production through either an industry-wide or general economic downturn.
There can be no assurance that any element or all elements of the
Turnaround Business Strategy will be successfully executed as proposed by
Harvard's management. The Debtors' long-term viability and profitability are
directly tied to management's ability to fully execute the Turnaround Business
Strategy. The successful execution of the Turnaround Business Strategy depends,
to a large degree, on factors and conditions that are beyond management's
control. See Article VI -- "RISK FACTORS." Consequently, the Debtors' prospects
and profitability may be materially impaired to the extent that management fails
to or is prevented from executing the Turnaround Business Strategy for any
reason.
6. Material Assumptions.
The pro forma forecasts above necessarily make numerous assumptions
(the material assumptions are set forth below) with respect to industry
performance, general business and economic conditions, taxes and other matters,
many of which are beyond the Reorganized Debtors' control. Accordingly, such
forecasts and assumptions are not necessarily indicative of current values or
future performance, which may be significantly less favorable or more favorable
than as set forth below. Although the forecasts represent the best estimates of
the Reorganized Debtors, for which the Reorganized Debtors believe they had a
reasonable basis as of the time of the preparation thereof, of the results of
operations of the Reorganized Debtors after giving effect to the Plan, they are
only estimates, and actual results may vary considerably from the forecasts.
Consequently, the inclusion of the forecast information herein should not be
regarded as a representation by the Debtors or Reorganized Debtors or any other
person that the forecast results will be achieved. The pro forma forecasts set
forth below were not prepared with a view toward compliance with published
guidelines of the Commission or the American Institute of Certified Public
Accountants regarding forecasts. Holders of Claims and Interests are cautioned
not to place undue reliance on the forecasts.
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The material assumptions of the forecasts are:
a. The Senior Notes ($300.0 million) and the accrued interest thereon
([$9.7] million as of May 8, 1997), along with substantially all other
General Unsecured Claims are converted into equity.
b. All interest payments with respect to Post Confirmation Credit
Facility are made when due.
c. From fiscal 1999 through fiscal 2002, all mandatory term loan payments
are made when due and any remaining cash is expected to be used to
reduce revolving credit borrowings outstanding.
d. [TO COME]
e. Tax expense includes foreign, state, local, and federal alternative
minimum tax between 1999 and 2002 (inclusive). The forecasts assume
that the Reorganized Debtors will not receive any benefit of NOL's
resulting from the confirmation of the Plan. All taxes are paid when
due.
f. [The Reorganized Debtors will suffer no adverse tax consequences
resulting from cancellation of indebtedness income.]
g. No dividends are declared or paid to stockholders.
h. Consummation of the Plan on [ ] [ ], 1998.
i. Borrowings outstanding under the Post-Confirmation Credit Agreement
will total [$126.0] million.
j. Outstanding borrowings under the revolving credit facility of the
Post-Confirmation Credit Agreement will bear interest at [____]%.
Outstanding borrowings under the term loan facility of the
Post-Confirmation Credit Agreement will bear interest at [___]%. While
the forecasts have assumed a constant interest rate, holders of Claims
should note that borrowings under the Post-Confirmation Credit
Agreement will bear interest at floating rates which may be higher or
lower than the assumed rate.
k. North American vehicle builds were projected by DRI as follows
(amounts in millions of vehicles):
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Cars/Light Trucks Heavy Trucks
----------------- ------------
1999 [ ] [ ]
2000 [ ] [ ]
2001 [ ] [ ]
2002 [ ] [ ]
2003 [ ] [ ]
l. The forecasts utilize the underlying platform production levels for
the platforms Reorganized Harvard is currently under contract to
supply in specified quantities, or anticipates winning contracts for
when such contracts are awarded.
m. Expense levels were determined once revenue projections were
established. For 1999, such levels were based on, but not limited to,
such facts as:
i) Price trends for raw materials;
ii) Factory productivity and efficiency trends;
iii) Cost reduction programs;
iv) Projected headcount;
v) General economic activity;
vi) Overhead increases or decreases to support new programs/phasing
out of old programs;
vii) Year 2000 and forward were based on continuation of many of the
same factors estimated for 1999, with a flat auto build through
2002; and
viii) Reorganized Harvard's additional revenues derived from sales
into new markets were based upon management's estimates of
revenue, costs and market penetration. To the extent that such
revenues are tied to automotive build rates, the above production
assumptions were used. Likewise, management determined expense
levels after estimating revenues, and based such cost estimates
on factors including those enumerated above.
n. The following dispositions are made with respect to the Debtors assets
and the facilities:
i) The Toledo Facility is wound up and all assets disposed of by
October 31, 1998, for $17 million net proceeds;
ii) Hayes-Albion's Tiffin, Ohio facility is either sold or liquidated
with no net cash proceeds after absorption of wind-up and other
liquidation costs; and
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iii) Harman's Bolivar Facility is liquidated with no net Cash proceeds
after absorption of wind-up and other liquidation costs.
B. Valuation of the Reorganized Debtors.
For purposes of this Disclosure Statement, the Debtors have employed a
valuation of the Debtors prepared by the financial advisors to the Creditors'
Committee. In ascertaining the value of the Reorganized Debtors, advisors to the
Creditors' Committee relied primarily on the discounted cash flow methodology
based on the Pro Forma projections developed by the Debtors. This analysis
entailed a calculation of the present value of the free cash flows under the
projections, assuming a terminal value.
In determining the valuation of Reorganized Harvard the Creditors'
Committee's financial advisors examined (a) the audited public documents for
Harvard, (b) detailed internal financial statements, (c) management's five year
business plan, (d) publicly available information on the industry, Harvard and
its competitors including information regarding the trading and markets for the
securities of Harvard and of other companies comparable to Harvard and
information on recent mergers and acquisitions, (e) the draft of the Plan and
(f) other information, financial studies, analyses, investigations and economic
criteria. The Creditors' Committee's financial advisors also held discussions
with various members of senior management at Harvard to discuss the Harvard's
historical and prospective industry environment and operating results, prospects
for cost savings and new business opportunities.
The valuation methodologies used by the Creditors' Committee's
financial advisors to derive per share equity values for Harvard included a
comparable company analysis, a similar transaction multiple analysis and a
discounted cash flow analysis. In applying these valuation methodologies, the
Creditors' Committee's financial advisors made numerous assumptions regarding
the Company's projected performance, overall industry performance, business and
economic conditions and other matters.
The discounted cash flow approach involves deriving the unleveraged
free cash flows that the Debtors (on a consolidated basis) would generate
assuming the projections were realized. These cash flows and an estimated value
of the Debtors (on a consolidated basis) at the end of the projected period are
discounted to the present at the Debtors' estimated post-restructuring weighted
average cost of capital to determine the Debtors' enterprise value (on a
consolidated basis).
ESTIMATES OF VALUE DO NOT PURPORT TO BE APPRAISALS NOR DO THEY
NECESSARILY REFLECT THE VALUES WHICH MAY BE REALIZED IF ASSETS ARE SOLD. THE
ESTIMATES OF VALUE REPRESENT HYPOTHETICAL REORGANIZED ENTERPRISE VALUES ASSUMING
THE IMPLEMENTATION OF MANAGEMENT'S BUSINESS PLAN AS WELL AS OTHER SIGNIFICANT
ASSUMPTIONS. SUCH ESTIMATES WERE DEVELOPED SOLELY FOR PURPOSES OF FORMULATING
AND NEGOTIATING A PLAN OF REORGANIZATION AND ANALYZING THE PROJECTED RECOVERIES
THEREUNDER.
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Based on the methods described above, the Creditors' Committee's
financial advisors have estimated that the enterprise value for the Reorganized
Debtors is between $[ ] million and $[ ] million, with a mid-point value of $[ ]
million. After deducting the estimated long-term indebtedness of the Debtors of
$[ ] million, the estimated total value of the New Common Stock is between $[ ]
million and $[ ] million, with a mid-point value of $[ ] million. Based upon the
uncertainties attendant to the appreciation in the value of the New Common stock
which, in turn, will affect the actual value of the New Warrants, the Creditors'
Committee's financial advisor has not assigned a value to the New Warrants for
purposes of calculating either the value of the New Common Stock or the value of
the New Warrants. Therefore, assuming 20 million shares of New Common Stock will
be issued on the Effective Date, the New Common Stock is estimated to be valued
at the mid-point value of approximately between $[ ] million to $[ ], or
approximately $[ ] to $[ ] per share.
THE ESTIMATED ENTERPRISE VALUE IS HIGHLY DEPENDENT UPON ACHIEVING THE
FUTURE FINANCIAL RESULTS SET FORTH IN THE PROJECTIONS AS WELL AS THE REALIZATION
OF CERTAIN OTHER ASSUMPTIONS WHICH ARE NOT GUARANTEED.
THE VALUATION SET FORTH HEREIN REPRESENTS ESTIMATED REORGANIZATION
VALUES AND DOES NOT NECESSARILY REFLECT VALUES THAT COULD BE ATTAINABLE IN
PUBLIC OR PRIVATE MARKETS. THE EQUITY VALUE ASCRIBED IN THE ANALYSIS DOES NOT
PURPORT TO BE AN ESTIMATE OF THE POST-REORGANIZATION MARKET VALUE. SUCH TRADING
VALUE, IF ANY, MAY BE MATERIALLY DIFFERENT FROM THE REORGANIZATION EQUITY VALUE
RANGES ASSOCIATED WITH THE VALUATION ANALYSIS.
VI. RISK FACTORS.
HOLDERS OF CLAIMS AND INTERESTS SHOULD READ AND CONSIDER CAREFULLY THE
FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS
DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR
INCORPORATED BY REFERENCE HEREIN), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN.
A. Business Risks.
1. Tax Issues.
The Debtors expect that a significant portion of their net operating
loss carryovers ("NOLs") will be eliminated as a consequence of the Plan. In
addition, certain other tax attributes of the Reorganized Debtors may under
certain circumstances be eliminated or reduced as a consequence of the Plan. The
elimination or reduction of NOLs and such other tax attributes may substantially
increase the amount of tax payable by the Reorganized Debtors following the
consummation of the Plan as compared with the amount of tax payable had no such
attribute reduction been required. The projected financial information contained
in this
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Disclosure Statement assumes that the NOLs are not preserved. Nevertheless, the
Debtors have endeavored to take such steps as are necessary to maximize their
use of the NOLs and are hopeful that they will be able to utilize a significant
portion. For a further discussion of the federal income tax consequences of the
Plan, see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Tax Consequences to the
Reorganized Debtors."
2. Financial Condition of the Debtor; Payment at Maturity;
Dividends.
The Debtors are currently, and after the Effective Date the Reorganized
Debtors will continue to be, highly leveraged. There can be no assurance that
the operating cash flow of the Reorganized Debtors, after giving effect to
operating requirements, will be adequate to fully fund the payment of interest
under its post-confirmation indebtedness when due as well as all capital
expenditures contemplated in the Debtors' cash-flow projections.
The Debtors believe that a their substantial capital investment program
is crucial to the Debtors' future profitability and their ability to generate
the cash flow necessary for their operating requirements, to pay interest on
their debt and for payment of the principal amounts of the Post-Confirmation
Credit Agreement debt at maturity. There can be no assurance that the financial
resources available under the Plan will be sufficient to fund the capital
expenditures which are necessary to keep the Debtors competitive and enable them
to be sufficiently profitable to service their debt.
The ability of the Reorganized Debtors to service their indebtedness
and to repay or refinance it at maturity may depend on their ability to raise
sufficient new equity capital, or, possibly, on their ability to sell selected
assets of the Reorganized Debtors or the Reorganized Debtors as a whole. If the
Reorganized Debtors meet the forecasts described in Section V hereto, the
Debtors believe that, based on current market conditions, such refinancing and
new equity capital should be obtainable. However, there can be no assurance that
the projections can be met, that such financing will be obtained, that, if
obtained, it will be on terms favorable to the Reorganized Debtors or that the
Reorganized Debtors will be able to be sold in whole or in part on terms that
will yield sufficient proceeds to pay off the Reorganized Debtors' obligations.
