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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 0-21362
......................................
HARVARD INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 21-0715310
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3 WERNER WAY, LEBANON, NEW JERSEY 08833
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (908) 437-4100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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TITLE OF SECURITIES EXCHANGES ON WHICH REGISTERED
Common Stock ($0.01 par value) Nasdaq National Market
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No __
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
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TITLE OUTSTANDING
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Common Stock As of September 30, 1998 there were 7,026,437 shares outstanding. On November 24,
1998 the Registrant's Chapter 11 plan became effective, the old shares were
cancelled and new shares were authorized. As of January 11, 1999 the total number of
outstanding shares of new Common Stock is 8,240,295.
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980). None
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PART I.
This Annual Report on Form 10-K for the fiscal year ended September 30 is
being amended hereby to clarify certain disclosures made as of September 30,
1998 or as of the original date of filing of the Annual Report on Form 10-K, as
the case may be, unless a different date is specified.
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of that term in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Additional written or oral
forward-looking statements may be made by the Company from time to time, in
filings with the Securities Exchange Commission or otherwise. Statements
contained herein that are not historical facts are forward-looking statements
made pursuant to the safe harbor provisions referenced above. Forward-looking
statements may include, but are not limited to, projections of revenues, income
or losses, capital expenditures, plans for future operations, the elimination of
losses under certain programs, financing needs or plans, compliance with
financial covenants in loan agreements, plans for liquidation or sale of assets
or businesses, plans relating to products or services of the Company,
assessments of materiality, predictions of future events, and the effects of the
bankruptcy proceedings and other pending and possible litigation, as well as
assumptions relating to the foregoing. In addition, when used in this
discussion, the words "anticipates," "believes," "estimates," "expects,"
"intends," "plans" and similar expressions are intended to identify
forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, including, but not limited to, product demand, pricing, market
acceptance, risk of dependence on third party suppliers, intellectual property
rights and litigation, risks in product and technology development and other
risk factors detailed in the Company's Securities and Exchange Commission
filings, some of which cannot be predicted or quantified based on current
expectations. Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements. Statements in this Annual Report, particularly in
"Item 1. Business--Compliance with Environmental Laws", "Item 3. Legal
Proceedings", the Notes to Consolidated Financial Statements and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe factors, among others, that could contribute to or cause
such differences. Other factors that could contribute to or cause such
differences include unanticipated increases in launch and other operating costs,
a reduction and inconsistent demand for passenger cars and light trucks, labor
disputes, capital requirements, adverse weather conditions, the inability to
negotiate on favorable terms in the definitive agreements for program
modifications with a major customer, unanticipated developments in the
bankruptcy proceedings and other pending litigation, and increases in borrowing
costs.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to release publicly the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 1. BUSINESS
BUSINESS
COMPANY OVERVIEW
Harvard Industries, Inc. ("Harvard" or the "Company" or "Corporation"),
headquartered at 3 Werner Way in Lebanon, New Jersey, is a direct supplier of
components for Original Equipment Manufacturers ("OEMs") producing cars and
light trucks in North America, principally General Motors Corporation ("General
Motors"), Ford Motor Company ("Ford") and Daimler-Chrysler ("Chrysler"), which
together accounted for approximately 82% of sales in fiscal 1998. The Company
conducts its operations primarily through three wholly owned subsidiaries,
Hayes-Albion Corporation ("Hayes-Albion"); Pottstown Precision Casting, Inc.
("Pottstown"), formerly known as Doehler-Jarvis Pottstown, Inc.; and The
Kingston-Warren Corporation ("Kingston-Warren"). The Company's subsidiaries,
produce a wide range of products including: rubber glass-run channels; rubber
seals for doors and trunk lids; complex, high volume aluminum castings and other
cast, fabricated, machined and decorated metal products; and metal stamped and
roll form products.
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COMPANY HISTORY
The Company has expanded through various acquisitions, including the
acquisitions of Kingston-Warren and Hayes-Albion in 1986 and Doehler-Jarvis,
Inc. and subsidiaries ("Doehler-Jarvis") in 1995. In 1988, the Company was taken
private in a management-led leveraged buy-out transaction. As part of the
buy-out transaction, the Company issued $200 million of senior subordinated
notes on which it later defaulted in 1990. The Company sought bankruptcy
protection in May 1991, and emerged from Chapter 11 after the bankruptcy court
approved a reorganization plan that paid both the senior lenders and trade
lenders in full.
On May 8, 1997 ("Petition Date"), Harvard filed a petition for relief under
Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court"). On November 24, 1998 (the
"Effective Date"), the Company substantially consummated its First Amended
Modified Consolidated Plan Under Chapter 11 of The Bankruptcy Code dated
August 19, 1998 (the "Reorganization Plan" or "Plan of Reorganization") and
emerged from bankruptcy.
Following the Petition Date, the Company and its subsidiaries continued to
operate as debtors-in-possession subject to the supervision of the Bankruptcy
Court. Under the Bankruptcy Code the Company and its subsidiaries were
authorized to operate their businesses in the ordinary course but transactions
that were out of the ordinary course, including the employment of attorneys,
accountants and other professionals, required approval of the Bankruptcy Court.
In May 1997, the Bankruptcy Court approved the appointment of an Official
Committee of Unsecured Creditors' in the Chapter 11 Case (The "Creditors'
Committee"). The Creditors' Committee was disbanded on the Effective Date. The
Creditors' Committee retained Roger Pollazzi as an automotive industry
consultant. Mr. Pollazzi acted in this capacity until November 1997, when, with
the support of the Creditors' Committee, the Board of Directors appointed
Mr. Pollazzi Chief Operating Officer. Prior to such appointment, Mr. Pollazzi
had served as Chairman of the Board and Chief Executive Officer of The Pullman
Company ("Pullman") from 1992 to 1996.
Shortly after his appointment, Mr. Pollazzi hired approximately fifteen
professionals as employees of Harvard to assist him in analyzing company
operations, eliminating on-going negative cash flows associated with cash drains
at several operations and coordinating and implementing the restructuring
efforts. Since November 24, 1998, the date of reorganization and when the
Company substantially completed its emergence from bankruptcy (the "Effective
Date"), the management team includes:
o Roger Pollazzi, who now serves as Chief Executive Officer;
o James Gray, President of Harvard, an automotive executive who previously
ran Tenneco Automotive's European Operations as well as the Clevite
division of Pullman;
o Theodore Vogtman, Chief Financial Officer of Harvard, who has over twenty
years of industry experience including serving as Chief Financial Officer
of Pullman; and
o Vincent Toscano, Executive Vice President of Strategic Planning of
Harvard, who was formerly the Vice President of Operations at Pullman and
has over 21 years of experience in the automotive industry.
The Company's new management developed the Plan of Reorganization with
respect to its financial affairs (including the Turnaround Business Strategy).
In order to be confirmed, the Plan of Reorganization was required to satisfy
certain requirements of the Bankruptcy Court, including that each claim in a
particular class receive the same treatment as each other claim in that class
and that the Company be adequately capitalized (upon emergence from Chapter 11)
so that confirmation of the Plan of Reorganization would not be followed by a
liquidation or the need for further reorganization. The Company was also
required to demonstrate to the satisfaction of the Bankruptcy Court that the
Plan satisfied the "best interests of creditors" test. This means that holders
of claims and interests in each impaired class must have either unanimously
accepted the Plan of Reorganization or that such holders would not receive more
in a liquidation of the Company than through the implementation of the Plan of
Reorganization. The results of the voting confirmed that, in fact, each class
approved the plan.
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MATERIAL SUBSEQUENT EVENT
On the effective date, pursuant to the Plan of Reorganization,
substantially all pre-petition unsecured debt at pre-reorganization Harvard was
converted into equity of post-reorganization Harvard in the form of common stock
(the "New Common Stock"). Under the terms of the Plan of Reorganization, holders
of Harvard's Pay-In-Kind Exchangeable Preferred Stock ("PIK Preferred Stock")
and holders of Harvard's existing common stock (the "Old Common Stock") will
each receive warrants ("Warrants") to acquire, in the aggregate, approximately
5% of the New Common Stock, with holders of PIK Preferred Stock each receiving
their pro rata share of 66.67% of the Warrants and holders of the Old Common
Stock each receiving their pro rata share of 33.33% of the Warrants. On the
Effective Date, the Old Common Stock and PIK Preferred Stock were canceled.
On November 13, 1998, the Bankruptcy Court entered the Order in Aid of
Implementation of the Plan of Reorganization and Approving the Terms of Revised
Exit Financing. The Company emerged from Bankruptcy on November 24, 1998.
Effective with the emergence from bankruptcy, as arranged by Lehman Brothers,
Inc. ("Lehman"), the Company issued $25 million of 14 1/2% Senior Secured Notes
due September 1, 2003 (the "Notes"). Additionally, the Company entered into a
$115 million senior secured credit facility with a group of lenders arranged by
Lehman, and including General Electric Capital Corporation as Administrative
Agent (the "Senior Credit Facility" and, together with the Notes, the
"Financings"). The Senior Credit Facility provides for up to $50 million in term
loan borrowings and up to $65 million in revolving credit borrowings.
The combined proceeds from the issuance of the Notes and initial borrowings
under the Senior Credit Facility were used to:
o refinance the senior and junior debtor-in-possession credit facilities
that provided financing to the Company while the Company was in
bankruptcy proceedings (together, the "DIP Credit Facilities"),
o pay administrative expenses due under the Plan of Reorganization and pay
related fees and expenses,
o provide cash for working capital purposes, and
o provide funds for general corporate purposes.
The $65 million revolving credit portion of the Senior Credit Facility will
be used to finance working capital and for other general corporate purposes.
INDUSTRY OVERVIEW
The North American automotive parts supply business is composed of sales to
OEMs and the automotive aftermarket. The Company primarily sells products to be
installed as original equipment in new cars and trucks predominantly to OEMs and
to other OEM suppliers.
New Business Development. Historically, the U.S. automakers furnished
their suppliers with blueprints and specifications for their required products
and chose vendors based on price and reputation. However, in today's automotive
supplier market, it is typical for the U.S. automakers to electronically furnish
their suppliers with mathematical data describing the surfaces of the part or
system in question, along with the technical description of its functional
requirements. At this point, the supplier is expected to assume responsibility
for all of the activities necessary to bring the part to production. The
development cycle includes the design and engineering function and the
production of prototypes for design validation. After validation of the
prototype parts or system, tooling is designed and built to manufacture the
finished product. The entire cycle usually requires between two and four years
to complete, during which the supplier assumes most of the responsibility for
managing the interface of the various groups within its own and the customer's
organization. These groups include the supplier's and OEMs' respective
purchasing/sales, design, engineering, quality assurance and manufacturing
areas.
Prior to the current era of supplier total program responsibility, customer
interface was limited to the supplier sales function dealing with the customer
purchasing function. In today's marketplace, it is necessary for the Company's
engineers and technicians to interface constantly with their counterparts at the
U.S. automakers to secure design contracts. This is the principal starting point
in the process of being awarded future business. There
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are significant differences among suppliers in their abilities to design and
manage complex systems and bring them through the product design and
manufacturing cycle on time and at a competitive price.
Automotive Supplier Consolidation. The automotive supply industry is
experiencing a period of significant consolidation. To lower costs and improve
quality, OEMs are reducing their supplier base by awarding sole-source contracts
to full-service suppliers who are able to provide design, engineering and
program management capabilities and can meet cost, quality and delivery
requirements. For suppliers such as the Company, this new environment provides
an opportunity to grow by obtaining business previously provided by other
non-full service suppliers and by acquiring suppliers that enhance product,
manufacturing and service capabilities. OEMs rigorously evaluate suppliers on
the basis of product quality, cost control, reliability of delivery, product
design capability, financial strength, new technology implementation, quality
and condition of facilities and overall management. Suppliers that obtain
superior ratings are considered for sourcing new business. Although these new
supplier policies have already resulted in significant consolidation of
component suppliers in certain groups, the Company believes that consolidation
will continue to provide attractive opportunities to acquire high-quality
companies that complement its existing business.
OEM Purchasing, Practices and Trends. In the late 1980's and early 1990's,
the U.S. automakers instituted a number of fundamental changes in their sourcing
procedures. Principal among these changes has been an increased focus on
suppliers' cost and improving quality performance, a significant consolidation
in the number of suppliers with which they have relations and, most recently, a
move toward purchasing integrated systems or modules rather than component
parts.
OEMs are increasingly seeking suppliers capable of providing complete
systems or modules rather than suppliers who only provide separate component
parts. A system is a group of component parts that operate together to provide a
specific engineering driven functionality and a module is a group of systems
and/or component parts representing a particular area within the vehicle, which
are assembled and shipped to the OEM for installation in a vehicle as a unit. By
outsourcing complete systems or modules, OEMs are able to reduce their costs
associated with the design and integration of different components and improve
quality by enabling their suppliers to assemble and test major portions of the
vehicle prior to their beginning production. In addition, by purchasing
integrated systems, OEMs are able to shift engineering, design, program
management, and product investment costs to fewer and more capable suppliers. By
designing and supplying integrated systems, a supplier is able to reduce costs
and improve quality by identifying system-wide solutions. The Company believes
that this shift creates an opportunity for suppliers, such as the Company, to
provide integrated systems.
In addition, OEMs have implemented cost reduction programs that require
suppliers to pass on a portion of the benefit of productivity improvement in the
form of lower prices in exchange for multi-year supply agreements. These
initiatives have required suppliers to implement programs to lower their costs
and reduce component and system prices to the OEMs.
New North American OEMs (Transplants). Over the last decade, foreign
automotive manufacturers have gained a significant share of the U.S. market,
first through exports and more recently through U.S.-based manufacturing
facilities ("Transplants"). Japanese export sales have dropped significantly
from 1983 to 1993, while Japanese Transplant sales have grown dramatically as
Japanese car companies have shifted more of their production to North America.
Based on industry analysts' estimates, Transplants produced 51.8% of the
Japanese cars sold in the United States in 1994 compared with 8.4% in 1985. As a
percent of total North American car production, Transplant production increased
from 2.0% in 1985 to 20.5% in 1997.
To the extent that the growth of Transplant sales results in loss of market
share for the Company's U.S. automaker customers, the Company will experience an
adverse effect. The Company plans to solicit additional business from
Transplants. There can be no assurance, however, that any additional business
will be generated from Transplants or if any such additional business is
obtained that it will compensate for any lost business that the Company may
experience.
Demand. As an OEM supplier, the Company is significantly affected by
consumer demand for new vehicles in North America. Demand in North American car
and light truck markets is tied closely to the overall strength of the North
American economies. After attaining a production level of approximately
13.6 million units
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in 1985, North American car and light truck production fell to 10.4 million
units in 1991. Since this low, production rose to 15.6 million units for the
1997 calendar year.
OPERATIONS DESCRIPTION
Overview. In general, automotive component manufacturers, like the
Company, are invited to bid for specific products and component systems which
are incorporated in both new and existing automotive platforms. If the platform
already exists, the current supplier may be favored by the OEM because of the
supplier's familiarity with the existing product as well as its existing
investment in the manufacturing process and tooling.
With respect to new platforms, there has been an increasing trend toward
involving potential suppliers much earlier in the design and development process
in order to encourage the supplier to share some of the design and development
burden. Achieving this cooperative supplier status is a significant step towards
winning a long-term supply order and gives the supplier a decided advantage over
the competition. However, even if awarded an order, in almost all instances it
will be at least two to four years before these cooperative suppliers see their
products incorporated into new platforms.
There is also an increasing trend towards potential suppliers committing to
target prices on parts or systems as a condition of being awarded a design and
supply order. Under target price arrangements, the burden of cost overruns is
generally borne by the supplier. In addition, in order to secure long-term
supply arrangements, annual price concessions through productivity improvements
are expected by OEMs. As automotive parts suppliers continue to face downward
pricing pressures on the components supplied to the OEMs, automotive production
volumes become critical in maintaining and increasing operating profitability.
Due to the long gestation between being awarded a contract for a new
platform and producing parts, and the considerable designing and planning
obligations required of the successful bidder during this period of delay, the
OEMs were reluctant to award new business to the Company during the pendency of
the Chapter 11 cases. As a result, the awarded new business during the pendency
of the Chapter 11 cases was less than would be anticipated under normal
conditions. This could have serious effects on the financial strength of the
Company in the next several years when the recently awarded platforms commence
production.
Design, Production and Delivery. The Company believes that it has strong
design and engineering capabilities which enable it to serve its customers
better in the initial phases of product development. The Company's Computer
Aided Engineering ("CAE") group, located at its Farmington Hills, Michigan
facility, is the focal point of this initiative. The CAE group utilizes Computer
Aided Design ("CAD") techniques which allow the Company's design engineers to
develop a product's physical and performance characteristics into state-
of-the-art hardware and software systems. These systems subsequently produce 3-D
representations of the products, which can be automatically downloaded into
Computer Numerically Controlled ("CNC") milling and cutting machines. These CNC
machines can produce tooling equipment and manufacture products with a high
degree of accuracy and reduced lead times, thereby reducing the historically
high labor content in the pre-production costs. Furthermore, the Company can
mathematically test its product designs prior to production, resulting in
savings through the reduction in the number of physical prototypes and
significantly reducing the lead time typical in developing and testing new
products. The Company has research and development facilities in Newfields, New
Hampshire and Farmington Hills, Michigan where Company personnel meet with
customers to incorporate the customers' structural and thermal requirements into
the product design process. In addition, the Company maintains engineering
facilities at Jackson, Michigan and Wytheville, Virginia.
Part of the Company's design philosophy is the early involvement of its
manufacturing engineers in the initial stages of a product's design. This
"Design-for-Manufacture" approach helps create a product that not only meets its
required design and performance characteristics, but also results in a product
that is easier and less expensive to manufacture. By adopting this approach the
Company is able to save costs typically related to engineering changes which can
hamper the production of new products, as well as reduce the amount of time it
takes to get new products to market.
Consistent with the Company's design approach is its increasing involvement
in cooperative supplier programs. As a cooperative supplier, the Company
receives the initial design responsibilities for a specific product or component
for a particular vehicle in the early stages of its design. These programs,
which effectively
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move the burden of design and development of new products from OEMs to their
suppliers, resulting in corresponding increased costs, have represented an
increasing trend in the automotive industry in the late 1980's and early 1990's.
In 1995 and 1996, the Company was the cooperative supplier on three major body
sealing programs at General Motors. Three additional General Motors programs
(GMX230, GMT360 and GMX320) were ultimately awarded to the Company in 1997.
Following the design of its products, the Company employs work cells and
synchronous manufacturing techniques to improve production efficiency. Central
to this approach is the emphasis on a "continuous improvement" environment that
enables employees to develop new and more efficient manufacturing techniques.
BUSINESS STRATEGY
Management's business strategy focuses on leveraging Harvard's core
competencies in the design and production of OEM automotive components in order
to target new business opportunities with existing automotive OEM customers, as
well as in the automotive aftermarket and non-automotive industrial market.
In an effort to improve operating margins, Harvard has made significant
progress in closing or divesting itself of underperforming facilities and
exiting unprofitable OEM business. Since the management transition in November
1997, the company has announced the closing or sale of numerous
divisions/manufacturing plants and is in the process of re-allocating
underutilized production capacity to higher margin industrial applications (See
Asset Sales Section below). In addition to closing unprofitable facilities,
Harvard is working with customers in evaluating product design and production
processes to increase margins to targeted levels.
Management intends to focus on accessing the non-automotive industrial
market and the automotive aftermarket to leverage its existing product portfolio
and manufacturing expertise. Harvard believes that a number of its existing
automotive processes such as spin forming, tube rolling, rubber extrusion and
high-strength steel forming will be marketable in the industrial and aftermarket
arenas because these processes are commonly used for products offered in those
markets. Management has experience in both the automotive and industrial
markets, especially in lawn and garden machinery, and construction supplies and
equipment.
In addition to the non-automotive opportunities discussed above, the
Company believes that it can effectively cross-market products from its
different divisions to leverage its relationships at General Motors, Ford and
Chrysler. The Company is focused on the design and production of integrated
systems for OEMs as opposed to individual supplying parts on a contract basis.
Harvard may also make selected small acquisitions to broaden its product
offerings, technological capabilities and customer base, or to increase its
distribution channels.
ASSET SALES
In November 1997, the Company sold the Materials Handling division of
Kingston-Warren for approximately $18 million in cash. In 1998, Harvard sold the
land, building and certain other fixed assets of its Harvard Interiors division
in St. Louis, Missouri for approximately $4.1 million. During the same period,
Harvard divested certain tooling assets associated with the underperforming
mirrors business of its Harman Automotive, Inc. subsidiary ("Harman") for
approximately $0.8 million. In June 1998, Harvard sold its Elastic Stop Nut
Division ("ESNA") facility in New Jersey, for approximately $1.9 million. In
September 1998, the Company sold, at auction, certain assets of Harman for
approximately $2 million.
In 1998, the Company focused on selling the Greeneville and Toledo plants
of Doehler-Jarvis and receiving compensatory payments from Ford and General
Motors for operating losses that Harvard incurred from continuing to operate the
Toledo plant prior to shutdown. Production ceased at Toledo in June 1998. In
September 1998, the Company sold substantially all of the assets and assigned
certain liabilities of Greeneville for $10.9 million subject to adjustments.
Among the sale transactions which are currently pending, Harvard has most
recently signed a letter of intent to divest the Tiffin plant of the
Hayes-Albion subsidiary for $1.6 million and is negotiating an agreement to sell
Doehler-Jarvis Toledo's land and building. The operations formerly in the
Snover, Michigan facility were moved to other locations and the Snover facility
is currently for sale.
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The table below lists those assets that have been or will be sold as part
of the Company's asset disposition plan:
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ASSETS SOLD OR TO BE SOLD MONTH/YEAR
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Manufacturing Plant in Sevierville, TN (Harman) August 1997
King-Way Assets (Material Handling Division of Kingston-Warren) November 1997
St. Louis Facility (Harvard Interiors) January 1998
Certain assets of Furniture Business (Harvard Interiors) March 1998
Tooling for Automotive Component Parts (Harman) April 1998
Union, NJ Facility (Specialty Fastener Division ("ESNA")) June 1998
Remaining assets of Furniture Business (Harvard Interiors) June 1998
Tooling and Equipment for Automotive Component Parts (Toledo) August 1998
Doehler-Jarvis Greeneville, TN Plant September 1998
Harman Automotive (fixed assets) September 1998
Hayes-Albion Tiffin, OH Plant Pending
Doehler-Jarvis Toledo, OH--land and building Pending
Doehler-Jarvis Toledo, OH--equipment Pending
Harman Automotive Bolivar, TN facility Pending
Hayes-Albion (Trim-Trends) Snover, MI--land and building Pending
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SUBSIDIARIES
Kingston-Warren
Kingston-Warren, which was acquired by Harvard in 1986, has conducted
business since 1945 and is primarily engaged in manufacturing rubber glass-run
channels, sealing strips and body seals for door and trunk lids. Kingston-Warren
operates from three plant locations which occupy 584,000 square feet: Newfields,
NH; Wytheville, VA; and Church Hill, TN. At September 30, 1998, Kingston-Warren
employed approximately 1,200 persons.
Kingston-Warren has developed proprietary technology in the following
areas: adhesive and non-adhesive techniques for bonding polymers and metals into
single units, multiple extrusion capabilities, integrated components to realize
cost and quality advantages of total systems and advanced polymer/metal
technology that integrates polymers and metal into single systems.
Kingston-Warren is also known for its prototyping and testing functions.
Kingston-Warren provides a variety of sealing products for several
different major OEM platforms. The following table represents a product summary.
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CUSTOMER PRODUCT PLATFORM
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Freightliner Body & Glass Sealing Heavy Truck
General Motors Glass Sealing Malibu/Cutlass
General Motors Glass Sealing Cadillac DeVille
General Motors Glass Sealing Cavalier/Sunfire
General Motors Glass Sealing Grand Prix
General Motors Glass Sealing Bonneville
General Motors Glass Sealing LeSabre
General Motors Glass Sealing Oldsmobile 88
General Motors(1) Glass Sealing Blazer & Jimmy
General Motors(1) Glass Sealing DeVille
General Motors(1) Glass Sealing Catera
General Motors(1) Greenhouse Moldings Catera
</TABLE>
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(1) Products constitute goods to be delivered in the future pursuant to
contracts that have been executed by the Company and the customer ("Future
Booked Business").
Kingston-Warren's three manufacturing facilities deliver over 134 million
feet of supported, unsupported, and multiple durometer extrusions per year. Its
short cycle production is supported by interactive manufacturing
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systems including MRP II, J-I-T, bar coding and statistical process controls.
During 1998, Kingston-Warren constructed a rubber mixing facility at its
Wytheville, VA location allowing the company to compound its own rubber
mixtures. This will further shorten the production cycle and permit
Kingston-Warren to custom mix its rubber compounds to it own performance and
quality specifications. Kingston-Warren's major competitors include BTR,
Standard Products, GenCorp and Waterville.
Pottstown Precision Casting (formerly Doehler-Jarvis Pottstown, Inc.)
Acquired by Harvard in July 1995 for $218 million, Doehler-Jarvis has been
in operation since 1907. Doehler-Jarvis specialized in complex, high volume
aluminum castings primarily for use in the automotive industry. Although
Doehler-Jarvis through its subsidiaries historically operated three plants
(Toledo, Ohio; Pottstown, Pennsylvania; and Greeneville, Tennessee), only the
Pottstown plant remains in operation following Harvard's emergence from
Chapter 11, and the subsidiary has been renamed Pottstown Precision Casting,
Inc. Pottstown's primary customers are Ford and General Motors. At
September 30, 1998, the Pottstown plant employed approximately 475 persons.
The Pottstown plant specializes in medium size aluminum die castings and
complements its casting capabilities with precision machining. It is an
independent supplier of parts cast with 390 aluminum alloy (a heat-resistant and
durable alloy) in North America, supplying heavy duty internal transmission and
air compressor castings. Pottstown smelts an average of 165,000 pounds of 390
aluminum alloy per day (60% capacity), and approximately 110,000 pounds of the
other alloys per day. Pottstown has over 50 casting machines to focus on small
to medium sized parts.
Pottstown makes products which are supplied to General Motors, Ford, and
Simpson Industries, among others. The following table represents a product
summary.
<TABLE>
<CAPTION>
CUSTOMER PRODUCT PLATFORM
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
General Motors Engine Bed Plate Passenger Cars
General Motors Input Housing Light Trucks
Simpson Industries V6 Cylinder Head Various Vehicles
General Motors Pump Cover 4-L60 All vehicles
</TABLE>
The Pottstown facility is QS9000 certified, a quality assurance program
conducted by General Motors, and has a wide range of die casting capabilities.
The 470,000 square foot facility has advanced robotics for painting, casting,
die servicing, controlling metal pouring and casting extraction.
Pottstown competes primarily with Gibbs Die Casting Corp., Spartan, Ryobi
Die Casting (USA), Inc., ITT Lester Industries, Inc., Fort Wayne Foundry Corp.,
CMI International Inc. and Teksid SPA, as well as the captive aluminum casting
operations of the U.S. automakers.
Hayes-Albion
Hayes-Albion was purchased by Harvard in 1986 and has conducted business
since 1888 as a supplier of cast and machined parts to the automotive, farm
equipment and general industrial markets. Historically, Hayes-Albion has
operated six plants, but is in the process of divesting its Tiffin, Ohio plant.
Hayes-Abion's five manufacturing facilities located in Albion, and Jackson,
Michigan; Bridgeton, Missouri; Rock Valley, Iowa; and Ripley, Tennessee occupy
approximately 1,000,000 square feet and at September 30, 1998, employed
approximately 1,500 persons. The Company's Hayes-Albion primary customers are
Ford, General Motors and Caterpillar.
Hayes-Albion's products consist of ferrous and non-ferrous castings and
fans. Ferrous castings are made from iron or steel, while non-ferrous castings
are made from other components such as aluminum, magnesium or zinc. Products
made from ferrous castings include transmission parts, universal joint yokes,
rear axle housings and suspension parts. Products made from aluminum, magnesium
and zinc castings include valve train covers, engine covers, suspension parts
and steering columns supports, and are manufactured for the automotive,
transportation, construction and machinery industries.
9
<PAGE>
The Company is currently evaluating its options for the Hayes-Albion's
Ripley, TN operations. Ripley produces die cast magnesium components and a small
amount of die cast aluminum components primarily for the automotive OEM market.
During the Chapter 11 reorganization, Ripley was unable to participate fully in
the magnesium market and several of its programs were targeted for resourcing or
second scourcing by its customers. Absent significant new, higher margin orders,
management currently projects continued operating losses for this operation. In
its Chapter 11 restructuring plan, the Company projected a growing use of
magnesium in automotive and industrial applications due to its high strength and
light weight. Upon further analysis, due to the stability of aluminum pricing
(resulting from the OEMs recent successful conclusion of long term aluminum
commodity supply agreements) the outlook for expected growth in the use of
magnesium will be significantly delayed, and as a result of this changed
marketing outlook, the Company is evaluating a sale of the Ripley facility.
The following table represents a product summary of Hayes-Albion.
<TABLE>
<CAPTION>
CUSTOMER PRODUCT PLATFORM
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
Caterpillar Various Die Castings N/A
Caterpillar Machine Shafts N/A
Chrysler Plastic Fans All Trucks
Ford Gear Cases Medium Trucks
Ford Differential Carriers Lincoln
Ford Differential Carriers All Trucks
Ford Yokes All Rear Wheel Drive Vehicles
General Motors Fans Medium Trucks
General Motors Delphi Machined Shafts All Trucks
General Motors Front Engine Covers Passenger Cars
Isuzu Valve Covers Light Trucks
Toyota Valve Covers Lexus
Ford(1) Differential Carriers Lincoln & Jaguar
Ford(1) Gear Cases F-250 and F-350 Trucks
General Motors(1) Engine Fans Blazer and Jimmy Trucks
GM-Delco(1) Shafts Various Cars & Trucks
Caterpillar(1) Various Components Engine Applications
</TABLE>
- ------------------
(1) Future Booked Business.
Hayes-Albion has also identified opportunities with General Motors, Ford
and TRW to produce differential carriers, fans and various castings for
additional model platforms.
Hayes-Albion utilizes a technology driven approach to manufacturing which
utilizes computer modeling. Their manufacturing processes include centerless
grinding, CNC machining, heat treating, broaching, vibratory deburring and parts
washing and testing. Hayes-Albion's arc and coreless induction furnaces melt
over 1,000 tons of iron daily. Heat treating capacity exceeds 100 tons per day
and Hayes-Albion can produce a broad range of castings from under one pound to
over 150 pounds.
Hayes-Albion's primary competitors include Intermet, Grede, Schwitzer, Lunt
and Racine.
Trim Trends, Division of Hayes-Albion
Trim Trends, acquired by the Company in 1986 as part of Hayes-Albion, has
conducted business since 1948 primarily in functional and decorative metal
stampings for automotive applications. Trim Trends operates from four plants
covering 467,000 square feet: Deckerville, Michigan; Bryan and Spencerville,
Ohio; and Dundalk, Ontario. In September 1998, the Company announced the
consolidation of its Snover, Michigan operation into the Deckerville, Michigan
facility. Operations at Snover ceased in December 1998. At September 30, 1998,
Trim Trends employed approximately 700 persons.
Trim Trends manufactures roll form door frames for the North American OEM
market. In addition to the U.S. automakers, Trim Trends sells its products to
Navistar, Lear Corporation, Mitsubishi and Honda. Trim
10
<PAGE>
Trends has capabilities in roll forming, stretch bending, general metal assembly
technology and design and engineering. Trim Trends is currently bidding for
programs at General Motors and Chrysler for upper door frames, bumper impact
beams, door impact beams and other door and structural components. Trim Trends
also recently obtained awards from Chrysler to supply door frames for its NS Van
platforms and structural components for the LH Sedan, and an award from General
Motors to supply a door component for its GM 200 platform.
Trim Trends products are primarily sold to automotive OEMs and automotive
seating manufacturers. Primary customers include Ford, Chrysler, General Motors,
Lear Corporation and Navistar. The following table represents a product summary.
<TABLE>
<CAPTION>
CUSTOMER PRODUCT PLATFORM
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
Chrysler Door Frames Mini Vans
Chrysler Various Stampings Intrepid & LHS
Chrysler Roll Formed H.S.S. Intrepid & LHS
Ford Door Frames Escort
General Motors Door Beams All Light Trucks
General Motors Door Beams Cadillac DeVille
General Motors Door Tracks MiniVan
General Motors(1) Door Beams MiniVan
General Motors(1) Cross Member DeVille
Mitsubishi(1) Delta Sash Galant
Mitsubishi(1) Division Post Assembly Galant
Magna(1) Cross Member Chrysler Van
Magna(1) Drip Rail Chrysler Van
Lear Corporation(1) Seat Reinforcement Ford Van
</TABLE>
- ------------------
(1) Future Booked Business.
Trim Trends' four plants form a single source for specialized and
compatible metal fabricating. The processes include: roll forming, stretch
bending, stamping, various assembly functions, machining, welding, fabricating
and anodizing. On-site equipment consists of over 200 presses, ranging in size
up to 1,600 tons. Trim Trends utilizes statistical process controls to ensure
consistently high quality, reduce failure costs and maintain the dynamics for
constant product and process improvement.
Trim Trends competes against a number of other domestic and international
suppliers of formed metal components, including Visteon, Excel Industries,
Benteler Werke AG, Magna International and Inland Fisher Guide.
COMPETITION
The Company is subject to competition from many companies larger in size
and with greater financial resources and a number of companies of equal or
similar size which specialize in certain of the Company's activities. The
Company considers major competitors with respect to each unit in its business to
include: Kingston-Warren: Standard Products, GenCorp, BTR. and Waterville;
Hayes-Albion: Intermet, Grede, Schwitzer, Lunt and Racine; Trim Trends: Excel
Industries, Inland Fisher Guide, Magna International, Visteon and Benteler Werke
AG; Pottstown: Ryobi Die Casting (USA), Inc., Gibbs Die Casting Corp., ITT
Lester Industries, Inc., Fort Wayne Foundry Corp., CMI International Inc.,
Spartan and Teksid SPA, as well as the captive aluminum casting operations of
the U.S. automakers. Companies in these sectors compete based on several
factors, including product quality, customer service, product mix, new product
design capabilities, cost, reliability of supply and supplier ratings.
INTELLECTUAL PROPERTY
The Company from time to time applies for patents with respect to
patentable developments. However, no patent or group of patents held by the
Company is, in the opinion of management, of material importance to the
Company's business as a whole.
11
<PAGE>
MARKETING AND SALES
The Company markets and distributes its products to non-governmental
entities through sales persons and independent manufacturers' representatives,
the loss of any one of whom would not have a materially adverse impact on the
Company. The Company and its subsidiaries compete for OEM business at the
beginning of the development of new products, upon customer redesign of existing
components and customer decisions to outsource captive component production.
Such sales to automotive OEMs are made directly by the Company's sales, customer
service and engineering force. The Company's sales and engineering personnel
service its automotive OEM customers and manage its continuing programs of
product development and design improvement. In keeping with industry practice,
OEMs generally award blanket purchase orders and contract through the life cycle
of the product for specific parts and components for a given model for a
particular powertrain or other mechanical component. These components are
generally used across several platforms or models. Purchase orders do not commit
customers to purchase any minimum number of components and are not necessarily
dependent upon model changes. Substantially all of the Company's sales are
derived from United States and Canadian sources.
EMPLOYEES
At September 30, 1998, Harvard had approximately 4,400 employees, a
decrease of approximately 2,100 employees from September 30, 1997 resulting from
the wind-down and/or divestiture of several operating facilities as discussed
elsewhere herein. Approximately 42% of Harvard's employees as of September 30,
1998 were covered by collective bargaining agreements negotiated with 16 locals
of 9 unions (collectively, the "Unions"). These contracts expire at various
times through the year 2002. Discussions with various Unions regarding new labor
agreements or extensions of existing contracts are presently under way. The
following table outlines the labor agreement expiration dates at each of
Harvard's plants.
<TABLE>
<CAPTION>
PLANT UNION DATE OF EXPIRATION
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
Albion UAW 3/01/02
Jackson UAW 7/01/02
Tiffin UAW 2/01/00
St. Louis IAM 5/01/00
Spencerville UAW 4/30/99
Bryan Paper-Workers 12/15/99
Dundalk/Canada USWA 6/27/99
Arnold Painters 3/13/01
Transportation Teamsters 3/31/00
Pottstown Master + Local UAW 10/31/99
</TABLE>
The Company expects that all of the collective bargaining agreements will
be extended or renegotiated in the ordinary course of business. As a result of
such renegotiations, the Company expects that its labor and fringe benefit costs
will increase in the future. The Company does not believe that the impact of
these increases will negatively affect the financial position or results of
operations of the Company. The Company has never experienced any work stoppages
at its facilities and has been able to extend or renegotiate its various
collective bargaining agreements without disrupting production.
In December 1997 the Company 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
of the Company, respectively. These agreements continued the severance
arrangements previously established for these covered executives with certain
modifications. These modifications included changing the definition of "Change
in Control" to prevent a triggering based on the Company's 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 Company's employ in February 1998 and has been paid approximately $400,000
in benefits under his Executive Agreement. Roger Burtraw left the Company's
employ in July 1998 and has been paid approximately $1,000,000 in benefits under
his Executive Agreement. Joseph Gagliardi remained with the
12
<PAGE>
company as Executive Vice President Administration. The executive agreements
were approved by an order of the Bankruptcy Court dated December 30, 1997.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The raw materials required by the Company are obtained from regular
commercial sources of supply and, in most cases, from multiple sources. Under
normal conditions, there is no difficulty in obtaining adequate raw material
requirements at competitive prices, and no shortages have been experienced by
the Company. Major raw materials purchased by Harvard include aluminum, energy,
steel, glass, rubber, and paint. The Company considers its major raw material
suppliers with respect to each unit in its automotive business to include:
Kingston-Warren: PPG and Burton Rubber; Hayes-Albion: Consumer's Power, Jackson
Iron and Metal and Acustar; and Trim Trends: Inland Steel. These suppliers
furnish energy, steel, glass, rubber, and paint to such subsidiaries. Pottstown
is not dependent on any individual supplier. Its principal raw material is
aluminum, which is purchased from multiple suppliers. Captive aluminum
processing operations enable Pottstown to purchase less costly scrap aluminum
and non-certified aluminum ingot and to refine the metal to the required
certified specifications. Harvard's purchase orders with its OEM customers
provide for price adjustments related to changes in the cost of certain
materials.
The Company's top ten suppliers in 1998 for continuing businesses were:
<TABLE>
<CAPTION>
DOLLARS/YEAR
(APPROXIMATE)
(IN
SUPPLIER THOUSANDS) PRODUCT HARVARD DIVISION
- ------------------------------------- ------------- ---------------- ---------------------
<S> <C> <C> <C>
PPG $10,800 Glass Kingston-Warren
Chrysler $10,000 Steel Coil Trim Trends division
Jackson Iron & Metal $ 9,600 Steel Scrap Hayes Albion
M.A. Hanna Rubber Co. $ 8,000 Rubber Compound Kingston-Warren
Stanton Moss, Inc. $ 4,000 Aluminum Hayes Albion
Dyna-Mix, Inc. $ 3,400 Rubber Compound Kingston-Warren
Asian Metals $ 3,100 Magnesium Hayes Albion
Globe Metals $ 3,000 Silicon Hayes Albion
Steel Technologies $ 3,000 Steel Coil Trim Trends division
Eastern Alloys $ 2,900 Aluminum Hayes Albion
</TABLE>
BUSINESS CYCLE AND SEASONALITY
The Company's customers are predominantly automotive OEMs. As such, sales
of the Company's products directly correlate with the overall level of passenger
car and light truck production in North America. Although most of the Company's
products are generally not affected by year-to-year automotive style changes,
model changes may have a significant impact on sales.
In addition, the Company experiences seasonal fluctuations to the extent
that the operations of the domestic automotive industry slow down during the
summer months, when plants close for vacation period and model year changeovers,
and during the month of December for plant holiday closings. As a result, the
Company's third and fourth quarter sales are usually somewhat lower than first
and second quarter sales.
RISK FACTORS RELATING TO THE BUSINESS
Emergence from Bankruptcy
The Company emerged from bankruptcy proceedings contemporaneously with the
consummation of the Financings. The fact that the Company was in bankruptcy may
affect the Company's ability to negotiate favorable trade terms with
manufacturers and other vendors in the future. Similarly, the Company's
experience in bankruptcy could have an adverse impact on its ability to secure
new purchase orders with current and prospective customers. The failure to
obtain favorable terms from suppliers or new business from current and
prospective customers could have a material adverse effect on the Company and
its financial performance.
13
<PAGE>
In particular, the fact that the Company was in bankruptcy had a negative
impact on the Company's results of operations and may also negatively affect the
Company's ability to win new business in the future. In general, there is a
delay of between two to four years after being awarded a contract to supply
components for a new OEM platform to the period when sales of such components
are made. During this period of delay, automotive component suppliers must bear
considerable design and development costs associated with the new platform. In
light of these considerable costs and the financial constraints of bankruptcy,
the Company has not been awarded as many contracts as it might otherwise have
obtained had it not been in bankruptcy. General Motors has been supportive of
the Company during this period and has awarded several new contracts to Harvard
during the period of bankruptcy reorganization.
Net Losses
The Company experienced losses for the last three fiscal years. For fiscal
years 1996, 1997 and 1998, the Company had net losses of approximately
$69 million, $389 million and $56 million respectively. These losses have been
primarily due to operating inefficiencies and losses associated with operations
of the Company designated for sale or wind-down. If the Company continues to
experience net losses, the Company will be required to find additional sources
of financing to fund its operating deficits, working capital requirements, and
anticipated capital expenditures and financing commitments. There can be no
assurance that such financing will be available on terms and conditions
acceptable to the Company in such circumstances or that, if debt financing is
required, such financing would be permitted under the terms of the Indenture and
the Senior Credit Facility. If the Company experiences losses in the future,
that fact, combined with the absence of additional financing, could impair the
Company's ability to pay the principal of and Interest and premium, if any, on
the Notes, or to redeem the Notes.
The Company's Plan of Reorganization as an acceptable means of satisfying
creditor claims in accordance with the Bankruptcy Code, was confirmed by the
Court on October 15, 1998, and such plan became effective on November 24, 1998
(See Note 28). Continuation of the Debtors' business after reorganization is
dependent upon the success of future operations, including execution of the
Company's turnaround business strategy and the ability to meet obligations as
they become due. The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
has suffered recurring losses from operations and at September 30, 1998 had a
net working capital deficit and shareholder's deficit. These factors among
others raise substantial doubt about the Company's ability to achieve successful
future operations. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Noncomparability of Financial Information
Information reflecting the results of operations and financial condition of
the Company subsequent to the Effective Date will not be comparable to prior
periods due to (i) the replacement of the management team and the restructuring
of the Company's core operations and general and administrative activities;
(ii) the Company's bankruptcy proceedings, including the costs and expenses
relating thereto, and the effect of the settlement of certain related
liabilities; and (iii) the application of Fresh Start Reporting (as defined
herein), pursuant to which the Company's equity will be restated at
"reorganization equity value," a value which was determined by the financial
advisors to the Creditors' Committee, pursuant to the Plan of Reorganization. In
addition, because the Company has been in a restructuring phase and has
continued to incur costs and expenses relating to its bankruptcy proceedings,
the results of operations since May 1997 may not be indicative of the Company's
future performance. See "Item 1 Business--Subsequent Material Event."
Risks Associated with Execution of the Turnaround Business Strategy
The Turnaround Business Strategy entails a substantial restructuring of the
Company's revenue and customer base. As a result, the Company's value and
profitability are dependent upon its ability to successfully execute the
Turnaround Business Strategy. The success of the Turnaround Business Strategy,
however, is subject to, among other things, the Company's ability to:
o terminate consensually certain unprofitable contracts and purchase orders
with its customers;
14
<PAGE>
o attract new business or customers for its present business segments;
o produce and sell new products at projected margins and at competitive
prices;
o attract key new personnel for its manufacturing facilities;
o dispose of old customer orders in a time span that will enable the
Company to utilize capacity for new business in an efficient manner;
o develop or acquire a distribution network for after-market and industrial
products; and
o appropriately gauge the impact of the Turnaround Business Strategy on
relations with current customers.
There can be no assurance that the Turnaround Business Strategy will be
successful or that the Company will be able to operate profitably even if the
Turnaround Business Strategy is successfully executed. If implementation of the
Turnaround Business Strategy is not successful and the Company is unable to
generate sufficient operating funds to pay Interest, Liquidated Damages and
premium on, and principal of, the Notes and other indebtedness of the Company,
including indebtedness under the Senior Credit Facility, there can be no
assurance that alternative sources of financing would be available to the
Company or, if available, that such financing would be available on commercially
reasonable terms.
Capital Intensive Industry; Capital Expenditure Program
The Company operates in an industry which requires substantial capital
investment, and additional capital expenditures are required by the Company to
upgrade its facilities. The Company believes that its competition will continue
to invest heavily to achieve increased production efficiencies and improve
product quality. During the past few years, the Company has deferred certain
discretionary capital expenditures due to financial constraints.
The Company's ability to compete in such a competitive environment will be
dependent upon, among other things, its 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. The Company had
capital expenditures of approximately $25 million in 1998 and forecasts capital
spending to be $20 million in 1999. Through 2002 (inclusive of 1998), the
Company expects to spend approximately $110 million in capital expenditures.
There can be no assurance that there will be sufficient internally generated
cash or available acceptable external financing available to make the necessary
capital expenditures for a sufficient period of time.
Risks Inherent in the Automotive Industry
A significant portion of the Company's sales are made to customers in the
automobile and light truck manufacturing industry. Direct sales of the Company's
products to the automobile and light truck manufacturing market accounted for
approximately 92%, 98%, and 96% of its net sales for its fiscal years ended
September 30, 1998, 1997 and 1996, respectively. Demand for certain of its
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 regulatory requirements, trade agreements and labor disputes,
one of which was settled in the third quarter of 1998 after a 54 day strike at
General Motors which occurred between June 7 and July 31, 1998, affecting the
North American automobile and light truck manufacturing industry. The Company's
revenue and operating income was adversely impacted by the strike.
In addition, automotive sales and production are cyclical and somewhat
seasonal and can be affected by the strength of a country's general economy. A
decline in automotive production and sales would likely affect not only the
sales of components, tools and services to vehicle manufacturers and their
dealerships, but also the sales of component, tools, and services to aftermarket
customers. Such a decline in sales and production could result in a decline in
the Company's results of operations or a deterioration in the Company's
financial condition. If demand changes and the Company fails to respond
accordingly, its results of operations could be adversely affected in any given
quarter. See "Item 1 Business--Industry Overview."
15
<PAGE>
Risks Associated with Obtaining Business for New and Redesigned Model
Introductions
The Company principally competes for new business both at the beginning of
the development of new models and upon the redesign of existing models by its
major customers. New model development generally begins two to five years prior
to the marketing of such models to the public, and existing business generally
lasts for the model life cycle. In order to meet the needs of customers with
changing products, the Company needs to implement new technologies and
manufacturing processes when launching its new products. Moreover, in order to
meet its customers' requirements, the Company may be required to supply its
customers regardless of cost and consequently suffer an adverse impact to
operating profit margins. Although management believes it has implemented
manufacturing processes that adapt to the changing needs of its customers, no
assurance can be made that the Company will not encounter difficulties when
implementing new technologies in future product launches, any of which could
adversely affect the Company.
Reliance on Major Customers
Of the Company's consolidated net sales for fiscal year 1998, approximately
39%, 34%, and 10% were attributable to General Motors, Ford and Chrysler
respectively. Although the Company has purchase orders from many of its
customers, such purchase orders generally provide for supplying the customer's
annual requirements for a particular model or assembly plant, renewable on a
year-to-year basis, rather than for manufacturing a specific quantity of
products. The loss of any one of its major customers or a significant decrease
in demand for certain key models or a group of related models sold by any of its
major customers could have a material adverse effect on the Company. (See "Item
1 Business--Customers.")
Dependence on Key Personnel
The success of the Company depends in large part upon the abilities and
continued service of its executive officers and other key employees and, in
particular, of Roger Pollazzi, who currently serves as Chairman and Chief
Executive Officer. There can be no assurance that the Company will be able to
retain the services of such officers and employees. The failure by the Company
to retain the services of Mr. Pollazzi and other key personnel could have a
material adverse effect on the Company's results of operations and financial
condition. (See "Item 1 Business--Company History.")
Environmental Matters
The Company is subject to extensive regulation under environmental and
occupational health and safety laws and regulations. In addition, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section Section 9601 et seq., ("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 Company 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 Company. In addition,
the Company is 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, 1997, and 1998, the Company
expended, in cash, $2.7 million, $1.7 million, and $0.1 million, respectively,
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 its operations, the
Company has been named as a defendant or potentially responsible party 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 Company has
asserted counterclaims and cross-claims relating to the properties involved and
other properties where the Company believes 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 Company. The Company believes that all
claims for costs related to off-site disposal or formerly owned properties will
be discharged by the bankruptcy.
The Company is also conducting remedial activities at certain current and
former facilities pursuant to governmental orders and private contractual
agreements. The Company has granted access to the Michigan Department of
Environmental Quality at the Hayes-Albion plant in Jackson, Michigan for an
investigation of the
16
<PAGE>
plant's use and disposal of chlorinated solvents. The investigation is in
connection with the Department's evaluation of an area-wide groundwater
contamination problem. The Company may be subject to injunctive orders requiring
remediation of this property. In addition, the State of Ohio has filed a
complaint in state court in Ohio seeking penalties and injunctive relief arising
out of alleged air emission violations at the Tiffin, Ohio facility.
Furthermore, as a result of the Company's manufacturing operations
involving the use and disposal of hazardous substances, the Company is 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 Company believes it has provided adequate reserves (estimated to be
approximately $8.5 million upon consummation of the Plan of Reorganization) for
its share of potential costs associated with the clean-up of hazardous
substances at various sites. Changes in existing environmental laws or their
interpretation and more rigorous enforcement by regulatory authorities may give
rise to additional expenditures, compliance requirements or liabilities that
could have a material adverse effect on the business, financial condition and
results of operations of Harvard.
Finally, given the historical operations involving the use and disposal of
hazardous substances at the Company's facilities, additional environmental
liability and litigation may arise in the future, the precise nature and
magnitude of which cannot be predicted. (See "Item 3 Legal Proceedings.")
Underfunded Pension Plans
As reflected in its audited financial statements, the Company and its
subsidiaries collectively had aggregate unfunded pension liabilities as of
September 30, 1998 and 1997 of approximately $17.0 and $5.7 million respectively
related to their defined benefit pension plans where plan liabilities (on an
accumulated benefit obligation basis) exceeded the fair value of plan assets.
Approximately $7.4 million of the increase in 1998 is due to a curtailment loss
associated with the Toledo plant shut down. On July 26, 1994, the Company and
certain of its affiliate companies entered into a settlement agreement (the
"PBGC Settlement Agreement") with the Pension Benefit Guaranty Corporation
("PBGC"), pursuant to which the Company and certain of its subsidiaries were
obligated, among other things, to make contributions to specified underfunded
pension plans. All contributions required to be made pursuant to such settlement
agreement have been made. In connection with the Plan of Reorganization, the
PBGC and the Company have entered into a new PBGC Settlement Agreement under
which the PBGC Settlement Agreement was terminated. The terms and provisions of
the old and new PBGC Settlement Agreements are more fully described in the
Disclosure Statement.
On November 6, 1998, the Company filed a Post-Event Notice of Reportable
Event disclosing more than 20% reductions in participation under the
Doehler-Jarvis Pension Plan for wage basis employees, the Harvard Retirement
Plan and the Retirement Plan for Union Employees of Harman Automotive, Inc. as a
result of the shut down, during the pendency of the Chapter 11 proceedings, of
the Doehler-Jarvis Toledo operations, the St. Louis, Missouri facility of the
Company's Harvard Interiors Manufacturing Company ("Harvard Interiors") division
and the Bolivar, Tennessee facility of Harman Automotive, Inc., and the sale of
assets of the Greeneville, Tennessee facility of Greeneville. The PBGC and the
Company have amended the new PBGC Settlement Agreement to expand the matters as
to which the PBGC will refrain from exercising its remedies under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") to include the
above-described shutdowns and sale of assets. No additional obligations were
imposed upon the Company or its subsidiaries as a result of this amendment. The
Company estimates that, upon emergence from Chapter 11, the unfunded liabilities
related to defined benefit pension plans will be approximately $17 million. If
the Company is unable to meet its contribution obligations under such plans, and
alternative contribution arrangements cannot be agreed upon, the PBGC has
remedies under ERISA that would permit it to seek to terminate the affected plan
or plans, thus accelerating payment obligations for the affected underfunded
plan or plans.
Impact of the Year 2000
As is the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year 2000 problem
and certain of the Company's information systems are not presently Year 2000
compliant. The Company is currently installing a new management information
system that will allow its
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critical information systems and technology infrastructure to be Year 2000
compliant before transactions for the year 2000 are expected. Many of the
Company's systems include new hardware and packaged software recently purchased
from large vendors who have represented that these systems are already Year 2000
compliant. The Company is in the process of obtaining assurances from vendors
that timely updates will be made available to make all remaining purchased
software Year 2000 compliant. The Company will utilize both internal and
external resources to reprogram or replace and test all of its software for Year
2000 compliance, and the Company has commenced the installation and testing of
its Year 2000 compliant systems at various locations subsequent to the fiscal
year end, with an expected Company-wide rollout to be completed by the end of
fiscal 1999. The estimated cost for this project is $14 million. The Company
spent approximately $7.7 million for Year 2000 compliance in fiscal 1998 and
plans to spend approximately $5.8 million in fiscal 1999. Failure by the Company
and/or vendors and customers to complete Year 2000 compliance work in a timely
manner could have a material adverse effect on certain of the Company's
operations.
Competition
The markets for the Company's products are highly competitive. The
Company's products compete with those of a substantial number of companies, many
of which are larger and have resources, financial or otherwise, substantially
greater than those of the Company and which have not and will not likely suffer
the negative effects of having been in bankruptcy. 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 Company will be able to compete effectively with these
companies in the future or that significant new competitors will not enter the
market.
Collective Bargaining Agreements
As of September 30, 1998, the Company had approximately 4,400 employees.
Approximately 42% of the Company's employees are covered by collective
bargaining agreements negotiated with 16 locals of 9 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.
Prices and Availability of Raw Materials
Major raw materials purchased by the Company include aluminum, energy,
steel, glass, rubber and paint. The Company obtains the raw materials it uses
from regular commercial sources of supply and, in most cases, from multiple
sources. Under normal conditions, there is no difficulty in obtaining adequate
raw material requirements at competitive prices, and no shortages have been
experienced by the Company. Nevertheless, significant increases in raw material
prices could have a material adverse effect on the financial condition or
results of operations of the Company. Historically, the Company has, and in the
future may, enter into hedging arrangements designed to protect against
fluctuations in raw material prices and also attempts to offset raw material
cost increases through the use of selling price increases.
Trends in the Automotive Industry
In the late 1980's and early 1990's, U.S. automakers instituted a number of
fundamental changes in their sourcing procedures. Principal among these changes
has been an increased focus on suppliers' costs and improving quality
performance, requiring component suppliers to bear a greater proportion of the
burden of design and development costs and a consolidation in the number of
suppliers with which the OEMs place purchase orders, among others. The result of
these trends, as summarized below, has been to place greater business and
financial risk on automotive component suppliers, such as the Company.
In general, there has been substantial and continuing pressure from OEMs to
reduce costs, including the cost of products purchased from outside suppliers.
Certain of the Company's products are sold under agreements that require the
Company to provide annual cost reductions to such purchasers (directly through
price reductions or indirectly through suggestions regarding manufacturing
efficiencies or other cost savings) by certain percentages each year. There can
be no assurance that the Company will be able to generate such cost savings in
the future. If
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the Company were unable to generate sufficient cost savings in the future to
offset such price reductions, the Company's profit margins could be adversely
affected. See "Item 1 Business--Industry Overview."
Another trend in the automotive industry is that OEMs are requiring
potential suppliers of components to become involved earlier in and share a
greater proportion of the costs of the design and development process for new
platforms and to develop integrated systems or modules rather than merely
manufacture separate parts. The component supplier is expected to manage the
entire development cycle of the product or system, including design and
engineering, production of prototypes, design validation, design of tooling and
completion of manufactured products and integrated systems of products, all of
which can take between two and four years.
The ability to become involved earlier in the design and development
process for new platforms is an important factor in winning new business from
the OEMs. This trend has placed greater pressure on automotive component
suppliers and has shifted a larger percentage of the cost of research and
development and design and capital outlays for such new platforms and systems
onto component suppliers, such as the Company. In addition, this trend has had a
relatively greater impact on the Company than on many of its competitors because
of OEMs' reluctance to award new business to the Company due to its emergence
from bankruptcy. There can be no assurance that the Company will be able to
become involved earlier in the design and development process for new platforms
nor, if successful in becoming involved earlier in such processes, can there be
any assurance that the Company will be able to generate sufficient cash or have
financing available to fund the greater costs associated with that effort.
One result of the above described trends is that the automotive supply
industry is experiencing a period of significant consolidation. As part of OEMs'
efforts to reduce costs and improve quality, U.S. automakers are reducing their
supplier base by awarding sole-source contracts to full-service suppliers who
are able to provide design, engineering and program management capabilities and
can meet cost, quality and delivery requirements. This trend has also resulted
in greater competition from larger companies with greater financial and other
resources. In addition, there is no assurance that the Company will have the
financial flexibility to make the necessary capital expenditures or to make
acquisitions to grow its business to remain competitive and viable in the
component supplier industry.
An additional trend in the automotive industry is that foreign automotive
manufacturers have gained a significant share of the U.S. market, both from
export sales as well as the more recent opening of manufacturing facilities
located domestically. Between 1985 and 1997, sales of automobiles from foreign
car makers with U.S. manufacturing facilities increased from 2.0% to 20.5% of
the North American market. Based on industry analysts' estimates, the percentage
of Japanese cars sold in the United States from domestic manufacturing
facilities grew from 8.4% in 1985 to 51.8% in 1994. To the extent that the
growth of such "transplant" sales has resulted, and will likely continue to
result in, a loss of market share for U.S. automakers, component suppliers,
including the Company, will experience an adverse effect as most of its current
customers are U.S. automakers. Although the Company plans to solicit additional
business from foreign automakers, there can be no assurance that it will be
successful in doing so or that such additional business will compensate for lost
business that the Company has already experienced.
ITEM 2. PROPERTIES
FACILITIES
In connection with the election of Mr. Roger Pollazzi as Chief Operating
Officer in November 1997, the Company relocated its principal executive offices
to leased space in Lebanon, New Jersey. The principal properties of the Company
include its production facilities, all of which are owned by the Company and its
subsidiaries, except for the real property in Ripley, Tennessee. The Company
also leases certain warehouse and distribution facilities and regional sales
offices that are not included among the Company's principal properties. None of
the leases is material to the Company's business as a whole, or provides any
unique advantage. Capacity at any plant depends, among other things, on the
product mix, the processes and equipment used and tooling. While capacity varies
periodically as a result of customer demand, the Company currently estimates
that its automotive business plants generally operate between 60% and 100% of
capacity on a five-day per week basis.
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The following table sets forth certain information with respect to the
Company's principal properties:
<TABLE>
<CAPTION>
SUBSIDIARY OR DIVISION LOCATION TYPE OF FACILITY SQ. FT.
- ----------------------- ---------------------- -------------------------------------- -------
<S> <C> <C> <C>
Harvard Industries Farmington Hills, MI Administrative offices 70,000
Kingston-Warren Newfields, NH Mfg. Plant, office and warehouse 302,000
Kingston-Warren Wytheville, VA Mfg. Plant, office and warehouse 119,000
Kingston-Warren Church Hill, TN Mfg. Plant, office and warehouse 162,900
Harman Bolivar, TN Mfg. Plant, warehouse, and office(1) 294,400
Hayes-Albion Albion, MI Mfg. Plant 458,300
Hayes-Albion Bridgeton, MO Mfg. Plant 128,300
Hayes-Albion Jackson, MI Mfg. Plant 218,600
Hayes-Albion Rock Valley, IA Mfg. Plant 86,000
Hayes-Albion Ripley, TN Mfg. Plant(2) 100,000
Hayes-Albion Tiffin, OH Mfg. Plant(1) 467,400
Trim-Trends Division Kingston, MI Rental Property 12,000
Trim-Trends Division Deckerville, MI Mfg. Plant 74,900
Trim-Trends Division Snover, MI Mfg. Plant(1) 75,500
Trim-Trends, Canada Dundalk, ON, Canada Mfg. Plant 80,000
Trim-Trends Division Bryan, OH Mfg. Plant 141,500
Trim-Trends Division Spencerville, OH Mfg. Plant 159,000
Doehler-Jarvis Toledo, Ohio Mfg. Plant and office building(1) 542,000
Doehler-Jarvis Pottstown, PA Mfg. Plant 470,000
Harvard Industries Arnold, MO Mfg. Plant 31,400
Harvard Industries Salem, South Carolina Idle Mfg. Plant(1) 51,000
</TABLE>
- ------------------
(1) Facility is currently for sale.
(2) The real property underlying this facility is leased through
August 30, 1999.
ITEM 3. LEGAL PROCEEDINGS
On three separate occasions in fiscal 1994, the Company became aware that
certain products of its ESNA division were not manufactured and/or tested in
accordance with required specifications at its Union, New Jersey and/or
Pocahontas, Arkansas facility. These fastener products were sold to the United
States Government and other customers for application in the construction of
aircraft engines and airframes. In connection therewith, the Company notified
the Department of Defense Office of Inspector General ("DOD/OIG") and, upon
request, was admitted into the Voluntary Disclosure Program of the Department of
Defense (the "ESNA matter"). The Company has settled this matter in principal
(final stipulation yet to be executed) for $475, to be paid subsequent to the
fiscal year end.
In June 1995, a group of former employees of the Company's subsidiary,
Harman Automotive-Puerto Rico, Inc., commenced an action against the Company and
individual members of management in the Superior Court of the Commonwealth of
Puerto Rico seeking approximately $48 million in monetary damages and unearned
wages relating to the closure by the Company of the Vega Alta, Puerto Rico plant
previously operated by such subsidiary. Claims made by the plaintiffs in such
action include the following allegations: (i) such employees were discriminated
against on the basis of national origin in violation of the laws of Puerto Rico
in connection with the plant closure and that, as a result thereof, the Company
is alleged to be obligated to pay unearned wages until reinstatement occurs, or
in lieu thereof, damages, including damages for mental pain and anguish;
(ii) during the years of service, plaintiffs were provided with a one-half hour
unpaid meal break, which is alleged to violate the laws of Puerto Rico,
providing for a one-hour unpaid meal break and demand to be paid damages and
penalties and request seniority which they claim was suspended without
jurisdiction; and (iii) plaintiffs were paid pursuant to a severance formula
that was not in accordance with the laws of Puerto Rico, which payments were
conditioned upon the plaintiffs executing releases in favor of the Company, and
that, as a result thereof, they allege that they were discharged without just
cause and are entitled to a statutory severance formula.
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The Company is a party to various claims and routine litigation arising in
the normal course of its business. Obligations of the Company in respect of
litigation arising out of activities prior to the Petition Date, will be
discharged in accordance with the Plan of Reorganization. Based on information
currently available, management of the Company believes, after consultation with
legal counsel, that the result of such claims and litigation, will not have a
material adverse effect on the financial position or results of operations of
the Company.
ENVIRONMENTAL MATTERS
The Company is subject to various foreign, 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 subsidiaries of the Company 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, CERCLA or analogous state laws with respect to approximately 25 sites.
As discussed below, any potential claims related to sites which are not owned
properties will be discharges as a result of Harvard's Chapter 11 case. Given
the Company's 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 Company cannot predict.
A number of governmental agencies, PRP groups, and individual claimants
have filed proofs of claim against certain of the Company's subsidiaries with
respect to liabilities relating to environmental matters, including liabilities
arising under the Federal Water Pollution Control Act, 33 U.S.C.
Section Section 1251 et seq., ("Clean Water Act"), and the Clear Air Act,
("CERCLA") and analogous state laws (collectively, the "Environmental Claims").
The Company believes that the aggregate costs of resolving such Environmental
Claims will in all likelihood range between approximately $4 million and $8.5
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. The
potentially significant Environmental Claims presently asserted against the
Company and its subsidiaries and the proposed treatment of all Environmental
Claims are as follows:
Consent Decrees and Settlement Agreements
The Company and its subsidiaries are parties to several consent decrees and
settlement agreements relating to environmental matters executed prior to the
Chapter 11 filing (collectively, the "Consent Decrees and Settlement
Agreements"). The potentially significant Environmental Claims relating to the
Consent Decrees and Settlement Agreements include the following:
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 were two phases of administrative proceedings in the case. 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. The EPA also issued a Phase II Unilateral Order
requiring the PRPs to perform a Phase II Remedial Investigation/Feasibility
Study known as Operable Unit II.
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
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Motorola was $557,297, payable in twenty equal quarterly installments. Payments
have been suspended due to the Chapter 11 Cases. 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. Such claims have been
allowed under the Plan of Reorganization and will be discharged upon the receipt
by West Company and Motorola of the Company's common stock in respect of such
allowed claims.
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, to comply
with the Phase II Unilateral Order 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
made a claim in the Chapter 11 Cases for the remaining amount which General
Electric believes is owed pursuant to the Settlement Agreement. On December 29,
1998, the Bankruptcy Court approved the Company's Assumption and Modification of
the Settlement Agreement whereby the Company will pay General Electric a total
of $300,000 in settlement of its claims.
In light of the cost-sharing arrangement described above, the PRPs
(including Harman) have stipulated with the EPA as to liability in order to
avoid further litigation. A consent decree among all of the PRPs and the United
States, on behalf of the EPA, was fully executed by all parties, and was entered
by the Federal District Court for the District of Puerto Rico, 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.
Alsco-Anaconda Superfund Site. Alsco Inc. ("Alsco") was the former owner
and operator of a manufacturing facility located in Gnadenhutten, Ohio. Alsco
was merged into and became a division of Harvard. In August 1971, the Alsco
division was sold to Anaconda Inc., which 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 its
manufacturing processes. The basins, pit and adjacent wooded marsh were 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 pursuant
to Section 106 of CERCLA, 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 agreed to indemnify
Harvard against 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.
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Due to the Chapter 11 Cases, payments to ARCO, pursuant to the Settlement
Agreement, have been suspended. ARCO Environmental Remediation, LLC, ARCO's
successor, made a claim in the Chapter 11 Cases 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. The Company has agreed
to assume the Settlement Agreement with the modification that the Company will
pay ARCO $575,000 in full satisfaction of its claim. This payment was made in
December, 1998.
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 landfill covering. 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 made a contingent claim in
the Chapter 11 Cases in the event there is a catastrophic failure of the
landfill's geomembrane cap. The Company has assumed the Settlement Agreement but
does not expect to pay any further costs because a catastrophic failure of the
landfill covering is highly unlikely.
State Agency claims
A number of state environmental agencies have asserted environmental claims
against the Company and its subsidiaries. The potentially significant
environmental claims are described below:
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 ("the
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 made a claim in the Chapter 11 Cases that Hayes-Albion
is responsible for groundwater contamination at the Site seeking recovery of
past and future response costs of at least $2 million. On July 21, 1998, MDEQ
issued a request for voluntary access to the Hayes-Albion facility for the
purpose of conducting an investigation of the nature and extent of releases at
the facility. Hayes-Albion denied access because it vigorously denies that it is
a source of contamination. On August 10, 1998, MDEQ issued an administrative
inspection warrant for access and Hayes-Albion recently granted access. On
October 15, 1998, the Bankruptcy Court issued an order expunging MDEQ's claim
because it was filed after the bar date. MDEQ may bring an action for injunctive
relief in the future.
Air Emissions at Tiffin, Ohio Facility. On July 2, 1998, the State of Ohio
filed a two count complaint against Harvard and Hayes-Albion in state court (the
"Complaint") seeking civil penalties and injunctive relief for alleged
violations of air emissions regulations at Hayes-Albion's Tiffin, Ohio facility
from March 1990 to the present. The Complaint seeks civil penalties in the
amount of $25,000 per day per violation from March 1990 to the present.
Hayes-Albion disputes Ohio's method of calculating the allowable emission rate
for the four induction furnaces upon which the State of Ohio bases its
allegations in the Complaint, and believes that, using the proper method of
calculation, the facility should have no liability. The State of Ohio filed a
claim against Harvard and against Hayes-Albion in the Chapter 11 Cases for
penalties related to the alleged air violations in the amount of $1,315,000.
Harvard and Hayes-Albion have concluded a settlement with the State of Ohio with
the entry of a consent decree dated December 23, 1998, which as of the date
hereof has been approved by the Bankruptcy Court. Under the settlement the
Company will pay Ohio a civil penalty of $205,857.
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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.
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 defendants who signed an
Administrative Consent Order, dated June 2, 1997, with NJEDP agreeing to perform
and fund the future remedy at the PJP Landfill.
The NJDEP made a claim in the Chapter 11 Cases for past and future response
costs relating to the PJP Landfill. Amerace also asserted a claim in the Chapter
11 Cases that it is entitled to indemnification from Harvard pursuant to the
1985 Asset Purchase Agreement for response costs it incurs in connection with
the PJP Landfill. The NJDEP has withdrawn its claim. Harvard intends to object
to Amerace's claim.
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") made a claim in the Chapter 11 Cases for unliquidated amounts
alleging 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 and therefore the site may be contaminated. As
of the date hereof, NCDENR has offered to settle this claim for a de minimus
amount and Harvard is currently evaluating this offer. If no settlement is
reached, the Company will object to the claim.
Pottstown Precision Casting, Inc. The Pennsylvania Department of
Environmental Protection ("PADEP") has filed a claim in the Chapter 11 Cases for
$125,000 which is a payment owed under a consent decree between Doehler-Jarvis
and PADEP entered April 17, 1997. The payment is a civil penalty for Clean Water
Act violations at the Pottstown Precision Casting, Inc., Pennsylvania facility.
It is being handled as an unsecured claim under the Plan of Reorganization.
Other
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 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 Chapter 11 Cases by the property owner plaintiffs for environmental
and property damage associated with the Vega Alta groundwater contamination.
That claim has been resolved and the settlement for $150,000 has been approved
by the Bankruptcy Court.
In addition, Unisys, on its own behalf and on behalf of Owens-Illinois de
Puerto Rico, has asserted several claims in the Chapter 11 Cases 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.
Harvard intends to object to the claims.
Treatment of Environmental Matters Under Plan
Other than the executory contracts listed below, the Company believes that,
except as provided below, none of the outstanding Consent Decrees and Settlement
Agreements which were entered into prior to the Petition Date of the Chapter 11
Cases by the Company or any of its subsidiaries relating to environmental
matters constitutes executory contracts subject to assumption or rejection. The
Company and its subsidiaries assumed the
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Settlement Agreement with the Town of Newmarket (dated July 8, 1992, as amended
March 11, 1997). Additionally the Company and its subsidiaries have agreed to
assume with certain modifications the following contracts: (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.
The Company believes that the claims relating to disposal of hazardous
substances or contamination at formerly owned properties or off-site properties
(as opposed to currently owned properties) ("Off-Site Claims") will be
discharged under the Plan of Reorganization. Such Off-Site 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, the Resource Conservation and Recovery
Act, 42 U.S.C. Section Section 6901 et seq., the Clean Air Act, 42 U.S.C.
Section Section 7401 et. seq., and any analogous state or local law) ("Hazardous
Substance") on, in, under, within, or migrating to or from any real property
formerly owned, leased, operated, or controlled by the Company or any of its
subsidiaries or any predecessor of the Company or any of its subsidiaries,
(ii) the transportation, disposal or arranging for the disposal of any Hazardous
Substances by the Company or any of its subsidiaries or any predecessor of the
Company or any of its subsidiaries 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 Company and its subsidiaries believe that any 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 the Company or any of its subsidiaries or any predecessor of the
Company or any of its subsidiaries or any other offsite location constitute
"claims" within the meaning of section 101(5) of the Bankruptcy Code, 11 U.S.C.
Section 101(5), and, therefore, all such claims are dischargeable within the
meaning of section 1141 of the Bankruptcy Code, 11 U.S.C. Section 1141.
It is possible that under current case law in the Third Circuit Court of
Appeals, claims for injunctive relief related to currently owned property such
as the Hayes-Albion facilities in Jackson, may not be discharged. The Company
may be required to comply with injunctive orders issued by the state
environmental agency with respect to this property.
Various other legal actions, governmental investigations and proceedings
and claims are pending or may be instituted or asserted in the future against
the Company and its subsidiaries, none of which are expected to be material.