3. Contractual Restrictions in Post-Confirmation Environment.
The Post-Confirmation Credit Agreement and New Junior Secured
Debentures Indenture will contain restrictive financial and operating covenants
and prohibitions, including provisions which will limit the Reorganized Debtors'
ability to make capital expenditures and pay cash dividends and make other
distributions to holders of New Common Stock and Preferred Stock (if any shares
thereof are issued). Restrictions on capital investment are expected to be more
restrictive when the Reorganized Debtors' cash flow and profitability are lower
than projected and less restrictive if they are higher than projected. [There
may be further capital expenditure restrictions if certain agreed-upon financial
tests are not met.] As noted above, failure to make necessary capital
expenditures could have an adverse effect on the Reorganized Debtors' ability to
remain competitive and profitable.
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There can be no assurance that the Reorganized Debtors will be able to
achieve or maintain the financial performance tests expected to be contained in
the Post-Confirmation Credit Agreement and New Junior Secured Debentures
Indenture. Failure to meet such financial tests or other covenants would result
in a default thereunder. If any such default were not remedied within the
applicable grace period, if any, the lenders under the Post-Confirmation Credit
Agreement would be entitled to declare the amounts outstanding thereunder due
and payable, accelerate the payment of all such amounts and foreclose upon all
of the tangible and intangible assets of the Reorganized Debtors and their
subsidiaries. See "THE PLAN -- Conditions to and Means for Consummation of the
Plan -- Principal Plan Documents -- Post-Confirmation Credit Agreement." It is
also likely that any Alternative Financing Transaction will include similar
restrictions and covenants.
There can be no assurance that the Reorganized Debtors' performance and
their ability to satisfy their debt service obligations will not be adversely
affected by one or a combination of the above or other factors.
4. Substantial Leverage and Ability to Service Debt.
Upon consummation of the Plan of Reorganization, the Debtors will be
highly leveraged and will have indebtedness that is substantial in relation to
stockholder's equity. As of September 30, 1998, on a pro forma basis after
giving effect to the Plan of Reorganization, the Company is projected to have
$[126.0] million of outstanding indebtedness.
The Debtors' high degree of leverage could have important consequences
for creditors and equity holders in Reorganized Harvard, including the
following:
(a) the Debtors' ability to obtain additional financing for working
capital, capital expenditures, acquisitions or general corporate
or other purposes may be impaired in the future;
(b) a substantial portion of the Debtors' cash flow from operations
must be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company
for other purposes;
(c) the Debtors may be substantially more leveraged than certain of
its competitors, which may place Debtors at a competitive
disadvantage; and
(d) the Debtors' ability to adjust rapidly to changing market
conditions may be hindered and could make the Debtors more
vulnerable in the event of a downturn in general economic
conditions or its business.
The Debtors' ability to make scheduled payment of principal and
interest or to refinance its obligations with respect to its indebtedness will
depend on its financial and operating performance, which, in turn, will be
subject to prevailing economic conditions and to certain financial, business and
other factors beyond its control. For fiscal years 1996 and 1997, the Debtor had
net losses of $[69] million and $[389] million, respectively. If the
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Debtors' cash flow and capital resources are insufficient to fund its debt
service obligations, the Debtor may be forced to reduce or delay planned
expansion or capital expenditures, sell assets, obtain additional equity capital
or restructure its indebtedness. There can be no assurance that the Debtors'
operating results, cash flow and capital resources will be sufficient for
payment of its indebtedness in the future.
The Debtors do not currently intend to pay dividends on the New Common
Stock at any time in the foreseeable future.
5. Successful Execution of the Turnaround Business Strategy.
The Turnaround Business Strategy entails a substantial and deliberate
restructuring of the Reorganized Debtors' revenue and customer base. The success
of the Plan is based on the ability of the Debtors to implement the Turnaround
Business Strategy. Of necessity, the Turnaround Business Strategy assumes that
the Reorganized Debtors will be able to migrate their revenue and customer base
over a certain time frame, which time frame may or may not be realized. The
Reorganized Debtors' value and profitability are dependent upon their ability to
successfully execute the Turnaround Business Strategy.
The success of the Turnaround Business Strategy, however, is vulnerable
to certain risks, including among other things, the Debtors' inability:
a. to terminate consensually certain unprofitable contracts and
purchase orders with their customers;
b. to attract new business or customers for its present market
segments;
c. to produce new products at projected margins;
d. to produce new products at competitive prices;
e. to attract key new personnel for its manufacturing
facilities;
f. to dispose of old business in a time span that will enable
the Debtors to utilize capacity for new business in an
efficient manner;
g. to develop or acquire a distribution network for
after-market and industrial products; and
h. to appropriately gauge the impact of the Turnaround Business
Strategy on relations with current customers.
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6. Capital Expenditure Program.
The Debtors' performance will be dependent upon, among other things,
their ability to make major capital expenditures over the next several years in
order to service existing business, enter new markets and remain competitive in
certain markets. Capital expenditures are currently estimated to total $28.8
million in 1998 and $19.3 million in 1999. Through 2002 (inclusive of 1998), the
Debtors expect to spend approximately $110 million. As noted above, financial
resources provided after the consummation of the Plan may not be sufficient to
fund the capital expenditures which are necessary to enable the Debtors to
achieve a level of profitability which will allow the Debtors to service their
debt. (See "RISK FACTORS--Business Risks--Financial Condition of the Debtors;
Payment at Maturity; Dividends.")
7. Environmental Regulation and Litigation.
The Debtors are subject to extensive regulation under environmental and
occupational health and safety laws and regulations. In addition, CERCLA
generally imposes joint and several liability for clean-up and enforcement
costs, without regard to fault on parties allegedly responsible for
contamination at a site. The Debtors may be subject to liability as a result of
the disposal of hazardous substances on and off the properties currently and
formerly owned or operated by the Debtors. In addition, the Debtors are subject
to various federal, state, local and foreign laws and regulations, including
CERCLA, governing the use, discharge and disposal of hazardous materials. During
fiscal years 1996 and 1997, the Debtors expended $2.7 million and $1.7 million,
respectively, in cash, in environmental remediation costs and related expenses.
As a result of historical and current operations involving the use and
disposal of hazardous materials in the ordinary course of their operations, the
Debtors have been named as defendants or potentially responsible parties in a
variety of environmental matters, including contractual indemnity and statutory
cost recovery litigation involving current and former operating facilities as
well as waste disposal sites. As part of such litigation, the Debtors have
asserted counterclaims and cross-claims relating to the properties involved and
other properties where the Debtors believe that the original plaintiffs, as well
as other parties, are liable for certain investigative and remedial costs that
have been or may be incurred by the Debtors.
The Debtors are also conducting remedial activities at certain current
and former facilities pursuant to governmental order and private contractual
agreements. Furthermore, as a result of the Debtors' manufacturing operations
involving the use and disposal of hazardous substances, the Debtors are aware of
certain currently owned facilities that are not required to be remediated at the
current time but that could possibly require remediation activity in the future.
While the Debtors believe they have provided adequate reserves for
their share of potential costs associated with the clean-up of hazardous
substances at various sites, no assurance can be given that the reserved amounts
will be sufficient to satisfy the Reorganized Debtors' obligations.
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Finally, given the Debtors' historical operations involving the use and
disposal of hazardous substances, additional environmental issues may arise in
the future the precise nature and magnitude of which the Debtors cannot predict.
8. Competition.
The markets for the Debtors' products are highly competitive. The
Debtors' products compete with those of a substantial number of companies, many
of which are larger and have resources, financial or otherwise, substantially
greater than the Debtors. Competitive factors in the market include product
quality, customer service, product mix, new product design capabilities, cost,
reliability of supply and supplier ratings. There can be no assurance that the
Reorganized Debtors will be able to compete effectively with these companies
following the Effective Date.
9. Collective Bargaining Agreements.
As of March 30, 1998, the Debtors had approximately 6,000 employees.
Approximately __% of the Debtors' employees are covered by collective bargaining
agreements negotiated with __ locals of __ unions (collectively, the "Unions").
These contracts expire at various times through the year 2000. Discussions with
various Unions regarding new labor agreements or an extension of existing
contracts are presently underway. A prolonged labor dispute could have a
material adverse effect on the Debtors.
10. Underfunded Pension Plans.
As reflected in the Debtors' audited financial statements, the Debtors
collectively had unfunded pension liabilities as of September 30, 1997 of
approximately $5.7 million related to defined benefit pension plans where plan
liabilities (on an accumulated benefit obligation basis) exceeded the fair value
of plan assets. The Debtors estimate that the unfunded liabilities as of
September 30, 1998 (as determined on a comparable basis) are approximately $____
million. See "Conditions to and Means for Consummation of the Plan -- Principal
Plan Documents -- PBGC Agreement."
11. Significance of the Automotive Industry.
A significant portion of the Debtors' sales are made to customers in
the automobile and light truck manufacturing industry. Direct sales of the
Debtors' products to the automobile and light truck manufacturing market
accounted for approximately 98%, 96% and 95% of the Debtors' net sales in Fiscal
1997, 1996 and 1995, respectively. Demand for certain of the Debtors' products
is affected by, among other things, the relative strength or weakness of the
North American automobile and light truck manufacturing industry and events,
such as labor disputes, affecting the North American automobile and light truck
manufacturing industry.
Currently, there exists a strike by locals of the UAW affecting a good
portion of GM's manufacturing facilities. The Debtors are uncertain as to the
business effects of a long-term work stoppage.
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B. Bankruptcy Risks.
1. Objection to Classifications.
Section 1122 of the Bankruptcy Code provides that a plan may place a
claim or an interest in a particular class only if such claim or interest is
substantially similar to the other claims or interests of such class. The
Debtors believe that the classification of Claims and Interests under the Plan
complies with the requirements set forth in the Bankruptcy Code. However, there
can be no assurance that the Bankruptcy Court will reach the same conclusion.
2. Risk of Nonconfirmation of the Plan.
Even if all Classes of Claims or Interests that are entitled to vote
accept the Plan, the Plan might not be confirmed by the Bankruptcy Court.
Section 1129 of the Bankruptcy Code sets forth the requirements for confirmation
and requires, among other things, that the confirmation of a plan of
reorganization is not likely to be followed by the liquidation or the need for
further financial reorganization of the Debtors, and that the value of
distributions to dissenting creditors and equity security holders not be less
than the value of distributions such creditors and equity security holders would
receive if the debtor were liquidated under chapter 7 of the Bankruptcy Code.
The Debtors believe that the Plan satisfies all the requirements for
confirmation of a plan of reorganization under the Bankruptcy Code. There can be
no assurance, however, that the Bankruptcy Court will also conclude that the
requirements for confirmation of the Plan have been satisfied. See "CONFIRMATION
OF THE PLAN."
3. Nonoccurrence of Effective Date of the Plan.
Even if all Classes of Claims and Interests that are entitled to vote
accept the Plan, the Plan many not go effective on the Effective Date. The Plan
sets forth conditions to the consummation of the Plan which may not be satisfied
by the Effective Date. The Debtors believe that they will satisfy all
requirements for consummation required under the Plan. There can be no
assurance, however, that the Bankruptcy Court will also conclude that the
requirements for consummation of the Plan have been satisfied. See "CONFIRMATION
OF THE PLAN."
4. Potential Effect of Bankruptcy on Certain Relationships.
The effect, if any, which the commencement of the Chapter 11 Cases may
have upon the operations of the Reorganized Debtors cannot be accurately
predicted or quantified. If, however, confirmation and consummation of the Plan
do not occur expeditiously, the Chapter 11 Cases could adversely affect the
Debtors' relationships with its customers, suppliers and employees, resulting in
a material adverse impact on the operations of the Debtors. Moreover, even
expedited Chapter 11 Cases could have a detrimental impact on future sales and
patronage due to the possibility that the Chapter 11 Cases may create a negative
image of the Debtors in the eyes of their customers.
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The pendency of the Chapter 11 Cases has negatively affected the
operations of the Debtors and their results of operations, and adverse effects
of the Chapter 11 Cases may affect future periods as well.