The Company is subject to extensive and changing environmental laws and
regulations. Expenditures to date in connection with the Company's compliance
with such laws and regulations did not have a material adverse effect on the
results of its operations, financial position, capital expenditures or
competitive position. Although it is possible that new information or future
developments could require the Company to reassess its potential exposure to all
pending environmental matters, including those described in the footnotes to the
Company's consolidated financial statements, management believes that, based
upon all currently available information, the resolution of all such pending
environmental matters will not have a material adverse effect on the Company's
operating results, financial position, capital expenditures or competitive
position. (See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation, Results of Operations)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
Pursuant to an order of the United States Bankruptcy Court for the District
of Delaware, claimants of the company, including equity holders, voted to accept
or reject Plan of Reorganization.
25
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Harvard's Pre-reorganization Common Stock (the "Old Common Stock") was
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.
Upon consummation of the Plan of Reorganization on November 24, 1998, the
Old Common Stock was canceled and Harvard was authorized to issue its new Common
Stock to certain creditors of pre-reorganized Harvard. The Company's Common
Stock is traded on the NASDAQ National Market under the symbol "HAVAV".
The table below sets forth the high and low bid quotations for the
Company's Old Common Stock from October 1, 1996 through September 30, 1998.
These bid prices, which were obtained from NASDAQ Trading and Market Services,
represent prices between dealers without adjustment for retail mark-ups,
mark-downs or commissions and may not represent actual transactions.
COMMON STOCK PRICE RANGE(1)
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
September 30, 1998:
First Quarter $ 1.375 $ 0.375
Second Quarter $ 1.0625 $ 0.5
Third Quarter $ 0.75 $ 0.5
Fourth Quarter $ 0.75 $ 0.25
September 30, 1997:
First Quarter $ 10.875 $ 2.75
Second Quarter $ 4.500 $ 0.6875
Third Quarter $ 1.1875 $ 0.4375
Fourth Quarter $0.96875 $0.28125
</TABLE>
- ------------------
(1) Reflects prices on the NASDAQ National Market prior to March 17, 1997, and
on the Over the Counter Bulletin Board of NASDAQ thereafter.
On January 7, 1999, the high and low bid quotations for the Company's New
Common Stock were $7 1/2 and $7 1/4 respectively. There were approximately 4
holders of record.
The Company has paid no cash dividends in its last two fiscal years. The
Company was restricted under the terms of its borrowings, including its debt
instruments from paying cash dividends on its Old Common Stock.
The Company does not expect to pay cash dividends on its New Common Stock
for the foreseeable future. Moreover, the Company is restricted under the terms
of the Financings, from paying cash dividends on its New Common Stock.
26
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The following table presents selected consolidated historical financial
data for the Company as of the dates and for the fiscal periods indicated. The
selected financial data for each of the five years ended September 30, 1998, has
been derived from the Consolidated Financial Statements of the Company for the
applicable periods. From May 8, 1997 through November 23, 1998, the Company was
operating under Chapter 11, which afforded the Company protection from the
claims of its creditors and caused the Company to incur certain bankruptcy-
related expenses including legal fees, financial advisory fees, investment
banking fees and independent auditor fees. As a result of the fact that the
Company has emerged from Chapter 11 and the prospective effect of Fresh Start
Reporting, the Company does not believe that its historical results of
operations are necessarily indicative of its results of operations as an ongoing
entity following its emergence on November 24, 1998 from Bankruptcy
Reorganization. The following information should be read in conjunction with and
is qualified by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations," contained herein this Form 10-K.
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------------------
1998 1997 1996 1995(1) 1994
--------- --------- --------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $ 690,076 $ 810,769 $ 824,837 $ 631,832 $ 614,952
Cost of sales..................................... 656,243 797,774 776,141 557,340 543,532
--------- --------- --------- --------- ---------
Gross profit...................................... 33,833 12,995 48,696 74,492 71,420
Selling, general and administrative expenses...... 66,546 45,822 42,858 33,037 32,217
Amortization of goodwill.......................... 1,584 8,448 15,312 2,986 1,584
Impairment and restructuring charges(3)........... 10,842 288,545 -- -- --
Interest expense(2)............................... 14,231 36,659 47,004 19,579 11,947
Gain on sale of operations(4)..................... (28,673) -- -- -- --
Other (income) expense, net(5).................... 3,980 5,530 1,538 (1,789) (532)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before
reorganization items, income taxes and
extraordinary item.............................. (34,677) (372,009) (58,016) 20,679 26,204
Reorganization items.............................. 14,920 16,216 -- -- --
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before
income taxes and, extraordinary item............ (49,597) (388,225) (58,016) 20,679 26,204
Provision (benefit) for income taxes.............. 6,207 1,204 3,196 11,566 9,536
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before
extraordinary item.............................. (55,804) (389,429) (61,212) 9,113 16,668
Loss from discontinued operations, net of
tax(6).......................................... -- -- (7,500) -- (9,038)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item........... (55,804) (389,429) (68,712) 9,113 7,630
Extraordinary item................................ -- -- -- (2,192) --
--------- --------- --------- --------- ---------
Net income (loss)................................. $ (55,804) $(389,429) $ (68,712) $ 6,921 $ 7,630
PIK preferred dividends and accretion(7).......... -- $ 10,142 $ 14,844 $ 14,809 $ 14,767
--------- --------- --------- --------- ---------
Net loss attributable to common stockholders...... $ (55,804) $(399,571) $ (83,556) $ (7,888) $ (7,137)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
(Footnotes appear on the following page.)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
1998 1997 1996 1995(1) 1994
--------- --------- --------- --------- ---------
SHARE DATA:
<S> <C> <C> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
Income (loss) from continuing operations.......... $ (7.94) $ (56.91) (10.87) (0.82) 0.27
Loss from discontinued operations................. -- -- (1.07) -- (1.28)
Extraordinary Item................................ -- -- -- (0.32) --
--------- --------- --------- --------- ---------
Net loss per share................................ (7.94) (56.91) (11.94) (1.14) (1.01)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of shares and
equivalents..................................... 7,026,437 7,020,692 6,999,279 6,894,093 7,041,324
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FINANCIAL RATIOS AND OTHER DATA:
Depreciation and amortization..................... $ 27,904 $ 60,186 $ 65,658 $ 34,856 $ 29,855
Cash flows (used in) provided by continuing
operations...................................... 23,526 11,045 (3,133) 24,305 89,071
Capital expenditures.............................. 24,887 36,572 40,578 22,080 10,141
Cash flows (used in) provided by investing
activities...................................... 3,564 (34,156) (43,001) (226,023) (13,954)
Cash flows (used in) provided by financing
activities...................................... (24,678) 31,216 27,316 161,283 (30,348)
BALANCE SHEET DATA:
Working capital (deficiency)...................... $ (90,024) $ 2,096 $ (7,158) $ 19,417 $ 30,333
Total assets...................................... 250,981 307,494 617,705 662,262 387,942
Liabilities subject to compromise(8).............. 385,665 397,319 -- -- --
DIP Credit Facilities, including current portion.. 39,161 87,471 -- -- --
Creditors subordinated term loan.................. 25,000 -- -- -- --
Long-term debt, including current portion......... 0 14,087 360,603 324,801 113,381
PIK preferred stock............................... 124,637 124,637 114,495 99,651 99,841
Shareholders' equity (deficiency)................. $(609,230) $(547,128) $(145,724) $ (62,206) $ (59,032)
</TABLE>
- ------------------
(1) Includes the results of operations of the Doehler-Jarvis Entities from
July 28, 1995, the effective date of that acquisition.
(2) Interest expense does not include interest after May 7, 1997 amounting to
$13,605 and $35,618 for the fiscal years ended September 30, 1997 and 1998
respectively of the Old Senior Notes as all such interest was included as a
liability subject to compromise. See Note 1 to the Consolidated Financial
Statements.
(3) During 1997, the Company recorded charges for impairment of long-lived
assets of the Doehler-Jarvis Entities and at two other plants. The Company
also recorded restructuring charges related to two operations scheduled for
closing. During 1998, the Company recorded charges for impairment of
long-lived assets of its Tiffin, Ohio facility and for certain assets
relating to a platform that will end earlier than anticipated, and a
restructuring charge. See Note 13 to the Consolidated Financial Statements.
No tax benefit is currently available for any of these charges.
(4) In November of 1997, the Company sold Kingston-Warren's Material Handling
division resulting in a gain on sale of $11,354. During 1998, there was a
gain on sale of $17,319 as a result of the sale of the land, building and
certain other assets of the Harvard Interiors' St. Louis, Missouri facility
and the transfer of certain assets at the Doehler-Jarvis Toledo, Ohio
facility and related lease obligations to a third party and the sale of
substantially all of the assets and the assumption of certain liabilities of
the Doehler-Jarvis Greeneville Facility.
(5) For 1997, other (income) expense, net includes approximately $2,200 related
to joint venture losses.
(6) The Company, in the first quarter of fiscal 1994, decided to discontinue its
then specialty fastener segment ("ESNA") and therefore applied the
accounting guidelines for discontinued operations. In 1996, the Company
recorded a $7,500 charge to discontinued operations representing the
write-down of the ESNA facility and continuing carrying costs. See Note 4 to
the Consolidated Financial Statements.
(7) PIK Preferred dividends after May 7, 1997 do not include $6,749 of accrued
dividends.
(8) September 30, 1998 and 1997, includes $300,000 of Old Senior Notes payable
which are subject to the guaranty of the combined guarantor subsidiaries and
accrued interest of $9,728 which is subject to the guaranty of the combined
guarantor subsidiaries.
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Sales. Consolidated sales decreased $120,693 from $810,769 to $690,076, or
14.9%. Aggregate sales for the operations designated for sale or wind down
decreased approximately $110,462 from $315,078 to $204,616. The remaining
operations sales decreased $10,231 from $495,691 to $485,460 as lower volume due
to the GM strike was partially offset by new business.
Gross Profit. The consolidated gross margin, expressed as a percentage of
sales, increased from 1.6% to 4.9%, or by $20,838. The gross profit (loss) for
operations designated for sale or wind-down increased approximately $20,379 from
$(15,502) to $4,877 due mainly to a decrease of approximately $17,000 in
depreciation resulting from the write-down of certain property, plant and
equipment in the fourth quarter of 1997 and the compensatory payments from Ford
and GM relating to the Toledo Shutdown. The increase of $459 in gross profit for
the remaining operations was mainly due to improved operating efficiencies and
approximately $4,600 of decreases in depreciation resulting from the write-down
of certain property, plant and equipment, at the continuing operations of
Doehler-Jarvis offset by lost volume due to the GM strike.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $45,822 to $66,546. The increase reflects
a $7,700 charge for costs to make the company's systems year 2000 compliant, a
$16,000 charge for emergence related payments and deferred compensation
arrangements, offset by the prior period's charge of $4,000 relating to the
termination and consulting and release agreement of a former executive.
Interest Expense. Interest expense decreased from $36,659 to $14,231.
However, but for giving effect to the discontinuance of accruing interest on the
senior notes of $35,618 in 1998 and $13,605 in 1997 from the date of filing
bankruptcy, interest expense would have decreased by $415 as financing fees of
$2,500 relating to the post-petition term loan facility were offset by lower
borrowing levels.
Amortization of Goodwill. Amortization of goodwill decreased from $8,448
to $1,584 as amortization of goodwill related to the acquisition of
Doehler-Jarvis ceased March 31, 1997, when such goodwill was written-off as
impaired.
Impairment of Long-Lived Assets and Restructuring Costs. During 1998 the
Company recorded $5,000 in restructuring charges representing shutdown and
relocation costs of $2,500, relating primarily to severance and moving costs
associated with the move of the corporate headquarters from Tampa, Florida to
Lebanon, New Jersey, and approximately $2,500 for three senior executive
officers. Additionally, the Company wrote-off as impaired substantially all the
property, plant and equipment at Hayes Albion's Tiffin, Ohio facility and the
equipment and tooling for a platform that is being discontinued earlier than
planned. During 1997, a charge of $288,545 was recorded for the impairment of
long-lived assets at several subsidiaries.
Gain on Sale of Operations. This includes the gain on the sale of the
Material Handling division of Kingston-Warren of $11,354, the gain on the sale
of the land, building and certain other assets of the Harvard Interiors' St.
Louis facility of $1,217 , the gain of $13,999 on the transfer of certain assets
at the Toledo facility and their related lease obligations to a third party and
the gain on the sale of certain assets and assumption of liabilities of the
Doehler-Jarvis Greeneville subsidiary of $2,103.
Other Expense, Net. Other expense decreased from $5,530 to $3,980 due to a
decrease in loss on disposal of machinery and equipment.
Reorganization Items. Represents mainly professional fees incurred in
connection with the bankruptcy proceedings.
Provision for Income Taxes. The increase from $1,204 to $6,207 was
principally due to the reorganization of the Company. Several items that
materially contributed to the increase were the federal minimum tax and state
income taxes.
Net Loss. The net loss decreased from $389,429 to $55,804 for the reasons
described above.
29
<PAGE>
1997 COMPARED TO 1996
Sales. Consolidated sales decreased $14,068 from $824,837 to $810,769, or
1.7%. Aggregate sales for Harman Automotive, the furniture production line of
Harvard Interiors, Toledo and the Material Handling Division of Kingston-Warren,
each of which had been designated for sale ("Operations designated for sale or
wind-down"), decreased approximately $35,574 from $251,442 to $215,868
(including $5,700 due to a decline in average aluminum prices, the benefit of
which was passed on to customers). The remaining operations sales increased
$21,506 from $573,395 to $594,901 due to a higher demand for its products.
Gross Profit. The consolidated gross profit expressed as a percentage of
sales (the "gross profit margin") decreased from 5.9% to 1.6%, after recording
curtailment gains with respect to post-retirement obligations of $8,249 in 1997.
The decrease was due primarily to operational inefficiencies at most of the
Company's operating units, price reductions and from unfavorable comparisons
relative to tooling margins and long-term contract recoveries. The gross profit
(loss) for Operations designated for sale or wind-down amounted to $(14,952) and
$12,312 in 1997 and 1996, respectively, and the change represents 76% of the
consolidated decrease in gross profits. The remaining operations gross profit
decreased from $36,384 to $27,947.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2,964, due principally to charges of
approximately $4,000 in the second quarter, primarily related to the
Termination, Consulting and Release Agreement dated February 12, 1997 with
Mr. Vincent J. Naimoli, the former Chairman of the Board, President and Chief
Executive Officer of the Company.
Interest Expense. Interest expense decreased from $47,004 to $36,659. But
for giving effect to the discontinuance of accruing interest on the senior notes
of $13,605 after May 7, 1997, interest expense increased by $3,260. This
increase resulted from increased borrowings under financing agreements.
Amortization of Goodwill. The decrease of $6,864 in goodwill amortization
occurred because goodwill amortization related to Doehler-Jarvis ceased March
31, 1997, when such goodwill was written-off as impaired.
Other (Income) Expense, Net. The increase of $3,992 was mainly due to an
increase in loss on disposal of machinery and equipment and losses from a joint
venture.
Impairment of Long-Lived Assets and Restructuring Costs. As a result of
continuing losses and projections of future operations and cash flows, the
Company recorded charges in 1997 of $288,545 reflecting the permanent impairment
of long-lived assets at its Doehler-Jarvis and Harman Automotive subsidiaries
and one plant. The goodwill portion of this charge is $114,385. See Note 13 to
the Consolidated Financial Statements. Operations designated for sale accounted
for approximately $101,000 of the impairment charge.
Reorganization Items. As a result of the bankruptcy, the Company adjusted
the senior notes to the amount of its allowed claim with a charge to operations
of $10,408. In addition, the Company incurred professional fees in the amount of
$5,828.
Provision for Income Taxes. The decrease in the provision for income taxes
resulted from a decrease in operating profit in Canada.
Net Loss. The net loss increased from $68,712 to $389,429 for the reasons
described above.
1996 COMPARED TO 1995
Sales. Excluding the 1996 and 1995 Doehler-Jarvis sales, consolidated
sales decreased $57,388, primarily during the first six months. The automotive
accessories segment sales accounted for 96% and 95%, respectively, of
consolidated sales for the years 1996 and 1995. Automotive sales, excluding such
sales by Doehler-Jarvis, decreased $59,000, of which $41,000 was due mainly to
the lower volumes for existing light vehicle platforms, principally for large
passenger cars and somewhat to the effects of the March 1996 strike at General
Motors, and $18,000 was attributable to the inclusion in 1995 of sales to Ford
phased out in June 1995, as previously disclosed. Non-automotive sales increased
$1,600 due to an increase in furniture sales.
Gross Profit. The consolidated gross profit expressed as a percentage of
sales (the "gross profit margin") decreased from 11.8% to 5.9%. The decrease in
the gross profit was due principally to the lower passenger car sales mentioned
above and somewhat to the effects of adverse weather conditions, the General
Motors strike, and excess launch costs for new and replacement products in 1996.
In 1996, sales of certain products aggregated $50,000 for which a negative gross
margin of $7,800 was incurred. More than half of the decrease in the gross
30
<PAGE>
profit margin was attributable to the fact that Doehler-Jarvis contributed no
gross profit on over $296,000 of sales, which was caused mainly by operational
inefficiencies at the Toledo and Pottstown plants, including the impact of
significant overtime resulting from operating the Toledo plant on a seven day
week basis and the negative margins incurred from sales of the Programs. The
remaining gross profit margin decrease was caused by decreases in the other
automotive operations due to the reasons mentioned, in particular excess launch
costs and the General Motors strike. The non-automotive segment had a decrease
in gross profit of $1,600 due principally to the fact that the prior year's
gross profit included a one-time favorable settlement with a supplier amounting
to $475, as well as lower margins on increased sales to major retailers in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3,700, or 13.8%, after excluding such
expenses of Doehler-Jarvis, and after considering the fact that 1996 does not
include any bonus provision with respect to the Company's key management and
operating personnel, as compared to $3,700 in 1995. 1996 includes salary
increases and additional non-automotive selling costs incurred to penetrate the
mass merchandising furniture market. As a percentage of sales, such consolidated
expenses were 5.2% for both 1996 and 1995.
Interest Expense. Interest expense increased from $19,579 in 1995 to
$47,004 in 1996. The increase in interest expense was the result of the issuance
in July 1995 of the 11 1/8% Senior Notes, capital leases (which were assumed in
the Doehler-Jarvis acquisition), the revolving working capital loans under the
Credit Agreement, dated as of July 28, 1995, among the Company, the Guarantors
and Chemical Bank, as Agent (the "Chemical Agreement") and the $7,000 short term
credit facility utilized from August 2, 1996 to September 27, 1996. The
effective rate of interest was 13.6% in 1996 and 12.1% in 1995.
Amortization of Goodwill. Amortization of goodwill increased $12,326 due
to the additional goodwill resulting from the acquisition of Doehler-Jarvis. In
the fourth quarter of 1996, based upon Doehler-Jarvis' unprofitable operating
results since acquisition and projected operating results for 1997, the life of
such goodwill was changed from 15 years to 10 years effective October 1, 1995.
Other (income) Expense, Net. The change was due, principally, to the
reduction in interest income due to the use of approximately $26,300 of cash on
hand in the acquisition of Doehler-Jarvis.
Provision for Income Taxes. The differences between the statutory federal
income tax rate and the Company's effective income tax rates result,
principally, from generating an operating profit in Canada and an operating loss
in the U.S. for which no tax benefit has been recognized.
Loss from Discontinued Operations. Discontinued operations was charged
$7,500 representing the write-down of the ESNA facility, continuing costs
associated with the Company's ongoing participation in the Department of Defense
Voluntary Disclosure Program and carrying costs of the Union, NJ facility. See
Note 4 to the Consolidated Financial Statements.
Net Income (Loss). Net loss for 1996 was $68,712 compared to net income of
$6,921 in 1995. The change is because operating results (as described above)
were insufficient to cover increases of $27,425 in interest expense, $12,326 in
amortization of goodwill and the $7,500 loss from discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended September 30, 1998, the Company had cash flow from
operations of $23,526 as compared with cash flow from operations of $11,045 for
the year ended September 30, 1997. The 1998 cash flows improved due to increased
profit margins, lower inventory and receivable levels, but were negatively
affected by payments of reorganization items and accelerated payments to
post-petition suppliers and spending on year 2000 conversion costs. The cash
flow from operations in 1998, together with the proceeds of $27,822 from the
sale of operations and the $22,500 proceeds from the creditors' subordinated
term loan were used primarily to fund capital expenditures of $24,887 and to
repay obligations under DIP loans amounting to $45,810. As of September 30,
1998, the Company had availability to borrow funds in the amount of
approximately $34,500 pursuant to the DIP revolving credit facility.
In early 1998 the Company's new management contemplated incurring
significant restructuring charges, year 2000 conversion costs, and capital
expenditures to implement its turnaround business strategy. The Company,
therefore, entered into a Term Loan Agreement, dated as of January 16, 1998, for
a $25,000 post-petition term loan facility to allow greater borrowing
availability for its ongoing operations. This facility was
31
<PAGE>
subordinated to the security interests under the then existing DIP loans, was
payable on the earlier of (a) May 8, 1999 or (b) the date the existing DIP loan
was terminated and bore interest at a rate per annum equal to the greater of (i)
the highest per annum interest rate for term loans and revolving credit loans
under the then existing DIP loans plus 3% or (ii) 13%. The Company was required
to pay facility and funding fees aggregating $2,500. The net proceeds of $22,500
were used to reduce the then current balance of the revolver portion of the DIP
loans.
As discussed in Footnote 28 to the Consolidated Financial Statements the
Company emerged from Chapter 11 on November 24, 1998, repaid the DIP Facility,
the Post-Petition Term Loan, and issued $25,000 of Senior Secured Notes and
entered into a $115,000 Senior Secured Credit facility. Management anticipates
having sufficient liquidity to conduct its activities in fiscal 1999 as a result
of the borrowing availability provided by these facilities.
The Company did not meet the fixed charge ratio covenant of its DIP
Facility during the months of October and November 1997. On December 29, 1997,
the Company entered into Amendment No. 1 Waiver and Consent (the "Amendment") to
Post-Petition Loan and Security Agreement with its lenders whereby the lenders
from December 29, 1997 waived all defaults or events of default which had
occurred prior to such date from the failure to comply with the above financial
covenant. The lenders also entered into the Amendment to replace the fixed
charge ratio covenant with monthly consolidated EBITDA and consolidated tangible
net worth covenants commencing with calculations at December 31, 1997. The
Amendment required the lenders' consent for capital expenditures in excess of
$30,000 for the year ending September 30, 1998.
In addition, the Company entered into Amendment No. 2 and Consent to the
Post-Petition Loan and Security Agreement, dated as of January 27, 1998,
pursuant to which the lenders consented to the term loan, discussed above, the
creation of subordinated liens thereunder and to certain asset sales.
Continuation of the Debtors' business after reorganization is dependent
upon the success of future operations, including execution of the Company's
turnaround business strategy and the ability to meet obligations as they become
due. The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations and at September 30, 1998 had a net
working capital deficit and shareholders' deficiency. These factors among others
raise substantial doubt about the Company's ability to achieve successful future
operations. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Capital Expenditures. Capital expenditures for property, plant and
equipment during 1998 and 1997 were $24,887 and $36,572, respectively,
principally for machinery and equipment required in the ordinary course of
operating the Company's business. The Company is currently projecting to spend
approximately $20,000 principally for machinery and equipment in 1999. The
projected capital expenditures are required for new business and on-going cost
saving programs necessary to maintain competitive benefits, and the balance for
normal replacement. The actual timing of capital expenditures for new business
may be impacted by customer delays and acceleration of program launches and the
Company's continual review of priority of the timing of capital expenditures.
YEAR 2000 COMPLIANCE
The Company is in the process of addressing the Year 2000 concerns and
determined that certain of the Company's information systems are not presently
Year 2000 compliant. The Year 2000 issue is the result of many computer programs
and imbedded chips being written using two digits rather than four to define the
applicable year. Many of the Company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000.
If not addressed and completed on a timely basis, failure of the Company's
computer systems to process Year 2000 related data correctly could have a
material adverse effect on the Company's financial condition and results of
operations. Failures of this kind could, for example, lead to incomplete or
inaccurate accounting, supplier and customer order processing or recording
errors in inventories or other assets and the disruption of its manufacturing
process as well as transactions with third parties. If not addressed, the
potential risks to the Company include financial loss, legal liability and
interruption to business.
32
<PAGE>
The Company is currently installing a new management information system
that will allow its critical information systems and technology infrastructure
to be Year 2000 compliant before transactions for the year 2000 are expected.
Many of the Company's systems include new hardware and packaged software
recently purchased from large vendors who have represented that these systems
are already Year 2000 compliant. The Company is in the process of obtaining
assurances from vendors that timely updates will be made available to make all
remaining purchased software Year 2000 compliant. The Company expects to utilize
both internal and external resources to reprogram or replace and test all of its
software for Year 2000 compliance, and the Company has commenced the
installation of its Year 2000 compliant systems at pilot locations subsequent to
the fiscal year end, with the Company-wide rollout to be completed by the Spring
of 1999. The estimated cost for this project is $14 million. The Company spent
approximately $7.7 million for Year 2000 compliance in fiscal 1998 and plans to
spend approximately $5.8 million in fiscal 1999.
However, even if these changes are successful, the Company remains at risk
from Year 2000 failures caused by third parties. The Company has surveyed key
utilities and suppliers but is still in the process of assessing the information
provided to remediate Year 2000 issues. Failure by such key utilities or
suppliers to complete Year 2000 compliance work in a timely manner could have a
material adverse effect on certain of the Company's operations. Examples of
problems that could result from the failure by third parties with whom the
Company interacts to remediate Year 2000 problems include, in the case of
utilities, service failures such as power, telecommunications, elevator
operations and loss of security access control and, in the case of suppliers,
failures to satisfy orders on a timely basis and to process orders correctly.
Additionally, general uncertainty regarding the success of remediation may cause
many suppliers to reduce their activities temporarily as they assess and address
their Year 2000 efforts in 1999. This could result in a general reduction in
available supplies in late 1999 and early 2000. Management cannot predict the
magnitude of any such reduction or its impact on the Company's financial
results. There can be no assurance that the systems of other companies on which
the Company's systems rely will be converted in a timely fashion, or that a
failure to convert by another company, or a conversion that is incompatible with
the Company's systems, would not have a material adverse effect on the Company's
consolidated financial statements included at page 48.
EFFECTS OF THE PLAN OF REORGANIZATION
Following the consummation of the Plan of Reorganization, the Company's
primary capital requirements consist principally of working capital
requirements, capital expenditures, scheduled payments of principal and interest
on outstanding indebtedness. The Company believes that cash flow from operating
activities, cash generated from the sale of certain assets and periodic
borrowings under the revolving credit portion of the Senior Credit Facility will
be adequate to meet these capital requirements. It is expected that the combined
proceeds of the Offering and initial term loan borrowing under the Senior Credit
Facility will be used to (i) refinance the existing first lien and second lien
DIP Credit Facilities, (ii) pay administrative expenses due under the Plan of
Reorganization and pay related fees and expenses and (iii) provide cash for
working capital purposes. The $65 million revolving credit portion of the Senior
Credit Facility will be available to finance working capital and other general
corporate purposes and is expected to be undrawn at closing, although upon
consummation of the Plan of Reorganization, approximately $12.5 million of
stand-by letters of credit are expected to be outstanding for workers'
compensation and other insurance claims which are ongoing. The revolving credit
facility will be available on a revolving basis prior to its expiration on the
third anniversary of the Effective Date, provided that the sum of (i) the
outstanding amount of all direct borrowings under the revolving credit facility
plus (ii) the outstanding amounts of all undrawn letters of credit under the
revolving credit facility may not exceed the defined eligible assets.
INFLATION AND OTHER MATTERS
There was no significant impact on the Company's operations as a result of
inflation during the prior three year period. In some circumstances, market
conditions or customer expectations may prevent the Company from increasing the
price of its products to offset the inflationary pressures that may increase its
costs in the future.
33
<PAGE>
SEASONALITY
Although most of the Company's products are generally not affected by
year-to-year automotive style changes, model changes may have a significant
impact on sales. In addition, the Company experiences seasonal fluctuations to
the extent that the operations of the domestic automotive industry slows down
during the summer months, when plants close for vacation period and model year
changeovers, and during the month of December for plant holiday closings. As a
result, the Company's third and fourth quarter sales are usually somewhat lower
than first and second quarter sales.
RECENT ACCOUNTING PRONOUNCEMENTS
Derivative Transactions. In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999, but may be adopted earlier. Historically, the
Company has used, and in the future may use, derivative instruments or hedge
accounting. The adoption of SFAS No. 133 will have no impact on the Company's
consolidated results of operations, financial position or cash flows.
Reporting Comprehensive Income. In June 1997, the FASB issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting comprehensive income and its components in annual and interim
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
is required. The adoption of SFAS No. 130 will have no impact on the Company's
consolidated results of operations, financial position or cash flows.
Segment Reporting. In June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for companies to report information about operating
segments in annual financial statements, based on the approach that management
utilizes to organize the segments within the company for management reporting
and decision making. In addition, SFAS No. 131 requires that companies report
selected information about operating statements in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. Financial
statement disclosures for prior periods are required to be restated. The
adoption of SFAS No. 131 will have no impact on the Company's consolidated
results of operations, financial position or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14 are included in
this Annual Report on Form 10-K beginning on page 48.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On September 17, 1998, management of Harvard Industries, Inc. (the
"Company") dismissed PriceWaterhouseCoopers LLP ("PriceWaterhouseCoopers") as
the Company's independent accountants and appointed the firm of Arthur Andersen
LLP ("Arthur Andersen") as the new independent accountants for the Company. The
decision to change accountants was ratified by the Board of Directors of the
Company.
Pursuant to Item 304(a)(1) of Regulation S-K, the Company reports the
following:
(i) The reports of PriceWaterhouseCoopers on the Company's
consolidated financial statements for the fiscal years ended September 30,
1997 and 1996 contained no adverse opinion or disclaimer of opinion and
were not qualified as to audit scope or accounting principle. However, the
report included an explanatory paragraph to reflect the uncertainty arising
from the Company's ability to continue as a going concern as a
34
<PAGE>
result of its voluntary filing of petition for reorganization under Chapter
11 of the United States Bankruptcy Code.
(ii) In connection with its audits for the fiscal years ended
September 30, 1997 and 1996 and through September 17, 1998, there have been
no disagreements with PriceWaterhouseCoopers on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or procedure, which disagreements if not resolved to the satisfaction of
PriceWaterhouseCoopers would have caused them to make reference thereto in
their report on the financial statements for such years.
(iii) During each of the fiscal years ended September 30, 1997 and
1996, the following reportable events, as that term is defined by Item
304(a)(1)(v) of Regulation S-K, occurred:
(1) PriceWaterhouseCoopers became aware of accounting
irregularities related to the Company's Doehler-Jarvis, Inc.
subsidiaries during the fiscal year ended September 30, 1996. These
matters related to inventories, materials and supplies and fixed assets.
(2) During each of the two years in the period ended September 30,
1997, the Company experienced significant turnover of accounting and
financial personnel. This reduction complicated a lack of uniform
(company-wide) accounting practices and information systems. As a
result, the Company experienced certain material weaknesses in internal
control.
PriceWaterhouseCoopers discussed these reportable events with the
Company's Audit Committee in August 1996, November 1996, February 1997 and
December 1997.
Management of the Company has authorized PriceWaterhouseCoopers to
respond fully to the inquiries of Arthur Andersen, as the Company's
successor accountants, concerning the reportable events described above.
Pursuant to Item 304(a)(2) of Regulation S-K, the Company reports the
following:
During the Company's two most recent fiscal years, and any subsequent
interim period prior to engaging Arthur Andersen, the Company has not
consulted with Arthur Andersen regarding the application of accounting
principles to a specific transaction, or the type of audit opinion that
might be rendered with respect to the Company's financial statements.
35
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF REGISTRANT
ROGER G. POLLAZZI
Chairman of the Board and Chief Executive Officer since November 24, 1998.
Roger G. Pollazzi was elected Chief Operating Officer of the Company in November
1997 and, has been Chairman of the Board and Chief Executive Officer since the
Effective Date. 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 Pullman, an automotive parts manufacturer.
Term of Office: 1 year
Age: 61
JON R. BAUER
Director since December 9, 1998. John R. Bauer became a director of the
Company December 9, 1998. Jon R. Bauer is a Managing Partner of Contrarian
Capital Management, L.L.C., and an investment management firm founded in May
1995 and located in Greenwich, Connecticut. He was a Managing Director of the
Horizon series of Partnerships from 1986 to 1995.
Term of Office: 1 year
Age: 42
THOMAS R. COCHILL
Director since November 24, 1998. Thomas R. Cochill became a director of
the Company on the Effective Date. Mr. Cochill is a founding partner and serves
as CEO of Ingenium, LLC, a crisis and transition management consulting firm. He
currently serves as non-executive Chairman of the Board of Quantegy, Inc., a
manufacturer of recording media. He served as the President, Chief Executive
Officer and Chairman of the Board of Webcraft Technologies, Inc. ("Webcraft")
from 1992 to 1997. Webcraft specializes in printing of direct mail products,
specialized government forms, complex commercial print formats and fragrance
samplers. Webcraft emerged from Chapter 11 in 1994. He serves as a member of the
Board of Directors of Grand Union Company, a grocery chain in the Northeast
United States, and U.S. Leather, Inc., a producer of leather and leather
products. From 1981 to 1992, Mr. Cochill was the President, member of the Board
of Directors, and member of the Executive Committee as well as a minority
partner of The Lehigh Press, Inc., a private printing company. Mr. Cochill also
served as a Group Business Manager for the Dow Chemical Company from 1969 to
1972.
Term of Office: 1 year
Age: 59
RAYMOND GARFIELD, JR.
Director since November 24, 1998. Raymond Garfield, Jr. became a director
of the Company on the Effective Date. He has been the President of Garfield
Corporation, a national real estate finance and development firm, specializing
in design-build/finance projects. In 1992, Mr. Garfield became Chairman and
Chief Executive Officer of Vista Properties, Inc., a public national development
firm formerly known as Lomas Realty USA. Mr. Garfield guided a restructuring
which resulted in Vista's merger with Centex Corporation in 1996. From 1988 to
1992, Mr. Garfield served as a Senior Managing Director of Cushman & Wakefield,
responsible for all financial services for the Western U.S. Mr. Garfield has
also served as a Vice President of Salomon Brothers from 1984 to 1988 and Senior
Vice President and National Sales Manager for Merrill Lynch Commercial Real
Estate from 1980 to 1984. He is a graduate of the U.S. Naval Academy and is a
former naval aviator.
Term of Office: 1 year
Age: 54
36
<PAGE>
DONALD P. HILTY
Director since November 24, 1998. Donald P. Hilty became a director of the
Company on the Effective Date. He has been a business consultant since 1996, in
which capacity he has performed business and economic analyses for numerous
corporate and not-for-profit clients with regard to business conditions,
industry analysis, international business, public policy concerning trade and
competitiveness issues, and other functions. From 1980 to 1994, Mr. Hilty served
as the Chief Economist of the Chrysler Corporation. In addition, at Chrysler, he
held marketing, finance and research positions during twelve years in Geneva,
London and Paris. He was a Senior Fellow at the Economic Strategic Institute
from 1994 to 1996. Mr. Hilty holds a BA degree from Wheaton College, an MBA from
the University of Colorado and a Doctor of Business Administration from the
Indiana University Graduate School of Business.
Term of Office: 1 year
Age: 69
GEORGE A. POOLE, JR.
Director since November 24, 1998. George A. Poole, Jr. became a director of
the Company on the Effective Date. He has been private investor for more than
five (5) years and is currently a member of the Board of Directors of Anacomp,
Inc., a provider of multiple media data management solutions, which emerged from
Chapter 11 in 1996. In addition to serving on the Board of Anacomp, Inc. since
June 1996, Mr. Poole has served on the Board of Directors of U.S. Home Corp., a
home building company since it emerged from Chapter 11 in June 1993. Mr. Poole
also serves on the Board of Directors of Bibb Company, and has served on the
Board of Directors of Bucyrus International, Inc. and Spreckles Industries.
Term of Office: 1 year
Age: 67
JAMES P. SHANAHAN, JR.
Director since November 24, 1998. James P. Shanahan, Jr. became a director
of the Company on the Effective Date. Mr. Shanahan has been the Executive Vice
President, General Counsel and a member of the Board of Directors of Pacholder
Associates, Inc. since 1986. He also serves on the Board of Directors of
LaBarge, Inc., a manufacturer of electronic components headquartered in St.
Louis, MO. In addition, Mr. Shanahan served as Chief Executive Officer of ICO,
Inc. from 1990 to 1995.
Term of Office: 1 year
Age: 37
RICHARD W. VIESER
Director since December 1998. Richard W. Vieser became a director of the
Company in December 1998. Retired from active employment since 1989. Chairman,
Chief Executive Officer and President of Lear Siegler, Inc. (a diversified
manufacturing company) from 1987 to 1989. Chairman of the Board and Chief
Executive Officer of FL Industries, Inc. and FL Aerospace (formerly Midland-Ross
Corporation) (also a diversified manufacturing company) from 1985 and 1986 to
1989, respectively. Former President and Chief Operating Officer of
McGraw-Edison Co. Currently, Mr. Vieser serves as a director of Ceridian
Corporation (formerly Control Data), Global Industrial Technologies (formerly
INDRESCO, Inc.) International Wire, Sybron International Corporation, Varian
Associates and Viasystems Group, Inc.
Term of Office: 1 year
Age: 71
37
<PAGE>
EXECUTIVE OFFICERS OF REGISTRANT
ROGER G. POLLAZZI
See Directors of Registrant.
JAMES B. GRAY
President since July 8, 1998. James B. Gray joined the Company on July 8,
1998 as its President and currently remains President. Before joining the
Company, he was the Managing Director of Tenneco Automotive Europe since 1997.
From 1987 to 1996, Mr. Gray was President of the Elastomers division of Pullman.
Term of Office: 1 year
Age: 56
THEODORE W. VOGTMAN
Executive Vice President and Chief Financial Officer since November 17,
1997. Theodore W. Vogtman joined the Company on November 17, 1997 and is
currently Executive Vice President and Chief Financial Officer. Prior to joining
the Company, he 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 1994, he
was Chief Financial Officer for Safelite Glass.
Term of Office: 1 year
Age: 58
J. VINCENT TOSCANO
Executive Vice President of Strategic Planning/Acquisition and Divestitures
since November 17, 1997. J. Vincent Toscano joined the Company on November 17,
1997 and is currently Executive Vice President of Strategic Planning/Acquisition
and Divestitures. Prior to joining the Company, he 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
Pullman.
Term of Office: 1 year
Age: 50
JOSEPH J. GAGLIARDI
Executive Vice President, Administration and Information Technology since
July 1998. Joseph J. Gagliardi is currently the Executive Vice President,
Administration and Information Technology, a position he has held since July
1998. From March 1997 to July 1998, he was the Senior Vice President, Finance
and Chief Financial Officer of the Company, and from 1980 to March 1997 he
served as Vice President, Finance and Chief Financial Officer of the Company.
Term of Office: 1 year
Age: 59
GERALD G. TIGHE
Senior Vice President, General Counsel since November 17, 1997 Gerald G.
Tighe joined the Company on November 17, 1997 and currently serves as Senior
Vice President, General Counsel. Prior to joining the Company, he was a
consultant to Pullman from 1994 until 1997. Previously, he was General Counsel
of Lear Siegler Inc.
Term of Office: 1 year
Age: 62
38
<PAGE>
D. CRAIG BOWMAN
Vice President, Law and Secretary since December 1, 1997. D. Craig Bowman
joined the Company on December 1, 1997 and is currently Vice President, Law and
Secretary. Before joining the Company, he was a principal in the
management-consulting firm of The Tappan Group, located in New York, New York,
from June 1994 until November 1997. From 1991 to 1994, Mr. Bowman was Vice
President and General Counsel of Pullman.
Term of Office: 1 year
Age: 52
JOHN J. BROCK
Vice President, Tax since November 17, 1997. John J. Brock joined the
Company on November 17, 1997 and is currently Vice President, Tax. Prior to
joining the Company, he was Vice President-Tax at Pullman from 1994 through
1997. From 1990 to 1994, Mr. Brock was Vice President--Taxation with Fiat
Automotive (USA).
Term of Office: 1 year
Age: 53
ROBERT J. CLARK
Vice President, Human Resources since January 15, 1998. Robert J. Clark
joined the Company on January 15, 1998 and is currently Vice President, Human
Resources. Prior to joining the Company, he was Vice President Benefits and
Compensation with Polygram Holding, Inc. from August 1992 until January 1998.
Term of Office: 1 year
Age: 44
KEVIN L. B. PRICE
Vice President, Controller and Treasurer since November 17, 1997. Kevin L.
B. Price joined the Company on November 17, 1997 and is currently Vice
President, Controller and Treasurer. Prior to joining the Company, he was Vice
President--Controller of Pullman, from 1994 until 1997. Prior to that time,
Mr. Price was the Assistant Controller of Pullman.
Term of Office: 1 year
Age: 43
BRIAN D. BENNINGER
Senior Vice President, Marketing since August 1995. Brian D. Benninger has
been a Senior Vice President of the Company since August 1995. From February
1992 to July 1995, Mr. Benninger was Vice President, Sales and Product Design,
of the Company's subsidiary, Kingston-Warren. In addition, from October 1993 to
the time he became an officer of the Company, Mr. Benninger served as Vice
President, Sales, Marketing and Product Design for both Harman Automotive Sales,
Marketing and Project Design and Corporate CAE. Prior thereto, he was employed
by Clevite Elastometers, a producer of automotive vibration dampening devices,
as a Vice President of Sales and Marketing.
Term of Office: 1 year
Age: 51
DAVID L. KUTA
Senior Vice President, Sales and Product Design since July 1996. David L.
Kuta has been a Senior Vice President of the Company since July of 1996. Prior
to joining the Company in 1996, Mr. Kuta was Vice President of Operations for
United Technologies Automotive-Interiors Division since 1994 and from 1990 to
1994, Vice President and General Manager of the Padded Products
Division-Interiors Division.
Term of Office: 1 year
Age: 54
39
<PAGE>
DAVID C. STEGEMOLLER
Senior Vice President, Powertrain since August 1995. David C. Stegemoller
has been a Senior Vice President of the Company since August 1995. For the past
five years, Mr. Stegemoller served as Vice President of Hayes-Albion and its
Trim Trends division (which was then a subsidiary of the Company). Prior to
joining the Company in 1990, Mr. Stegemoller was employed by Navistar
International for 3 years.
Term of Office: 1 year
Age: 57
DOUGLAS D. ROSSMAN
Vice President, Purchasing since December 1996. Douglas D. Rossman has been
a Vice President of the Company since December 1996. Previously, he was
Purchasing Manager of Federal Mogul Corp., an automobile parts manufacturer, for
more than eight years.
Term of Office: 1 year
Age: 47
40
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------------
ANNUAL COMPENSATION
-------------------------------------------- AWARDS
OTHER ---------- UNDER- PAYOUTS
ANNUAL RESTRICTED LYING ------- ALL OTHER
COMPEN- STOCK OPTIONS/($) LTIP COMPEN-
NAME AND SATION AWARD)(S) (#)SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(6) ($)(1)(6) (5) (5) ($)(5) ($)(6)
- ------------------------- ---- --------- ----------- -------- ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John W. Adams:
Chairman of the Board and
Chief Executive
Officer(7)............... 1998 $ 400,000 0 0 0 0 0 0
1997 $ 250,000 0 0 0 0 0 0
1996 0 0 0 0 0 0 0
Roger G. Pollazzi:
Chief Operating
Officer.................. 1998 $ 525,000(2) 0 0 0 0 0 0
Theodore W. Vogtman:
Executive Vice President
and Chief Financial
Officer.................. 1998 $ 218,750 0 0 0 0 0 0
J. Vincent Toscano:
Executive Vice President
of Strategic Planning.... 1998 $ 218,750 0 0 0 0 0 0
Joseph J. Gagliardi:
Executive Vice President,
Administration and
Information Technology... 1998 $ 250,000 $ 3,177
1997 236,250 0 3,177 0 0 0 0
1996 220,000 0 3,300 0 0 0 0
Roger L. Burtraw:
President(7)............. 1998 $ 298,942 $70,000 $852,561(3)
1997 350,000 35,000 3,177 0 0 0 0
1996 350,000 0 3,167 0 0 0 0
Richard Dawson:
Senior Vice President Law
and Administration and
General Counsel(7)....... 1998 $ 80,000 0 $405,647(4) 0 0 0 0
1997 174,259 0 3,385 0 0 0 0
1996 154,975 0 2,999 0 0 0 0
</TABLE>
- ------------------
(1) Except as indicated in notes (3) and (4) below, all Other Compensation
represents amounts contributed or accrued for fiscal 1998, 1997, and 1996
for the Named Officers under the Company's 401(k) savings plan.
(2) Mr. Roger G. Pollazzi is being compensated at the annual rate of $600,000
since November 1997 in his capacity as Chief Operating Officer of the
Company.
(3) Includes severance of $800,000, a non-qualified pension of $4,348, a 401(k)
matching contribution by the Company of $3,177, vacation pay of $25,000 and
outplacement services of $20,000.
(4) Includes severance of $400,000, a non-qualified pension of $4,547 and a
401(k) matching contribution of $1,100.
(5) On the Effective Date of the Plan of Chapter 11 Reorganization, all
pre-reorganization stock, options and other equity interests of the Company
were cancelled.
(6) All pre-reorganization management incentive plans were rejected by the
Company in its Chapter 11 Reorganization Plan. Employee Benefit Plans,
including plans qualified under Section 401 of the Internal Revenue Code
were unaffected by the Plan.
(7) Mr. Adams, Mr. Dawson, and Mr. Burtraw are no longer employed by the
Company.
41
<PAGE>
PENSION AND RETIREMENT BENEFITS
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(3)
--------------------------------------------------------
REMUNERATION(1)(2) 15 20 25 30 40
- ----------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$150,000............................................. $ 33,075 $ 44,100 $ 55,125 $ 66,150 $ 88,200
200,000............................................. 44,325 59,100 73,875 88,650 118,200
250,000............................................. 55,575 74,100 92,625 111,150 148,200
300,000............................................. 66,825 89,100 111,375 133,650 178,200
400,000............................................. 89,325 119,100 148,875 178,650 238,200
500,000............................................. 111,825 149,100 186,375 223,650 298,200
800,000............................................. 179,325 239,100 298,875 358,650 478,200
</TABLE>
- ------------------
(1) Covered compensation is composed of base salary for the calendar year,
excluding bonuses, commissions and other special forms of compensation. The
maximum amount of compensation used to determine the benefits shown in the
Pension Table above has been limited by federal law. The limit on
compensation for 1998 is $160,000.
(2) Under applicable federal law, the annual benefits payable to any participant
under the Retirement Plan may not exceed a ceiling currently $130,000 a year
(subject to certain reductions based upon age and certain increases based
upon adjustments to the consumer price index).
(3) The Named Officers will have the following estimated credited years of
service under the Retirement Plan based on continued service to normal
retirement age: Mr. Gagliardi: 24; Mr. Burtraw: 15.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS(1)
<TABLE>
<CAPTION>
AMOUNT AND
TITLE OF NAME AND ADDRESS NATURE OF PERCENT
CLASS OF BENEFICIAL OWNER BENEFICIAL OWNER(1)(6) OF CLASS
- ------------- --------------------------------------------------------------- ---------------------- --------
<S> <C> <C> <C>
Common Stock Contrarian Capital Advisors, L.L.C.(7)......................... 803,289(4) 9.75
Common Stock Contrarian Capital Management, L.L.C.(7)....................... 2,056,240(4) 24.95
Common Stock Contrarian Capital Fund II, LP(7).............................. 774,921(4) 9.40
Common James P. Shanahan.............................................. 384,182(2)(3) *
</TABLE>
- ------------------
(1) On the Effective Date of the Plan of Chapter 11 Reorganization, all
pre-reorganization stock, options and other equity interests of the Company
were cancelled. Share holdings reflected herein are as of December 15, 1998.
(2) Mr. Shanahan is a member of a Limited Liability Company, which is the
General Partner of Pacholder Heron, LP and Pacholder Value Opportunity Fund
LP which own 128,080 and 41,199 shares respectively. Mr. Shanahans's
ownership in each is less than 1% and he disclaims ownership of the balance
of the partnership's interests in the shares. These shares were obtained in
exchange for pre-petition debt pursuant to the Plan of Chapter 11
Reorganization.
(3) Mr. Shanahan is an officer of Pacholder Fund, Inc. which owns 214,903
shares. He owns less than 1% of the shares of this company and disclaims
ownership of the balance of the company's interests in the shares. These
shares were obtained in exchange for pre-petition debt pursuant to the Plan
of Chapter 11 Reorganization.
(4) These entities disclaim any beneficial ownership in these shares.
(5) *Less than one percent.
(6) Includes any shares the Beneficial Owner has the right to acquire within
sixty days.
(7) According to a statement on Schedule 13D filed by the Contrarian entities
with the SEC in December, 1998, Contrarian Capital Management, L.L.C. is the
general partner of Contrarian Capital Fund II, L.P. The Managing Members of
Contrarian Capital Advisors, L.L.C. and Contrarian Capital Management,
L.L.C. are Jon R. Bauer and David E. Jackson.
As of December 15, 1998, the Retirement Plan owned no shares of the Common
Stock and no shares of the Company's PIK Preferred Stock.
42
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT(3)
<TABLE>
<CAPTION>
AMOUNT AND
TITLE OF NAME AND ADDRESS NATURE OF PERCENT
CLASS OF BENEFICIAL OWNER BENEFICIAL OWNER(2) OF CLASS(3)
- ------------- --------------------------------------------------------- -------------------- -------------
<S> <C> <C> <C>
Common Stock Roger G. Pollazzi........................................ 51,580(1) Less than 1%
Common Stock Theodore W. Vogtman...................................... 5,733(1) Less than 1%
Common Stock J. Vincent Toscano....................................... 5,733(1) Less than 1%
Common Stock Joseph J. Gagliardi...................................... 3,333(1) Less than 1%
Common Stock John W. Adams............................................ 15(2) Less than 1%
Common Stock Roger L. Burtraw......................................... 47(2) Less than 1%
Common Stock Richard Dawson........................................... 237(2) Less than 1%
Common Stock All Directors and Executive Officers taken together as a 80,344
group..................................................
</TABLE>
- ------------------
(1) These shares were obtained in exchange for pre-petition debt pursuant to the
Plan of Chapter 11 Reorganization.
(2) These shares are represented by warrants to purchase the New Common Stock.
(3) The holdings reflected herein are as of December 15, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1998 there were no such relationships or transactions.
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1)(2) Financial Statements and Schedules.
The following financial statements and schedules are filed as part of this
Annual Report on Form 10-K.
HARVARD INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
- ------------------------------------------------------------------------------------------------------- --------
<S> <C>
Reports of Independent Public Accountants.............................................................. 46, 47
Consolidated Balance Sheets at September 30, 1998 and 1997............................................. 48
Consolidated Statements of Operations Years Ended
September 30, 1998, 1997 and 1996.................................................................... 49
Consolidated Statements of Shareholders' Deficiency Years Ended
September 30, 1998, 1997 and 1996.................................................................... 50
Consolidated Statements of Cash Flows Years Ended
September 30, 1998, 1997 and 1996.................................................................... 51
Notes to Consolidated Financial Statements............................................................. 52
</TABLE>
FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are either not applicable or the
required information is included in the Consolidated Financial Statements or
Notes thereto.
(b) List of Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<S> <C>
2.1 Plan of Reorganization and related Disclosure Statement, filed with the U.S. Bankruptcy Court for
the District of Delaware on July 10, 1998 (incorporated by reference to Exhibits 99.1 and 99.2 to
the Company's Form 8-K filed with the Commission on July 24, 1998 (Commission File No. 001-01044)).
2.2 First Amended and Modified Consolidated Plan of Reorganization dated August 19, 1998, filed with the
U.S. Bankruptcy Court for the District of Delaware on August 25, 1998 (incorporated by reference to
Exhibit 2.1 to the Company's Form 8-K filed with the Commission on October 30, 1998 (Commission File
No. 001-01044)).
3.1(a)* Certificate of Incorporation of the Company.
3.1(b)* Certificate of Merger of the Company.
3.2* By-laws of the Company.
4.1* Form of Common Stock Certificate of the Company.
4.2* Indenture (including the Form of 14 1/2% Senior Secured Note due September 1, 2003), dated as of
November 24, 1998 between the Company, the Subsidiary Guarantors and Norwest Minnesota Bank,
National Association, as Trustee.
10.1* Settlement Agreement dated as of October 15, 1998, by and among the Company, certain of its
subsidiaries and the PBGC.
10.2* Registration Rights Agreement, dated as of November 24, 1998, between the Company and the
signatories listed therein.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<S> <C>
10.3* Registration Rights Agreement, dated as of November 23, 1998, between the Company and Lehman
Brothers Inc., as Initital Purchaser.
10.4* Credit Agreement, dated as of November 24, 1998, between the Company, its subsidiaries, General
Electric Capital Corporation, as Administrative Agent and the lenders party thereto.
10.5* Loan Collateral Agreement, dated as of November 24, 1998, by the Company and its subsidiaries in
favor of General Electric Capital Corporation, as Administrative Agent.
10.6* Collateral Agreement, dated as of November 24, 1998, by the Company and its subsidiaries in favor of
Norwest Bank Minnesota, National Association, as Collateral Agent.
10.7* Warrant Agreement, dated as of November 24, 1998, between the Company and State Street Bank and
Trust Company, as Warrant Agent.
10.8 Harvard Industries, Inc. Nonqualified ERISA Excess Benefit Plan (incorporated by reference to
Exhibit 10.20 to the Company's Registration Statement on Form S-1 (File No. 33-96376)).
10.9 Harvard Industries, Inc. Nonqualified Additional Credited Service Plan (incorporated by reference to
Exhibit 10.21 to the Company's Registration Statement on Form S-1 (File No. 33-96376)).
10.10* Harvard Industries, Inc. 1998 Stock Incentive Plan
10.11** Stipulation and Order between Debtors and ARCO Environmental Remediation, LLC Regarding Assumption
of Settlement Agreement and the Withdrawal of Claim No. 1701 (attaching Settlement Agreement, dated
as of January 16, 1995, by and between Harvard Industries, Inc. and Atlantic Richfield Company).
10.12** Stipulation and Order among the Debtors, General Electric Company and Caribe General Electric
Products, Inc. Regarding Assumption of Settlement Agreement and the Withdrawal of Claim Nos. 1741
and 1742 (attaching Settlement Agreement, dated as of June 30, 1993, by General Electric Company and
Caribe General Electric Products, Inc., Unisys Corporation, Harvard Industries, Inc., Harman
Automotive, Inc. and Harman Automotive of Puerto Rico, Inc., Motorola, Inc. and Motorola Telcarro de
Puerto Rico, Inc. and The West Company Incorporated and The West Company of Puerto Rico, Inc.)
10.13** Stipulation and Order between the Debtors and the Fonalledas Claimants.
10.14** Second Amendment to Settlement Agreement, dated March 6, 1997 and March 11, 1997, between Harvard
Industries, Inc. and The Kingson-Warren Corp. and The Town of Newmarket.
16 Letter re change in certifying accountant (incorporated by reference to Exhibit 16.1 to the
Company's Current Report on Form 8-K/A filed with the Commission October 7, 1998 (Commission File
No. 001-01044)).
21* List of subsidiaries of the Company.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of PriceWaterhouseCoopers
24 Powers of Attorney (contained in the signature pages hereto).
</TABLE>
(c) Reports on Form 8-K
Form 8-K filed September 17, 1998
Form 8-K/A filed October 6, 1998
Form 8-K filed November 24, 1998
- ------------------
* Previously filed.
** Filed herewith.
45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Harvard Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Harvard
Industries, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
September 30, 1998, and the related consolidated statements of operations,
shareholders' deficiency and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Harvard Industries, Inc. as of
September 30, 1997 and for the two years in the period ended September 30, 1997
were audited by other auditors whose report dated November 14, 1997 (except for
Note 9 as to which the date was December 29, 1997) contained an explanatory
paragraph relating to the ability of the Company to continue as a going concern,
as discussed in Note 1 to such financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Harvard Industries, Inc. and
subsidiaries as of September 30, 1998 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully discussed in Note 1 to
the financial statements, on May 8, 1997, the Company and substantially all of
its subsidiaries each filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code. On August 19, 1998, the Company filed its
plan of reorganization, which detailed new management's turnaround business
strategy. On November 24, 1998, the Company emerged from bankruptcy (See
Note 28). In addition, the Company has suffered recurring losses from operations
and at September 30, 1998 had a net working capital deficit and shareholders'
deficit. Continuation of the business is dependent on the Company's ability to
achieve successful future operations. These factors among others raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 12, 1999
46
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Harvard Industries, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, cash flows and shareholders' deficiency
present fairly, in all material respects, the financial position of Harvard
Industries, Inc. and its subsidiaries (the "Company") at September 30, 1997, and
the results of their operations and their cash flows for each of the two years
ended September 30, 1997 and 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The consolidated financial statements audited by us have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, on May 8, 1997, Harvard Industries, Inc. and
substantially all of its subsidiaries each filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code, thereby
raising substantial doubt about their ability to continue as a going concern.
The Company has not filed a plan of reorganization with the Bankruptcy Court.
The consolidated financial statements audited by us do not include any
adjustments that might result from the outcome of the petitions for
reorganization.
PRICE WATERHOUSE LLP
Tampa, Florida
November 14, 1997, except for
Note 9 as to which date
is December 29, 1997
47
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 11,624 $ 9,212
Accounts receivable, net of allowance of $1,675 in 1998 and $2,589 in
1997................................................................. 57,046 76,190
Inventories............................................................. 26,646 54,218
Prepaid expenses and other current assets............................... 5,701 7,602
-------- --------
Total current assets.................................................... 101,017 147,222
-------- --------
Property, plant and equipment, net........................................ 122,579 132,266
Intangible assets, net.................................................... 2,833 4,417
Other assets, net......................................................... 24,552 23,589
-------- --------
Total Assets.............................................................. $250,981 $307,494
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Current portion of debtor-in-possession (DIP) loans..................... $ 39,161 $ 36,436
Creditors Subordinated Term Loan........................................ 25,000 --
Current portion of long term debt....................................... -- 1,748
Accounts payable........................................................ 25,098 32,267
Accrued expenses........................................................ 93,337 72,235
Income taxes payable.................................................... 8,445 2,440
-------- --------
Total current liabilities............................................ 191,041 145,126
Liabilities subject to compromise......................................... 385,665 397,319
DIP loans................................................................. -- 51,035
Long-term debt............................................................ -- 12,339
Post-retirement benefits other than pensions.............................. 95,515 96,929
Other..................................................................... 63,353 27,237
-------- --------
Total liabilities.................................................... 735,574 729,985
Commitments and contingencies............................................. -- --
14 1/4% Pay-In-Kind Exchangeable Preferred Stock (At September 30, 1998
and 1997--includes $10,142 of undeclared accrued dividends)............. 124,637 124,637
-------- --------
Shareholders' deficiency:
Common Stock, $.01 par value; 15,000,000 shares authorized; 7,026,437
shares issued and outstanding at September 30, 1998 and 1997......... 70 70
Additional paid-in capital.............................................. 32,134 32,134
Additional minimum pension liability.................................... (8,902) (3,665)
Foreign currency translation adjustment................................. (2,991) (1,930)
Accumulated deficit..................................................... (629,541) (573,737)
-------- --------
Shareholders' Deficiency............................................. (609,230) (547,128)
-------- --------
Total Liabilities and Shareholders' Deficiency............................ $250,981 $307,494
-------- --------
-------- --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Balance Sheets.
48
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales............................................................... $ 690,076 $ 810,769 $ 824,837
---------- ---------- ----------
Costs and expenses:
Cost of sales......................................................... 656,243 797,774 776,141
Selling, general and administrative................................... 66,546 45,822 42,858
Amortization of goodwill.............................................. 1,584 8,448 15,312
Impairment of long-lived assets and restructuring costs............... 10,842 288,545 --
Interest expense (contractual interest of $49,849 in 1998 and $50,264
in 1997)........................................................... 14,231 36,659 47,004
Gain on sale of operations............................................ (28,673) -- --
Other expense, net.................................................... 3,980 5,530 1,538
---------- ---------- ----------
Total costs and expenses........................................... 724,753 1,182,778 882,853
---------- ---------- ----------
Loss from continuing operations before reorganization items and income
taxes................................................................. (34,677) (372,009) (58,016)
Reorganization items.................................................... 14,920 16,216 --
---------- ---------- ----------
Loss from continuing operations before income taxes..................... (49,597) (388,225) (58,016)
Provision for income taxes.............................................. 6,207 1,204 3,196
---------- ---------- ----------
Loss from continuing operations......................................... (55,804) (389,429) (61,212)
Loss from discontinued operations....................................... -- -- (7,500)
---------- ---------- ----------
Net loss................................................................ $ (55,804) $ (389,429) $ (68,712)
---------- ---------- ----------
---------- ---------- ----------
PIK preferred dividends and accretion (contractual amount of $19,010 in
1998 and $16,891 in 1997)............................................. $ -- $ 10,142 $ 14,844
---------- ---------- ----------
---------- ---------- ----------
Net loss attributable to common shareholders............................ $ (55,804) $ (399,571) $ (83,556)
---------- ---------- ----------
---------- ---------- ----------
Basic and Diluted Earnings per share:
Loss from continuing operations....................................... $ (7.94) $ (56.91) $ (10.87)
Loss from discontinued operations..................................... -- -- (1.07)
---------- ---------- ----------
Net loss per share.................................................... $ (7.94) $ (56.91) $ (11.94)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of common and common equivalent shares
outstanding........................................................ 7,026,437 7,020,692 6,999,279
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Statements.
49
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL MINIMUM TOTAL
----------------------- PAID-IN PENSION FOREIGN ACCUMULATED SHAREHOLDERS'
NO. OF SHARES AMOUNTS CAPITAL LIABILITY CURRENCY DEFICIT DEFICIENCY
------------- ------- ---------- ------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1995......... 6,994,907 $70 $ 56,899 $(1,836) $(1,743) $(115,596) $ (62,206)
Net loss--1996..................... -- -- -- -- -- (68,712) (68,712)
PIK preferred stock dividend....... -- -- (14,375) -- -- -- (14,375)
Accretion of discount on PIK
preferred stock.................. -- -- (469) -- -- -- (469)
Exercise of stock options including
related tax benefits............. 19,450 -- 190 -- -- -- 190
Minimum pension liability.......... -- -- 69 69
Foreign currency adjustment........ -- -- -- -- (221) -- (221)
--------- --- -------- ------- -------- --------- ---------
Balance September 30, 1996......... 7,014,357 70 42,245 (1,767) (1,964) (184,308) (145,724)
Net loss--1997..................... -- -- -- -- -- (389,429) (389,429)
PIK preferred stock dividend....... -- -- (9,854) -- -- (9,854)
Accretion of discount on PIK
preferred stock.................. -- -- (288) -- -- -- (288)
Sale of stock...................... 12,080 -- 31 -- -- -- 31
Minimum pension liability.......... -- -- -- (1,898) -- -- (1,898)
Foreign currency adjustment........ -- -- -- -- 34 -- 34
--------- --- -------- ------- -------- --------- ---------
Balance September 30, 1997......... 7,026,437 70 32,134 (3,665) (1,930) (573,737) (547,128)
Net loss--1998..................... -- -- -- -- -- (55,804) (55,804)
Minimum pension liability.......... -- -- -- (5,237) -- -- (5,237)
Foreign currency adjustment........ -- -- -- -- (1,061) -- (1,061)
--------- --- -------- ------- -------- --------- ---------
Balance September 30, 1998......... 7,026,437 $70 $ 32,134 $(8,902) $(2,991) $(629,541) $(609,230)
--------- --- -------- ------- -------- --------- ---------
--------- --- -------- ------- -------- --------- ---------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Statements.
50
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Cash flows related to operating activities:
Loss from continuing operations before reorganization items................ $(40,884) $(373,213) $(61,212)
Add back (deduct) items not affecting cash and cash equivalents:
Depreciation and amortization......................................... 27,904 60,186 65,658
Impairment of long-lived assets and restructuring charges............. 10,842 288,545 --
Gain on sale of operations............................................ (28,673) -- --
Loss on disposition of property, plant and equipment and property held
for sale........................................................... 1,030 1,931 2,053
Curtailment (gain) loss............................................... 4,390 (8,249) --
Write-off of deferred debt expense.................................... -- 1,792 --
Senior notes interest accrued not paid................................ -- 9,728 --
Changes in operating assets and liabilities of continuing operations,
net of effects from acquisitions and reorganization items:
Accounts receivable................................................... 10,673 22,798 3,133
Inventories........................................................... 21,862 (7,225) 7,112
Other current assets.................................................. 1,460 (5,965) (222)
Accounts payable...................................................... (6,658) (56,806) 9,371
Accounts payable prepetition.......................................... -- 81,429 --
Accrued expenses and income taxes payable............................. 18,567 (10,254) (30,444)
Postretirement benefits............................................... 1,386 (4,138) 5,822
Other noncurrent...................................................... 10,683 13,350 (4,404)
-------- --------- --------
Net cash provided by (used in) continuing operations before
reorganization items.................................................. 32,582 13,909 (3,133)
Net cash used in reorganization items................................... (9,056) (2,864) --
-------- --------- --------
Net cash provided by (used in) continuing operations.................... 23,526 11,045 (3,133)
-------- --------- --------
Cash flows related to investing activities:
Acquisition of property, plant and equipment............................ (24,887) (36,572) (40,578)
Cash flows related to discontinued operations........................... 557 713 (3,332)
Proceeds from sales of operations....................................... 27,822 -- --
Proceeds from disposition of property, plant and equipment.............. 72 1,703 909
-------- --------- --------
Net cash provided by (used in) investing activities..................... 3,564 (34,156) (43,001)
-------- --------- --------
Cash flows related to financing activities:
Issuance costs of Senior Notes and financing agreements................. -- (2,200) --
Net borrowings (and repayments) under credit agreement.................. -- (38,834) 38,834
Net borrowings (and repayments) under DIP financing agreement........... (45,810) 87,471 --
Net borrowings under Unsecured Creditors Term Loan...................... 25,000 -- --
Proceeds from sale of stock and exercise of stock options............... -- 31 190
Repayments of long-term debt............................................ (88) (7,682) (3,032)
Pension fund payments pursuant to PBGC settlement agreement............. -- (6,000) (6,000)
Deferred financing costs................................................ (3,725)
Payment of EPA settlements.............................................. (55) (1,570) (2,676)
-------- --------- --------
Net cash (used in) provided by financing activities..................... (24,678) 31,216 27,316
-------- --------- --------
Net increase (decrease) in cash and cash equivalents......................... 2,412 8,105 (18,818)
Cash and cash equivalents, beginning of period............................... 9,212 1,107 19,925
-------- --------- --------
Cash and cash equivalents, end of period..................................... $ 11,624 $ 9,212 $ 1,107
-------- --------- --------
-------- --------- --------
Supplemental disclosure of cash flow information:
Interest paid........................................................... $ 14,039 $ 37,328 $ 41,868
-------- --------- --------
-------- --------- --------
Income taxes paid....................................................... $ 776 $ 2,244 $ 5,092
-------- --------- --------
-------- --------- --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Statements.
51
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(1) BASIS OF PRESENTATION
Harvard Industries, Inc., a Florida corporation at September 30, 1998,
reorganized as a Delaware Corporation on November 24, 1998, and its subsidiaries
(the "Company") are primarily engaged in the business of designing, engineering
and manufacturing components for OEMs producing cars and light trucks. The
Company's principal customers are General Motors, Ford and Chrysler.
The Company operates primarily in the automotive accessories business. The
Company produces a wide range of products, including: rubber glass-run channels;
rubber seals for doors and trunk lids; aluminum castings; cast, fabricated,
machined and decorated metal products; and metal stamped and roll form products.
General Motors, Ford, and Chrysler accounted for 39%, 34%, and 10%,
respectively, of the consolidated sales in 1998, 43%, 33%, and 7% respectively,
in 1997 and 43%, 31%, and 8%, respectively, in 1996.
On May 8, 1997, Harvard Industries, Inc. and its domestic subsidiaries (all
of whom are hereinafter sometimes designated the "Debtors") filed voluntary
petitions for relief under Chapter 11 of the Federal bankruptcy laws in the
United States Bankruptcy Court (the "Court") for the District of Delaware. Under
Chapter 11, certain claims against the Debtors arising prior to the filing of
the petitions for relief under the Federal bankruptcy laws are stayed from
collection while the Debtors continue business operations as debtors-in-
possession ("DIP").
The Debtors received approval from the Court to pay or otherwise honor
certain pre-petition obligations, including certain employee wages, salaries and
other compensation, employee medical, pension and similar benefits, reimbursable
employee expenses and certain workers' compensation, as well as continuation of
pre-petition customer practices with respect to warranties, refunds and return
policies.
The Company's Plan of Reorganization (the Plan), as an acceptable means of
satisfying creditor claims in accordance with the Bankruptcy Code, was confirmed
by the Court on October 15, 1998, and such plan became effective on
November 24, 1998 (See Note 28). Continuation of the Debtors' business after
reorganization is dependent upon the success of future operations, including
execution of the Company's turnaround business strategy and the ability to meet
obligations as they become due. The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern. The Company has suffered recurring losses from operations and at
September 30, 1998 had a net working capital deficit and shareholders'
deficiency. These factors among others raise substantial doubt about the
Company's ability to achieve successful future operations. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Liabilities subject to compromise consisted of the following at September
30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accounts Payable.................................................... $ 71,635 $ 79,060
Senior notes........................................................ 309,728(a) 309,728(a)
Taxes............................................................... -- 3,269
Other............................................................... 4,302 5,262
-------- --------
$385,665 $397,319
-------- --------
-------- --------
</TABLE>
- ------------------
(a) Includes accrued interest to the date of bankruptcy of $9,728 in 1998 and
1997.
52
<PAGE>
Reorganization expenses included in the consolidated statements of
operations for the year ended September 30 are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Adjustment to record senior notes to amount of allowed claims........... $ -- $10,408
Professional fees....................................................... 15,350 5,828
Interest income on cash resulting from Chapter 11 proceedings........... (430) (20)
------- -------
$14,920 $16,216
------- -------
------- -------
</TABLE>
In a previous Chapter 11 case the Company had a Plan of Reorganization
confirmed by the Court on August 10, 1992, and that Plan became effective on
August 30, 1992. In connection with its emergence from the 1992 Chapter 11
bankruptcy proceedings, the Company implemented "Fresh Start Reporting" as of
August 23, 1992. Accordingly, all assets and liabilities were restated to
reflect respective fair values at that date. The portion of the reorganization
value which could not be attributed to specific tangible or identifiable
intangible assets of the reorganized Company has been reported under the caption
"Intangible Assets." (See Note 7)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. Investments of
50% or less in companies and/or joint ventures are accounted for under the
equity method. All material intercompany transactions and balances have been
eliminated in consolidation.
Cash and Cash Equivalents. The Company considers all investments in highly
liquid bank certificates of deposit to be cash equivalents. Cash equivalents
include only investments with purchased maturities of three months or less. In
accordance with the DIP financing agreement, substantially all the Company's
cash receipts from trade receivables must be applied against the revolving line
of credit. Accordingly, the Company offset $12,160 against the revolving line of
credit for certain cash held in lockboxes at September 30, 1997.
Trade Receivables. A substantial portion of the Company's trade
receivables is mainly concentrated with the three largest U.S. automotive
companies. The Company does not require collateral or other security to support
credit sales. General Motors, Ford and Chrysler accounted for 46%, 11% and 17%,
respectively, of consolidated trade receivables at September 30, 1998, and 42%,
12% and 11%, respectively, at September 30, 1997.
Inventories. Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method.
Property, Plant and Equipment. All property, plant and equipment owned at
August 23, 1992 were restated to reflect fair value in accordance with "fresh
start reporting". Additions after August 23, 1992 are recorded at cost.
Depreciation and amortization, which includes the amortization of machinery and
equipment under capital leases, is calculated using the straight-line method at
rates to depreciate assets over their estimated useful lives or remaining term
of leases. The rates used are as follows: buildings and building improvements,
2.5% to 20.0%; and machinery, equipment and furniture and fixtures, 5.0% to
33.3%. Replacements and betterments are capitalized. Major scheduled furnace
maintenance and die replacement programs are accrued based on units of
production; all other maintenance and repairs are expensed as incurred. Upon
sale or retirement of property, plant and equipment, the related cost and
accumulated depreciation are removed from the accounts and any resultant gain or
loss is recognized. See Note 13 for impairment of certain property, plant and
equipment.