C. Liquidity Risks.
1. Restrictions on Transfer.
Holders of New Common Stock New Junior Secured Debentures (if any) or
New Warrants who are deemed to be "underwriters" as defined in subsection
1145(b) of the Bankruptcy Code, or who are otherwise deemed to be "affiliates"
or "control persons" of the Reorganized Debtors within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), will be unable to
offer or sell their New Junior Secured Debentures (if any), New Common Stock or
New Warrants after the Effective Date, except pursuant to an available exemption
from registration under the Securities Act and under equivalent state securities
or "blue sky" laws. See "THE PLAN -- Securities Law Matters -- Exemptions From
Securities Act Registration; Registration Rights Agreement."
2. Potential Illiquidity of Plan Securities.
No established trading market exists for the New Junior Secured
Debentures (if any), New Common Stock or the New Warrants, and no assurance can
be given that such a trading market will develop following the effectiveness of
the Plan or, if a trading market for the New Junior Secured Debentures (if any),
New Common Stock or the New Warrants develops, no assurance can be given as to
the liquidity of such a trading market.
As provided in the Plan, the Reorganized Debtors will use their
reasonable best efforts to cause the New Junior Secured Debentures (if any), New
Common Stock or the New Warrants to be listed on one or more stock exchanges or
quoted on the National Market System on or before the date which is one hundred
twenty (120) days after the Effective Date. There can be no assurance, however,
that the New Junior Secured Debentures (if any), New Common Stock or the New
Warrants will be listed on any stock exchange or quoted on the National Market
System.
VII. CONFIRMATION OF THE PLAN.
A. Voting Procedures and Requirements.
The Debtors are providing copies of this Disclosure Statement, Ballots
and, where appropriate, summary Ballots, to all known holders of Impaired Claims
and Interests who are entitled to vote on the Plan, including registered holders
of the Debtors' securities. Registered holders may include brokerage firms,
commercial banks, trust companies or other nominees. Any such nominee who
requires additional copies of the Disclosure Statement and Ballots for
distribution to beneficial holders may obtain them from BSI, by calling
1-888-498-7764 (Attn: Laura Campbell). If a registered holder does not hold for
its own account, then it is required to provide promptly copies of this
Disclosure Statement and appropriate Ballots to its
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customers and to beneficial owners. Any beneficial owner who has not received a
Ballot should contact his or its brokerage firm, nominee, or BSI.
Pursuant to the provisions of the Bankruptcy Code, only classes of
claims against or equity interests in a debtor that are "impaired" under the
terms and provisions of a plan of reorganization and entitled to receive a
distribution thereunder are entitled to accept or reject a plan. Accordingly,
Classes of Claims or Interests that are not Impaired are not entitled to vote on
the Plan. In addition, Classes of Claims or Interests that are not entitled to a
Distribution are deemed to have rejected the Plan and are not entitled to vote
to accept or reject the Plan. Under the Plan, (i) the Claims in Class 1 are not
Impaired under the Plan and, therefore, the holders thereof are presumed to have
accepted the Plan, (ii) the Claims in Classes 2, 3, 4, 5 and 6 and the Interests
in Class 7 and 8 are Impaired under the Plan and, therefore, entitled to vote to
accept or reject the Plan; (iii) the Interests in Class 9 are Impaired but the
holders of these Interests are proponents of the Plan and thus, are deemed to
have accepted the Plan; and (iv) the Interests in Class 10 are deemed not to
have accepted the Plan by virtue of not receiving any distributions under the
Plan. Some holders of Claims and Interests may hold Claims and/or Interests in
more than one Impaired Class and must vote separately for each Class. Such
holders will receive a separate Ballot for all their Claims in each Class and
should complete and sign each Ballot separately. For most holders of Claims or
Interests in Impaired Classes, the Ballots enclosed with this Disclosure
Statement have been encoded with the amount of such holders' Claim for voting
purposes, subject to change as a result of relief sought in the Bankruptcy Court
prior to the Confirmation Date. The voting procedures are set forth in a voting
procedures order, dated August [ ], 1998 (the "Voting Procedures Order"). The
Voting Procedures Order establishes the following procedures with respect to the
amount and classification of a Claim or Interest for voting purposes:
1. With respect to a Claim or Interest as to which a proof of
claim or proof of interest, as the case may be, has not been timely filed (i.e.,
was not filed or was filed after the deadline set by the Bankruptcy Court for
the filing of a claim of that type), the voting amount of such Claim or Interest
(subject to any applicable limitations set forth below) shall be equal to the
amount listed, if any, in respect of such Claim or Interest in the Debtors'
Schedules to the extent such Claim or Interest is not listed as contingent,
unliquidated, undetermined or disputed. Such Claim or Interest shall be placed
in the appropriate Plan class based upon the Debtors' records and the
classification scheme set forth in the Plan.
2. With respect to a liquidated, non-contingent Claim as to
which a proof of claim has been timely filed and as to which an objection has
not been filed at least five days prior to the end of the voting period fixed by
the Bankruptcy Court with respect to the Plan (the "Voting Period"), the amount
and classification of such Claim shall be that specified in such proof of claim
as reflected in the records of BSI, the agent for the Clerk of the Bankruptcy
Court, subject to any applicable limitations set forth below.
3. With respect to a proof of claim or proof of interest, as
the case may be, which, according to BSI's records, was not timely filed (i.e.,
was filed after the deadline set by the Bankruptcy Court for the filing of a
proof of a claim or a proof of interest of that type)
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and is not subject to the provisions of paragraph (a) above, such Claim or
Interest shall be provisionally disallowed for voting purposes.
4. With respect to a proof of claim or proof of interest, as
the case may be, which is the subject of an objection filed at least five days
prior to the end of the Voting Period, the Claim or Interest represented by such
proof of claim shall be provisionally disallowed for voting purposes, except to
the extent and in the manner that: (i) the Debtors indicate the Claim or
Interest should be allowed in the Debtors' objection to such Claim or Interest;
or (ii) the Bankruptcy Court otherwise orders.
5. With respect to a Claim that has been estimated or otherwise
allowed for voting purposes by order of the Bankruptcy Court, the amount and
classification of such Claim shall be that set by the Bankruptcy Court.
6. A Claim listed in the Schedules or a proof of claim timely
filed as wholly unliquidated, contingent and/or undetermined shall be accorded
one vote valued at one dollar for purposes of section 1126(c) of the Bankruptcy
Code, unless the Claim is disputed as set forth in (4) above.
7. With respect to a Claim that is unliquidated, contingent
and/or undetermined in part, the holder of the Claim shall be entitled to vote
that portion of the Claim that is liquidated, non-contingent and undisputed in
the liquidated, non-contingent and undisputed amount, subject to any limitations
set forth herein and unless otherwise ordered by the Bankruptcy Court.
8. Holders shall not be entitled to vote Claims or Interests to
the extent such Claims or Interests duplicate or have been superseded by other
Claims or Interests of such holders of Claims or Interests.
In addition, the following rules have also been established under the
Voting Procedures Order:
1. Whenever a holder of a Claim of Interest submits more than
one Ballot voting the same Claim or Interest prior to the deadline for
submission of Ballots, the first of such multiple Ballots filed (and only such
Ballot) shall be counted in accordance with the rules otherwise established
pursuant to the Voting Procedures Order, unless either (i) the Debtors consent
to the filing and counting of a superseding ballot, or (ii) the Bankruptcy
Court, after notice and a hearing, orders otherwise.
2. The authority of the signatory of each Ballot to complete
and execute the Ballot shall be presumed.
3. Except with respect to "summary" Ballots (as described
below) a holder of a Claim or Interest must vote all of its Claim or Interest
within a particular Class under the Plan either to accept or reject the Plan and
may not split its vote. Accordingly, a Ballot (or multiple Ballots with respect
to separate Claims or Interests within a single Class) that partially
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rejects and partially accepts the Plan or that indicates both a vote for and
against the Plan will not be counted.
4. Any Ballot that does not indicate whether the holder of the
relevant Claim or Interest is voting for or against the Plan will be counted as
a vote for the Plan.
5. Any Ballot that is not signed will not be counted.
6. For the purpose of voting on the Plan, BSI, as balloting
agent, will be deemed to be in constructive receipt of any Ballot timely
delivered to any address that BSI (or its authorized agent) designates for the
receipt of Ballots cast in connection with the Plan.
7. Any Ballot postmarked prior to the end of the Voting Period
but received by BSI after the end of the Voting Period shall not be counted.
In accordance with Bankruptcy Rule 3017(e), the Debtors expect to send
Ballots to record holders of PIK Preferred Stock, Old Common Stock and the
Senior Notes as of [ ] [ ], 1998 or as of such other date as is specified in the
order approving this Disclosure Statement (the "Voting Record Date"). In the
event that the record holders are Indenture Trustees, transfer agents,
registrars, servicing agents or other intermediaries (collectively, the
"Intermediaries") holding Claims or Interests for or acting on behalf of the
beneficial owners of the PIK Preferred Stock, Old Common Stock or holders of the
Senior Notes, they will be entitled to receive, upon request made of the Debtors
or the Debtors' designated agent at least five (5) Business Days prior to the
voting deadline, sufficient copies of Ballots to distribute to the beneficial
holders (as of the Record Date) of the Claims or Interests for which it is an
Intermediary. The Intermediary must collect those Ballots and complete and
submit a "summary" Ballot within the voting period. In order to be counted,
except to the extent the Debtors so determine or as permitted by the Bankruptcy
Court pursuant to Bankruptcy Rule 3018, Ballots must be mailed, signed and
returned so that they are received no later than 4:30 p.m. Eastern time, on [ ]
[ ], 1998 at the following address:
Doehler-Jarvis Balloting
c/o Bankruptcy Services LLC
70 East 55th Street
New York, NY 10022
Attn: Laura Campbell
As mentioned above, if your Ballot is not signed and returned as
described, it will not be counted. If your Ballot is damaged or lost, or if you
do not receive a Ballot, you may request a replacement by addressing a written
request to BSI at the foregoing address, or calling BSI at 1-888-498-7764.
Please follow the directions contained on the enclosed Ballot
carefully.
The process of soliciting consents to confirmation of the Plan must be
fair and open without outside influence in the form of representations,
inducements or duress of any kind.
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To the extent that you believe solicitation of your vote from any party is being
sought outside of the judicially-approved and statutorily-defined disclosures
requirements and voting procedures, please contact co-counsel for the Debtors or
co-counsel for the Creditors' Committee.
B. Acceptance.
Acceptance of a plan of reorganization requires that each impaired
class of claims or interests (as classified therein) accepts that Plan, with
certain exceptions hereinafter discussed below. Thus, acceptance of the Plan
requires acceptance by each of the Impaired Classes.
Classes of claims and interests that are not Impaired under a plan are
deemed to have accepted the plan. Acceptances of the Plan are being solicited
only from those persons who hold Claims or Interests of Impaired Classes.
The Bankruptcy Code defines acceptance of a plan by a class of claims
as acceptance by the holders of at least two-thirds (2/3) in dollar amount and a
majority in number of claims of that class, but for that purpose, only those
claims, the holders of which actually vote to accept or reject the plan, are
counted. The Bankruptcy Code defines acceptance of a plan by a class of
interests as acceptance by the holders of at least two-thirds (2/3) of the
allowed interests in such class, but for that purpose, only those interests, the
holders of which actually vote to accept or reject the plan, are counted
C. Confirmation of the Plan.
In order to confirm the Plan, section 1129 of the Bankruptcy Code
requires that the Bankruptcy Court make a series of determinations concerning
the Plan, including, without limitation: (a) that the Plan has classified claims
and interests in a permissible manner; (b) that the contents of the Plan comply
with the technical requirements of the Bankruptcy Code; (c) that the Debtors
have proposed the Plan in good faith; and (d) that the Debtors have made
disclosures concerning the Plan which are adequate and include information
concerning all payments made or promised in connection with the Plan and the
Chapter 11 Cases. The Debtors believe that all of these conditions have been or
will be met.