Intangible Assets. Intangible assets consist of goodwill and
reorganization value in excess of amounts allocable to identifiable assets.
Goodwill applicable to the acquisition of Doehler-Jarvis, originally being
amortized over 15 years was changed to 10 years in the fourth quarter of 1996,
effective October 1, 1995, based
53
<PAGE>
upon Doehler-Jarvis' unprofitable operating results since acquisition and
projected future operating results. Reorganization value in excess of amounts
allocated to identifiable assets is being amortized using the straight-line
method over 10 years. (see Note 13 for impairment of goodwill.)
Long-Lived Assets. The Company assesses the recoverability of its
long-lived assets by determining whether the amortization of each such asset
over its remaining life can be recovered through projected undiscounted future
cash flows. The amount of impairment, if any, is measured based on projected
discounted future cash flows using a discount rate reflecting the Company's
average cost of funds. (See Note 13.)
Debt Issuance Costs. The Company amortizes its deferred debt issuance
costs over the term of the related debt.
Revenue Recognition. Revenues are recognized as products are shipped to
customers.
Income Taxes. The Company accounts for income taxes in accordance with
Financial Accounting Standards Board (FASB) Statement No. 109. Such statement
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between tax basis and financial
reporting basis of assets and liabilities.
Environmental Liabilities. It is the Company's policy to accrue and charge
against operations environmental remediation costs when it is probable that a
liability has been incurred and an amount is reasonably estimable. As
assessments and cleanups proceed, additional information becomes available and
these accruals are reviewed periodically and adjusted, if necessary. These
liabilities can change substantially due to such factors as additional
information on the nature or extent of contamination, methods of remediation
required, and other actions required by governmental agencies or private
parties. Cash expenditures often lag behind the period in which an accrual is
recorded by a number of years.
Foreign Currency Translation Adjustment. Exchange adjustments resulting
from foreign currency transactions are generally recognized in the results of
operations, whereas adjustments resulting from the translation of balance sheet
accounts are reflected as a separate component of shareholders' deficiency. Net
foreign currency transaction gains or losses are not material in any of the
years presented.
Earnings Per Share. Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", which became effective for fiscal 1998, establishes new
standards for computing and presenting earnings per share (EPS). The new
standard requires the presentation of basic EPS and diluted EPS and the
restatement of previously reported EPS amounts. Basic EPS is calculated by
dividing income available to common shareholders by the weighted average number
of shares of common stock outstanding during the period. Diluted EPS is
calculated by dividing income available to common shareholders, adjusted to add
back dividends or interest on convertible securities, by the weighted average
number of shares of common stock outstanding plus additional common shares that
could be issued in connection with potentially dilutive securities. In
connection with the Company's emergence from bankruptcy (Note 28), the number of
shares of common stock outstanding will increase, thereby diluting current
equity interests.
Recent Accounting Pronouncements
Derivative Transactions. In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and loses to offset related results on the hedged
item in the income statement. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999, but may be adopted earlier. Historically, the
Company has used, and in the future may use, derivative instruments or hedge
accounting. The adoption of SFAS No. 133 will have no impact on the Company's
consolidated results of operations, financial position or cash flows.
Reporting Comprehensive Income. In June 1997, the FASB issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting comprehensive income and its components in
54
<PAGE>
annual and interim financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods is required. The adoption of SFAS No. 130 will
have no impact on the Company's consolidated results of operations, financial
position or cash flows.
Segment Reporting. In June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for companies to report information about operating
segments in annual financial statements, based on the approach that management
utilizes to organize the segments within the company for management reporting
and decision making. In addition, SFAS No. 131 requires that companies report
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for fiscal years beginning
after December 15, 1997. Financial statement disclosures for prior periods are
required to be restated. The adoption of SFAS No. 131 will have no impact on the
Company's consolidated results of operations, financial position or cash flows.
Reclassifications. Certain amounts in the 1997 and 1996 Consolidated
Financial Statements and Notes to Consolidated Financial Statements have been
reclassified to conform to the 1998 presentation.
(3) DISPOSITION OF BUSINESSES
In November 1997, the Company sold the Material Handling division of its
Kingston-Warren subsidiary for approximately $18,000 of gross proceeds, of which
$7,840 was applied to the scheduled DIP term loans' quarterly payments in
November 1997 and February and May 1998 and $7,840 was applied to the final
installment due May 1999. The balance of the proceeds was used to reduce the DIP
revolving facility. The transaction resulted in a gain on sale of approximately
$11,400 in the first quarter of fiscal 1998.
In June 1998, the Company finalized the sale of its land, building and
certain other assets related to the Harvard Interiors Furniture Division located
in St. Louis, Missouri for approximately $4,100 of gross proceeds. Of the
proceeds, $830 was applied to the May 31, 1998 DIP quarterly term payment, $501
was applied to the August 31, 1998 payment, $1,330 was applied to the May 8,
1999 payment and the balance was applied to reduce the DIP revolving facility.
The transaction resulted in a gain on sale of approximately $1,200, which was
recorded in the second and third quarters of fiscal 1998.
In June 1998, the Company sold its Elastic Stop Nut ("ESNA") land and
building located in Union, New Jersey for $1,900. On September 7, 1998, the
Company sold substantially all of the assets of Doehler-Jarvis Greeneville, Inc.
for $10,907 of gross proceeds and resulted in a gain on sale of approximately
$2,100.
Production has ceased at the Company's Doehler-Jarvis Toledo, Inc.
subsidiary. During 1998, General Motors and Ford defrayed certain expenses of
the shut down and in return obtained certain assets, which were written off when
the Company recorded the impairment charge in 1997 (See Note 13), and assumed
the related lease obligation. As a result of the lease assumption during 1998,
the Company recorded a gain on sale of approximately $14,000. This gain is
recorded within "Gain on sale of operations." The facility is currently for
sale.
In September 1998, the Company sold, at auction, certain assets of Harman
for approximately $2,000.
Condensed operating data of operations designated for sale or wind-down
(Harman Automotive, Harvard Interiors, Material Handling, Toledo, Greeneville
and the Tiffin, Ohio facility of the Hayes-Albion subsidiary) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net Sales............................................................. $204,616 $315,078
Gross profit (loss)................................................... 4,877 (15,502)
</TABLE>
55
<PAGE>
(4) ESNA DISCONTINUED OPERATIONS
On three separate occasions in fiscal 1994, the Company became aware that
certain products of its ESNA division were not manufactured and/or tested in
accordance with required specifications at its Union, New Jersey and/or
Pocahontas, Arkansas facility. These fastener products were sold to the United
States Government and other customers for application in the construction of
aircraft engines and airframes. In connection therewith, the Company notified
the Department of Defense Office of Inspector General ("DOD/OIG") and, upon
request, was admitted into the Voluntary Disclosure Program of the Department of
Defense (the "ESNA matter"). The Company has settled this matter in principal
(final stipulation yet to be executed) for $475, to be paid subsequent to the
fiscal year end.
In September 1996 the Company determined that it is not likely that the
agreement entered into in May 1996 with a developer to sell the Company's ESNA
facility in Union, NJ would be successfully concluded, due to Environmental
Protection Agency ("EPA") requirements necessary to bring the site up to
residential standards. After considering the length of time, current market
conditions and environmental cleanup costs to dispose of the facility for
residential and/or industrial use, the Company determined that it was
appropriate to reflect the value of the ESNA facility to the Company at a
nominal net realizable value including clean up costs. As a result, the Company
recorded a $7,500 charge to discontinued operations in the fourth quarter of
1996 representing the write-down of the ESNA facility, continuing carrying costs
associated with the Company's ongoing participation in the Department of Defense
Voluntary Disclosure Program and carrying costs of the Union, NJ facility.
Net assets of discontinued operations of $500 and $1,057 at September 30,
1998 and 1997 respectively reflect the estimated net realizable value of
remaining assets consisting primarily of royalty receivables and are included in
other non-current assets. In June of 1998, the Company sold its ESNA land and
building in NJ for approximately $1,900.
(5) INVENTORIES
Inventories at September 30 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Finished goods......................................................... $ 6,476 $ 3,530
Work-in-process........................................................ 2,078 16,805
Tooling................................................................ 5,991 19,934
Raw materials.......................................................... 12,101 13,949
------- --------
Total Inventories...................................................... $26,646 $ 54,218
------- --------
------- --------
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30 consist of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land.................................................................. $ 3,445 $ 4,537
Buildings and improvements............................................ 52,590 57,367
Machinery and equipment............................................... 161,875 177,127
Furniture and fixtures................................................ 1,768 2,011
Construction in progress.............................................. 26,331 14,799
-------- --------
Total............................................................ 246,009 255,841
Less accumulated depreciation......................................... (123,430) (123,575)
-------- --------
Property, Plant and Equipment, Net.................................... $122,579 $132,266
-------- --------
-------- --------
</TABLE>
56
<PAGE>
Depreciation expense amounted to $24,209, $46,377, and $42,632 in 1998, 1997 and
1996, respectively. (See Note 13 regarding the impairment of property, plant and
equipment in 1997 and 1998.)
(7) INTANGIBLE ASSETS
Intangible assets at September 30 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Reorganization value (See Note 2)....................................... $12,339 $12,339
Less accumulated amortization........................................... (9,506) (7,922)
------- -------
Intangible assets, net........................................... $ 2,833 $ 4,417
------- -------
------- -------
</TABLE>
Amortization expense related to reorganization value amounted to $1,584,
$8,448, and $15,312 in 1998, 1997 and 1996, respectively. (See Note 13)
(8) OTHER ASSETS
Other assets at September 30 consist of the following:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1998 1997
----------------- -------- -------
<S> <C> <C> <C>
Deferred financing costs..................................... life of agreement $ 3,862 $ 2,200
Deferred tooling............................................. units produced 10,297 10,291
Pension Asset................................................ N/A 18,675 16,074
Net assets of discontinued operations........................ N/A 500 1,057
Other........................................................ N/A 2,821 3,261
-------- -------
Total................................................. 36,155 32,883
Less accumulated amortization................................ (11,603) (9,294)
-------- -------
Other assets, net..................................... $ 24,552 $23,589
-------- -------
-------- -------
</TABLE>
Amortization expense related to deferred financing costs amounted to
$1,262, $1,627, and $5,136 in 1998, 1997 and 1996, respectively. Amortization
expense related to deferred tooling amounted to $849, $3,743, and $2,578, in
1998, 1997 and 1996, respectively. In addition, in 1997 the Company wrote-off
deferred financing costs of $10,408 related to the senior notes as
reorganization costs and $1,792 relating to the financing agreement as interest
expense upon the refinancing of such debt with DIP financing described in
Note 9.
(9) DIP FINANCING AND CREDITORS SUBORDINATED TERM LOAN
As discussed in Note 28, both of these financing facilities were repaid
upon emergence from bankruptcy on November 24, 1998. On May 8, 1997, the Company
and certain of the Company's subsidiaries obtained a two-year Post-Petition Loan
and Security Agreement ("DIP financing") to enable it to continue operations
during the Chapter 11 proceedings. The DIP financing provides for $65,000 of
Term Loans and $110,000 of Revolving Credit Loans which includes a $25,000
sub-limit of credit facility principally for standby letters of credit. As
collateral, the Debtors have pledged substantially all of the assets of the
Debtors.
The Company entered into a Term Loan Agreement dated as of January 16, 1998
for a $25,000 post-petition term loan facility which is subordinated to the
security interests under the existing DIP loans. The loan is payable on the
earlier of May 8, 1999 or the date the existing DIP loan is terminated and bears
interest at a rate per annum equal to the greater of (i) the highest per annum
interest rate for term loans and revolving credit loans under the existing DIP
loans plus 3% or (ii) 13%. The net proceeds of $22,500 from the loan were used
to reduce the current balance of the revolver portion of the DIP loans.
57
<PAGE>
All of the Pre-petition indebtedness outstanding at May 8, 1997 under the
financing agreement described in Note 10 amounting to $105,044 was repaid from
borrowings under the DIP financing. At September 30, 1998 and 1997, the amount
outstanding under the term loans was $64,161 and $64,035, respectively, the
amount outstanding under the Revolving Credit Loans was $0 and $23,436
respectively, and outstanding letters of credit amounted to $12,243 and $12,670
(principally standby), respectively.
The Revolving Credit Loans bear interest at the rate of 1.50% in excess of
the Base Rate (Prime) and the Term Loans bear interest at the rate of 1.75% in
excess of the Base Rate. The prime rate was 8.25% at September 30, 1998. The DIP
Lenders also earn a fee of 2% per annum of the face amount of each standby
letter of credit in addition to passing along to the borrowers all bank charges
imposed on the DIP Lenders by the letter of credit issuing bank. Further, the
DIP Lenders receive a line of credit fee of .5% per annum on the unutilized
portion of the Revolving Line of Credit, together with certain other fees,
including a $1,375 closing fee. The Term Loans provide for quarterly payments of
$3,250 beginning November 30, 1997 through February 28, 1999, with a final
installment of $45,500 due on May 8, 1999.
The Company failed to meet the fixed charge ratio financial covenant during
the months of October and November 1997 and on December 29, 1997 obtained a
waiver of such default from its lenders. On December 29, 1997 the Company
entered into Amendment No. 1, Waiver and Consent (the "Amendment") to
Post-Petition Loan and security Agreement with its vendors whereby the lenders
from December 29, 1997 waived all defaults or events of default which had
occurred prior to such date from the Companies' failure to comply with the above
financial covenants. The lenders also entered into the Amendment to replace the
fixed charge ratio covenant with monthly consolidated EBITDA and consolidated
tangible net worth covenants commencing calculations at December 31, 1997. The
Amendment required the lenders' consent for capital expenditures in excess of
$30 million for the year ending September 30, 1998.
The Company also entered into Amendment No. 2 and Consent to the
Post-Petition Loan and Security Agreement, dated January 27, 1998 (the "Amended
DIP Financing Agreement"), pursuant to which the lenders consented to the term
loan, discussed above, the creation of subordinated liens thereunder and to
certain asset sales.
The Company entered into Amendment Nos. 3 and 4 to the Post-Petition Loan
and Security Agreement, dated April 30, 1998 and June 23, 1998, respectively,
extending to May 31, 1998 and June 30, 1998, respectively, the date upon which
an agreement with Ford regarding the wind-down of the Toledo facility was
required to be approved by the Court. An agreement with Ford was signed on
May 18, 1998 and approved by the Court on June 22, 1998. (See Note 3.)
(10) LONG TERM DEBT AND CREDIT AGREEMENTS
Long term debt at September 30 consists of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
12% Senior Notes Due 2004............................................... $ -- $ --
11 1/8% Senior Notes Due 2005........................................... -- --
Revolving Credit Agreement.............................................. -- --
Industrial revenue bonds................................................ -- --
Capital lease obligations............................................... -- 14,087
------- -------
Total Long Term Debt............................................... 14,087
Less current portion.................................................... -- (1,748)
------- -------
Long-term portion....................................................... $ -- $12,339
------- -------
------- -------
</TABLE>
58
<PAGE>
On July 26, 1994, the Company consummated a public offering relating to
$100,000 aggregate principal amount of the Company's 12% Senior Notes Due 2004
("12% Notes") and on July 28, 1995, the Company consummated a private placement
offering of $200,000 principal amount of 11 1/8% Senior Notes Due 2005 ("11 1/8%
Notes") (which were subsequently exchanged for new 11 1/8% Notes which are not
subject to transfer restrictions). Both Notes were issued pursuant to indentures
by and among the Company and Guarantors, which are subsidiaries of the Company,
and First Union National Bank of North Carolina, as Trustee. (See Note 26 for
information concerning the Guarantors and Note 1 for the classification of such
debt which is in default.)
In addition, both Note Indentures require the repayment of the Notes upon
the occurrence of a change in control, as defined, at a repurchase price of 101%
of the principal amount thereof plus accrued and unpaid interest. The Note
Indentures limit the issuance of new debt, preferred stocks, as defined, and
restrict the payment of dividends, distributions from subsidiaries and the sale
of assets and subsidiary stock, as defined.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time after July 15, 1999 for the 12% Notes or August 1, 2000 for the
11 1/8% Notes at the various redemption prices set forth in the Indentures
relating to the Notes, plus accrued interest to the date of redemption. The 12%
Notes mature on July 15, 2004, and the 11 1/8% Notes on August 1, 2005. Interest
on both Notes is payable semiannually. The Company discontinued accruing
interest on both Notes from the date of bankruptcy.
The net proceeds from the sale of the 12% Notes of $94,300 were used to
prepay all indebtedness outstanding under the Company's then existing bank
credit agreement (approximately $51,100) and to pay certain trade payables that
were incurred by the Company prior to its bankruptcy (approximately $31,000).
The balance of the proceeds from the sale of the 12% Notes was used for general
corporate purposes. The proceeds of $188,196 from the sale of the 11 1/8% Notes
were utilized as part of the purchase price of the acquisition of
Doehler-Jarvis.
Contemporaneously with the sale of the 11 1/8% Notes, the Company and
Guarantors (see Note 26) entered into a Revolving Credit Agreement, dated as of
July 28, 1995 ("Chemical Agreement"), by and among the Company and Guarantors
and Chemical Bank, as Agent, providing for up to $100,000 of working capital
loans.
The Company and certain of its subsidiaries entered into a financing
agreement dated October 4, 1996 with the CIT Group/Business Credit, Inc. as a
lender and as agent for a group of lenders. On October 4, 1996, the Company
borrowed $38,273, under such financing agreement of which $30,000 was borrowed
as term loans and $8,273 as revolving loans. Contemporaneously with entering
such financing agreement, the Company terminated the Chemical Agreement, dated
as of July 28, 1995. Proceeds from this new financing agreement were used to
repay all outstanding loans under the Chemical Agreement. (See Note 9 for
subsequent refinancing of this Agreement.)
Machinery and equipment at September 30, 1996 includes equipment held under
capital leases with an acquisition cost of approximately $16,727, which arose
principally through the acquisition of Doehler-Jarvis. The initial lease terms
for such leases end December 2002 and September 2003. The leases are subject to
renewal and the equipment under the leases may be purchased at the end of the
leases at fair market value not to exceed 24% of the original cost.
Substantially all such equipment was written-off as impaired in September 1997
and the lease commitments were assumed by Ford in December 1997. (See Notes 3
and 13).
For current Long Term Debt and Credit Agreements see Footnote 28,
Subsequent Events.
59
<PAGE>
(11) ACCRUED EXPENSES
Accrued expenses at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Interest................................................................ $ 758 $ 713
Salaries and wages...................................................... 17,080 13,207
Pension liabilities..................................................... 3,404 2,177
Workers' compensation and medical....................................... 11,510 13,521
Costs related to discontinued operations................................ 7,885 4,822
Tooling and maintenance costs........................................... 3,031 5,366
Environmental........................................................... 2,785 2,397
Post-retirement benefits................................................ 2,112 2,300
Reorganization costs.................................................... 8,808 2,944
Restructuring costs (see Note 13)....................................... 1,653 10,000
Other................................................................... 34,311 14,788
------- -------
$93,337 $72,235
------- -------
------- -------
</TABLE>
(12) OTHER LIABILITIES
Other liabilities at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Pension liabilities (see Notes 19 and 20)............................... $23,566 $ 3,495
Workers' compensation................................................... 26,478 10,462
Environmental........................................................... 5,748 78
Deferred taxes.......................................................... 4,345 1,262
Tool and die replacement................................................ 3,189 8,027
Other................................................................... 27 3,913
------- -------
$63,353 $27,237
------- -------
------- -------
</TABLE>
(13) IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES
In 1998 and 1997 the Company recorded the following charges:
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Impairment of Doehler-Jarvis long-lived assets......................... $ -- $266,545
Impairment of long-lived assets........................................ 5,842 12,000
Severance payments related to two facilities scheduled for closing..... -- 3,285
Restructuring charges.................................................. 5,000 6,715
------- --------
$10,842 $288,545
------- --------
------- --------
</TABLE>
During the year ended September 30, 1998, the Company recorded a $5,000
restructuring charge representing estimated shutdown costs, of which $2,500
related primarily to severance for 22 salaried office personnel and moving costs
($475) substantially associated with the move of the corporate headquarters from
Tampa, Florida to Lebanon, New Jersey, which was substantially completed by
August 31, 1998, and approximately $2,500 related to 3 senior officers pursuant
to agreements entered into as part of the bankruptcy proceedings.
In March 1998, the Company announced its intention to sell or wind down its
Tiffin operations and, based on the absence of acceptable offers to date and the
projected undiscounted cash flows, recorded a charge of $3,042 for the
impairment of building, machinery and equipment, furniture and fixtures and
construction in progress. In addition, it recorded a charge of $2,800 for the
impairment of certain machinery and equipment, tooling and dies relating to a
platform that will end sooner than planned.
In March 1997, due to significant changes in forecasted operating results,
the Company wrote off all of the $114,385 of unamortized goodwill related to its
1995 acquisition of Doehler-Jarvis. Such write-off was based on estimated
discounted cash flows in accordance with SFAS No. 121, Accounting for the
Impairment of Long-lived
60
<PAGE>
Assets and for Long-lived Assets to be Disposed of. After such write-off, the
projected undiscounted cash flows provided for the recovery of the remaining
long-lived assets at that time. In July 1997 the Company announced its intention
to sell this subsidiary. Based on the absence of acceptable offers to date and
the projected future cash flows, in September 1997, the Company recorded an
impairment charge of $152,160 related to all other long-lived Doehler-Jarvis
assets, including building, machinery and equipment, furniture and fixtures,
construction in progress, capitalized lease, spare parts and dies. The projected
cash flows were used consistently to determine if impairment was indicated. If
impairment was indicated, the extent of any impairment write-off also addressed
estimated sales price for assets held for sale in estimating impairment charges.
At the time, such recoveries, if any, were estimated to be minimal.
In February 1997, based on undiscounted negative cash flow forecasts, the
Company announced its plans to sell its Harman Automotive subsidiary and in
March 1997 recorded a charge for the impairment of Harman's property, plant and
equipment and, based on available third party offers, recorded a charge for the
impairment of certain property, plant and equipment of the Tiffin plant.
In September 1997, the Company reflected a restructuring charge for
employee severance covering approximately 540 salaried and hourly employees and
plant closing costs relating primarily to annual maintenance, insurance and
inventory for the Harman and Harvard Interiors facilities.
See Note 3 for information relating to the sales of the above operations.
(14) OTHER EXPENSE, NET
Other (income) expense, net includes the following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Loss on disposal of PP&E................................................... $1,030 $1,931 $2,053
Loss on joint venture...................................................... -- 2,221 --
Interest income............................................................ (37) (106) (220)
Other, net................................................................. 2,987 1,484 (295)
------ ------ ------
$3,980 $5,530 $1,538
------ ------ ------
------ ------ ------
</TABLE>
(15) INCOME TAXES
Provision for income tax expense for continuing operations consists of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Domestic................................................................... $5,722 $ -- $ --
Foreign.................................................................... 485 1,204 3,196
------ ------ ------
Income tax provision..................................................... $6,207 $1,204 $3,196
------ ------ ------
------ ------ ------
</TABLE>
Deferred income taxes result from temporary differences in the recognition
of revenue and expense for tax and financial statement purposes. The tax effects
of temporary differences that give rise to the deferred tax assets and deferred
tax liabilities at September 30, 1998 and 1997 are as follows:
Deferred tax assets:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net operating loss carry forwards..................................... $ 96,788 $ 98,533
Pension and post-retirement benefits obligations...................... 34,264 33,732
Reorganization items capitalizable for tax purposes................... 4,094 4,100
Reserves and accruals not yet recognized for tax purposes............. 116,546 115,193
-------- --------
Total................................................................. 251,692 251,558
Less valuation allowance.............................................. 201,354 200,780
-------- --------
Total deferred tax assets............................................. $ 50,338 $ 50,778
-------- --------
-------- --------
</TABLE>
61
<PAGE>
The Company believes it will more likely than not be able to realize its
net deferred tax assets of $50,338 by offsetting it against deferred tax
liabilities related to existing temporary differences that would reverse in the
carry forward period. The Company has established a valuation allowance for
certain of its gross deferred tax assets which exceed such deferred tax
liabilities.
The change in the valuation allowance in 1998 and 1997 primarily represents
recognition of the deferred tax asset related to reserves and accruals not yet
recognized for tax purposes.
Deferred tax liabilities:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Depreciation............................................................ $51,580 $50,322
Other................................................................... 3,103 1,718
------- -------
Total deferred tax liabilities.......................................... $54,683 $52,040
------- -------
------- -------
</TABLE>
The net deferred tax liabilities of $4,345 and $1,262 are included in other
liabilities in the consolidated balance sheets at September 30, 1998 and 1997,
respectively.
The following reconciles the statutory federal income tax expense
(benefit), computed at the applicable federal tax rate, to the effective income
tax expense:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate............................ $(16,863) $(135,879) $(20,305)
State income taxes, net of federal benefit......................... 1,529 549 736
Permanent differences arising in connection with businesses
acquired or reorganization....................................... 1,126 42,991 3,737
Earnings of foreign subsidiaries subject to a different tax........ 134 109 318
Other permanent differences........................................ 115 114 115
U.S. Federal Minimum Tax........................................... 500 -- --
Amount for which no tax benefit is recognized...................... 19,666 93,320 17,837
Other.............................................................. -- -- 758
-------- --------- --------
Actual tax expense from continuing operations...................... $ 6,207 $ 1,204 $ 3,196
-------- --------- --------
-------- --------- --------
</TABLE>
At September 30, 1998, the Company had available net operating loss
carryforwards and general business tax credits of approximately $242,000 for
Federal income tax purposes. These carryforwards expire in the years 2002
through 2013. Of this total, approximately $83,000 is subject to current
limitation under Section 382 of the Tax Code and approximately $27,700 is
subject to the "SRLY" limitations of the Income Tax Regulations. These tax
attributes will be reduced by any gain or income realized as a result of the
transactions contemplated by the reorganization plan, in particular, any
discharge of indebtedness income ("COD Income") excluded from income pursuant to
Section 108 of the Tax Code. The precise amount of COD income realized but not
recognized upon reorganization has not been finally determined, and will depend
in part upon the fair market value of the New Common Stock. In addition, because
the reorganization will result in an "ownership change" (as defined in
Section 382 of the Tax Code), the availability of any NOLs remaining after
reduction for COD income to offset income of the Company after the Effective
Date will be limited. Under the Tax Code, a taxpayer is generally required to
include COD income in gross income. COD income is not includable in gross
income, however, if it arises in a case under the Bankruptcy Code. Instead, COD
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. Discharge under
the reorganization plan of certain of the General Unsecured Claims, in
particular the Senior Notes, will result in the realization of COD income, which
will reduce the tax attributes of the Company by the difference between the fair
market value of the consideration received by the creditors and the amount of
the discharged indebtedness.
62
<PAGE>
(16) RELATED PARTY TRANSACTIONS
Pursuant to a Termination, Consulting and Release Agreement, dated as of
February 12, 1997, among the Company, Vincent J. Naimoli and Anchor Industries
International, Inc. ("Anchor"), his affiliated corporation, the parties agreed
to terminate Mr. Naimoli's management services relationship with the Company,
and cancel the prior Management and Option Agreement, as amended, under which
Mr. Naimoli's services had been performed as the Company's then Chairman of the
Board and Chief Executive Officer, except for certain provisions of the
Management and Option Agreement relating to options, registration rights and
certain indemnification.
The Termination, Consulting and Release Agreement provides for Mr. Naimoli
to receive vested benefits which had accrued prior to termination, and
Mr. Naimoli agreed to act as a consultant to the Company for three years after
termination. The Company charged selling, general and administrative expense for
all of the fees and benefits related to the Agreement amounting to in excess of
$3,000 in the second quarter of 1997.
On June 19, 1997, the Company applied to the Court for an Order authorizing
the rejection of the Agreement, and on July 16, 1997, Mr. Naimoli filed an
objection to the Company's motion. The matter is currently pending in the Court.
Subject to application "Plan of Reorganization and the Bankruptcy Code,
under the Agreement, stock options that would be so available to him, would be
those available if he were a participant in such Plans, and may include benefits
to his selected beneficiaries. The Nonqualified Retirement Benefit Agreement
provides that if Mr. Naimoli's services terminate within two years following a
change in control of the Company (as defined in the Management and Option
Agreement), he is to receive the benefits thereunder within 30 days of such
termination in a lump sum cash payment equal to the "actuarial equivalent" of
the benefits he would have received under such Agreement. Under the Management
and Option Agreement, as restated as of August 16, 1995, Mr. Naimoli is given
during the term of the Agreement, medical and dental insurance benefits for both
his family and him on the terms and with the benefits as are from time-to-time
provided to other senior executive officers, provided however, that such
benefits are without cost to Mr. Naimoli and his family. Moreover, such
Agreement requires the Company to purchase and maintain during Mr. Naimoli's
life, a life insurance policy on his life in the face amount of $2,000, of which
Mr. Naimoli's beneficiaries are entitled to receive the benefit proceeds.
Subject to application "Plan of Reorganization and the Bankruptcy Code, in
the event of voluntary termination of the Agreement by the Company, or if Anchor
provides notice, during the period beginning on the 30th day following and
ending on the 90th day following the occurrence of a Change in Control (as
defined), that it intends to terminate the Agreement, the Company is to pay to
Anchor a lump sum cash payment equal to (a) the number 3 multiplied by (b) the
sum of (1) the highest annual compensation in effect under the Agreement during
the one-year period preceding the occurrence of the Change in Control and
(2) the average amount earned under the Agreement's bonus provisions during the
three years preceding the occurrence of the Change in Control and continue to
provide Anchor and Mr. Naimoli with all of the other benefits that Anchor and
Mr. Naimoli would otherwise be entitled to pursuant to the terms of the
Agreement, including, without limitation, the stock options granted under the
Agreement.
Pursuant to a Registration Rights Agreement, dated as of August 16, 1993,
as amended as of August 16, 1994, Anchor has been granted certain registration
rights in respect of the common stock issuable upon exercise of stock options,
including, at the Company's cost, up to one requested registration of such
shares after November 30, 1996, provided at least 5.0% of the outstanding shares
of the Company as of August 16, 1993 are included in such registration, and such
shares may not be otherwise freely sold. In addition, the Registration Rights
Agreement grants certain other incidental registration rights to Anchor.
Mr. Naimoli, beneficially owned, through Anchor, 2,800.28 shares of the
common stock and 413.9987 shares of the preferred stock of Doehler-Jarvis
(representing 13.4% and 2.6%, respectively, of the shares of common stock and
preferred stock of Doehler-Jarvis outstanding immediately prior to the
acquisition). In addition, Mr. Naimoli directly owned $300 principal amount of
11 7/8% Notes and, through Anchor, indirectly owned $500 principal amount of
11 7/8% Notes of Doehler-Jarvis immediately prior to the acquisition. Upon
consummation of the acquisition, Anchor received approximately $11,700 in the
aggregate in exchange for its
63
<PAGE>
equity ownership in Doehler-Jarvis. In connection with a tender offer by the
Company for the 11 7/8% Notes of Doehler-Jarvis, Mr. Naimoli and Anchor received
approximately $875 in the aggregate in consideration of their consent to the
amendments to the 11 7/8% Notes Indenture and tender of their 11 7/8% Notes,
plus accrued interest to the date of repurchase.
As of September 30, 1997, Mr. Naimoli and members of his immediate family
and affiliated entities beneficially owned an aggregate of $2,525 principal
amount of the Company's 12% Notes due 7/15/04 and $50 principal amount of the
Company's 11 1/8% Notes due August 1, 2005.
Mr. Naimoli is a stockholder of Nice and Easy Travel & Co., Inc. ("Nice and
Easy"), a travel agency, which agreed to act as exclusive travel agent and to
arrange travel services in such capacity for the Company and its employees and
representatives, beginning in December 1994. It had been agreed that with
respect to travel services rendered to the Company by Nice and Easy, the latter
rebates to the Company five percent through February 10, 1995 and three percent
thereafter of annual billings to the Company for travel business. During the
years ended September 30, 1997 and 1996, Nice and Easy billed the Company,
$2,100 and $1,130, respectively for travel services and rebated $28 and $34 to
the Company in 1997 and 1996, respectively.
In October 1995, the Board of Directors of the Company approved the lease
of a private suite at the Tropicana Field in St. Petersburg, Florida for Tampa
Bay Devil Rays baseball. Mr. Naimoli is the Managing General Partner of Tampa
Bay Devil Rays, Ltd. Management agreed with two other partners to share in the
cost of the suite, thereby reducing the suite cost to $20 per annum. In
connection with the transaction, the Board determined that the transaction was
fair and on terms comparable to those which would be obtained from a third party
in an arm's-length transaction.
The Company paid in 1997 to The Blackstone Group, LP, an investment banking
firm of which Mr. Hoffman, a Director of the Company, is a partner, $54 for
expenses and $75 as an up-front fee for additional advice rendered in
structuring alternatives to enhance shareholder value and to pay designated
success fees in the event such alternatives are effected and consummated
successfully. The Company also was billed $1,941 in 1995 for financial advice
rendered in developing the Company's bid for Doehler-Jarvis.
For fiscal 1998, directors who are not employees of the Company receive
compensation at the rate of $25 per annum plus $1 for attendance at each meeting
of the Company's Board of Directors and $1 for each meeting of the Audit
Committee and Compensation Committee they attend. During 1997, 25% or more of
such amounts was paid in common stock of the Company. The issuance of common
stock for director's services ceased in September 1997 due to the bankruptcy.
Officers are not separately compensated for serving as Directors of the Company.
See Footnote 28 for Compensation of New Directors following the Company's
emergence from bankruptcy.
(17) COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters
The Company's operations are subject to extensive and rapidly changing
federal and state environmental regulations governing waste water discharges and
solid and hazardous waste management activities. The Company is a party to a
number of matters involving both Federal and State regulatory agencies relating
to environmental protection matters, some of which relate to waste disposal
sites including Superfund sites. The most significant site is the Alsco-Anaconda
Superfund Site (the "Site") (Gnadenhutten, Ohio).
("Alsco"), 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 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 its manufacturing processes. The basins, pit and adjacent wooded
marsh were 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.
64
<PAGE>
On December 28, 1989, EPA issued a unilateral administrative order pursuant
to Section 106 of CERCLA, 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 $6,250
(as its share of up to $25,000 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 agreed to indemnify Harvard against any environmental
claims below the cap. If cleanup costs should exceed $25,000, 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 $19,000. Due to the Chapter 11 Cases, payments to
ARCO, pursuant to the Settlement Agreement, have been suspended. ARCO
Environmental Remediation, LLC, ARCO's successor, made a claim in the
Chapter 11 Cases 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. The Company has agreed to assume the Settlement
Agreement with the modification that the Company will pay ARCO $575 in full
satisfaction of its claim. This payment was made in December, 1998.
The Company's Harman subsidiary has been named as one of several PRPs by
EPA pursuant to CERCLA concerning environmental contamination at the Vega Alta,
Puerto Rico Superfund site (the "Vega Alta Site"). Other named PRPs include
subsidiaries of General Electric Company ("General Electric"), Motorola, Inc.
("Motorola"), and The West Company, Inc. ("West Company") and the Puerto Rico
Industrial Development Corporation ("PRIDCO"). PRIDCO owns the industrial park
where the PRPs were operating facilities at the time of alleged discharges.
Another party, Unisys Corporation, was identified by General Electric as an
additional PRP at the Superfund Site as a successor to the prior operator at one
of the General Electric facilities. Unisys Corporation was not initially
designated as a PRP by EPA, although it was named as a PRP in conjunction with
the settlement proceedings and consent decree discussed below.
There are currently two phases of administrative proceedings in progress.
The first phase, involves a Unilateral Order by EPA that the named PRPs
implement the Vega Alta Site remedy chosen by EPA, consisting of the replacement
of the drinking water supply to local residents and installation and operation
of a groundwater treatment system to remediate groundwater contamination. In
addition, EPA sought recovery of costs it had expended at the Vega Alta Site.
Motorola, West Company and Harman completed construction of the EPA remedy
pursuant to a cost-sharing arrangement. On December 29, 1998, the Bankruptcy
Court approved the Company's Assumption and Modification of the Settlement
Agreement whereby the Company paid General Electric a total of $300 in
settlement of its claim.
Effective June 30, 1993, the PRPs reached a settlement among themselves.
Harman, together with Motorola and West Company, completed the agreed-upon work
for the first phase of administrative proceedings, as outlined above, which
included final construction and initial testing of the cleanup system. In
addition, Harman, Motorola and West Company each agreed to pay General Electric
the sum of $800 in return for General Electric's agreement to assume liability
for, and indemnify and hold Harman and the others harmless against, EPA's cost
recovery claim, to undertake operation and maintenance of the cleanup system and
to construct, operate and maintain any other proposed system that may be
required by EPA, and to conduct any further work required concerning further
phases of work at the Vega Alta Site. Harman's settlement payment to General
Electric was being made in 20 equal quarterly installments, which commenced in
January 1995, with 9% interest per annum. However, due to the current bankruptcy
proceedings, payments have been suspended pending direction from the Court.
Harman, West Company and Motorola retained liability for any cleanup activities
that may in the future be required by EPA at their respective facilities due to
their own actions, for toxic tort claims and for natural resource damage claims.
Pursuant to a letter dated January 31, 1994 and subsequent notices since
that date, Harman and the other PRPs have been put on notice of potential claims
for damages, allegedly suffered by the owners and operators of farms located in
the vicinity of the Vega Alta Site. If Harman were to be found liable in any
future lawsuit, some of the alleged damages (e.g., personal injury, property and
punitive damages) would not be covered by the settlement agreement with General
Electric. In a letter to General Electric's counsel, counsel for the owners and
65
<PAGE>
operators alleged estimated losses of approximately $400,000 "based primarily on
lost income stream," purportedly based on certain assumptions concerning the
value of the property, its potential for development and groundwater
contamination issues. At this time, however, Harman has no information that
would support such unindemnified claims, and believes the claims to be
speculative.
On August 25, 1997, the Company was notified by the Michigan Department of
Environmental Quality ("MDEQ") that it is a responsible person as defined in the
Michigan Natural Resources and Environmental Protection Act. On October 15,
1998, the Bankruptcy Court issued an order expunging MDEQ's claim because it was
filed after the bar date. MDEQ may bring an action for injunctive relief in the
future.
By letter dated June 4, 1996, the American Littoral Society ("ALS"), a
public interest group operated through the Environmental Law Clinic of the
Widener University School of Law, sent a notice letter to the Company pursuant
to the Clean Water Act threatening suit based on past and anticipated future
discharges to the Schuykill River in excess of the limits established in the
National Pollutant Discharge Elimination System permit ("NPDES") for the
Pottstown, Pennsylvania plant. Doehler-Jarvis' Pottstown plant has been and is
currently operating under an expired but still effective NPDES permit. The
plant's wastewater treatment system (or use "equipment") is not capable of
achieving routine compliance with certain discharge limitations, including
limits for phenol, oil, grease and total dissolved solids. The Pottstown plant
has been attempting to solve this problem by arranging to convey its effluent to
the Pottstown Public Owned Treatment Works ("Pottstown POTW"). In March 1997,
the Company entered into a consent decree with ALS whereby the Pottstown plant
is required to construct a wastewater recycling system by December 31, 1997. In
addition, the Company agreed to pay a civil penalty of $1,000 and $125 penalty
from a parallel consent decree. The Company has met its construction schedule
but the $1,125 in penalties has not been paid but is a prepetition liability.
As of September 30, 1998, and in addition to the above matters, the Company
has received information requests, or notifications from EPA, state agencies,
and private parties alleging that the Company is a PRP pursuant to the
provisions of CERCLA or analogous state laws; or is currently participating in
the remedial investigation or closure activities at 22 other sites. In
accordance with the Company's policies and based on consultation with legal
counsel, the Company has provided environmental related accruals of $8,533 as of
September 30, 1998. Furthermore, the Company does not expect to use a material
amount of funds for capital expenditures related to currently existing
environmental matters. Various environmental matters are currently being
litigated, however, and potential insurance recoveries, other than those noted,
are unknown at this time.
While it is not feasible to predict the outcome of all pending
environmental suits and claims, based on the most recent review by management of
these matters and after consultation with legal counsel, management is of the
opinion that the ultimate disposition of these matters will not have a material
adverse effect on the financial position or results of operations of the
Company.
Legal Proceedings
In June 1995, a group of former employees of the Company's subsidiary,
Harman Automotive-Puerto Rico, Inc., commenced an action against the Company and
individual members of management in the Superior Court of the Commonwealth of
Puerto Rico seeking approximately $48,000 in monetary damages and unearned wages
relating to the closure by the Company of the Vega Alta, Puerto Rico plant
previously operated by such subsidiary. Claims made by the plaintiffs in such
action include the following allegations: (i) such employees were discriminated
against on the basis of national origin in violation of the laws of Puerto Rico
in connection with the plant closure and that, as a result thereof, the Company
is alleged to be obligated to pay unearned wages until reinstatement occurs, or
in lieu thereof, damages, including damages for mental pain and anguish;
(ii) during the years of service, plaintiffs were provided with a one-half hour
unpaid meal break, which is alleged to violate the laws of Puerto Rico,
providing for a one-hour unpaid meal break and demand to be paid damages and
penalties and request seniority which they claim was suspended without
jurisdiction; and (iii) plaintiffs were paid pursuant to a severance formula
that was not in accordance with the laws of Puerto Rico, which payments were
conditioned upon the plaintiffs executing releases in favor of the Company, and
that, as a result thereof, they allege that they were discharged without just
cause and are entitled to a statutory severance formula.
The Company is also a party to various claims and routine litigation
arising in the normal course of its business. Based on information currently
available, management of the Company believes, after consultation with legal
counsel, that the result of such claims and litigation, including the above
mentioned claim, will not have a material adverse effect on the financial
position or results of operations of the Company.
66
<PAGE>
(18) LEASES
Rent expense under operating leases, consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Rent expense............................................................... $4,354 $5,624 $3,340
</TABLE>
The following is a schedule of future annual minimum rental payments,
principally for machinery and equipment required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year as of
September 30, 1998.
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30 AMOUNT
- ---------------------------------------------------------------- ------
<S> <C>
1999............................................................ $2,275
2000............................................................ 719
2001............................................................ 666
2002............................................................ 438
2003............................................................ 53
</TABLE>
(19) RETIREMENT PLANS
The Company sponsors various defined benefit pension and savings
(principally 401(k)) plans covering substantially all employees. Expense under
these plans amounted to $10,248 in 1998 (including a curtailment loss of
$7,182), $3,619 in 1997, and $4,355 in 1996. The Company annually contributes to
the pension plans amounts that are actuarially determined to provide the plans
with sufficient assets to meet future benefit payment requirements. The Company
contributes to the savings plans amounts that are directly related to employee
contributions.
The Company sponsors a defined benefit pension plan covering all
non-bargaining unit employees. The annual benefits payable under this plan to a
covered employee at the normal retirement age (age 65) are 1% of the first $9 of
the employee's career average annual earnings, as defined in the plan, plus
1 1/2% of annual earnings in excess of $9 multiplied by the number of years of
service. Substantially all of the other defined benefit pension plans the
Company sponsors provide benefits of a stated amount for each year of service.
In addition, the Company participates in several multi-employer pension
plans for the benefit of certain union members. The Company's contributions to
these plans amounted to $349 in 1998, $459 in 1997, and $500 in 1996. Under the
Multi-Employer Pension Plan Amendments Act of 1980, if the Company were to
withdraw from these plans or if the plans were to be terminated, the Company
would be liable for a portion of any unfunded plan benefits that might exist.
Information with respect to the amount of this potential liability is not
readily available.
Pension expense for all of the Company's defined benefit pension plans
consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Benefit earned.......................................................... $ 2,988 $ 2,823 $2,865
Interest on projected benefit obligations............................... 9,584 8,790 8,445
Actual return on assets................................................. (23,265) (17,378) (8,315)
Net amortization and deferral........................................... 12,806 8,318 557
Curtailment losses...................................................... 7,182 -- --
------- ------- ------
$ 9,295 $ 2,553 $3,552
------- ------- ------
------- ------- ------
</TABLE>
During 1998, the Company recorded net curtailment losses of $7,182
primarily to reflect the curtailment of defined benefit plans due to the Toledo
plant shutdown, which was recorded as an increase in cost of sales.
67
<PAGE>
The following summarizes at September 30, the funded status of the defined
benefit plans that the Company sponsors and the related amounts recognized in
the Company's consolidated balance sheets together with the assumptions
utilized.
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested................................................. $ 106,297 $ 33,908 $ 92,835 $15,902
Non-vested............................................. 4,417 1,931 4,525 2,257
--------- --------- --------- -------
Accumulated benefit obligations........................ 110,714 35,839 97,360 18,159
Effects of salary progression.......................... 6,158 60 3,949 86
--------- --------- --------- -------
Projected benefit obligations.......................... 116,872 35,899 101,309 18,245
Plan assets.............................................. 125,915 18,869 109,455 12,487
--------- --------- --------- -------
Plan assets over (under) projected benefit obligations... 9,043 (17,030) 8,146 (5,758)
Minimum liability recognized............................. -- (10,701) -- (3,684)
Net loss not recognized.................................. 9,181 8,901 7,566 3,715
Prior service cost....................................... 451 1,860 362 55
--------- --------- --------- -------
Pension assets (liability) recognized.................... $ 18,675 $ (16,970) $ 16,074 $(5,672)
--------- --------- --------- -------
--------- --------- --------- -------
Assumptions used:
Discount rate.......................................... 7.2% 7.2% 8.0% 8.0%
Rate of return on assets............................... 9.5% 9.5% 9.5% 9.5%
Salary progression rate................................ 4.0% 5.0% 4.0% 5.0%
</TABLE>
The Company entered into a Settlement Agreement (the "Settlement
Agreement"), dated as of July 26, 1994, with the Pension Benefit Guaranty
Corporation (the "PBGC") pursuant to which the Company agreed to make
contributions to certain of its underfunded pension plans. These contributions
were in addition to the minimum statutory funding requirements with respect to
such plans. Pursuant to the Settlement Agreement, the Company made additional
contributions to its underfunded pension plans in an amount aggregating $6,000
on August 2, 1994 and $1,500 quarterly thereafter through September 30, 1997.
The Settlement Agreement, among other things, includes a covenant restricting
the Company's ability to redeem the PIK Preferred Stock and a covenant not to
create or suffer to exist a lien upon any of its assets to secure both the 12%
and 11 1/8% Senior Notes unless contemporaneously therewith effective provision
is made to equally and ratably secure the Company's potential "unfunded benefit
liabilities" (as defined in Section 4001(a)(18) of the Employee Retirement
Income Security Act). Subsequent to September 30, 1998, the settlement agreement
was terminated and the PBGC and the Company entered into a new agreement.
(20) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain of the Company's subsidiaries provide postretirement health care
and life insurance benefits for all salaried and for hourly retirees of certain
of its plants. The obligation, as of September 30, 1998 and 1997 was determined
by utilizing a discount rate of 7.2% and 8.0%, respectively, and a graded
medical trend rate projected at annual rates ranging ratably from 4.7% and 7.7%
in 1998 to 3.7% by the year 2000 and remain level thereafter.
68
<PAGE>
Since the Company does not fund postretirement benefit plans, there are no
plan assets. Net periodic postretirement benefit cost (benefit) at September 30
is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Service cost............................................................... $1,100 $1,593 $1,595
Interest on accumulated postretirement benefit obligation.................. 5,827 6,955 7,196
Net amortization and deferral.............................................. (1,337) (959) (493)
Curtailment gains.......................................................... (2,792) (8,249) --
------ ------ ------
$2,798 $ (660) $8,298
------ ------ ------
------ ------ ------
</TABLE>
During 1998, the Company recorded a curtailment gain to reflect the
curtailment of medical benefits at one plant of Doehler-Jarvis, which was
recorded as a reduction in cost of sales. During the fourth quarter of 1997 the
Company recorded curtailment gains of $8,249 to reflect the curtailment of
medical benefits at one plant and for all active salaried employees of
Doehler-Jarvis.
The accumulated postretirement benefit obligation at September 30, 1998 and
1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Retirees.......................................................................... $57,704 $44,153
Fully eligible active plan participants........................................... 17,561 17,056
Other active plan participants.................................................... 17,025 17,224
------- -------
Accumulated postretirement benefit obligation..................................... 92,290 78,433
Unrecognized net gain............................................................. 5,337 20,796
------- -------
Accrued postretirement benefit cost............................................... 97,627 99,229
Included in accrued expenses...................................................... 2,112 2,300
------- -------
Non-current postretirement benefit obligations.................................... $95,515 $96,929
------- -------
------- -------
</TABLE>
The effect of a 1% annual increase in the assumed cost trend rates
discussed above would increase the accumulated postretirement obligation at
September 30, 1998 by approximately $11,350, and would increase the aggregate of
the service and interest cost components by approximately $1,107.
In January 1999 the Company adopted a Supplemental Employee Retirement Plan
("SERP"), the provisions of which were effective January 1, 1998. The
accompanying financial statements include a charge of $10,000 during the fourth
quarter related to the adoption of this plan.
(21) PAY-IN-KIND EXCHANGEABLE PREFERRED STOCK
Under its Certificate of Incorporation, the Pay-In-Kind ("PIK") Preferred
Stock on liquidation, winding up and dissolution ranks senior to Common Stock
and has a liquidation preference of $25.00 per share, plus accrued and unpaid
dividends, before any distribution or payment is made to the holders of Common
Stock. There are 12,000,000 shares authorized and 4,609,987 shares issued and
outstanding in both 1998 and 1997, respectively.
The PIK Preferred Stock holders are entitled to cumulative dividends at the
rate per annum of $3.5625 per share, payable at the Company's option in cash or
in additional shares of PIK Preferred Stock at the rate of 0.1425 share of PIK
Preferred Stock for each share of PIK Preferred Stock outstanding. See Note 9
for restriction on paying cash dividends.
The Company did not pay the annual dividend on PIK Preferred Stock in 1998
and 1997 and ceased accruing such dividend effective May 8, 1997 (see Note 1).
On September 30, 1996, the Company paid the annual dividend on PIK Preferred
Stock by issuing 574,987 additional shares of PIK Preferred Stock. The Company
recorded an increase of $14,844 in 1996 in its PIK Preferred Stock and a
corresponding deduction in additional paid-in-capital to recognize such dividend
and the accretion of the related difference between the fair value of such stock
at August 23, 1992 and redemption value. During 1997, the Company also recorded
$10,142 for unpaid dividends and related accretion.
69
<PAGE>
On November 16, 1998, the Company was required to redeem all shares of PIK
Preferred Stock outstanding at the liquidation preference price which is
estimated to be $151,000. If the Company fails to redeem the PIK Preferred Stock
on such date, or otherwise fails to pay a dividend payment, then the number of
directors constituting the Board shall be increased by two (2) and the
outstanding shares of PIK Preferred Stock shall vote as a class, with each share
entitled to one vote, to elect two (2) Directors to fill such newly created
directorships so long as such failure continues. Due to such mandatory
redemption requirements, the PIK Preferred Stock is not reflected as part of
common shareholders' equity. Such stock was valued at fair value as of August
23, 1992, including the fair value of accrued dividends from October 1, 1991.
Such carrying value has been increased by a periodic accretion between fair
value and redemption value.
The Company, at the option of the Board, may redeem, in whole or in part,
shares of PIK Preferred Stock at the liquidation preference per share price plus
all accrued and unpaid dividends on such shares, at any time prior to the
redemption date (subject to PBGC restrictions and Financing Agreement). So long
as shares of PIK Preferred Stock are outstanding, the Company shall not declare
dividends on the Common Stock or any other securities junior to the PIK
Preferred Stock or repurchase any of such shares.
The Company may, at its option, at any time, exchange for all of its issued
and outstanding shares of PIK Preferred Stock, the Company's 14 1/4%
Subordinated Notes due November 16, 1998, if such securities are issued by the
Company for all of its issued and outstanding shares of PIK Preferred Stock.
Holders thereof will be entitled to receive $25 principal amount of Notes for
each share of PIK Preferred Stock held by them at the time of exchange and each
share of PIK Preferred Stock accrued as a dividend on such shares of PIK
Preferred Stock on the date of exchange, up to but not including the date of
exchange.
So long as any shares of PIK Preferred Stock are outstanding, the Company
shall not issue any shares of preferred stock which (i) specify a dividend rate
in excess of 14 1/4% of the liquidation preference of such preferred stock,
(ii) may be redeemed or are subject to sinking fund requirements which must be
satisfied prior to the redemption or repurchase of all outstanding shares of PIK
Preferred Stock, (iii) have a mandatory redemption date prior to January 1,
1999, or (iv) rank senior to the PIK Preferred Stock or, unless the net proceeds
of the issuance of the preferred stock are used to redeem or repurchase PIK
Preferred Stock or Exchange Notes, rank pari passu with the PIK Preferred Stock,
with respect to dividend rights and rights on liquidation, winding up and
dissolution.
See Note 28 for the Subsequent impact of the Company's Emergence from
Bankruptcy on Pay-In-Kind Exchangeable Preferred Stock.
(22) PREFERRED STOCK
There are no present plans for issuance of any shares of preferred stock.
When and if any shares of preferred stock are issued, certain rights of the
holders thereof may affect the rights of the holders of the Common Stock and PIK
Preferred Stock. See Note 21 for restrictions upon the issuance of shares of
preferred stock so long as shares of PIK Preferred Stock are outstanding.
On October 18, 1994, the Board of Directors of the Company adopted a
Shareholder Rights Plan ("Plan") which contemplates the issuance of preferred
stock purchase rights to the holders of the Company's Common Stock of record as
of October 21, 1994. As a result, there are 500,000 shares of Series A, Junior
Preferred Stock, par value $.01 per share, authorized.
The Plan calls for holders of the Company's Common Stock to receive, in the
form of a dividend, one Right for each share of Common Stock held as of the
above record date. The Plan, which is intended to deter coercive takeover
tactics, prevents a potential acquirer from gaining control of the Company
without offering a fair price to all holders of Common Stock. The Rights were to
have expired on October 31, 2004.
Each Right issued will, initially, entitle shareholders to buy one
one-hundredth of a share of newly authorized preferred stock of the Company for
$64. However, the Right will be exercisable only if a person or group (other
than shareholders owning at least 10 percent but less than 20 percent of the
Company's Common Stock outstanding on the date the Board of Directors authorizes
the dividend) acquires beneficial ownership or commences a tender or exchange
offer that will result in that person or group becoming a beneficial owner of 26
percent-or-more of the Company's Common Stock.
70
<PAGE>
Initially, each Right not owned by a 15-percent-or-more shareholder or
related parties will entitle its holder to purchase one share of the Company's
preferred stock at $64 or whatever is the then-current exercise price of the
Rights.
Upon the occurrence of certain events, the Right can be used to purchase
shares of the Company's Common Stock, or under certain circumstances to be
determined by the Board of Directors, for cash, other property, or securities
with a value of twice that of the Rights current price.
In addition, if after any person or group has become a 15 percent-or-more
shareholder, the Company is involved in a merger or other business combination
with another person in which the Company does not survive, or in which the
Common Stock is changed or exchanged, or the Company sells 50 percent or more of
its assets or earning power to another person, each Right will then entitle its
holder to purchase, at the Right's then-current price, common stock of such
other person having a value equal to twice the Right's price.
In the event of a tender or exchange offer for all outstanding shares of
the Company that is approved by a majority of the Board's independent Directors,
those not affiliated with any 15 percent-or-more shareholder, the provision
relating to 15 percent-or-more beneficial ownership of the Company's shares will
not apply.
The Company will, generally, be entitled to redeem the Rights for $0.01 per
Right at any time until 10 days, subject to extension, following a public
announcement that a 15 percent position has been acquired. The Preferred Stock
Purchase Rights have been registered with the Securities and Exchange Commission
on Form 8-A.
See Note 28 for the Subsequent impact of the Company's Emergence from
Bankruptcy on Preferred Stock.
(23) COMMON STOCK
Dividends on the Common Stock are subject to restrictions in the Company's
Financing Agreement and, so long as any PIK Preferred Stock is outstanding, the
Certificate of Incorporation provides that no dividends shall be declared on
Common Stock or any securities junior to the PIK Preferred Stock or repurchase
of any such shares. Such holders have no preemptive or other right to subscribe
for or purchase additional shares of capital stock.
See Note 28 for the Subsequent impact of the Company's Emergence from
Bankruptcy on Common Stock.
(24) STOCK OPTIONS
On November 24, 1998 the Company's plan of reorganization became effective
and all stock options authorized, granted or exercised were cancelled along with
the Old Common Stock.
However, for historical purposes, the following information is presented
outlining the plans in existence prior to the Company's emergence from
reorganization.
On January 19, 1994, the Board of Directors approved Stock Option Plans,
and on August 4, 1994 approved certain modifications thereto, which provides for
up to 400,000 shares of the Company's Common Stock to be granted to members of
the Board of Directors (other than the Company's Chairman and Chief Executive
Officer) and key employees. Options under both plans were granted at the fair
market value on the date of grants and have an exercise period of ten years.
Options under the Director's plan vest 100% at the date of grant while the key
employee's plan become exercisable at 25% or 33 1/3% per year after a one-year
waiting period.
On August 4, 1994, the Board of Directors granted to Anchor options to
purchase 17,000 shares of Common Stock which became exercisable immediately at
$13.75 per share and granted Anchor an aggregate of 300,000 additional stock
options to purchase 300,000 shares of Common Stock at $14.00 per share, which
become exercisable as follows: 100,000--8/16/95; 100,000--8/16/96; 100,000
- --8/16/97. Such options are exercisable if the closing price of the Company's
Common Stock equals or exceeds $20.00 per share for 15 of 30 trading days prior
to August 16, 1995 for the first 100,000 options; and $30.00 and $40.00 per
share for any 30 trading days subsequent to August 16, 1995 and 1996,
respectively, and prior to August 16, 1996 and August 16, 1997, respectively. On
August 16, 1995 such condition was met and the first 100,000 options became
exercisable. No options became exercisable during 1996, 1997 and 1998. On August
16, 2002 any options outstanding will be
71
<PAGE>
exercisable without regard to the per share price of Common Stock if Anchor is
continuing to provide services to the Company at such date.
A summary of the Company's stock option activity is as follows:
OPTION SHARES
<TABLE>
<CAPTION>
EXERCISE PRICE
KEY RANGE-PER
EMPLOYEES DIRECTORS ANCHOR TOTAL SHARE
--------- --------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Balance 9/30/95.................................. 201,250 28,000 569,096 798,346 $ 6.00 to $17.25
Granted 1996..................................... 75,800 8,000 -- 83,800 $11.25 to $28.00
Exercised........................................ 19,450 -- -- 19,450 $8.00
Cancelled........................................ 71,250 -- -- 71,250 $ 8.00 to $28.00
------- ------- ------- -------
Balance 9/30/96.................................. 186,350 36,000 569,096 791,446 $ 6.00 to $28.00
Granted 1997..................................... 68,500 8,000 -- 76,500 $ .8125 to $8.00
Exercised........................................ -- -- -- --
Cancelled........................................ 31,375 -- -- 31,375 $ 8.00 to $28.00
------- ------- ------- -------
Balance 9/30/97.................................. 223,475 44,000 569,096 836,571 $ 6.00 to $28.00
Grant 1998....................................... -0- -0- -0- -0- -0-
Exercised........................................ -0- -0- -0- -0- -0-
Cancelled........................................ -0- -0- -0- -0- -0-
------- ------- ------- -------
Balance 9/30/98.................................. 223,475 44,000 569,096 836,571 $ 6.00 to $28.00
------- ------- ------- -------
------- ------- ------- -------
Exercisable at
September 30:
1996........................................ 77,800 34,000 369,096 480,896 $ 6.00 to $28.00
1997........................................ 108,200 42,000 369,096 519,296 $ 6.00 to $28.00
1998........................................ 108,200 42,000 369,096 519,296 $ 6.00 to $28.00
</TABLE>
The Company has elected to continue to measure compensation cost for its
stock option plans using the intrinsic value based method of accounting. No pro
forma disclosure of net loss is presented since it is immaterial.
(25) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents, Accounts Receivable and Accounts
Payable. The carrying value amount approximates fair value because of the
short maturity of these instruments.
Long-Term Debt. The fair value of the Company's long-term debt is
estimated based upon the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same
remaining maturities.
PIK Preferred Stock. The fair value was determined by quoted market
price.
72
<PAGE>
The estimated fair value of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 SEPTEMBER 30
-------------------- --------------------
1998 1998 1997 1997
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents.............................. $ 11,624 $ 11,624 $ 9,212 $ 9,212
Accounts receivable.................................... 57,046 57,046 76,190 76,190
Accounts payable....................................... 25,098 25,098 32,267 32,267
DIP financing (including current portion).............. 39,161 39,161 87,471 87,471
Senior notes........................................... 309,728 140,543 309,728 114,000
Long-term debt (including current portion)............. -0- -0- 14,087 14,087
PIK preferred stock.................................... 124,637 -0- 124,637 6,339
</TABLE>
(26) GUARANTOR SUBSIDIARIES
Both the 12% Notes and the 11 1/8% Notes are guaranteed on a senior
unsecured basis, pursuant to guaranties (the Guaranties) by all of the Company's
wholly-owned direct and certain of its wholly-owned indirect domestic
subsidiaries (the Guarantors). Both Notes are fully and unconditionally
guaranteed, jointly and severally, on a senior unsecured basis, by each of the
Guarantors under such Guarantor's guaranty (a Guaranty). Each Guaranty by a
Guarantor is limited in amount to an amount not to exceed the maximum amount
that can be guarantied by that Guarantor without rendering the Guaranty, as it
relates to such Guarantor, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer. As such, a Guaranty could be effectively
subordinated to all other indebtedness (including guarantees and other
contingent liabilities) of the applicable Guarantor, and, depending on the
amount of such indebtedness, a Guarantor's liability on its Guaranty could be
reduced to zero. The Company conducts all of its automotive business through and
derives virtually all of its income from its subsidiaries. Therefore, the
Company's ability to make required principal and interest payments with respect
to the Company's indebtedness (including the Notes) and other obligations
depends on the earnings of its subsidiaries and on its ability to receive funds
from its subsidiaries through dividends or other payments. The ability of its
subsidiaries to pay such dividends or make payments on intercompany indebtedness
or otherwise will be subject to applicable state laws.
Upon the sale or other disposition of a Guarantor or the sale or
disposition of all or substantially all of the assets of a Guarantor (in each
case other than to the Company or an affiliate of the Company) permitted by the
indenture governing the Notes, such Guarantor will be released and relieved from
all of its obligations under its Guaranty.
The following condensed consolidating information presents:
1. Condensed balance sheets as of September 30, 1998 and 1997 and condensed
statements of operations and cash flows for the years ended September 30, 1998,
1997 and 1996.
2. The Parent Company and Combined Guarantor Subsidiaries with their
investments in subsidiaries accounted for on the equity method.
3. Elimination entries necessary to consolidate the Parent Company and all
of its subsidiaries.
4. Reorganization items have been included under the Parent Company in the
accompanying condensed consolidating statements of operations and cash flows.
5. The Parent Company, pursuant to the terms of an interest bearing note
with Guarantor Subsidiaries, has included in their allocation of expenses,
interest expense of $14,377, $14,377 and $14,078 for the years ended
September 30, 1998, 1997 and 1996, respectively.
The Company believes that providing the following condensed consolidating
information is of material interest to investors in the Notes and has not
presented separate financial statements for each of the Guarantors, because it
was deemed that such financial statements would not provide the investor with
any material additional information.
73
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 10,229 $ 1,395 $ -- $ -- $ 11,624
Accounts receivable, net................. 2,217 50,990 3,839 -- 57,046
Inventories.............................. 1,720 24,177 749 -- 26,646
Prepaid expenses and other current
assets................................. 1,982 3,702 17 -- 5,701
--------- ---------- --------- ------------ ----------
Total current assets................... 16,148 80,264 4,605 -- 101,017
Investment in subsidiaries................. (262,212) 14,653 -- 247,559 --
Property, plant and equipment, net......... 2,755 112,057 7,767 -- 122,579
Intangible assets, net..................... -- 2,833 -- -- 2,833
Intercompany receivables................... 600,848 524,198 14,625 (1,139,671) --
Other assets............................... 23,211 1,341 -- -- 24,552
--------- ---------- --------- ------------ ----------
Total assets............................... $ 380,750 $ 735,346 $ 26,997 $ (892,112) $ 250,981
--------- ---------- --------- ------------ ----------
--------- ---------- --------- ------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Current portion of Debtor-in-Possession
(DIP) loans............................ $ -- $ 39,161 $ -- $ -- $ 39,161
Creditors' Subordinated Term Loan Current
portion of long-term debt.............. -- 25,000 -- -- 25,000
Accounts payable......................... 2,382 19,812 2,904 -- 25,098
Accrued expenses......................... 12,285 81,104 (52) -- 93,337
Income taxes payable..................... 8,144 169 132 -- 8,445
--------- ---------- --------- ------------ ----------
Total current liabilities.............. 22,811 165,246 2,984 -- 191,041
Liabilities subject to compromise.......... 385,665 -- -- -- 385,665
DIP loans.................................. -- -- -- -- --
Long-term debt............................. -- -- -- -- --
Postretirement benefits other than
pensions................................. 81,949 13,566 -- -- 95,515
Intercompany payables...................... 351,525 779,115 9,031 (1,139,671) --
Other...................................... 23,393 39,631 329 63,353
--------- ---------- --------- ------------ ----------
Total liabilities 865,343 997,558 12,344 (1,139,671) 735,574
PIK Preferred 124,637 -- -- -- 124,637
Shareholders' equity (deficiency):
Common stock and additional paid-in-
capital................................ 32,204 16,937 10 (16,947) 32,204
Additional minimum pension liability..... (8,902) (8,902) -- 8,902 (8,902)
Foreign currency translation adjustment.... (2,991) (2,991) (2,991) 5,982 (2,991)
Retained earnings (deficiency)............. (629,541) (267,256) 17,634 249,622 (629,541)
--------- ---------- --------- ------------ ----------
Total shareholders' equity
(deficiency)........................ (609,230) (262,212) 14,653 247,559 (609,230)
--------- ---------- --------- ------------ ----------
Total liabilities and shareholders' equity
(deficiency)............................. $ 380,750 $ 735,346 $ 26,997 $ (892,112) $ 250,981
--------- ---------- --------- ------------ ----------
--------- ---------- --------- ------------ ----------
</TABLE>
- ------------------
(a) Includes $309,728 senior notes payable and accrued interest which are
subject to the guaranty of the combined guarantor subsidiaries.
74
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales........................................ $ 8,536 $ 662,209 $19,331 $ 0 $ 690,076
-------- ---------- ------- ------- ----------
Cost of Expenses
Cost of sales.............................. 11,482 627,407 17,354 0 656,243
Selling, general and administrative........ 3,873 62,573 100 0 66,546
Amortization of goodwill................... 0 1,584 0 0 1,584
Impairment of long-lived assets &
restructuring costs..................... 5,000 5,842 0 0 10,842
Interest expense........................... 164 14,083 (16) 0 14,231
Gain on sale of operations................. (1,217) (27,456) 0 0 (28,673)
Other expense, net......................... 18,950 (14,970) 0 0 3,980
Equity in (income) loss of subsidiaries.... 39,465 (120) 0 (39,345) 0
Allocated expenses......................... (14,377) 13,144 1,233 0 0
-------- ---------- ------- ------- ----------
Total costs and expenses................ 63,340 682,087 18,671 (39,345) 724,753
-------- ---------- ------- ------- ----------
Income (loss) before income taxes and
reorganization items....................... (54,804) (19,878) 660 39,345 (34,677)
Reorganization items......................... 1,000 13,920 0 0 14,920
-------- ---------- ------- ------- ----------
Income (loss) before income taxes............ (55,804) (33,798) 660 39,345 (49,597)
-------- ---------- ------- ------- ----------
Provision for income taxes................... 0 5,667 540 0 6,207
-------- ---------- ------- ------- ----------
Net loss................................... $(55,804) $ (39,465) $ 120 $39,345 $ (55,804)
-------- ---------- ------- ------- ----------
-------- ---------- ------- ------- ----------
</TABLE>
75
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows related to operating activities:
Loss from continuing operations before
reorganization items...................... $(40,884) $(39,465) $ 120 $ 39,345 $(40,884)
Add back (deduct) items not affecting cash
and cash equivalents:
Equity in (income) loss of subsidiaries... 39,465 (120) -- (39,345) --
Depreciation and amortization............. 391 26,122 1,391 -- 27,904
Impairment of long-lived assets and
restructuring charges................... 5,000 5,842 -- -- 10,842
Gain on sale of operations................ (1,208) (27,465) -- -- (28,673)
Loss on disposition of property, plant and
equipment and property held for sale.... -- 1,030 -- -- 1,030
Curtailment (gains)/losses................ 4,390 -- -- -- 4,390
Changes in operating assets and liabilities
of continuing operations before
reorganization items:
Accounts receivable....................... 578 11,894 (1,799) -- 10,673
Inventories............................... (12) 21,542 332 -- 21,862
Other current assets...................... (284) 1,761 (17) -- 1,460
Accounts payable.......................... 2,154 (9,891) 1,079 -- (6,658)
Accrued expenses and income tax payable... (10,482) 29,289 (240) -- 18,567
Postretirement benefits................... 1,386 -- -- -- 1,386
Other noncurrent.......................... (6,399) 17,718 (636) -- 10,683
-------- -------- ------- --------- --------
Net cash provided by (used in) continuing
operations before reorganization items...... (5,905) 38,257 230 -- 32,582
Net cash used in reorganization items......... (9,056) -- -- -- (9,056)
-------- -------- ------- --------- --------
Net cash provided by (used in) continuing
operations.................................. (14,961) 38,303 184 -- 23,526
Cash flows related to investing activities:
Acquisitions of property, plant and
equipment................................. (15) (24,448) (424) -- (24,887)
Cash flows related to discontinued
operations................................ 557 -- -- -- 557
Proceeds from sales of operations........... 4,084 23,738 -- -- 27,822
Proceeds from dispositions of property,
plant, equipment.......................... -- 72 -- -- 72
-------- -------- ------- --------- --------
Net cash provided by (used in) investing
activities................................ 4,626 (638) (424) -- 3,564
Cash flows related to financing activities:
Net borrowings (and repayments) under DIP
financing agreement....................... -- (45,810) -- -- (45,810)
Net borrowings under Unsecured Creditors
Term Loan................................. -- 25,000 -- -- 25,000
Repayments of long-term debt................ -- (88) -- -- (88)
Deferred financing costs.................... -- (3,725) -- -- (3,725)
Payment of EPA settlements.................. -- (55) -- -- (55)
Net changes in intercompany balances........ 17,240 (16,922) (318) -- --
-------- -------- ------- --------- --------
Net cash (used in) provided by financing
activities.................................. 17,240 (41,600) (318) -- (24,678)
Net increase (decrease) in cash and cash
equivalents................................. 6,905 (3,935) (512) -- (2,412)
Cash and cash equivalents beginning of
period...................................... $ 3,324 $ 5,376 $ 512 $ -- $ 9,212
-------- -------- ------- --------- --------
Cash and cash equivalents end of period....... $10,229 $ 1,441 $ 0 $ -- $ 11,624
-------- -------- ------- --------- --------
-------- -------- ------- --------- --------
</TABLE>
76
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 3,324 $ 5,376 $ 512 $ -- $ 9,212
Accounts receivable, net................. 2,795 71,355 2,040 -- 76,190
Inventories.............................. 2,475 50,662 1,081 -- 54,218
Prepaid expenses and other current
assets................................ 1,698 5,904 -- -- 7,602
--------- ---------- ------- ---------- ----------
Total current assets.................. 10,292 133,297 3,633 -- 147,222
Investment in Subsidiaries................. (48,751) 12,138 -- 36,613 --
Property, plant and equipment, net......... 3,878 119,164 9,224 -- 132,266
Intangible assets, net..................... -- 4,417 -- -- 4,417
Intercompany receivables................... 240,542 276,424 9,483 (526,449) --
Other assets............................... 20,164 3,425 -- 23,589
--------- ---------- ------- ---------- ----------
$ 226,125 $ 548,865 $22,340 $ (489,836) $ 307,494
--------- ---------- ------- ---------- ----------
--------- ---------- ------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Current portion of DIP loans............. $ 867 $ 35,569 $ -- $ -- $ 36,436
Current portion of long-term debt........ -- 1,748 -- -- 1,748
Accounts payable......................... 228 30,214 1,825 -- 32,267
Accrued expenses......................... 16,088 55,959 188 -- 72,235
Income taxes payable..................... (1,751) 1,246 2,945 -- 2,440
--------- ---------- ------- ---------- ----------
Total current liabilities............. 15,432 124,736 4,958 -- 145,126
Liabilities subject to compromise(a)....... 317,508 79,742 69 -- 397,319
DIP loans.................................. 705 50,330 51,035
Long-term debt............................. 12,339 -- 12,339
Postretirement benefits other than
pensions................................. -- 96,929 -- -- 96,929
Intercompany payables...................... 311,955 210,284 4,210 (526,449) --
Other...................................... 3,016 23,256 965 -- 27,237
--------- ---------- ------- ---------- ----------
Total liabilities..................... 648,616 597,616 10,202 (526,449) 729,985
--------- ---------- ------- ---------- ----------
PIK Preferred.............................. 124,637 -- -- -- 124,637
--------- ---------- ------- ---------- ----------
Shareholders' equity (deficiency):
Common stock and additional paid-in-
capital............................... 32,204 73,054 10 (73,064) 32,204
Additional minimum pension liability..... (3,665) (3,659) -- 3,659 (3,665)
Foreign currency translation
adjustment............................ (1,930) (1,930) (1,930) 3,860 (1,930)
Retained earnings (deficiency)........... (573,737) (116,216) 14,058 102,158 (573,737)
--------- ---------- ------- ---------- ----------
Total shareholders' equity
(deficiency)........................ (547,128) (48,751) 12,138 36,613 (547,128)
--------- ---------- ------- ---------- ----------
$ 226,125 $ 548,865 $22,340 $ (489,836) $ 307,494
--------- ---------- ------- ---------- ----------
--------- ---------- ------- ---------- ----------
</TABLE>
- ------------------
(a) Includes $309,728 senior notes payable and accrued interest which are
subject to the guaranty of the combined guarantor subsidiaries.