The Bankruptcy Code requires (unless the "cramdown" provisions of the
Bankruptcy Code (as discussed below) are utilized), as a condition precedent to
confirmation, that the Plan be accepted by the requisite votes of each Class of
Claims and Interests voting as separate Classes. Therefore, the Bankruptcy Court
must find, in order to confirm the Plan, that the Plan has been duly accepted.
In addition, the Bankruptcy Court must find that the Plan is feasible and that
the Plan is in the "best interests" of all holders of Claims and Interests.
Thus, even if holders of Claims or Interests of the Debtors were to accept the
Plan by the requisite number of votes, the Bankruptcy Court would be required to
make independent findings respecting the Plan's feasibility and whether the Plan
is in the best interests of holders of Claims and Interests before it can
confirm the Plan.
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1. The Best Interests Test.
Whether or not the Plan is accepted by each Impaired Class of Claims
and each Impaired Class of Interests entitled to vote on the Plan, in order to
confirm the Plan the Bankruptcy Court must, pursuant to section 1129(a)(7) of
the Bankruptcy Code, independently determine that the Plan is in the best
interests of each holder of an impaired Claim or Interest that has not accepted
the Plan. This requirement is satisfied if the Plan provides each non-accepting
holder of a Claim or Interest in such Impaired Class a recovery on account of
such holder's Claim or Interest that has a value, as of the Effective Date, at
least equal to the value of the distribution each such holder would receive in a
liquidation of the Debtors under chapter 7 of the Bankruptcy Code.
To determine the value that holders of Impaired Claims and Interests
would receive if the Debtors were liquidated under chapter 7, the Bankruptcy
Court must determine the aggregate dollar amount that would be generated from
the liquidation of the Debtors' assets if the Debtors' Chapter 11 Cases were
converted to a chapter 7 liquidation case and the Debtors' assets were
liquidated by a chapter 7 trustee (the "Liquidation Value"). The Liquidation
Value would consist of the net proceeds from the disposition of the Debtors'
assets, augmented by cash held by the Debtors and reduced by certain increased
costs and Claims that arise in a chapter 7 liquidation case that do not arise in
a chapter 11 reorganization case.
The Liquidation Value available for satisfaction of general creditors
of, and Interests in, the Debtors would be reduced by: (a) the Claims of Secured
Creditors to the extent of the value of their collateral, and (b) the costs,
fees and expenses of the liquidation under chapter 7, which would include: (i)
the compensation of a trustee and its counsel and other professionals retained,
(ii) disposition expenses, (iii) all unpaid expenses incurred by the Debtors
during the Chapter 11 Cases (such as compensation for attorneys, financial
advisors, investment bankers, brokers, auctioneers and accountants and the costs
and expenses of members of any statutory committee of unsecured creditors
appointed by the United States Trustee pursuant to section 1102 of the
Bankruptcy Code and any other such appointed committee) which are allowed in a
chapter 7 case, (iv) litigation costs, and (v) Claims arising from the operation
of the Debtors during the pendency of the Chapter 11 Cases and the chapter 7
liquidation case. The liquidation itself would trigger certain Claims, such as
Claims for severance pay and environmental claims, and would accelerate other
priority payments which would otherwise be paid in the ordinary course. These
Claims would be paid in full out of the liquidation proceeds before the balance
would be made available to pay most other Claims or to make any distribution in
respect of Interests. Liquidation would also involve the rejection of additional
executory contracts and unexpired leases of the Debtors and substantial
additional rejection damage Claims.
To determine if the Plan is in the best interests of each Impaired
Class, the present value of the distributions from the proceeds of the
liquidation of the Debtors' assets and properties, after subtracting the amounts
attributable to the foregoing Claims, costs, fees and expenses, are compared
with the value of the property offered to such Classes of Claims and Interests
under the Plan on the Effective Date.
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(a) The Debtors' Estimate of Liquidation Value.
The liquidation analysis annexed to the Disclosure Statement as
Appendix "4" is based on the projected assets and liabilities of the Debtors as
of September 30, 1998. Underlying the liquidation analysis are a number of
estimates and assumptions that are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Debtors. Accordingly, there can be no assurances that the values assumed in the
analysis would be realized if the Debtors were in fact liquidated. Accordingly,
although the analysis that follows is necessarily presented with numerical
specificity, the actual liquidation values could vary significantly from the
amounts set forth below. This analysis has been prepared solely for purposes of
estimating proceeds in a complete chapter 7 liquidation, and does not represent
values that are appropriate for any other purpose. Variance from the estimates
may be caused by, among others, the following:
o Nature and Timing of Sales Process. Under section 704 of the
Bankruptcy Code, a chapter 7 trustee must, along with its
other duties, collect and convert the property of the estate
as expeditiously as is compatible with the best interest of
the parties. The liquidation analysis assumes there would be
pressure to complete the liquidation of the Debtors'
operating properties and financial assets over a period of
approximately 6-9 months. It is possible that the
disposition of certain assets could reasonably exceed 12
months, causing deterioration in the value of the Debtors'
estate. It is also possible that the completion of a
liquidation process on an expedited basis could result in
significantly reduced proceeds for the Debtors' Estates than
would have resulted from a more orderly liquidation process.
The liquidation analysis assumes that the Debtors'
businesses have ceased and that the assets are sold for
their fair market values on an asset by asset basis.
o Discount Factor Applied to Assets. The precise discount
attributable to assets in a chapter 7 case cannot be
computed on the basis of any known empirical data.
Accordingly, for purposes of the liquidation analysis,
assets are valued based on the Debtors' best estimates,
which would vary on an asset by asset (and category by
category) basis.
o Estimated Liquidation Expenses. Such expenses were estimated
to be incurred upon liquidation of the Debtors' assets,
excluding cash and cash equivalents.
o Estimated Claims. A conversion to a chapter 7 case would
likely result in additional Claims, including Claims
resulting from the rejection of executory contracts.
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Liquidation values of major operating properties and non-operating
assets were based in part upon the financial projections prepared by the Debtors
and their financial advisors and assume a discount applied to each asset to
account for the nature and timing of the sales process. The Debtors applied a
discount to all assets, other than cash and cash equivalents, ranging from 0 to
100 percent of their respective going concern values. The precise discount
factors attributable to a chapter 7 liquidation are subject to various
circumstances. Total chapter 7 expenses, including operating expenses, trustee's
fees and other administrative expenses, are estimated to be approximately $20
million. For purposes of the liquidation analysis, the Debtors have assumed any
tax liability would be de minimis. This assumption was based upon the
utilization of available tax benefits to offset any gains in the disposition of
assets.
(b) Comparison of Liquidation Values with Recoveries under
Plan.
In the table annexed hereto as Appendix "4", the Debtors present a
comparison between estimated reorganization recoveries and liquidation
recoveries by Classes of Claims and Interests. The Plan recovery data presented
in the table below are based, in part, upon the Debtors' assumption of the
reorganization value of the Debtors.
(c) Conclusion.
Due to the numerous uncertainties and time delays associated with
liquidation under chapter 7, it is not possible to predict with certainty the
outcome of liquidation of the Debtors or the timing of any distribution to
creditors. As the Liquidation Analysis and Comparison of Recoveries under the
Plan versus Liquidation demonstrate, however, liquidation under chapter 7 of the
Bankruptcy Code would result in much lower distributions for most holders of
Claims and Interests than that provided for in the Plan, and that no holder of a
Claim or Interest would obtain a greater recovery on its Claim or Interest in a
Chapter 7 liquidation case than it would obtain under the Plan.
2. Feasibility.
Even if the Plan is accepted by each Class of Claims and Interests
voting on the Plan, and even if the Bankruptcy Court determines that the Plan
satisfies the best interests test, the Bankruptcy Code requires that, in order
for the Plan to be confirmed by the Bankruptcy Court, it must be demonstrated
that consummation of the Plan is not likely to be followed by the liquidation or
the need for further financial reorganization of the Debtors. For purposes of
determining whether the Plan meets this requirement, the Debtors have analyzed
their ability to meet their obligations under the Plan. As part of such
analyses, the Debtors have prepared forecasts of the Reorganized Debtors' cash
flow (assuming the transactions contemplated by the Plan are consummated) for
the five (5) fiscal years through September 30, 2002. These forecasts, and the
significant assumptions on which they are based, are set forth above. Based on
such forecasts, the Debtors believe that the Reorganized Debtors will be able to
make all payments required to be made pursuant to the Plan.
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D. Non-Acceptance and Cramdown.
Pursuant to section 1129(b) of the Bankruptcy Code, the Bankruptcy
Court may confirm a plan despite the non-acceptance of the plan by an impaired
class. This procedure is commonly referred to as a "cramdown." Section 1129(b)
of the Bankruptcy Code provides that upon request of the proponent of the Plan,
the Bankruptcy Court shall confirm the Plan despite the lack of acceptance by an
Impaired Class or Classes if the Bankruptcy Court finds that (a) the Plan does
not discriminate unfairly with respect to each non-accepting Impaired Class, (b)
the Plan is "fair and equitable" with respect to each non-accepting Impaired
Class, (c) at least one Impaired Class has accepted the Plan (without counting
acceptances by insiders) and (d) the Plan satisfies the requirements set forth
in Bankruptcy Code section 1129(a) other than section 1129(a)(8). In general,
section 1129(b) of the Bankruptcy Code permits confirmation notwithstanding
non-acceptance by an impaired class if that class and all more junior class are
treated in accordance with the "absolute priority" rule, which requires that the
dissenting class be paid in full before a junior class may receive anything
under the plan.
1. The Plan is Fair and Equitable.
The Bankruptcy Code establishes different "fair and equitable" tests
for holders of secured claims, unsecured claims and equity interests. As to the
dissenting class, the test sets different standards, depending on the type of
claims or interests in such class.
(a) Secured Claims: With respect to a Class of Secured
Claims that does not accept the Plan, the Debtors must demonstrate to the
Bankruptcy Court that either (a) the holders of such Claims are retaining the
liens securing such Claims and that each holder of a Claim of such Class will
receive on account of such Claim deferred cash payments totaling at least the
Allowed amount of such Claim, of a value, as of the Effective Date, of at least
the value of such holder's interest in such property, or (b) the holders of such
Claims will realize the indubitable equivalent of such Claims under the Plan.
(b) Unsecured Claims: With respect to a Class of unsecured
Claims that does not accept the Plan, the Debtors must demonstrate to the
Bankruptcy Court that either (a) each holder of an unsecured Claim of the
dissenting class receives or retains under the Plan property of a value equal to
the Allowed amount of its unsecured Claim or (b) the holders of Claims or
Interests that are junior to the Claims of the holders of such Unsecured Claims
will not receive or retain any property under the Plan.
(c) Equity Interests: With respect to a class of Interests
that does not accept the Plan, the Debtors must demonstrate to the Bankruptcy
Court that (a) each holder of an Interest of the dissenting Class receive or
retain on account of such Interest property of a value equal to the greatest of
the Allowed amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled or the
value of such Interest or (b) the holders of any Interest that is junior to the
Interests of the holders of such Class of Interest will not receive or retain
any property under the Plan.
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The Debtors believe the Plan is fair and equitable with respect to each
Class.
2. No Unfair Discrimination.
A chapter 11 plan "does not discriminate unfairly" with respect to a
nonaccepting class if the value of the cash and/or securities to be distributed
to the nonaccepting class is equal or otherwise fair when compared to the value
of distributions to other classes whose legal rights are the same as those of
the nonaccepting class. Since all similarly situated holders of Claims or
Interests are classified together, the Plan does not unfairly discriminate
against any Class.
E. Confirmation Hearing.
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a confirmation hearing (the "Confirmation Hearing").
Section 1128(b) of the Bankruptcy Code provides that any party in interest may
object to confirmation of the Plan.
Notice of the Confirmation Hearing will be provided to all holders of
Claims and Interests and other parties in interest (the "Confirmation Notice").