77
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales....................................... $ 19,733 $ 763,459 $27,577 $ -- $ 810,769
--------- ---------- ------- --------- ----------
Costs and expenses:
Cost of sales............................. 20,380 751,489 25,905 -- 797,774
Selling, general and administrative....... 13,921 31,901 -- -- 45,822
Interest expense.......................... 24,093 12,378 188 -- 36,659
Amortization of goodwill.................. -- 8,448 -- -- 8,448
Other (income) expense, net............... 853 4,656 21 -- 5,530
Impairment of long-lived assets and
restructuring costs.................... 1,000 287,545 -- 288,545
Equity in (income) loss of subsidiaries... 354,293 337 -- (354,630) --
Allocated expenses........................ (21,600) 20,160 1,440 -- --
--------- ---------- ------- --------- ----------
Total costs and expenses............... 392,940 1,116,914 27,554 (354,630) 1,182,778
Income (loss) before income taxes and
reorganization items...................... (373,207) (353,455) 23 354,630 (372,009)
Reorganization items........................ 16,222 (6) -- -- 16,216
--------- ---------- ------- --------- ----------
Income (loss) before income taxes........... (389,429) (353,449) 23 354,630 (388,225)
--------- ---------- ------- --------- ----------
Provision for income taxes.................. -- 844 360 -- 1,204
--------- ---------- ------- --------- ----------
Net loss.................................. $(389,429) $ (354,293) $ (337) $ 354,630 $ (389,429)
--------- ---------- ------- --------- ----------
--------- ---------- ------- --------- ----------
</TABLE>
78
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows related to operating activities:
Loss from continuing operations before
reorganization items............................ $(373,207) $ (354,299) $ (337) $ 354,630 $ (373,213)
Add back (deduct) items not affecting cash and
cash equivalents:
Equity in (income) loss of subsidiaries......... 354,293 337 -- (354,630) --
Depreciation and amortization................... 2,595 56,144 1,447 -- 60,186
Impairment of long-lived assets and
restructuring costs.......................... 1,000 287,545 -- -- 288,545
Loss on disposition of property, plant and
equipment and property held for sale......... 48 1,883 -- -- 1,931
Postretirement benefits......................... -- (4,138) -- -- (4,138)
Write-off of deferred debt expense.............. 1,792 -- 1,792
Senior notes interest accrued prior to
chapter 11, not paid......................... 9,728 -- 9,728
Changes in operating assets and liabilities :
Accounts receivable............................... 3,130 16,176 3,492 -- 22,798
Inventories....................................... 2,581 (11,258) 1,452 -- (7,225)
Other current assets.............................. (1,326) (4,639) -- -- (5,965)
Accounts payable.................................. (3,483) (51,761) (1,562) -- (56,806)
Accounts payable prepetition...................... 1,618 79,742 69 81,429
Accrued expenses and income taxes payable......... (6,229) (2,457) (1,568) -- (10,254)
Other noncurrent.................................. 2,059 2,999 43 -- 5,101
--------- ---------- ------- --------- ----------
Net cash provided by (used in) continuing operations
before reorganization items....................... (5,401) 16,274 3,036 -- 13,909
--------- ---------- ------- --------- ----------
Net cash used by reorganization items............... (2,870) 6 -- -- (2,864)
--------- ---------- ------- --------- ----------
Net cash provided by (used in) continuing
operations........................................ (8,271) 16,280 3,036 -- 11,045
--------- ---------- ------- --------- ----------
Cash flows related to investing activities:
Acquisition of property, plant and equipment...... (147) (35,116) (1,309) -- (36,572)
Cash flows related to net assets of discountinued
operations...................................... 713 -- -- -- 713
Proceeds from disposition of property, plant and
equipment....................................... -- 1,703 -- -- 1,703
--------- ---------- ------- --------- ----------
Net cash used in investing activities............... 566 (33,413) (1,309) -- (34,156)
--------- ---------- ------- --------- ----------
Cash flows related to financing activities:
Deferred DIP financing costs...................... (2,200) -- -- -- (2,200)
Net payments under financing / credit agreement... (445) (38,389) -- -- (38,834)
Net borrowings under DIP financing agreement...... 1,572 85,899 87,471
Proceeds from sale of stock / exercise of stock
options......................................... 31 -- -- -- 31
Repayments of long-term debt...................... -- (7,682) -- -- (7,682)
Pension fund payment pursuant to PBGC settlement
agreement....................................... (6,000) -- -- -- (6,000)
Payment of EPA settlements........................ (1,053) (517) -- -- (1,570)
Net changes in intercompany balances.............. 20,779 (21,169) 390 -- --
--------- ---------- ------- --------- ----------
Net cash provided by financing activities........... 12,684 18,142 390 -- 31,216
--------- ---------- ------- --------- ----------
Net increase (decrease) in cash and cash
equivalents....................................... 4,979 1,009 2,117 -- 8,105
Cash and cash equivalents :
Beginning of period............................... (1,655) 4,367 (1,605) -- 1,107
--------- ---------- ------- --------- ----------
End of period..................................... $ 3,324 $ 5,376 $ 512 $ -- $ 9,212
--------- ---------- ------- --------- ----------
</TABLE>
79
<PAGE>
HARVARD INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales........................................ $ 33,360 $765,455 $26,022 $ -- $824,837
-------- -------- ------- ------- --------
Costs and expenses:
Cost of sales.............................. 20,073 733,510 22,558 -- 776,141
Selling, general and administrative........ 10,668 32,186 4 -- 42,858
Interest expense........................... 41,478 5,526 -- -- 47,004
Amortization of goodwill................... -- 15,312 -- -- 15,312
Other (income) expense, net................ 1,536 1,347 (1,345) -- 1,538
Equity in (income) loss of subsidiaries.... 41,137 (2,278) -- (38,859) --
Allocated expenses......................... (21,078) 19,857 1,221 -- --
-------- -------- ------- ------- --------
Total costs and expenses................ 93,814 805,460 22,438 (38,859) 882,853
Income (loss) before provision for income
taxes...................................... (60,454) (40,005) 3,584 38,859 (58,016)
Provision for income taxes................... 758 1,132 1,306 -- 3,196
-------- -------- ------- ------- --------
Income (loss) from continuing operations..... (61,212) (41,137) 2,278 38,859 (61,212)
-------- -------- ------- ------- --------
Loss from discontinued operations............ (7,500) -- -- -- (7,500)
-------- -------- ------- ------- --------
Net income (loss)............................ $(68,712) $(41,137) $ 2,278 $38,859 $(68,712)
-------- -------- ------- ------- --------
-------- -------- ------- ------- --------
</TABLE>
80
<PAGE>
HARVARD INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows related to operating activities:
Income (loss) from continuing operations...... $(61,212) $(41,137) $ 2,278 $38,859 $(61,212)
Add back (deduct) items not affecting cash and
cash equivalents:
Equity in (income) loss of subsidiaries.... 41,137 (2,278) -- (38,859) --
Depreciation and amortization.............. 6,204 58,446 1,008 -- 65,658
Loss on disposition of property, plant and
equipment and property held for sale..... -- 2,053 -- -- 2,053
Postretirement benefits.................... -- 5,822 -- -- 5,822
Changes in operating assets and liabilities:
Accounts receivable........................ 213 1,465 1,455 -- 3,133
Inventories................................ 248 8,245 (1,381) -- 7,112
Other current assets....................... (31) (192) 1 -- (222)
Accounts payable........................... 438 9,886 (953) -- 9,371
Accrued expenses and income taxes
payable.................................. (6,103) (25,714) 1,362 11 (30,444)
Other noncurrent........................... (5,802) 4,079 (2,857) 176 (4,404)
-------- -------- ------- ------- --------
Net cash provided by (used in)
operations............................ (24,908) 20,675 913 187 (3,133)
Cash flows related to investing activities:
Acquisition of property, plant and
equipment.................................. (291) (35,474) (4,813) -- (40,578)
Cash flows related to discontinued
operations................................. (3,332) -- -- -- (3,332)
Proceeds from disposition of property, plant
and equipment.............................. -- 909 -- -- 909
-------- -------- ------- ------- --------
Net cash provided by (used in) investing
activities.................................... (3,623) (34,565) (4,813) -- (43,001)
-------- -------- ------- ------- --------
Cash flows related to financing activities:
Proceeds from exercise of stock options....... 190 -- -- -- 190
Net borrowings under credit agreement......... 445 38,389 -- -- 38,834
Repayments of long-term debt.................. (31) (3,001) -- -- (3,032)
Pension fund payments pursuant to PBGC
settlement agreement....................... (6,000) -- -- -- (6,000)
Payment of EPA settlements.................... (2,090) (586) -- -- (2,676)
Intercompany dividends........................ -- 5,683 (5,683) -- --
Net changes in intercompany balances.......... 15,717 (20,048) 4,487 (156) --
-------- -------- ------- ------- --------
Net cash provided by (used in) financing
activities.................................... 8,231 20,437 (1,196) (156) 27,316
-------- -------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents................................... (20,300) 6,547 (5,096) 31 (18,818)
Cash and cash equivalents :
Beginning of period........................... 18,645 (2,180) 3,491 (31) 19,925
-------- -------- ------- ------- --------
End of period................................. $ (1,655) $ 4,367 $(1,605) $ -- $ 1,107
-------- -------- ------- ------- --------
-------- -------- ------- ------- --------
</TABLE>
81
<PAGE>
(27) QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL 1998
QUARTERS ENDED DEC. 31 MAR. 31 JUNE 30 SEPT. 30
- ----------------------------------------------------------- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Sales...................................................... $197,052 $ 206,339 $169,234 $ 117,451
Gross profit............................................... 5,330 12,248 12,873 3,382
Net loss................................................... $ (5,519) $ (3,081) $ (7,313) $ (39,891)(e)
-------- --------- -------- ---------
-------- --------- -------- ---------
Earnings per share of Common Stock (Basic and Diluted)(a)
Net Loss per share....................................... $ (0.79) $ (.44) $ (1.04) $ (5.68)
-------- --------- -------- ---------
-------- --------- -------- ---------
<CAPTION>
FISCAL 1997
QUARTERS ENDED DEC. 31 MAR. 31 JUNE 30 SEPT. 30
- ----------------------------------------------------------- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Sales...................................................... $187,261 $ 209,226 $217,914 $ 196,368
Gross profit (loss)........................................ (3,201) (746) 6,305 10,637
-------- --------- -------- ---------
Net loss................................................. $(30,168) $(168,154) $(28,291) $(162,816)(b)
-------- --------- -------- ---------
-------- --------- -------- ---------
Earnings per share of Common Stock (Basic and Diluted)(a)
Net Loss per share....................................... $ (4.90) $ (24.57)(c) $ (4.27) $ (23.17)(d)
-------- --------- -------- ---------
-------- --------- -------- ---------
</TABLE>
- ------------------
(a) Year-to-date earnings per share do not equal the sum of the quarterly
earnings per share.
(b) Includes curtailment gain.
(c) Includes an impairment charge of $134,987. See Note 13.
(d) Includes an impairment and restructuring charge of $153,558. See Note 13.
(e) Includes charges of $10,000 for deferred compensation arrangement and
$13,500 for emergence related costs. Results of operations were also
negatively impacted by the General Motors strike which occurred from
June 7, 1998 to July 31, 1998.
(28) SUBSEQUENT EVENTS
(In Whole Dollars)
Emergence from Bankruptcy
On November 24, 1998 the Company emerged from Chapter 11 Reorganization
under the United States Bankruptcy Code.
Under the terms of the Plan of Reorganization, holders of Harvard's
Pay-In-Kind Exchangeable Preferred Stock ("PIK Preferred Stock") and holders of
Harvard's existing common stock (the "Old Common Stock") will each receive
warrants ("Warrants") to acquire, in the aggregate, approximately 5% of the New
Common Stock, with holders of PIK Preferred Stock each receiving their pro rata
share of 66.67% of the Warrants and holders of the Old Common Stock each
receiving their pro rata share of 33.33% of the Warrants. On the Effective Date,
the Old Common Stock and PIK Preferred Stock were canceled in their entirety.
In connection with its emergence from Chapter 11 bankruptcy proceedings,
the Company implemented "Fresh Start Reporting," as of November 29, 1998 (its
normal interim closing date), as set forth in Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
(SOP 90-7), issued by the American Institute of Certified Public Accountants.
"Fresh Start Reporting" was required because there was more than a 50% change in
the ownership of the Company. Accordingly, all assets and liabilities were
restated to reflect their respective fair values. Consolidated financial
statement amounts of post-confirmation periods will be segregated by a black
line in order to signify that such consolidated statements of operations,
stockholders' equity (deficiency) and cash flows are those of a new reporting
entity and have been prepared on a basis not comparable to the pre-confirmation
periods. The Company, in accordance with SOP 90-7, has followed the accounting
and reporting guidelines for companies operating as debtor-in-possession since
its filing for bankruptcy protection on May 8, 1997 and until its emergence from
bankruptcy protection as described above.
82
<PAGE>
The reorganization value of the Company was determined by management, with
the assistance from its independent financial professionals. The methodology
employed involved estimation of enterprise value (i.e., the market value of the
Company's debt and stockholders' equity), taking into account a discounted cash
flow analysis and an analysis of comparable, publicly traded U.S. manufacturing
companies. The discounted cash flow analysis was based on five-year cash flow
projections prepared by management and average discount rates of 5.34 percent.
The enterprise value of the Company was determined to be $275,000 as of
November 24, 1998.
Refinancings:
Upon emergence from bankruptcy, as arranged by Lehman, the Company issued
$25 million of 14 1/2% Senior Secured Notes due September 1, 2003 and entered
into a $115 million senior secured credit facility with a group of lenders, as
arranged by Lehman, and including General Electric Capital Corporation as
Administrative Agent. The Senior Credit Facility provides for up to $50 million
in term loan borrowings and up to $65 million of revolving credit borrowings.
The combined proceeds from the issuance of the Notes and initial borrowings
under the Senior Credit Facility were used to:
o refinance the senior and junior debtor-in-possession credit facilities
that provided financing to the Company while it was in bankruptcy
proceedings (together, the "DIP Credit Facilities");
o pay administrative expenses due under the Plan of Reorganization and pay
related fees and expenses;
o provide cash for working capital purposes; and
o provide funds for general corporate purposes.
The $65 million revolving credit portion of the Senior Credit Facility will
be used to finance working capital and other general corporate purposes
New Director Compensation
Pursuant to the Plan of Reorganization new directors were appointed on
November 24, 1998. The compensation of new directors will be as follows:
Cash Compensation:
Non-employee directors will receive $10,000 per year. They will also
receive, $500 for attendance at each committee meeting $500 for services as the
Chairman of any committee of the Board of Directors, $1,250 for attendance at
each meeting of the Board of Directors, and $750 for attendance at each
committee meeting which does not occur in conjunction with a Board meeting.
Grant of Stock:
An annual stock grant will be made of a number of shares of common stock of
Reorganized Harvard (the "New Common Stock") equal to $15,000 divided by the
closing price per share of New Common Stock on the date of the grant.
Grant of Options:
Each non-employee director will receive Retroactive to the Effective Date a
grant of options to purchase a yet to be determined number of shares of New
Common Stock at an exercise price based on the closing price per share of the
New Common Stock as of the Effective Date.
With respect to the options granted to each non-employee director on the
Effective Date, options to purchase 4,000 shares of New Common Stock will vest
on the Effective Date and with respect to the balance of the options so granted,
options to purchase 4,000 shares of New Common Stock will vest on each of the
first, second, third and fourth anniversaries of the Effective Date.
83
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HARVARD INDUSTRIES, INC.
Date: April 14, 1999
By: /s/ ROGER G. POLLAZZI
------------------------
Roger G. Pollazzi
Chairman of the Board,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: April 14, 1999 By: /s/ THEODORE W. VOGTMAN
----------------------------
Theodore W. Vogtman
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: April 14, 1999 By: /s/ KEVIN L. B. PRICE
----------------------------
Kevin L. B. Price
Vice President, Controller and
Treasurer
(Principal Accounting Officer)
Date: April 14, 1999 By: /s/ JON R. BAUER
----------------------------
Jon R. Bauer
Director
Date: April 14, 1999 By: /s/ THOMAS R. COCHILL
----------------------------
Thomas R. Cochill
Director
Date: April 14, 1999 By: /s/ RAYMOND GARFIELD, JR.
----------------------------
Raymond Garfield, Jr.
Director
Date: April 14, 1999 By: /s/ DONALD P. HILTY
----------------------------
Donald P. Hilty
Director
Date: April , 1999 By:
----------------------------
George A. Poole, Jr.
Director
Date: April , 1999 By:
----------------------------
James P. Shanahan, Jr.
Director
Date: April , 1999 By:
----------------------------
Richard W. Vieser
Director
</TABLE>
84
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Plan of Reorganization and related Disclosure Statement, filed with the U.S. Bankruptcy Court for the
District of Delaware on July 10, 1998 (incorporated by reference to Exhibits 99.1 and 99.2 to the
Company's Form 8-K filed with the Commission on July 24, 1998 (Commission File No. 001-01044)).
2.2 First Amended and Modified Consolidated Plan of Reorganization dated August 19, 1998, filed with the
U.S. Bankruptcy Court for the District of Delaware on August 25, 1998 (incorporated by reference to
Exhibit 2.1 to the Company's Form 8-K filed with the Commission on October 30, 1998 (Commission File
No. 001-01044)).
3.1(a)* Certificate of Incorporation of the Company.
3.1(b)* Certificate of Merger of the Company.
3.2* By-laws of the Company.
4.1* Form of Common Stock Certificate of the Company.
4.2* Indenture (including the Form of 14 1/2% Senior Secured Note due September 1, 2003), dated as of
November 24, 1998 between the Company, the Subsidiary Guarantors and Norwest Minnesota Bank, National
Association, as Trustee.
10.1* Settlement Agreement dated as of October 15, 1998, by and among the Company, certain of its
subsidiaries and the PBGC.
10.2* Registration Rights Agreement, dated as of November 24, 1998, between the Company and the signatories
listed therein.
10.3* Registration Rights Agreement, dated as of November 23, 1998, between the Company and Lehman Brothers
Inc., as Initital Purchaser.
10.4* Credit Agreement, dated as of November 24, 1998, between the Company, its subsidiaries, General
Electric Capital Corporation, as Administrative Agent and the lenders party thereto.
10.5* Loan Collateral Agreement, dated as of November 24, 1998, by the Company and its subsidiaries in favor
of General Electric Capital Corporation, as Administrative Agent.
10.6* Collateral Agreement, dated as of November 24, 1998, by the Company and its subsidiaries in favor of
Norwest Bank Minnesota, National Association, as Collateral Agent.
10.7* Warrant Agreement, dated as of November 24, 1998, between the Company and State Street Bank and Trust
Company, as Warrant Agent.
10.8 Harvard Industries, Inc. Nonqualified ERISA Excess Benefit Plan (incorporated by reference to
Exhibit 10.20 to the Company's Registration Statement on Form S-1 (File No. 33-96376)).
10.9 Harvard Industries, Inc. Nonqualified Additional Credited Service Plan (incorporated by reference to
Exhibit 10.21 to the Company's Registration Statement on Form S-1 (File No. 33-96376)).
10.10* Harvard Industries, Inc. 1998 Stock Incentive Plan
10.11** Stipulation and Order between the Debtors and ARCO Environmental Remediation, LLC Regarding Assumption
of Settlement Agreement and the Withdrawal of Claim No. 1701 (attaching Settlement Agreement, dated as
of January 16 1995, by and between Harvard Industries, Inc. and Atlantic Richfield Company).
10.12** Stipulation and Order among the Debtors, General Electric Company and Caribe General Electric
Products, Inc. Regarding Assumption of Settlement Agreement and the Withdrawal of Claim Nos. 1741 and
1742 (attaching Settlement Agreement, dated as of June 30, 1993, by General Electric Company and
Caribe General Electric Products, Inc., Unisys Corporation, Harvard Industries, Inc., Harman
Automotive, Inc. and Harman Automotive of Puerto Rico, Inc., Motorola, Inc. and Motorola Telcarro de
Puerto Rico, Inc. and The West Company Incorporated and The West Company of Puerto Rico, Inc.).
10.13** Stipulation and Order between the Debtors and the Fonalledas Claimants.
10.14** Second Amendment to Settlement Agreement, dated March 6, 1997 and March 11 1997, between Harvard
Industries, Inc. and the Kingson-Warren Corp. and The Town of Newmarket.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
16 Letter re change in certifying accountant (incorporated by reference to Exhibit 16.1 to the Company's
Current Report on Form 8-K/A filed with the Commission October 7, 1998 (Commission File No.
001-01044)).
21* List of subsidiaries of the Company.
23.1* Consent of Arthur Andersen LLP
23.2* Consent of PriceWaterhouseCoopers
24 Powers of Attorney.
</TABLE>
- ------------------
* Previously filed.
** Filed herewith.
<PAGE>
Exhibit 10.11
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
)
STIPULATION AND ORDER BETWEEN THE DEBTORS AND ARCO
ENVIRONMENTAL REMEDIATION, LLC REGARDING ASSUMPTION OF
SETTLEMENT AGREEMENT AND THE WITHDRAWAL OF CLAIM NO. 1701
This stipulation and order (the "Stipulation") is made and entered into
this 12th of November, 1998, by and between the above-captioned debtors and
debtors in possession (collectively, the "Debtors") on the one hand, and ARCO
Environmental Remediation, LLC, as successor to Atlantic Richfield Company
(collectively, "ARCO") on the other hand, by and through their respective
undersigned counsel.
WHEREAS, in 1989, the United States Environmental Protection Agency
(the "EPA") notified ARCO and Harvard Industries, Inc., one of the Debtors, of
their respective status as potentially responsible parties (PRPs) pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. ss.ss. 9601 et seq., at the real property and
manufacturing plant formerly known as the Alsco-Anaconda facility located on
Anaconda Drive, Gnadenhutten, Tuscarawas County, Ohio, including but not limited
to the 4.8 acre parcel owned by ARCO and on the National Priority List (as
defined in the Settlement Agreement "the Site") and
<PAGE>
WHEREAS, litigation between Harvard and ARCO subsequently commenced in
the United States District Court for the Northern District of Ohio regarding the
allocation of response costs at the Site (the "Litigation"); and
WHEREAS, on or about January 16, 1995, Harvard and ARCO entered into a
Settlement Agreement (the "Settlement Agreement") to resolve the Litigation and
ARCO's and Harvard's respective environmental obligations at the Site (attached
hereto as Exhibit A); and
WHEREAS, among other things, the Settlement Agreement provided that
Harvard would pay ARCO the sum of $6.25 million (the "Settlement Sum") as
Harvard's share of up to $25 million of the Remediation Costs (as defined in the
Settlement Agreement) at the Site in consideration of ARCO's assumption of
responsibility for remedial actions at the Site and indemnification of Harvard
for any Remediation Costs up to $25 million; and
WHEREAS, Paragraph 2(b) and (c) of the Settlement section of the
Settlement Agreement requires Harvard to pay the Settlement Sum through 20
quarterly installments with 9% interest per annum; and
WHEREAS, Harvard commenced quarterly payments of the Settlement Sum in
January 1995; and
WHEREAS, Paragraph 4.2 of the Settlement section of the Settlement
Agreement expressly provides that ARCO does not release Harvard from any and all
claims, costs, demands, damages, losses, suits, actions and causes of action for
Remediation Costs in excess of $25 million; and
-2-
<PAGE>
WHEREAS, on May 8, 1997 (the "Petition Date"), Harvard and each of the
other Debtors filed a voluntary petition for relief under chapter 11 of title 11
of the United States Code (the "Bankruptcy Cases") and since the Petition Date,
the Debtors have operated their businesses and remained in possession of their
property as debtors-in-possession pursuant to sections 1107 and 1108 of the
Bankruptcy Code; and
WHEREAS, as of the Petition Date, the Debtors owed ARCO $3,547,500 on
account of the Settlement Sum; and
WHEREAS, on or about January 30, 1997, ARCO filed a proof of claim
(Claim No. 1701) (the "Claim") against Harvard asserting an unliquidated,
unsecured claim for amounts that ARCO is owed under the Settlement Agreement or,
in the alternative, for all amounts that ARCO has expended or may expend for
environmental clean-up of the Site; and
WHEREAS, the Debtors entered into discussions with ARCO regarding its
Claim and treatment of the Settlement Agreement under the Plan, but no agreement
was reached prior to the confirmation hearing on the Plan;
WHEREAS, the Debtors listed the Settlement Agreement on its Schedule of
Rejected Executory Contracts, as revised as of October 13, 1998, but after
careful consideration by senior management of the Debtors, the Debtors have
determined that it is in their best interest to assume the Settlement Agreement
as modified by the terms of the agreements reached herein; and
WHEREAS, on October 15, 1998, the United States District Court for the
District of Delaware (the "Bankruptcy
-3-
<PAGE>
Court") confirmed the Debtors' First Amended and Modified Consolidated Plan
Under Chapter 11 of the Bankruptcy Code, dated August 19, 1998 (the "Plan"); and
WHEREAS, Harvard and ARCO have amicably resolved all outstanding issues
regarding the Settlement Agreement and the Claim upon the terms and conditions
set forth herein;
NOW, THEREFORE, IT IS HEREBY STIPULATED, CONSENTED AND AGREED TO by and
between the Debtors and ARCO, by and through their undersigned counsel, as
follows:
1. Notwithstanding any prior orders of the Bankruptcy Court, the
Settlement Agreement is hereby assumed by the Debtors as modified by this
Stipulation and, as modified, shall remain in full force and effect.
2. Paragraph 2 of the Settlement section of the Settlement Agreement
shall be modified in its entirety to reflect the following payment terms:
a) The Debtors agree to pay ARCO $575,000 in cash (the
"Revised Settlement Sum") in full and final satisfaction of the Settlement Sum,
all Remediation Costs (including without limitation Remediation Costs, if any,
in excess of $25 million) and the Claim.
b) The Revised Settlement Sum shall be paid within ten (10)
days of the later of (i) the Effective Date of the Plan (as such term is defined
in the Plan) and (ii) the date of the Bankruptcy Court's approval and entry of
this Stipulation.
-4-
<PAGE>
3. Paragraph 4.2 of the Settlement section of the Settlement Agreement
shall be modified to delete the final sentence thereof.
4. Claim No. 1701 shall be deemed withdrawn by ARCO with prejudice on
the later to occur of (a) the Effective Date, and (b) the date of the Bankruptcy
Court's approval and entry of the Stipulation.
5. ARCO shall not file any other claims in the Bankruptcy Cases or seek
to refile, modify or amend Claim No. 1701.
6. In the event of any conflict between the provisions of the
Settlement Agreement and this Stipulation, the provisions of this Stipulation
and Order shall govern.
7. ARCO and, subject to Bankruptcy Court approval, Harvard, represent
that they are each authorized to enter into this Stipulation.
8. The Bankruptcy Court shall retain exclusive jurisdiction to hear and
determine any matter arising from or relating to this Stipulation and the Claims
which are the subject hereof.
-5-
<PAGE>
9. This Stipulation is subject to the approval of the Bankruptcy Court
and is conditioned and is effective only upon the Effective Date of the Plan.
Dated: November 12, 1998
YOUNG CONAWAY STARGATT & ASHBY & GEDDES
TAYLOR, LLP
<TABLE>
<S> <C>
/s/ Victoria Watson Counihan /s/ Christopher S. Sontchi
- --------------------------------- --------------------------------------
James L. Patton (No. 2202) Christopher S. Sontchi (No. 3159)
S. David Peress (No. 2679) William P. Bowden (No. 2553)
Victoria W. Counihan (No. 3488) Ashby & Geddes
1100 N. Market Street One Rodney Square
11th Floor Suite 302
Wilmington, DE 19801 Wilmington, DE 19801
(302) 571-6600 (302) 654-1888
Co-Counsel for the Debtors and Attorneys for ARCO Environmental Remediation, LLC,
Debtors in Possession as successor to Atlantic Richfield Company
-and-
WILLKIE FARR & GALLAGHER
Myron Trepper
787 Seventh Avenue
New York, New York 10019
(212) 728-8000
Co-Counsel for the Debtors and
Debtors in Possession
SO ORDERED AND APPROVED
This 2d day of December, 1998
/s/ Sue L. Robinson
- ---------------------------------
UNITED STATES DISTRICT JUDGE
</TABLE>
<PAGE>
EXHIBIT A
<PAGE>
Settlement Agreement
--------------------
This Settlement Agreement ("Agreement") is entered into this
1/12/95 day of December, 1994 by and between Harvard
Industries, Inc. ("Harvard") and Atlantic Richfield Company
("ARCO").
Definitions
-----------
1. The term "CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C. ss.9601 et seq.
2. The term "Hazardous Substance" or "Hazardous Substances" shall mean
"hazardous substance" as defined in Section 101(14) of CERCLA, 42 U.S.C.
ss.9601.(14); the list of hazardous substances adopted by the United States
Environmental Protection Agency ("USEPA") pursuant to Section 311 of the Federal
Water Pollution Control Act Amendments of 1972, Pub. L. 92-500, 33 U.S.C.
ss.1321; the list of hazardous wastes adopted by USEPA pursuant to Section 3001
of the Resource Conservation and Recovery Act of 1976, Pub. L. 94-580, 42 U.S.C.
ss.6921; petroleum; and "hazardous substances" and "hazardous wastes" as defined
under Ohio, Tuscawaras County or Gnadenhutten environmental laws or regulations.
3. The term "the Site" shall mean the real property and manufacturing
plant formerly known as the Alsco Anaconda facility located on Anaconda Drive,
Gnadenhutten, Tuscarawas County, Ohio, including, but not limited to, the 4.8
acre parcel presently owned by ARCO and on the National Priority List ("NPL").
4. The term "Remedial Action", in the singular or plural, shall mean
those actions taken or be taken at the Site pursuant
-1-
<PAGE>
to law or regulation or federal or state order, requirement or directive, in
response to the release or threat of release of Hazardous Substances on, at,
under or emanating from the Site, and shall include, without limitations, those
actions referred to in Section 101(24) of CERCLA, 42 U.S.C. ss.9601(24).
5. The term "Remediation Costs" shall mean (i) all costs, reasonably,
necessarily, and actually incurred by or on behalf of ARCO, related directly or
indirectly to the negotiation, performance and/or oversight of Remedial Actions
performed by ARCO on, at, under or about the Site with respect to Hazardous
Substances, including, but not limited to, contractor costs, laboratory costs,
equipment costs, environmental consultant costs, governmental filing fees,
governmental oversight costs and direct, non-administrative salary and travel
costs incurred by ARCO for ARCO employees involved in connection with Remedial
Actions performed by ARCO at the Site, but expressly excluding costs solely
incurred in connection with Case No. 5:91CV0504; and (ii) all costs reasonably,
necessarily and actually incurred by ARCO in connection with the defense and/or
settlement of any claim by third parties concerning Hazardous Substances at, on,
under or emanating from the Site, including, without limitation, any claim by
the present owner of a part of the Site, Amerimark, Inc., and/or any federal,
state, county or municipal governmental authority or any department, bureau or
agency obtaining authority therefrom.
-2-
<PAGE>
Recitals
--------
Whereas:
A. From approximately 1948 to September 2, 1971, Harvard or a
predecessor in interest owned the Site.
B. From September 2, 1971 to approximately December 17, 1986, ARCO or a
predecessor in interest owned the Site.
C. On October 15, 1984, 4.8 acres of the Site was formally placed on
the NPL.
D. Harvard filed a Complaint against ARCO in the United States District
Court for the District of New Jersey on September 28, 1990. The Complaint seeks
damages from ARCO for Harvard's response costs at the Site under ss. 107(a) of
CERCLA, and other relief.
E. ARCO filed an Answer and Counterclaim against Harvard seeking to
recover costs incurred by ARCO in connection with the Remedial Action performed
by ARCO at the Site with respect to Hazardous Substances.
F. The action which Harvard initially filed against ARCO was
transferred to the United States District Court for the Northern District of
Ohio and assigned Case No. 5:91CV0504.
G. On April 11, 1991, an involuntary petition for relief was filed
against Harvard under Chapter 11 of Title 11 of the United States Bankruptcy
Code (the "Bankruptcy Code"), in the United States Bankruptcy Court for the
District of Delaware (the "Harvard Bankruptcy Court"), and on April 30, 1991 an
Order for Relief was entered by the Harvard Bankruptcy Court under the
Bankruptcy Code
-3-
<PAGE>
with respect to Harvard. This proceeding bears Case Number 91-0404 and was
consolidated with Case Numbers 91-479 and 91-487 (the "Harvard Bankruptcy
Proceeding").
H. Harvard and ARCO desire to resolve the pending litigation regarding
Remedial Action at the Site. It is the intent of Harvard and ARCO to settle the
outstanding controversy between them on the terms provided below.
Settlement
----------
Now, Therefore, in consideration of the premises and the mutual
covenants, promises and conditions contained in this Agreement, the receipt and
sufficiency of which is acknowledged by the parties, Harvard and ARCO agree as
follows:
1. Incorporation of Recitals. The foregoing Recitals are hereby
affirmed by Harvard and ARCO as true and correct and are incorporated here by
this reference as though set forth at length.
2. Settlement Sum.
(a) Harvard shall pay to ARCO the total sum (the "Settlement Sum")
of Six Million, Two Hundred Fifty Thousand ($6,250,000) Dollars, as Harvard's
full share of liability for up to a total sum of Twenty Five Million
($25,000,000) Dollars of Remediation Costs. To the extent Remediation Costs do
not exceed Twenty Five Million ($25,000,000) Dollars, Harvard shall have no
further liability to ARCO. To the extent remediation costs exceed Twenty Five
Million ($25,000,000) Dollars, Harvard and ARCO each reserve unto themselves,
all rights and remedies otherwise available to each under applicable common law
and statute.
-4-
<PAGE>
(b) The Settlement Sum shall be paid in twenty (20) equal consecutive
quarterly installments of Three Hundred Twelve Thousand, Five Hundred ($312,500)
Dollars each, commencing January 1, 1995 and ending with the payment of the
quarterly installment due October 1, 1999, the quarterly installments to be paid
on January 1, April 1, July 1 and October 1 of each year.
(c) Interest shall accrue on the unpaid Settlement Sum, at the rate of
nine (9%) percent per annum, from January 1, 1995 to the date of the payment in
full of the Settlement Sum and shall be paid quarterly, with the payment of each
quarterly installment referred to in subparagraph (b) above.
3. Condition Precedent. As a condition precedent to the effectiveness
of this Agreement, the Harvard Bankruptcy Court shall approve this Agreement and
the payment of the Settlement Sum as a Class 6, non-governmental, environmental
claim, which approval Harvard shall apply for promptly following the signing and
delivery of this Agreement by both parties. If this condition precedent is not
satisfied within sixty (60) days from the signing and delivery of this Agreement
by both parties, or such further time period as may be mutually agreed to in
writing by the parties, then this Agreement shall be void and of no further
force or effect.