The Confirmation Hearing may be adjourned from time to time by the Bankruptcy
Court without further notice except for an announcement of the adjourned date
made at the Confirmation Hearing or any adjournment thereof. Objections to
confirmation of the Plan must be made in writing, specifying in detail the name
and address of the person or entity objecting, the grounds for the objection,
and the nature and amount of the Claim or Interest held by the objector.
Objections must be filed with the Bankruptcy Court, together with proof of
service, and served upon the parties so designated in the Confirmation Notice,
on or before the time and date designated in the Confirmation Notice as being
the last date for serving and filing objections to confirmation of the Plan.
Objections to confirmation of the Plan are governed by Bankruptcy Rule 9014 and
the local rules of the Bankruptcy Court.
VIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF PLAN.
If the Plan is not confirmed by the Bankruptcy Court and consummated,
the alternatives to the Plan include (a) liquidation of the Debtors under
chapter 7 of the Bankruptcy Code and (b) an alternative plan under chapter 11 of
the Bankruptcy Code.
A. Liquidation Under Chapter 7.
If no plan can be confirmed, the Debtors' Chapter 11 Cases may be
converted to a case under chapter 7 of the Bankruptcy Code, pursuant to which a
trustee would be appointed to liquidate the assets of the Debtors for
distribution to holders of Claims and Interests holders in accordance with the
priorities established by the Bankruptcy Code. For the reasons discussed above,
under "CONFIRMATION OF THE PLAN -- Confirmation of the Plan -- Best Interests
Test," the Debtors believe that confirmation of the Plan will provide each
holder of a Claim entitled to receive a distribution under the Plan with a
recovery that is not less (and is expected to be substantially more) than it
would receive pursuant to liquidation of the Debtors under chapter 7 of the
Bankruptcy Code.
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B. Alternative Plan.
If the Plan is not confirmed, the Debtors (or if the Debtors' exclusive
periods in which to file a plan or plans reorganization have expired, any other
party in interest) may be entitled to file a different plan. Such a plan might
involve either a reorganization and continuation of the Debtors' businesses or
an orderly liquidation of their assets under chapter 11 of the Bankruptcy Code.
The Debtors in consultation with the Creditors' Committee have explored various
other alternatives in connection with the formulation and development of the
Plan. The Debtors believe the Plan enables holders of Claims or Interests to
realize the most value under the circumstances. In a liquidation under chapter
11, the Debtors' assets would be sold in an orderly fashion over a more extended
period of time than in a liquidation under chapter 7, probably resulting in
somewhat greater (but indeterminate) recoveries than would be obtained in a
chapter 7 liquidation. Further, if a trustee were not appointed (such
appointment is not required in a chapter 11 case), the expenses for professional
fees would most likely be lower than those incurred in a chapter 7 case.
Although preferable to a chapter 7 liquidation, the Debtors believe that
liquidation under chapter 11 would result in substantially lower recoveries than
provided for by the Plan. Further, any alternative plan would likely be less
favorable to holders of Claims or Interests because, inter alia, distributions
would be delayed.
[TO COME]
IX. SELECTED HISTORICAL FINANCIAL DATA.
A. Selected Financial Data.
Reference should be made to the Debtors' 10-K for the Fiscal Year ended
September 30, 1997 and 10-Q for the Fiscal Quarter ended March 31, 1998,
included as Appendix "2" to this Disclosure Statement.
B. Management's Discussion And Analysis Of Results Of Operations.
The following discussion and analysis of the financial condition and
the results of operation should be read in conjunction with the section herein
entitled "Selected Historical Financial Data" and the consolidated financial
statements of the Debtors and the related notes therein included as Appendix "2"
to this Disclosure Statement. The Debtors' fiscal year ends on September 30 of
each year.
X. MANAGEMENT OF REORGANIZED DEBTORS.
A. New Board of Directors.
The Board of Directors of Harvard currently consists of John Adams
(Chairman), C. Scott Bartlett, Bruce Broussard, Retired General Joseph P. Hoar
and Michael Hoffman.
On the Effective Date, each of the existing members of the Board of
Directors will be deemed to have resigned. The New Board of Directors will
consist of seven (7) members.
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The composition of the New Board of Directors will be subject to approval of the
Bankruptcy Court. The initial New Board of Directors shall consist of the
individuals identified in Exhibit "G" to the Plan. See "THE PLAN -- Means For
Implementation of the Plan --Directors of the Reorganized Debtors." From and
after the Effective Date, selection of the members of the New Board of Directors
of Reorganized Harvard will be governed by the New Bylaws and/or the New
Certificate of Incorporation of Reorganized Harvard, as the case may be. The New
Board of Directors of Reorganized Harvard will promptly appoint the members of
the Board of Directors of each of the other Reorganized Debtors.
The Debtors anticipate that (i) Reorganized Harvard will maintain
officer and director insurance liability coverage comparable to that currently
in effect and (ii) while the precise amount of the compensation to outside
directors will be determined by the New Board of Directors, Reorganized Harvard
will compensate its outside directors in a manner consistent with compensation
provided to outside directors of companies of a similar size and nature.
The authorized capital stock of Harvard will include 50,000,000 shares
of Preferred Stock, none of which will be issued or outstanding upon the
consummation of the Plan. The New Board of Directors of Reorganized Harvard is
authorized to divide the Preferred Stock into series and, with respect to each
series, to determine the preferences and rights and the qualifications,
limitations or restrictions thereof, including the dividend rights, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking fund provisions, the number of shares constituting the series and the
designation of such series. The New Board of Directors may, without stockholder
approval, issue Preferred Stock with voting and other rights that could
adversely affect the voting power of the holders of New Common Stock and could
have certain anti-takeover effects. The payment of dividends, if any, on such
Preferred Stock would be subject to any restrictions on payment of dividends
imposed by the Post-Confirmation Credit Agreement, New Junior Secured Debentures
or the Alternative Financing Transaction, as the case may be.
From and after the Effective Date, selection of the members of the New
Board of the Directors shall be governed by the New Bylaws and/or the New
Certificate of Incorporation, as the case may be.
There can be no assurances that the New Board of Directors will not
make one or more changes in senior management after the Effective Date. It is
anticipated that any changes which are intended to be made prior to the
Confirmation Hearing will be disclosed at such hearing.
B. Senior Management of Reorganized Debtors.
The names, ages and present principal occupations as of the Effective
Date of the executive officers of Reorganized Harvard are set forth below:
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Name Age Positions
- ---- --- ---------
Roger G. Pollazzi 60 Chairman and Chief Executive Officer
James B. Gray 56 President
Theodore W. Vogtman 57 Chief Financial Officer
J. Vincent Toscano 50 Executive Vice President of Strategic
Planning/Acquisition and Divestitures
Roger L. Burtraw 57 Executive Vice President, Operations
Joseph J. Gagliardi 58 Executive Vice President, Administration and
Information Technology
Brian D. Benninger 50 Senior Vice President, Marketing
Gerard Tighe 62 Senior Vice President, General Counsel
David L. Kuta 53 Senior Vice President, Body Systems
David C. Stegemoller 56 Senior Vice President, Powertrain
D. Craig Bowman 51 Vice President, Law, Secretary
John J. Brock 51 Vice President, Tax
Robert J. Clark 44 Vice President, Human Resources
Kevin L. B. Price 43 Vice President, Controller and Treasurer
Douglas D. Rossman 47 Vice President, Purchasing
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 ("Pullman").
Mr. James B. Gray has been the Managing Director of Tenneco Europe
since 1996. From 1989 to 1996, Mr. Gray was President of the Elastomers division
of Pullman. Effective July 8, 1998, Mr. Gray joined Harvard as President.
Mr. Theodore W. Vogtman was associated with Concord Investment
Partners, an investment firm headquartered in Concord, Massachusetts from 1996
to October 1997. From 1994 to 1996, he was Chief Financial Officer of Pullman.
From 1992 to 1993, he was Chief Financial Officer for Safelite Glass.
Mr. J. Vincent Toscano was associated with Concord Investment Partners,
an investment firm headquartered in Concord, Massachusetts from 1996 to October
1997. From 1993 to 1996, he was Vice President - Operations, at Pullman. From
1992 until 1993, Mr. Toscano was Chief Financial Officer of that company.
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.
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Mr. Joseph J. Gagliardi has been the Debtors' Senior Vice President,
Finance and Chief Financial Officer February 1993 since February 1993. From 1980
to 1993, Mr. Gagliardi was Vice President, Finance and Chief Financial Officer.
Mr. Gerard Tighe was a consultant to Pullman from 1994 until 1997.
Previously, he was General Counsel of Lear Siegler Inc.
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 Elastomers as a Vice President of Sales and
Marketing.
Mr. David L. Kuta has been a Senior Vice President of the Company since
July 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. D. Craig Bowman was a principal in the management consulting firm
of the Tappan Group, located in New York, New York, from June 1995 until
November 1997. Prior to that time, Mr. Bowman was Vice President and General
Counsel of Pullman.
Mr. John J. Brock was Vice-President-Tax at Pullman from 1994 through
1997. From 1992 to 1994, Mr. Brock was with Fiat Automotive.
Mr. Robert J. Clark was Vice President Benefits and Compensation with
Polygram Holding, Inc. from August 1992 until January 1998.
Mr. Kevin L. B. Price was Vice President - Controller of Pullman, from
1994 until 1997. Prior to that time, Mr. Price was the Assistant Controller of
Pullman.
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 prior hereto.
Executive officers of the Debtors are appointed and serve at the
discretion of the Board of Directors.
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C. Management Employment Agreements.
The Management Employment Agreements between Reorganized Harvard and
each of Roger G. Pollazzi, Theodore Vogtman, Vincent Toscano [and Joseph
Gagliardi] substantially in the form of Exhibit "J" to the Plan shall become
effective as of the Effective Date. Such agreements supersede all employment,
severance, retention bonus and other agreements with respect to such individuals
in effect prior to the Effective Date. On the Effective Date, all Claims and
Administrative Expenses of such individuals against the Debtors under their
prepetition employment, severance, retention bonus and other agreements, if any,
will be governed by, and completely satisfied in accordance with, the terms and
conditions of their respective Management Employment Agreements.
Each Management Employment Agreement shall have an initial term ending
on September 30, 2001 with automatic one-year renewals thereafter unless prior
notice of wither party has been given six (6) months prior to the end of the
employment term. Base salary for each executive shall be as follows:
Roger G. Pollazzi $800,000
Theodore Vogtman $250,000
Vincent Toscano $250,000
[Joseph J. Gagliardi] [$250,000]
The Management Employment Agreements also contain certain provisions for the
payment of annual bonuses under certain terms and conditions. In addition, each
Management Employment Agreement contain provisions for severance payments.
D. Emergence Bonus Plan.
In order to induce certain key employees to remain with the Debtors
during the restructuring process and reward them for maintaining and enhancing
the value of the Debtors' assets and businesses for the benefit of the Debtors,
creditors and shareholders, effective upon the occurrence of the Effective Date,
Reorganized Harvard will implement the Emergence Bonus Plan in substantially the
form annexed to the Plan as Exhibit "H". The Emergence Bonus provides that Roger
G. Pollazzi will receive a bonus in the amount of $2,475,000 payable in Cash,
provided, however, that twenty (20%) percent of Mr. Pollazzi's bonus ($495,000)
will be used by him to purchase New Common Stock at the fair market value of
such New Common Stock as of the Effective Date. Other employees, to be
determined by Mr. Pollazzi, will share in an aggregate bonus in the sum of
$2,500,000 in Cash, provided, however, that each employee receiving a bonus
pursuant to the Emergence Bonus Plan in excess of $100,000 will be required to
use 20% of such bonus to purchase New Common Stock at the fair market value of
such New Common Stock as of the Effective Date. For purposes of the Emergence
Bonus Plan, the "fair market value" of New Common Stock will
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be based upon the average closing trading price of New Common Stock during the
fifteen (15) consecutive business days preceding the 3 month anniversary of the
Effective Date.
E. Consulting Agreements.
A Consulting Agreement between Reorganized Harvard and John Adams
substantially in the form of Exhibit "K" to the Plan shall become effective as
of the Effective Date. Such agreement supersedes all employment, severance,
retention bonus and other agreements with respect to John Adams in effect prior
to the Effective Date. On the Effective Date, all Claims and Administrative
Expenses of John Adams individually against the Debtors under his prepetition
employment, severance, retention bonus and other agreements, if any, will be
governed by, and completely satisfied in accordance with, the terms and
conditions of his Consulting Agreement.
F. Incentive Plan.
The Incentive Plan substantially in the form of Exhibit "I" to the Plan
shall become effective as of the Effective Date. Pursuant to the Incentive Plan,
Reorganized Harvard will reserve fifteen (15%) percent of the outstanding New
Common Stock, on a fully diluted basis, as of the Effective Date, in order to
create new employee stock and stock option plans for the benefit of the
non-management directors, consultants, executives and other employees of
Reorganized Harvard. All grants under the Incentive Plan to management will be
determined by management and approved by the non-management members of the New
Board of Directors of Reorganized Harvard. The decision to grant additional
stock options from the 15% of the New Common Stock reserved for the Incentive
Plan will be at the discretion of the non-management members of the New Board of
Directors of Reorganized Harvard.
XI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following discussion summarizes certain federal income tax
consequences of the Plan to the Debtors and holders of Claims and Interests. The
analysis contained herein is based upon the Internal Revenue Code of 1986, as
amended (the "Tax Code"), the Treasury Regulations promulgated and proposed
thereunder, judicial decisions and published administrative rulings and
pronouncements of the Internal Revenue Service ("IRS") as in effect on the date
hereof. Legislative, judicial or administrative changes or interpretations
enacted or promulgated hereafter could alter or modify the analysis and
conclusions set forth below. Any such changes or interpretations may be
retroactive and could affect significantly the federal income tax consequences
discussed below. This summary does not address the federal income tax
consequences to any holders of Claims or Interests that will either be satisfied
in full under the Plan or will receive no recovery under the Plan. Finally, this
summary does not address foreign, state or local tax law, or any estate or gift
tax consequences of the Plan, nor does it purport to address the federal income
tax consequences of the Plan to special classes of taxpayers (such as taxpayers
who are not United States domestic corporations or citizens or residents of the
United States, S corporations, banks, mutual funds, insurance companies,
financial institutions, regulated investment companies, broker-dealers and
tax-exempt organizations).
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THE TAX CONSEQUENCES TO HOLDERS OF CLAIMS AND INTERESTS MAY VARY BASED
UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER. MOREOVER, THE TAX CONSEQUENCES
OF CERTAIN ASPECTS OF THE PLAN ARE UNCERTAIN DUE TO THE LACK OF APPLICABLE LEGAL
PRECEDENT AND THE POSSIBILITY OF CHANGES IN THE APPLICABLE TAX LAW. THERE CAN BE
NO ASSURANCE THAT THE IRS WILL NOT CHALLENGE ANY OF THE TAX CONSEQUENCES
DESCRIBED HEREIN, OR THAT SUCH A CHALLENGE, IF ASSERTED, WOULD NOT BE SUSTAINED.
ACCORDINGLY, EACH HOLDER OF A CLAIM OR INTEREST IS STRONGLY URGED TO CONSULT
WITH ITS OWN TAX ADVISOR REGARDING THE FOREIGN, FEDERAL, STATE OR LOCAL TAX
CONSEQUENCES OF THE PLAN.
A. Federal Income Tax Consequences To The Debtors.
1. Utilization by the Debtors of Existing Tax Attributes.
The Debtors expect to have net operating loss carryovers ("NOLs") as of
the Effective Date of approximately $ 311 million. Of this total, approximately
$ ___ million is subject to current limitation under section 382 of the Tax Code
and approximately $ __ million is subject to the "SRLY" limitations of the Tax
Code. While the issue is not entirely free from doubt, the Debtors do not
believe that any of the remaining portion of these tax attributes are currently
subject to limitation under section 382 of the Tax Code. As discussed below,
these tax attributes will be reduced by any gain or income realized as a result
of the transactions contemplated by the Plan, in particular, any discharge of
indebtedness income ("COI income") excluded from income pursuant to section 108
of the Tax Code. The precise amount of COI income realized but not recognized
upon Plan consummation has not been finally determined, and will depend in part
upon the fair market value of the New Harvard Common Stock. In addition, because
the Plan will result in an "ownership change" (as defined in section 382 of the
Tax Code), the availability of any NOLs remaining after reduction for COI income
to offset income of the Debtors after the Effective Date may be severely
limited, unless the exception provided in section 382(1)(5) of the Tax Code (the
"Bankruptcy Exception") applies. In general, an ownership change occurs if the
stock ownership of a company changes by more than 50 percentage points during a
three-year testing period.
(a) Discharge of Indebtedness Income.
Under the Tax Code, a taxpayer is generally required to include COI
income in gross income. COI income is not includable in gross income, however,
if it arises in a case under the Bankruptcy Code. Instead, COI income otherwise
includable in gross income is generally applied to reduce certain tax attributes
in the following order: NOLs, general business credit carryovers, minimum tax
credit carryovers, capital loss carryovers, the taxpayer's basis in property,
and foreign tax credit carryovers.
The discharge under the Plan of certain of the General Unsecured
Claims, in particular the Senior Notes, will result in the realization of COI
income, which will reduce the tax
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attributes of the Debtors by the difference between the fair market value of the
consideration received and the amount of the discharged indebtedness.
The proper application of these attribute reduction rules to Debtors
that constitute members of a single "affiliated group" for federal income tax
purposes is unclear. Under a "separate entity" approach, COI income would reduce
only the portion of the consolidated NOL attributable to the member that
realizes COI income in the Plan. Accordingly, the consolidated NOL that remains
after application of the attribute reduction rules may be substantial, even if
the total COI realized upon consummation of the Plan equals or exceeds the
pre-reduction consolidated NOL. As the primary obligor under the Senior Notes,
Harvard will realize a significant portion of the total COI realized in the
Plan, even though most of the consolidated NOL is attributable to losses of
other members. Although the IRS may take a contrary position, the Debtors intend
to apply section 108(b) of the Tax Code on a "separate entity" basis.
(b) Effect of Section 382 of the Tax Code.
Section 382 of the Tax Code imposes certain limitations upon the
carryforward of NOLs and other tax attributes after an "ownership change." Given
the anticipated amount of COI income, the significance of these limitations will
depend largely upon whether any substantial portion of the consolidated NOL will
remain after attribute reduction under Section 108(b) of the Tax Code, as
described above.
The Plan will cause an "ownership change" within the meaning of section
382 of the Tax Code on the Effective Date. In general, unless the Bankruptcy
Exception applies, a corporation that experiences an ownership change may
utilize its pre-change NOLs (and possibly certain built-in losses) only up to an
annual amount equal to the "Section 382 limitation," which is calculated as the
product of (i) the federal long-term tax-exempt rate at the time of such
ownership change (5.15% for changes occurring in July 1998) and (ii) the fair
market value of the equity of the corporation immediately before the ownership
change. In a bankruptcy proceeding, however, the fair market value of the equity
of the corporation will also include the increase in value resulting from any
surrender or cancellation of claims. Finally, if section 382 of the Tax Code
applies with respect to an ownership change, and the continuity of business
enterprise requirement of section 382 of the Tax Code is not satisfied during
the two-year period following the date of such ownership change, then the
section 382 limitation is limited to recognized built-in gains; the Debtors
expect, however, to satisfy this requirement.
If the corporation's taxable income which would otherwise be offset by
NOLs in a given year exceeds the section 382 limitation, the excess is generally
subject to federal income tax (except to the extent attributable to certain
"built-in gains" of the corporation). NOLs not utilized in a given year by
virtue of this limitation remain available for use in future years until their
normal expiration dates. To the extent that a corporation's section 382
limitation in a given year exceeds its taxable income for such year, the excess
amount will increase the section 382 limitation for the following taxable year.
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(c) The Bankruptcy Exception.
Pursuant to the Bankruptcy Exception under section 382(1)(5) of the Tax
Code, the general section 382 limitation will not apply if the stockholders and
certain "qualified creditors" of such corporation immediately before the
ownership change own at least 50 percent of the stock of the corporation, by
vote and value, immediately after such change, by virtue of their status as
stockholders or "qualified creditors" immediately before such change. For this
purpose, stock transferred to a creditor is taken into account only to the
extent that such stock is transferred in satisfaction of debt and only if such
debt either (i) was held by the creditor at least 18 months before the filing of
the Chapter 11 case, or (ii) arose in the ordinary course of the trade or
business of the old loss corporation and is held by the person who at all times
held the beneficial interest in such debt. These requirements will not apply,
however, and thus a loss corporation generally may treat the debt as meeting the
holding period requirement, unless (i) the creditor becomes a five percent (5%)
shareholder of the loss corporation (directly or indirectly) immediately after
the ownership change; or (ii) such creditor's participation in the formulation
of the reorganization plan makes it evident to the Debtors that the creditor has
not owned the debt in question for the required period.
Even if the Bankruptcy Exception applies, however, the Debtors must
reduce their NOLs and certain other tax attributes by the amount of interest
claimed as a deduction on any indebtedness converted into stock during the
three-year period preceding the taxable year of the ownership change, in
addition to the portion of the current year that precedes the Effective Date. In
addition, a second ownership change during the two-year period following
consummation of the Plan will effectively eliminate the NOLs and other tax
attributes of the Debtors carried forward from pre-Effective Date taxable years
with respect to any taxable year ending after the date of the second ownership
change.
The Bankruptcy Exception automatically applies to a plan of
reorganization that satisfies its requirements. A Debtor has the option,
however, to "elect out" of the Bankruptcy Exception. In such a case, the normal
section 382 limitation will apply, and the NOLs will be subject to the annual
limitation as described above.
At this time, the Debtors have been unable to determine whether
"qualified creditors" will receive 50 percent or more of the New Common Stock.
In addition, unless certain creditors of the Debtors agree to certify their
status as "qualified creditors" at the Effective Date, the Debtors may be unable
to meet their burden of proof in establishing that "qualified creditors"
received a sufficient percentage of the New Common Stock to qualify under the
Bankruptcy Exception. The Debtors are aware, however, that a significant portion
of the Senior Notes were acquired less than 18 months prior to the commencement
of the Chapter 11 Cases. Because holders of the Senior Notes Claims will receive
up to __ percent of the New Harvard Common Stock pursuant to the Plan, the
failure of any substantial portion of such holders to meet the definition of a
"qualified creditor" will increase the likelihood that the Bankruptcy Exception
will not apply. Finally, in the absence of a court order or other mechanism to
restrict certain transfers of the Senior Notes Claims and
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other unsecured claims after the bankruptcy filing, there can be no assurance
that holders of Senior Notes Claims and other unsecured Claims, who in fact
acquired their claims more than 18 months prior to the bankruptcy filing, will
continue to hold such Senior Notes Claims or Claims at the Effective Date. If
the Plan does not satisfy the requirements of the Bankruptcy Exception, the
value of any NOLs otherwise available to the Debtors at the Effective Date (if
any) may be materially diminished.
The Debtors will not impose any transfer restrictions upon the sale of
New Common Stock after the Effective Date. Accordingly, there is a significant
risk that a second ownership change would occur during the two year period
following consummation of the Plan. As described above, assuming that the Plan
qualifies under the Bankruptcy Exception, the second ownership change would
eliminate the Debtors' NOLs and other tax attributes. The Debtors, therefore,
presently intend to "elect out" of the Bankruptcy Exception even if the Plan
otherwise satisfies its conditions.
2. Alternative Minimum Tax.
The Tax Code provides that, for any taxable year, a corporation's
federal income tax liability equals the greater of (i) the regular tax computed
at the regular 35% corporate tax rate on taxable income and (ii) the alternative
minimum tax ("AMT") computed at a lower tax rate (20%) but on a broader income
base (alternative minimum taxable income ("AMTI")). For purposes of computing a
corporation's regular federal income tax liability, all of the income recognized
in a taxable year may be offset by available NOLs and other tax carryovers (to
the extent permitted under, inter alia, sections 382 and 383 of the Tax Code).
In contrast, for purposes of computing AMTI, NOLs (as determined for AMT
purposes) and other tax carryovers generally are taken into account, but may not
offset more than 90% of the pre-NOL AMTI. Thus, a corporation that is currently
profitable for AMT purposes generally will be required to pay federal income tax
at an effective rate of at least 2% of its pre-NOL AMTI (10% of the 20% AMT tax
rate), regardless of the amount of its NOLs. As a result, even if the Debtors
are otherwise able to fully shelter their income with NOLs, they will be subject
to current taxation in any year in which they have positive net pre-NOL AMTI
(including as a result of gain and income recognition (other than COI income) in
connection with the transactions contemplated by the Plan). To the extent that a
corporation's AMT liability for any taxable year exceeds its regular federal
income tax liability, the excess may be carried forward as a credit against
regular tax liability in subsequent years.
B. Federal Income Tax Consequences To Creditors.
1. Generally.
The federal income tax consequences of the Plan to a Creditor will
depend upon several factors, including but not limited to: (i) whether the
Creditor's Claim (or portion thereof) constitutes a Claim for principal or
interest; (ii) the type of consideration received by the Creditor in exchange
for the Claim; (iii) whether the Creditor is a resident of the United States for
tax purposes (or falls into any of the special classes of taxpayers excluded
from this discussion as noted above); (iv) whether the Creditor has taken a bad
debt deduction or worthless security deduction with respect to his Claim, and
(v) whether the Creditor receives
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distributions under the Plan in more than one taxable year. CREDITORS ARE
STRONGLY ADVISED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX TREATMENT
UNDER THE PLAN OF THEIR PARTICULAR CLAIMS.
2. Creditors Who Receive Solely Cash.
Creditors receiving solely cash in exchange for their Claims will
generally recognize taxable gain or loss in an amount equal to the difference
between the amount realized and each such Creditor's adjusted tax basis in the
Claim. The amount realized will equal the amount of cash to the extent that such
consideration is not allocable to any portion of the Claim representing accrued
and unpaid interest. See "Federal Income Tax Consequences to Creditors - Receipt
of Interest" below.
The character of any recognized gain or loss (i.e., ordinary income, or
short-term or long-term capital gain or loss) will depend upon the status of the
Creditor, the nature of the Claim in the Creditor's hands, the purpose and
circumstances of its acquisition, the Creditor's holding period of the Claim,
and the extent to which the Creditor previously claimed a deduction for the
worthlessness of all or a portion of the Claim.
A loss generally is treated as sustained in the taxable year for which
there has been a closed and completed transaction, and no portion of a loss with
respect to which there is a reasonable prospect of reimbursement may be deducted
until it can be ascertained with reasonable certainty whether or not such
reimbursement will be recovered.
Creditors should consult with their own tax advisors as to the matters
discussed in this section concerning character and timing of recognition of gain
or loss. Because a loss will be allowed as a deduction only for the taxable year
in which the loss was sustained, a Creditor that claims a loss in the wrong
taxable year risks denial of such loss altogether. In the case of certain
categories of Claims, consideration should be given to the possible availability
of a bad debt deduction under section 166 of the Tax Code for a period prior to
the Effective Date. In addition, a portion of any distributions received after
the Effective Date may be taxed as ordinary income under the imputed interest
rules.
3. Creditors Who Receive New Harvard Common Stock, Rights and
Oversubscription Options.
(a) Generally.
The federal income tax consequences of the Plan to the holders of
Allowed General Unsecured Claims, who will receive shares of New Common Stock,
Rights and Oversubscription Options, will depend in large part on whether the
exchange of their Claims for such consideration will be treated, in part, as a
"recapitalization" within the meaning of section 368(a)(1)(E) of the Tax Code.
If the exchanges contemplated by the Plan are made pursuant to such a
recapitalization, then an exchanging Creditor generally will not recognize any
gain or loss for federal income
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tax purposes (except to the extent of "boot" and any consideration attributable
to accrued but unpaid interest). See "Federal Income Tax Consequences to
Creditors - Receipt of Interest" below. If an exchange is not made pursuant to a
recapitalization, then an exchanging Creditor will recognize gain or loss on
such exchange. This discussion assumes that each such Creditor holds its Claim,
and will hold any New Harvard Common Stock received under the Plan, as "capital
assets" within the meaning of section 1221 of the Tax Code.
In order for an exchange contemplated by the Plan to constitute a
tax-free recapitalization, the Claim exchanged by a Creditor must qualify as a
"security" for federal income tax purposes, and the Creditor must receive stock
(and/or securities) in the exchange. The term "security" is not defined in the
Tax Code or the regulations issued thereunder, and has not been clearly defined
by court decisions. In general, a debt instrument constitutes a "security" if it
represents a participating, continuing interest in the issuer, rather than
merely the right to a cash payment. Thus, the term of the debt instrument is
usually regarded as a significant factor in determining whether it is a
security. The IRS has ruled that a debt instrument with a maturity of ten years
or more is treated as a security. However, under the case law, debt instruments
with maturities ranging between five and ten years are often held to be
securities. Instruments with a five-year term or less rarely qualify as tax
securities. Further, claims arising out of the extension of trade credit or
litigation generally will not constitute tax securities. Nevertheless, because
individual circumstances may differ significantly, the Creditors should consult
their own tax advisors.
(b) Tax Consequences of an Exchange.
If an exchange of a Claim for New Common Stock, Rights and
Oversubscription Options is treated as a recapitalization within the meaning of
section 368(a)(1)(E) of the Tax Code, the federal income tax consequences to
such Creditors would be as follows:
(i) Subject to the discussion below with respect to accrued
but unpaid interest, a Creditor would not recognize loss on the
exchange, but would recognize gain to the extent of the lesser of
(a) the amount of gain realized in the exchange and (b) the fair
market value of the Rights and Oversubscription Options (hereinafter
referred to as "boot"). The amount of gain realized, if any, would
be equal to the excess of (a) the sum of the fair market value of
the New Common Stock and boot, over (b) such Creditor's adjusted tax
basis in its Claim.
(ii) Any such gain recognized on the exchange would constitute
capital gain, and such capital gain would qualify as long-term
capital gain if such Creditor held the Claim for more than one year
as of the Effective Date.
(iii) Except for the consideration treated as received in
exchange for accrued but unpaid interest: (A) a Creditor should have
an aggregate tax basis in the New Harvard Common Stock equal to such
Creditor's adjusted tax basis in the Claims exchanged therefor,
reduced by the amount of any boot received and increased by any gain
recognized on the exchange, and (B) the holding period of the New
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Harvard Common Stock should include the holding period of the Claims
exchanged therefor.
(iv) A Creditor receiving cash in lieu of fractional shares or
de minimis interests will be treated as having received such New
Harvard Common Stock and having exchanged it for cash in a
transaction which would be a transaction subject to section 302 of
the Tax Code and related provisions. Any such exchange should
generally result in capital gain or loss measured by the difference
between the cash received for the fractional or de minimis interest
and the Creditor's adjusted tax basis for such interest.
Alternatively, if the exchange by a holder of a Claim for boot and New
Common Stock constitutes a taxable exchange under section 1001 of the Tax Code,
then the federal income tax consequences to the Creditors of such Claims would
be as follows:
(i) Subject to the discussion below as to accrued but unpaid
interest, a Creditor would recognize gain or loss on the exchange in
an amount equal to the difference between (A) the sum of the fair
market value of the New Common Stock and boot as of the Effective
Date and (B) such Creditor's adjusted tax basis in its Claim.
(ii) Any such gain or loss should constitute capital gain or
loss, and such capital gain or loss should qualify as long-term
capital gain or loss if such Creditor held its Claim for more than
one year as of the Effective Date.
(iii) A Creditor's tax basis in the New Common Stock would be
equal to the fair market value of the New Common Stock as of the
Effective Date. The holding period of the New Common Stock would
begin on the day immediately following the Effective Date.
Under recently enacted legislation, the maximum regular individual
United States federal income tax rate on capital gains is 20% for property held
for more than 18 months and 28% for property held for more than one year but not
more than 18 months. Capital gains on the sale of property held for one year or
less are subject to United States federal income tax at ordinary income rates.
4. Receipt of Interest.
The Plan provides that the aggregate consideration to be distributed to
creditors shall first satisfy an amount equal to the stated principal amount of
the Claim. Any remaining consideration allocated to accrued but unpaid interest.
Based upon certain legislative history to the Bankruptcy Tax Act of 1980, the
IRS should respect this allocation of consideration under the Plan.
Nevertheless, a portion of the consideration received by a Creditor in
satisfaction of a Claim may be allocated to accrued but unpaid interest. If any
portion of the distribution were required to be allocated to accrued but unpaid
interest, such portion would be taxable to
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<PAGE>
the Creditor as interest income, except to the extent the Creditor has
previously reported such interest as income.
In the event that a Creditor has previously reported the interest
income, only the balance of the distribution after the allocation of proceeds to
accrued interest would be considered received by the Creditor in respect of the
principal amount of the Claim. Such an allocation would reduce the amount of the
gain, or increase the amount of loss, realized by the Creditor with respect to
the Claim. If such loss were a capital loss, it would not offset any amount of
the distribution that was treated as ordinary interest income (except, in the
case of individuals, to the limited extent that capital losses may be deducted
against ordinary income).
C. Federal Income Tax Consequences To Holders of PIK Preferred Stock
and Old Common Stock.
1. Exchange.
Holders of PIK Preferred Stock and Old Common Stock will receive __ New
Warrants and ____ New Warrants, respectively, in exchange for each share of PIK
Preferred Stock and Old Common Stock. Each of these exchanges will constitute
taxable exchanges under section 1001 of the Tax Code. Accordingly, holders of
PIK Preferred Stock or Old Common Stock will recognize gain or loss in an amount
equal to the difference between the fair market value of the New Warrants and
such holder's tax basis in the PIK Preferred Stock or Old Common Stock, as the
case may be. Any such gain or loss should constitute capital gain or loss, and
such capital gain or loss should qualify as long-term capital gain or loss if
such holder held the PIK Preferred or Old Common Stock for more than one year as
of the Effective Date. A holder's tax basis in the New Warrants will be equal to
their fair market value as of the Effective Date. The holding period of the New
Warrants will begin on the day immediately following the Effective Date.
2. Exercise.
No gain or loss will be recognized by a holder upon the exercise of New
Warrants for shares of New Common Stock. A holder's tax basis in the shares of
New Harvard Common Stock received upon such exchange will equal the sum of the
adjusted tax basis in the New Warrants plus the price paid on the exercise
thereof. The holding period of the New Common Stock received on the exercise of
the New Warrants will not include the period during which the New Warrants were
held by such holder.
3. Sale of New Warrants.
The sale of New Warrants ordinarily will result in the recognition of
gain or loss to the holder for federal income tax purposes in an amount equal to
the difference between the amount realized on such sale or exchange and the
holder's tax basis in the New Warrants. Such gain or loss should constitute
capital gain or loss, assuming that the New Common Stock would have been a
capital asset in the hands of the holder had the New Warrants been exercised,
and such capital gain or loss should qualify as long-term capital gain or loss
if such
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<PAGE>
holder held its New Warrants for more than one year. Similarly, gain or loss
will generally be recognized upon a sale of the New Common Stock received upon
exercise of New Warrants in an amount equal to the difference between the amount
realized on the transfer and the holder's adjusted tax basis in the New Common
Stock. Such gain or loss should constitute capital gain or loss, assuming that
the New Common Stock was a capital asset in the hands of the holder, and such
capital gain or loss should qualify as long-term capital gain or loss if such
holder held its shares of New Common Stock for more than one year.
4. Lapse.
If the New Warrants lapse without exercise, the holder will recognize a
capital loss (assuming the sale or exchange of the New Warrants by the holder
would have given rise to capital gain or loss) equal to the holder's tax basis
in the New Warrants. Any such capital loss should be long-term if such holder
held its New Warrants for more than one year.
Under recently enacted legislation, the maximum regular individual
United States federal income tax rate on capital gains is 20% for property held
for more than 18 months and 28% for property held for more than one year but not
more than 18 months. Capital gains on the sale of property held for one year or
less are subject to United States federal income tax at ordinary income rates.
D. Federal Income Tax Consequences Of Owning New Junior Secured
Debentures.
1. Original Issue Discount.
In general, a holder of a debt instrument issued with original issue
discount ("OID") must include that OID in income on a constant yield to maturity
basis over the term of the debt instrument. The New Notes will be treated as
issued with OID to the extent that their "stated redemption price at maturity"
exceeds their "issue price." The stated redemption price at maturity of an
instrument includes all payments required to be made over the term of the
instrument other than payments of "qualified stated interest," which is
generally defined as interest payments that occur at fixed periodic intervals of
one year or less. The issue price of the New Junior Secured Debentures will
equal their face amount, plus the fair market value of the Rights or Over
Subscription Options exercised to acquire the New Junior Secured Debentures.
Because amounts designated as interest on the New Junior Secured Debentures will
not constitute "qualified stated interest," the New Junior Secured Debentures
will be treated as issued with OID.
2. Disposition of New Junior Secured Debentures.
In general, a holder of New Junior Secured Debentures will recognize
gain or loss upon the sale, exchange, redemption or other taxable disposition of
the New Junior Secured Debentures measured by the difference between (i) the
amount realized (except to the extent attributable to accrued interest) and (ii)
the holder's tax basis in the New Junior Secured Debentures (as increased by any
original issue discount and decreased by any cash payments
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<PAGE>
thereon). Any such gain or loss will generally qualify as long-term capital gain
or loss, provided that the New Junior Secured Debentures have a holding period
of more than one year. The portion of the amount realized that is attributable
to accrued interest will constitute interest income to a cash basis holder. An
accrual basis taxpayer should be entitled to exclude amounts attributable to
accrued interest to the extent that it previously included such amount in
income.
E. Importance of Obtaining Professional Tax Assistance.
The foregoing is intended to be a summary only and not a substitute for
consultation with a tax professional. The federal, state, local and foreign tax
consequences of the Plan are complex and, in some respects, uncertain. Such
consequences may also vary based upon the individual circumstances of each
holder of a Claim or Interest. Accordingly, each holder of a Claim or Interest
is strongly urged to consult with its own tax advisor regarding the federal,
state, local and foreign tax consequences of the Plan.
THE FOREGOING IS INTENDED TO BE ONLY A SUMMARY OF CERTAIN OF THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN, AND IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL. ACCORDINGLY, EACH HOLDER OF A
CLAIM OR INTEREST IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN.
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN ARE
COMPLEX AND, IN MANY RESPECTS, UNCERTAIN. THE FOREGOING IS INTENDED TO BE A
SUMMARY ONLY AND, AS SUCH, DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR CREDITOR OR HOLDER OF INTERESTS IN
THE DEBTORS. ALL CREDITORS AND HOLDERS OF INTERESTS IN THE DEBTORS ARE STRONGLY
URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF
THE PLAN THAT ARE RELEVANT TO THEIR PARTICULAR CIRCUMSTANCES.
XII. CONCLUSION AND RECOMMENDATION.
The Debtors and the Creditors' Committee believe that confirmation of
the Plan is desirable and in the best interests of all holders of Claims and
Interests. The Debtors therefore urge you to vote to accept the Plan.
125
<PAGE>
Dated: Wilmington, Delaware
July 10, 1998
DOEHLER-JARVIS, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
-------------------------------
Vice President
HARVARD INDUSTRIES, INC.,
Debtor and Debtor in Possession
By: /s/Roger G. Pollazzi
-------------------------------
Chief Operating Officer
HARVARD TRANSPORTATION, INC.,
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
------------------------------
Vice President
DOEHLER-JARVIS GREENEVILLE, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
-------------------------------
Vice President
DOEHLER-JARVIS POTTSTOWN, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
-------------------------------
Vice President
DOEHLER-JARVIS TECHNOLOGIES, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
-------------------------------
Vice President
126
<PAGE>
DOEHLER-JARVIS TOLEDO, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
-------------------------------
Vice President
HARMAN AUTOMOTIVE, INC.
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
-------------------------------
Vice President
HAYES-ALBION CORPORATION
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
-------------------------------
Vice President
THE KINGSTON-WARREN CORPORATION
Debtor and Debtor in Possession
By: /s/ Gerald G. Tighe
-------------------------------
Vice President
127
<PAGE>
THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS
By: FRIED, FRANK, HARRIS, SHRIVER
& JACOBSON
Co-Counsel for the Official
Committee of Unsecured Creditors
By: /s/ Brad Eric Scheler, Esq.
--------------------------------
Name: Brad Eric Scheler
A Member of the Firm.
128
<PAGE>
WILLKIE FARR & GALLAGHER
Co-Counsel for the Debtors
and Debtors-in-Possession
787 Seventh Avenue
New York, New York 10019
Phone: (212) 728-8000
YOUNG, CONAWAY, STARGATT & TAYLOR
Co-Counsel for the Debtors and
Debtors-in-Possession
P.O. Box 391
11th Floor, Rodney Square North
Wilmington, Delaware 19899
Phone: (302) 571-6600
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
Co-Counsel for the Official Committee of Unsecured Creditors
One New York Plaza
New York, New York 10004
Phone: (212) 859-8000
ROSENTHAL, MONHAIT, GROSS & GODDESS
Co-Counsel to the Official Committee of Unsecured Creditors
919 North Market Street, Suite 1401
Wilmington, Delaware 19801
Phone: (302) 656-4433
129
<PAGE>
EXHIBIT A
COMMITMENT LETTER
The Commitment Letter will be filed with the Bankruptcy Court under
separate cover.
<PAGE>
EXHIBIT B
EXERCISE AGREEMENT
The Exercise Agreement will be filed with the Bankruptcy Court under
separate cover.
<PAGE>
EXHIBIT C
RIGHTS PLAN
The Rights Plan will be filed with the Bankruptcy Court under
separate cover.
<PAGE>
EXHIBIT D
NEW WARRANT AGREEMENT
The New Warrant Agreement will be filed with the Bankruptcy Court
under separate cover.
<PAGE>
EXHIBIT E
COMBINATION TRANSACTION
The Combination Transaction will be filed with the Bankruptcy Court
under separate cover.
<PAGE>
EXHIBIT F
NEW CERTIFICATE OF INCORPORATION OF REORGANIZED HARVARD
The New Certificate of Incorporation of Reorganized Harvard will be
filed with the Bankruptcy Court under separate cover.
<PAGE>
EXHIBIT G
NEW BY-LAWS
The New By-Laws will be filed with the Bankruptcy Court under
separate cover.
<PAGE>
EXHIBIT H
NEW BOARD OF DIRECTORS OF REORGANIZED HARVARD
The New Board of Directors of Reorganized Harvard will be filed with
the Bankruptcy Court under separate cover.
<PAGE>
EXHIBIT I
EMERGENCE BONUS PLAN
The Emergence Bonus Plan will be filed with the Bankruptcy Court
under separate cover.
<PAGE>
EXHIBIT J
INCENTIVE PLAN
The Incentive Plan will be filed with the Bankruptcy Court under
separate cover.
<PAGE>
EXHIBIT K
MANAGEMENT EMPLOYMENT AGREEMENTS
The Management Employment Agreements will be filed with the
Bankruptcy Court under separate cover.
<PAGE>
EXHIBIT K-1
MANAGEMENT EMPLOYMENT AGREEMENTS OF ROGER POLLAZZI
The Management Employment Agreement of Roger Pollazzi will be filed
with the Bankruptcy Court under separate cover.
<PAGE>
EXHIBIT K-2
MANAGEMENT EMPLOYMENT AGREEMENT OF THEODORE VOGTMAN
The Management Employment Agreements of Theodore Vogtman will be
filed with the Bankruptcy Court under separate cover.
<PAGE>
EXHIBIT K-3
MANAGEMENT EMPLOYMENT AGREEMENT OF VINCENT TOSCANO
The Management Employment Agreement of Vincent Toscano will be filed
with the Bankruptcy Court under separate cover.
<PAGE>
EXHIBIT K-4
MANAGEMENT EMPLOYMENT AGREEMENT OF [JOSEPH GAGLIARDI]
The Management Employment Agreement of [Joseph Gagliardi] will be
filed with the Bankruptcy Court under separate cover.
<PAGE>
EXHIBIT L
CONSULTING AGREEMENT
The Consulting Agreement will be filed with the Bankruptcy Court
under separate cover.
<PAGE>
APPENDIX 1
DEBTORS' CONSOLIDATED PLAN UNDER CHAPTER 11 OF THE
BANKRUPTCY CODE
<PAGE>
APPENDIX 2
DEBTORS' 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30,1997
AND 10-Q FOR THE FISCAL QUARTER ENDED MARCH 31, 1998
<PAGE>
APPENDIX 3
CORPORATE STRUCTURE OF THE DEBTORS
<PAGE>
APPENDIX 4
LIQUIDATION ANALYSIS AND CONTRASTING DISTRIBUTIONS UNDER
PLAN VS. CHAPTER 7 LIQUIDATION
Appendix 4 will be filed with the Bankruptcy Court under separate cover.
<PAGE>
FOR IMMEDIATE RELEASE
For more information, contact
Joe Gagliardi
or
Jerry Tighe
HARVARD INDUSTRIES
908-437-4100
Andy Barlow
PUBLIC COMMUNICATIONS, INC.
(813) 266-2772
HARVARD INDUSTRIES, INC. FILES PLAN AND DISCLOSURE STATEMENT
LEBANON, New Jersey. -- (July 15, 1998) -- On July 10, 1998, Harvard
Industries, Inc. (OTC Bulletin Board: HAVAQ) filed its Chapter 11 plan and
Disclosure Statement with the United States Bankruptcy Court for the District
of Delaware. The Plan, which is being jointly proposed and supported by the
Official Committee of Unsecured Creditors appointed in the Company's Chapter
11 case, is a consolidated Plan for Harvard and its nine domestic
subsidiaries.
The Plan contemplates a conversion of virtually all pre-petition
unsecured debt to 100% of the equity of the reorganized Company, subject to
dilution for the incentive options and with respect to the warrants to be
issued under the Plan. The Company has received commitments from The CIT
Group/Business Credit, Inc. and other lenders to finance fully the Company's
exit from Chapter 11 pursuant to the Plan. The Company will continue to
evaluate alternative financing proposals if more favorable to the Company.
Under the terms of the Plan, holders of Harvard's PIK Preferred and
Common Stock will receive warrants to acquire up to 5% of the common stock in
the reorganized Harvard. Following a hearing before the Court scheduled for
August 19, 1998 on the
<PAGE>
adequacy of the Disclosure Statement, the Company will commence the
solicitation of votes for approval of the Plan. If solicitation commences as
planned, Harvard expects to emerge from Chapter 11 in the fourth calendar
quarter of 1998.
According to Roger Pollazzi, Chief Operating Officer of Harvard, "our
plan is consensual and jointly proposed with our Creditors' Committee. The
filing and our joint efforts with the Creditors' Committee signals the start
of the disclosure statement and confirmation process that, in the near term,
will result in Harvard's emergence from Chapter 11 as a substantially
deleveraged and healthy company."
"As it exits Chapter 11, Harvard, particularly through its
traditional core businesses, is positioned for significant growth in the
future," said Pollazzi. "During the Chapter 11 process, Harvard has been
successful in eliminating the sources of historical operating losses and in
commencing the implementation of its business strategies to participate in new
and more lucrative market segments. The new management team is committed to
expanding Harvard's role as a major supplier of finished components for the
industrial and automotive industries worldwide," added Pollazzi.
Harvard Industries, Inc. through its subsidiaries, designs, develops
and manufacturers a broad range of components for original equipment
manufacturers, producing cars and light trucks in North America and abroad.
Harvard Industries and its domestic subsidiaries have been operating since May
8, 1997 under the protections of chapter 11 of the United States Bankruptcy
Code.
###