4. Releases.
4.1 Subject to the limitations set forth below in this
paragraph 4.1, Harvard hereby releases and discharges ARCO and all of its
directors, officers, employees, assigns and representatives from (a) any and all
claims, costs, demands, damages, losses,
-5-
<PAGE>
suits, actions and causes of action, which Harvard now has or may hereafter
have, whether arising out of statute, contract, common law or otherwise, in law
or equity, whether known or unknown, now existing or hereafter enacted or
existing and relating to: (i) Hazardous Substances at, on, under or emanating
from the Site; (ii) the Remedial Action performed with respect to Hazardous
Substances at, on, under or emanating from the Site; and/or (iii) claims by
third parties concerning Hazardous Substances at, on, under or emanating from
the Site; and (b) any and all claims, causes of action, and demands brought or
that could have been brought by Harvard in the civil action filed by the United
States District Court for the Northern District of Ohio Case No. 5:91CV0504.
Notwithstanding the foregoing, Harvard does not release and discharge ARCO or
any of its directors, officers, employees, assigns and representatives from
claims, costs, demands, damages, losses, suits, actions and causes of action for
Remediation Costs in excess of Twenty Five Million ($25,000,000) Dollars.
4.2 Subject to the limitations set forth below in this paragraph 4.2,
ARCO hereby releases and discharges Harvard and all of its directors, officers,
employees, assigns and representatives from (a) any and all claims, costs,
demands, damages, losses, suits, actions and causes of action, which ARCO now
has or may hereafter have, whether arising out of statute, contract, common law
or otherwise, in law or equity, whether known or unknown, now existing or
hereafter enacted or existing, and relating to: (i) Hazardous Substances at, on,
under or emanating from the Site; (ii)
-6-
<PAGE>
the Remedial Action performed with respect to Hazardous Substances at, on, under
or emanating from the Site; and/or (iii) claims by third parties concerning
Hazardous Substances at, on, under or emanating from the Site; and (b) any and
all claims, causes of action and demands brought or that could have been brought
by ARCO in the civil action filed in the United States District Court for the
Northern District of Ohio Case No. 5:91CV0504. Notwithstanding the foregoing,
ARCO does not release and discharge Harvard or any of its directors, officers,
employees, assigns and representatives from claims, costs, demands, damages,
losses, suits, actions and causes of action for Remediation Costs in excess of
Twenty Five Million ($25,000,000) Dollars.
4.3 The releases set forth in paragraphs 4.1 and 4.2 above do
not apply to any rights or obligations arising out of this Agreement, and all
such rights and obligations shall survive the execution of this Agreement.
5. Dismissal of the Complaint. Promptly upon approval of this Agreement
by the Harvard Bankruptcy Court, Harvard agrees it will dismiss with prejudice
its Complaint against ARCO in Case No. 5:91CV0504 by signing a stipulation of
dismissal with prejudice and without costs.
6. Dismissal of Counterclaim. Promptly upon approval of this Agreement
by the Harvard Bankruptcy Court, ARCO agrees it will dismiss with prejudice its
Counterclaim against Harvard in Case No. 5:91CV0504 by signing a stipulation of
dismissal with prejudice and without costs.
-7-
<PAGE>
7. Release of Letter of Credit. Upon approval of this Agreement by the
Harvard Bankruptcy Court and payment of the first quarterly payment due from
Harvard, ARCO agrees to the release of and shall release the Irrevocable Letter
of Credit No. S790696, dated July 26, 1994, issued by Bankers Trust in favor of
ARCO for the account of Harvard.
8. Remediation of Site. ARCO shall, at ARCO's own cost and expense, to
the extent of Twenty Five Million ($25,000,000) Dollars, undertake all Remedial
Actions that may be necessary to satisfy demands by regulatory agencies on ARCO
or Harvard, or both. Nothing in this paragraph shall preclude ARCO from
contesting in good faith the applicability of any environmental law or
regulation, or the appropriateness of any Remedial Actions required with respect
to the Site. All Remedial Actions shall be performed in accordance with all
applicable law and/or regulation and may be performed in the most cost effective
manner acceptable to the appropriate governmental authority.
9. Notice of Remediation Costs. Within 30 days of the execution and
delivery of this Agreement by both parties, ARCO shall provide Harvard with an
accounting of Remediation Costs spent to date. ARCO shall provide Harvard with
updated accountings of Remediation Costs annually, on the anniversary date of
this agreement, for so long as such costs continue to be incurred. Upon written
request of Harvard, ARCO shall deliver to Harvard a true and complete copy of
all invoices, reports and data submitted to USEPA and/or Ohio, Tuscawaras County
or Gnadenhutten authorities,
-8-
<PAGE>
and responses of such governmental authorities, which relate to the Remediation
Costs.
10. Indemnity for Remediation Costs. ARCO shall defend, indemnify and
hold harmless Harvard, its directors, officers, employees, assigns and
representatives, against, for and from all lawsuits, liabilities, penalties,
damages, expenses and costs (including reasonable attorneys' fees and costs) of
any kind involving claims, demands or suits by any person or entity, including
federal, state or local entities, up to a total sum of Twenty-Five Million
($25,000,000) Dollars, under CERCLA, Ohio, Tuscawaras County or Gnadenhutten
laws or regulations, and common law theories, to the extent arising from or with
respect to the alleged presence of Hazardous Substances at, on, under or
emanating from the Site or Remedial Action performed at the Site.
ARCO must be notified promptly in writing, as provided in paragraph 12,
or any claim, demand or suit arising under this indemnification, and upon
receipt of any such notification, ARCO shall assume the defense of any action,
suit, proceeding, demand, assessment or judgment brought by any person or entity
against Harvard, its directors, officers, employees, assigns and
representatives. Harvard, its directors, officers, employees, assigns and
representatives shall promptly forward and tender to ARCO for defense every
claim, demand, notice, summons or other legal process received by the
indemnitees.
11. Right to Environmental Documents. Upon request of Harvard, ARCO
shall deliver to Harvard a true and complete copy of
-9-
<PAGE>
any and all "Environmental Documents" requested by Harvard and not previously
delivered to Harvard during the course of the litigation between the parties.
Harvard shall reimburse ARCO for the photocopying costs incurred by ARCO. For
purposes of this Agreement, "Environmental Documents" shall mean all documents
in the possession or under the control of ARCO concerning the Site or its
environs, including, without limitation, all sampling plans, cleanup plans,
preliminary assessments plans and reports, site investigation plans and reports,
remedial investigation plans and reports, remedial action plans and reports or
the equivalent, sampling results, sampling result reports, data, diagrams,
charts, maps, analyses, conclusions, quality assurance/quality control
documentation, correspondence to or from any federal, state, county or municipal
governmental authority or any department, bureau or agency obtaining authority
therefrom, submissions to any federal, state, county or municipal government
authority or any department, bureau or agency obtaining authority therefrom and
directives, orders, approvals and disapprovals issued by any federal, state,
county or municipal governmental authority or any department, agency or bureau
obtaining authority therefrom.
12. Notices. All notices required or permitted by this Agreement shall
be in writing and shall be sent by certified or registered mail, return receipt
requested, addressed as follows:
-10-
<PAGE>
If to Harvard: Richard T. Dawson, Esq.
Harvard Industries, Inc.
2502 Rocky Point Road, Suite 960
Tampa, FL 33607
-and-
Allen B. Currie, Jr.
Corporate Manager, Environmental Affairs
Harvard Industries, Inc.
1999 Wildwood Avenue
Jackson, MI 49202
With a copy to: Farer Siegal Fersko
A Professional Association
600 South Avenue
P.O. Box 580
Westfield, NJ 07091
Attention: David B. Farer, Esq.
If to ARCO: ARCO
515 South Flower Street, Ste. 4500
Los Angeles, CA 90071
Attn: Legal Department (Neal Brody, Esq.)
With a copy to: Squire, Sanders & Dempsey
4900 Society Center
127 Public Square
Cleveland, Ohio 44114
Attention: Robin Weaver, Esq.
Harvard and ARCO may, by notice given in the same manner set forth above,
designate a different address to which subsequent notices shall be sent. Notice
shall be deemed given when received or refused.
13. Binding Effect. This Agreement shall be binding on Harvard and ARCO
and on their successors in interest and assigns.
14. Entire Agreement. This Agreement contains the entire agreement and
understanding between Harvard and ARCO concerning the stated subject matter.
This Agreement shall not be modified or amended except through a writing signed
by the person or persons
-11-
<PAGE>
against whom it is to be enforced. No supplement, modification or waiver of this
Agreement or any provision thereof shall be implied from any conduct of the
parties or by trade, custom or usage.
15. Counterparts. This Agreement may be executed in counterparts, and
each such counterpart shall constitute one and the same instrument.
16. Costs and Attorney's Fees. Each party to this Agreement shall bear
its own costs and attorneys' fees incurred in the litigation arising out of the
Complaint and Counterclaim through the date of dismissal. However, in the event
a party to this Agreement defaults under or breaches this Agreement, or fails to
render full and complete performance of this Agreement, the other party shall be
entitled to recovery of its expenses, including, without limitation, reasonable
attorneys' fees incurred by such other party as a result of any default or
breach of this Agreement or failure to render full and complete performance of
this Agreement.
17. Governing Law. This Agreement shall be governed by the laws of the
State of Ohio. Any suit for the enforcement, interpretation or breach of this
Agreement shall be brought only in the United States District Court for the
Northern District of Ohio.
18. Third Parties. This Agreement is not intended to confer any benefit
whatsoever on any person not a party to it. Nothing in this Agreement shall
affect the potential liability of any other person who is or may be responsible
for any releases of Hazardous Substances on or near the Site, and the parties to
this Agreement
-12-
<PAGE>
expressly reserve any and all claims and causes of action that may exist or may
come into existence with respect to such third parties.
19. Use of Settlement. Harvard and ARCO negotiated and signed this
Agreement in good faith, solely to avoid further expensive and protracted
litigation and to provide a full and final settlement of all claims between them
which were and are vigorously contested, denied and disputed as to validity and
amount, and for no other purpose. The signing and delivery of this Agreement
does not and shall not constitute an admission of liability with respect to the
claims of either party.
20. Reliance. Harvard and ARCO acknowledge that each of them has relied
on the advice of their own attorneys in signing this Agreement and further
acknowledges that it has been afforded a full and complete opportunity to review
and evaluate the terms and conditions of the settlement itself and this
Agreement.
21. Captions. The paragraph headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
22. Miscellaneous. In all references in this Agreement to any parties,
persons, entities or corporations, the use of any particular gender or the
plural or singular number is intended to include the appropriate gender or
number as the text of this Agreement may require.
23. Authority. The individuals signing this Agreement, by signing this
Agreement, represent and warrant that they have
-13-
<PAGE>
authority to sign this Agreement on behalf of the party for whom they are so
signing.
In Witness Whereof, Harvard Industries, Inc. and Atlantic Richfield
Company have executed this Agreement on the day and year first set forth above.
HARVARD INDUSTRIES, Inc. ATLANTIC RICHFIELD COMPANY
By: /s/ Illegible By: /s/ Illegible
------------------------ ------------------------
Its Vice President Its Vice President
------------------------ ------------------------
-14-
<PAGE>
ARCO ENVIRONMENTAL REMEDIATION, L.L.C. (AERL)
SCHEDULE OF NOTE RECEIVABLE FROM HARVARD INDUSTRIES
- -----------------------------------------------
Beginning Principal $6,250,000.00
Annual Interest Rate 9.00%
Quarterly Interest Multiplier 2.25%
Payment Periods (Qtrs) 20
Beginning Dage 1/1/95
- -----------------------------------------------
<TABLE>
<CAPTION>
Payment Payment Principal Accrued Payment Payment Amount Applied Ending Principal
Period Date Balance Interest Amount Received to Principal Balance
- ------- ---------- ------------- ----------- ----------- ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1/1/95 $6,250,000.00 $ -- $312,500.00 $312,500.00 $312,500.00 $5,937,500.00
2 4/1/95 5,937,500.00 133,593.75 446,093.75 446,093.75 312,500.00 5,625,000.00
3 7/1/95 5,625,000.00 126,562.50 439.062.50 439,062.50 312,500.00 5,312,500.00
4 10/1/95 5,312,500.00 119,531.25 432,031.25 432,031.25 312,500.00 5,000,000.00
5 1/1/96 5,000,000.00 112,500.00 425,000.00 425,000.00 312,500.00 4,687,500.00
6 4/1/96 4,687,500.00 105,468.75 417,968.75 417,968.75 312,500.00 4,375,000.00
7 7/1/96 4,375,000.00 98,437.50 410,937.50 410,937.50 312,500.00 4,062,500.00
8 10/1/96 4,062,500.00 91,406.25 403,906.25 403,906.25 312,500.00 3,750,000.00
9 1/1/97 3,750,000.00 84,375.00 396,875.00 396,875.00 312,500.00 3,437,500.00
10 4/1/97 3,437,500.00(A) 77,343.75(B) 389,843.75 Delinquent -- 3,437,500.00
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Calculation of Accrued Interest from 4/1/97 to 5/8/97 (38 Days):
- ----------------------------------------------------------------
Outstanding Principal $3,437,500.00
Quarterly Interest Multiplier 2.25%
-------------
Gross Outstanding Interest 77,343.75
Pro-rated for 38 Days of 2nd Qtr. 1997 $ 32,656.25(C)
Total Amounts Outstanding:
- --------------------------
Principal Balance $3,437,500.00(A)
Payment 10 Interest (1st Qtr. 1997) 77,343.75(B)
Interest for 38 Days of 2nd Qtr. 1997 32,656.25(C)
-------------
Total Amount Due to AERL $3,547,500.00
-------------
EXHIBIT A-2
<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
)
STIPULATION AND ORDER AMONG THE DEBTORS, GENERAL ELECTRIC COMPANY AND
CARIBE GENERAL ELECTRIC PRODUCTS, INC. REGARDING ASSUMPTION OF
SETTLEMENT AGREEMENT AND THE WITHDRAWAL OF CLAIM NOS. 1741 AND 1742
This stipulation and order (the "Stipulation") is made and entered into
this 24th of November, 1998, by and between the above-captioned debtors and
debtors in possession (collectively, the "Debtors") on the one hand, and General
Electric Company and Caribe General Electric Products, Inc. (collectively, "GE")
on the other hand, by and through their respective undersigned counsel.
WHEREAS, on November 10, 1987, a Record of Decision was issued naming
Harman Automotive Puerto Rico, Inc. ("Harman Puerto Rico")1 as one of several
potentially responsible parties by the United States Environmental Protection
Agency (the "EPA") pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss.ss. 9601 et seq.,
concerning environmental contamination at the Vega Alta, Puerto Rico Superfund
site (the "Site"); and
- -------------------
1 Harman Puerto Rico was a former subsidiary of Harman Automotive Inc.
("Harman"). Harman Puerto Rico has been dissolved and is not a debtor
in the above-referenced chapter 11 cases (the "Bankruptcy Cases").
<PAGE>
WHEREAS, GE is also a named potentially responsible party ("PRP") at
the Site; and
WHEREAS, on or about September 28, 1990, the EPA filed a complaint in
the United States District Court for the District of Puerto Rico in the case
captioned United States v. Caribe General Electric Products, Inc. et al., Case
No. 90-2287CCC, seeking, among other things, damages and recovery of costs from
the potentially responsible parties ("PRPs"); and
WHEREAS, on or about June 30, 1993, Harvard Industries, Inc.
("Harvard"), Harman, Harman Automotive Puerto Rico, GE, Unisys, Motorola, Inc.,
Motorola Telcarro de Puerto Rico, Inc., The West Company Incorporated and the
West Company of Puerto Rico, Inc. (collectively "the PRPs") entered into a
Settlement Agreement (the "Settlement Agreement") governing certain obligations
of the PRPs: (1) relating to environmental clean-up at the Site and (2) to each
other (attached hereto as Exhibit A); and
WHEREAS, among other things, the Settlement Agreement provided that
Harman would pay GE the sum of $800,000 (the "Payment Obligation") in
consideration of GE's agreement to indemnify, defend and hold Harman harmless
against the Lawsuit and all claims and demands related to the Site, subject to
[certain limited] exclusions;
WHEREAS, Paragraph 11a of the Settlement Agreement requires Harman to
satisfy the Payment Obligation through 20 quarterly installments of $56,010.92
each with 9% interest per annum and to pay over to GE all amounts it recovers
from Beatrice
-2-
<PAGE>
Foods Company on account of a related claim, less attorneys fees until Harman's
payment obligation is satisfied; and
WHEREAS, Harman commenced quarterly payments of the Payment Obligation
in January 1995 but failed to pay over to GE its recovery from Beatrice Foods
Company; and
WHEREAS, on May 8, 1997 (the "Petition Date"), Harvard, Harman and each
of the other Debtors filed a voluntary petition for relief under chapter 11 of
title 11 of the United States Code (the "Bankruptcy Code") and since the
Petition Date, the Debtors have operated their businesses and remained in
possession of their property as debtors-in-possession pursuant to sections 1107
and 1108 of the Bankruptcy Code; and
WHEREAS, as of the Petition Date, the Debtors owed GE $557,760.20 of
the Payment Obligation; and
WHEREAS, on or about February 2, 1997, GE filed two proofs of claim
(Claim Nos. 1741 and 1742) (the "Claims") against Harvard and Harman, each
asserting a secured claim in the amount of $557,760.20 representing all monies
owed to GE for the Payment Obligation; and
WHEREAS, the Debtors entered into discussions with GE regarding its
Claims and treatment of the Settlement Agreement under the Plan but no agreement
was reached prior to the confirmation hearing on the Plan; and
WHEREAS, the Debtors listed the Settlement Agreement on its Schedule of
Rejected Executory Contracts, as revised as of October 13, 1998, but after
careful consideration by senior management of the Debtors, the Debtors have
determined that it
-3-
<PAGE>
was in its their best interests to assume the Settlement Agreement as modified
by the terms of the agreement reached herein; and
WHEREAS, on October 15, 1998, the United States District Court for the
District of Delaware (the "Bankruptcy Court") confirmed the Debtors' First
Amended and Modified Consolidated Plan Under Chapter 11 of the Bankruptcy Code,
dated August 19, 1998 (the "Plan"); and
WHEREAS, Harman, Harvard and GE have amicably resolved all outstanding
issues regarding the Settlement Agreement and the Claims upon the terms and
conditions set forth herein;
NOW, THEREFORE, IT IS HEREBY STIPULATED, CONSENTED AND AGREED TO by and
between the Debtors and GE, by and through their undersigned counsel, as
follows:
1. Notwithstanding any prior orders of the Bankruptcy Court, the
Settlement Agreement is hereby assumed by the Debtors as modified by this
Stipulation and, as modified, shall remain in full force and effect.
2. Paragraph 11a of the Settlement Agreement shall be modified in its
entirety to reflect the following payment terms:
a) The Debtors agree to pay GE $300,000 in cash (the "Revised
Payment Obligation") in full and final satisfaction of the Claims and the
remainder of the Payment Obligation under the Settlement Agreement.
b) The Revised Payment Obligation shall be paid as follows:
(1) The Debtors shall pay GE the sum of $100,000 within ten
(10) days of the
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<PAGE>
later of (i) the Effective Date of the Plan (as such
term is defined in the Plan) and (ii) the date of the
Bankruptcy Court's approval and entry of this
Stipulation;
(2) The Debtors shall pay GE the sum of $100,000 on or
before the eighth month anniversary of the Effective
Date;
(3) The Debtors shall pay GE the sum of $100,000 on or
before the sixteenth month anniversary of the Effective
Date; and
(4) The Revised Payment Obligation payments shall be made
payable to the order of General Electric Company and
mailed to:
William Anderson, Esq.
Manager and Senior Counsel -
Environmental Safety
GE ED&C
41 Woodford Avenue
Plainville, CT 06062-2334
(860) 747-7135.
3. Claim Nos. 1741 and 1742 shall be deemed withdrawn by GE with
prejudice on the later to occur of (a) the Effective Date and (b) the date of
the Bankruptcy Court's approval and entry of the Stipulation.
4. GE shall not file any other claims relating to the Settlement
Agreement in the Bankruptcy Cases or seek to refile, modify or amend Claim Nos.
1741 and 1742.
5. In the event of any conflict between the provisions of the
Settlement Agreement and this Stipulation, the provisions of this Stipulation
shall govern.
6. GE and, subject to Bankruptcy Court approval, Debtors represent that
they are each authorized to enter into this Stipulation.
-5-
<PAGE>
7. The Bankruptcy Court shall retain exclusive jurisdiction to hear and
determine any matter arising from or relating to this Stipulation and the Claims
which are the subject hereof.
8. This Stipulation is subject to the approval of the Bankruptcy Court
and is conditioned and is effective only upon the Effective Date of the Plan.
Dated: November 2d, 1998
YOUNG CONAWAY STARGATT & LAW OFFICES OF GLENN REISMAN
TAYLOR, LLP
<TABLE>
<S> <C>
/s/ Victoria Watson Counihan /s/
- ------------------------------- ------------------------------------
James L. Patton (No. 2202) Glenn Reisman, Esq.
S. David Peress (No. 2679) c/o General Electric Company
Victoria W. Counihan (No. 3488) 2 Corporate Drive
Rodney Square North P.O. Box 861
P.O. Box 391 Shelton, CT 06484-0861
Wilmington, DE 19899-0391
(302) 571-6600 Attorneys for General Electric Company and
Caribe General Electric Products, Inc.
Co-Counsel for the Debtors and
Debtors in Possession
-and-
WILLKIE FARR & GALLAGHER
Myron Trepper
787 Seventh Avenue
New York, New York 10019
(212) 728-8000
Co-Counsel for the Debtors and
Debtors in Possession
SO ORDERED AND APPROVED
This 29th day of December, 1998
</TABLE>
/s/ Sue L. Robinson
- -------------------------------
UNITED STATES DISTRICT JUDGE
-6-
<PAGE>
Exhibit A
SETTLEMENT AGREEMENT
--------------------
1. This Agreement shall be dated and effective as of June 30, 1993, and
is entered into by the following Parties:
a. General Electric Company and Caribe General Electric Products,
Inc., collectively referred to in this Agreement as "GE;"
b. Unisys Corporation, referred to in this Agreement as "Unisys;"
c. Harvard Industries, Inc.,. Harmon Automotive, Inc., and Harman
Automotive of Puerto Rico, Inc., collectively referred to in
this Agreement as "Harman;"
d. Motorola, Inc. and Motorola Telcarro de Puerto Rico, Inc.,
collectively referred to in this Agreement as "Motorola;" and
e. The West Company Incorporated and The West Company of Puerto
Rico, Inc., collectively referred to in this Agreement as
"West."
A. General Provisions
2. Terms used in this Agreement have the following meanings:
a. "Agreement" means this Settlement Agreement.
b. "Agreement Date" means June 30, 1993.
c. "Cleanup" means measures, and the costs of measures, required or
necessary to clean up or remediate environmental contamination
under the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C ss.ss. 9601, et seq. ("CERCLA"), or a
present Puerto Rico equivalent statute.
d. "EPA's OU-1 Order" means EPA's Administrative Order, Index No.
II-CERCLA-90302, dated March 22, 1989.
<PAGE>
e. "EPA's OU-2 Order" means EPA's Administrative Order, Index No.
II-CERCLA-00301, dated September 27, 1990.
f. "Future" means occurring after the Agreement Date.
g. "Past" means occurring before the Agreement Date.
h. "GE/Unisys" means GE and Unisys collectively.
i. "Initial Testing Program" means actions required by paragraphs
40 to 46, inclusive, of EPA's OU-1 Order.
j. "PRIDCO Industrial Park" means that area owned by the Puerto
Rico Industrial Development Company ("PRIDCO") in the
municipality of Vega Alta, Puerto Rico, and which is located
within the Site.
k. "Landfill" means the landfill located approximately one (1) mile
north of the PRIDCO Industrial Park.
l. "Lawsuit" means United States v. Caribe General Electric
Products, Inc., et al., C.A. No. 90-2287CCC, in the United
States District Court for the District of Puerto Rico.
m. "Maguayo Wells" means the wells installed by the Puerto Rico
Aqueduct and Sewer Authority ("PRASA") in the Maguayo wellfield.
n. "Ponderosa Well" means the Ponderosa Well and all of its
associated equipment including pumps, air stripper, piping, and
any buildings, fences and other items associated therewith.
o. "Puerto Rico Agency" means the government of Puerto Rico and any
Puerto Rico governmental or quasi-governmental entity.
p. "Site" means the CERCLA National Priorities List site known as
the Vega Alta Wellfield Site, and the site that is the subject
of the Lawsuit. "Site" includes the "pluma" of volatile organic
compound ("VOC") contaminants that originates from the PRIDCO
Industrial Park.
-2-
<PAGE>
q. "United States" means the United States government and its
agencies, including the Environmental Protection Agency
("EPA").
r. "CERCLA hazardous substance" means a substance as defined
in section 101(14) of CERCLA, 42 U.S.C. ss.9601.
3. Each entity listed in paragraph 1 is a Party to this Agreement,
whether or not the entity is named as a party in the Lawsuit. Corporate parents
listed in paragraph 1 shall be fully responsible for the obligations of their
subsidiaries under this Agreement.
4. The Parties intend this Agreement to be a contract and to be
enforceable as such.
5. In return for the commitments made in this Agreement the Parties
hereby release their claims against each other asserted in the Lawsuit. Except
for actions to enforce this Agreement, the Parties shall seek no further relief
from each other for the claims asserted in the Lawsuit or addressed in this
Agreement; provided, however, that resolution of claims as between GE and Unisys
is not determined by this Agreement.
6. All Parties shall be responsible for their own Past costs and hereby
release all other Parties from any claims for such costs; provided, however,
that GE and Unisys do not herein release each other from such claims.
7. Harman, Motorola and West each shall retain their rights to
contribution or indemnification against their insurers, corporate predecessors
in interest, and any others (excepting PRIDCO and PRIDCO's lessees) which may be
responsible by contract for any alleged liability of Harman, Motorola or West
with
-3-
<PAGE>
respect to the Site. As to any other claims that Harman, Motorola or West may
have against any person, including rights against PRIDCO or its lessees, for
contribution or otherwise, for any of the matters which are covered by this
Agreement, including their Past costs, Harman, Motorola and West hereby assign
such other claims to GE/Unisys; provided, however, that (subject to the
requirements of paragraph 11, below) Harman may retain its cause of action
against Beatrice Foods Co. ("Beatrice"), as reflected in Harman's Complaint
against Beatrice, filed on December 18, 1992 (N.J. Super., Law Div., Monmouth
Co., Civ. No. L 8286-92) ("Beatrice Claim"). Notwithstanding the foregoing any
Party may exchange mutual releases with PRIDCO.
8. All Parties shall cooperate in good faith with each other to achieve
the objectives of this Agreement.
9. The Parties shall make all reasonable efforts to resolve informally
any questions that arise in the implementation or interpretation of this
Agreement. If such efforts fail the Parties retain their rights to seek judicial
enforcement of this Agreement.
B. Responsibilities of Harman, Motorola and West
10. Harman, Motorola and West each shall stipulate to the United
States, in form reasonably acceptable to the United States and to each company,
that it is liable to the United States with respect to the Site, but only after
(a) GE has so stipulated and (b) this Agreement, and in particular GE/Unisys's
indemnity of Harman, Motorola and West under paragraph 16 of this Agreement, is
fully in effect. Such stipulations shall be solely
-4-
<PAGE>
for the benefit of the United States and shall be void as to any Party or other
person. The Parties shall not assert or rely upon such stipulations in any
proceeding or for any purpose.
11. Harman, Motorola and West each shall make payments to GE as
follows:
a. As an allowed Class 6 claim under its Sixth Amended Plan
of Reorganization, Harman shall pay $800,000.00, plus
interest at the rate of 9% per annum, to GE in 20 equal
quarterly installments of $56,010.92 each, commencing on
January 1, 1995; provided, however, that Harman shall
immediately pay over to GE all amounts which it recovers
from Beatrice on account of the Beatrice Claim (paragraph
7, above) (by settlement, judgment or otherwise), less
reasonable attorneys' fees paid by Harman in connection
with the Beatrice Claim, until Harman's obligations under
this paragraph are satisfied in full.
b. On or before July 30, 1993, Motorola shall pay GE
$800,000.00.
c. On or before July 30, 1993, West shall pay GE $800,000.00.
Harman, Motorola and West are not responsible for each other's payments
under this paragraph.
12. Harman, Motorola and West shall have the following obligations with
respect to the Ponderosa Well:
a. Harman, Motorola and West shall complete compliance with
paragraphs 40-46 of EPA's OU-1 Order relating to the
Initial Testing Program;
b. Harman, Motorola and West shall afford GE/Unisys full
cooperation during the Initial Testing Program to enable
GE/Unisys to prepare to perform Operation and Maintenance
of the Ponderosa Well; and
c. Upon completion of the Initial Testing Program Harman,
Motorola and West shall convey to GE/Unisys their
ownership interest in the Ponderosa Well, if any, and any
warranties, insurance policies, and other rights related
thereto.
-5-
<PAGE>
13. Harman, Motorola and West shall be responsible for any claims or
demands for penalties for violations of EPA's OU-2 Order relating to the design
and construction of the Ponderosa Well and arising from or related to events
prior to the conclusion of the Initial Testing Program.
14. Harman, Motorola and West each shall be responsible for any
necessary source control or remediation measures at its own facility or former
facility at the PRIDCO Industrial Park. Harman, Motorola and West are not
responsible for each other's obligations under this paragraph.
15. Harman, Motorola and West shall provide GE/Unisys with reasonable
access to their facilities, if any, at the PRIDCO Industrial Park, so that
GE/Unisys may efficiently and economically perform their responsibilities under
Section C of this Agreement.
C. Responsibilities of GE/Unisys
16. On and after the Agreement Date GE/Unisys shall indemnify, defend
and hold harmless Harman, Motorola and West with respect to the Lawsuit and all
claims and demands related to the Site, other than claims or demands for (a)
groundwater contamination other than VOCs, (b) matters specifically listed as
the responsibility of Harman, Motorola and West under Section B of this
Agreement or (c) matters excluded under Section D of this Agreement. GE/Unisys's
responsibility under the preceding sentence applies without regard to the
identity of the person asserting such claim or demand, and without regard to
whether such claim or demand is asserted directly, indirectly, in
-6-
<PAGE>
contribution, or otherwise. In the event of any such claim or demand, Harman,
Motorola and West shall cooperate fully with GE/Unisys's defense thereof, by
providing full access to relevant documents and knowledgeable witnesses and by
providing other reasonably necessary assistance as requested by GE/Unisys.
17. Except for the limitations specified in paragraph 16,
GE/Unisys's responsibilities under that paragraph include, without limitation:
a. Requirements of EPA's OU-1 Order, including the operation and
maintenance of the Ponderosa Well after the Initial Testing
Program;
b. Any requirement to install carbon treatment equipment on or for
the Ponderosa Well;
c. Requirements of EPA's OU-1 Order relating to the "Monterrey 2"
well;
d. Completion of compliance with EPA's OU-2 Order;
e. Compliance with any Future EPA orders related to the Site;
f. Any Cleanup of the Site required under any new or amended Record
of Decision;
g. Any other claims or demands by the United States or a Puerto Rico
Agency for Site Cleanup;
h. Any requirements of any Puerto Rico Agency ancillary to other
responsibilities under this paragraph such as obtaining permits
and authorizations, preparing any necessary contingency plans,
and performing any monitoring and reporting requirements. Such
requirements include, without limitation, any remaining
requirements under item 15 of PRASA's September 16, 1992
Authorization for Construction and Operation of Remedial Action
at the Vega Alta Public Supply Wells, and sampling and reporting
requirements contained in the Puerto Rico Department of Natural
Resources' September 4, 1992 letter to West
-7-
<PAGE>
Company granting Petition to Waive Franchise to Operate
the Ponderosa Well during Remedial Action; and
i. Any claim or demand of PRASA related to operation or
maintenance of the Ponderosa Well.
18. To the extent GE/Unisys have, and fulfill, responsibility under
this Agreement for particular Cleanup or other obligations, Harman, Motorola and
West relinquish all involvement, discretion, participation or control over
GE/Unisys's performance of such obligations and agree that GE/Unisys shall be
free to manage such matters in their sole discretion.
19. GE/Unisys shall be responsible for claims or demands of the United
States and any Puerto Rico Agency for any Past or Future costs incurred in
connection with the Site including, without limitation, costs claimed by the
United States in the Lawsuit and any Future oversight or administrative costs
related to matters that are the responsibility of GE/Unisys under this
Agreement.
20. GE/Unisys shall be responsible for Cleanup of any VOC groundwater
contaminants that are commingled with VOC groundwater contaminants originating
from the PRIDCO Industrial Park, including any such VOC contaminants identified
in the Future. This responsibility applies to VOC contaminants originating from
sources other than the PRIDCO Industrial Park, including, without limitation,
the Landfill and the facility known as "Owens-Illinois" located northwest of the
PRIDCO Industrial Park.
-8-
<PAGE>
21. GE/Unisys shall be solely responsible for claims or demands by any
entity for installation of, or payment for, the "Maguayo Wells" and any other
water supply wells or treatment or remedial facilities asserted to be necessary
due to groundwater contamination from the Industrial Park.
22. GE/Unisys shall be responsible for claims or demands for penalties
for violations of (a) EPA's OU-2 Order, (b) EPA's OU-1 Order after the
completion of the Initial Testing Program, or (c) any Future EPA order relating
to the Site.
23. GE/Unisys shall make all reasonable efforts to settle and end the
Lawsuit as soon as possible on terms acceptable to all the Parties.
24. GE/Unisys shall make all reasonable efforts to avoid Harman,
Motorola and West being parties to any future consent decrees, orders or
agreements for investigation or Cleanup at the Site.
25. After completion of the Initial Testing Program GE/Unisys shall
take over the administrative aspects of addressing the Site, including
communications with the United States and Puerto Rico Agencies.
26. GE/Unisys shall keep Harman, Motorola and West informed of
activities and developments at the Site in a manner and to an extent appropriate
in light of any potential future involvement of Harman, Motorola and West with
the Site arising from the stipulations required by paragraph 10 of this
Agreement or otherwise.
-9-
<PAGE>
27. If EPA requires GE/Unisys to implement a groundwater remedy at the
Site which does not include delivery of the treated water to the PRASA
distribution system (but instead requires some other disposition of the treated
water such as reinjection), then the Parties recognize that an increase in
Harman's, Motorola's and West's payments under this Settlement Agreement will be
necessary. If and when such alternative groundwater remedy is required,
GE/Unisys, Harman, Motorola and West promptly will negotiate a new monetary
allocation among themselves to account for the increased capital, operating and
maintenance costs of the groundwater remedy. If within sixty (60) days after
EPA's order calling for a groundwater remedy that does not include delivery of
the treated water to the PRASA distribution system, the Parties cannot agree on
the amount (present value) by which such costs have been increased ("the
delta"), then that amount shall be determined by final and binding arbitration
under the rules of the American Arbitration Association. GE/Unisys will be
responsible for 90% of the delta and Harman, Motorola and West each will be
responsible for 3-1/3% of the delta.
D. Excluded Matters
28. The following matters are specifically excluded from this
Settlement Agreement. The Parties retain any claims and defenses they may have,
against each other or otherwise, with respect to the following matters:
a. Claims for natural resource damages and claims for
response costs incurred by any natural resource trustee;
-10-
<PAGE>
b. Personal injury or property damage claims;
c. Future releases, spills or disposal on or into the
ground or surface waters, or directly into the
groundwater, of CERCLA hazardous substances that are not
on or in the ground as of the Agreement Date; and
d. Remediation of the Landfill (or any other location
besides the Site) above the water table if required by
the United States, a Puerto Rico Agency, or any other
governmental authority.
E. Miscellaneous
29. This Agreement shall be governed by and interpreted in accordance
with the laws of the District of Columbia, without regard to the principles
governing conflicts of laws.
30. Should any provision of this Agreement be deemed unenforceable for
any reason, the remainder of this Agreement shall continue in effect so long as
the purpose of this Agreement is not nullified by the absence of such provision.
31. This Agreement reflects the entire agreement between the Parties
and supersedes all prior agreements related to the same subject matter. This
Agreement can be amended, restated or supplemented only by the written agreement
of all Parties.
32. The headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.
-11-
<PAGE>
33. This Agreement may be signed in two or more counterparts, all of which
together shall be the original Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first set forth
above.
GENERAL ELECTRIC COMPANY and
CARIBE GENERAL ELECTRIC
PRODUCTS, INC.
By:
-----------------------------------------------
Title:
-------------------------------------------
UNISYS CORPORATION
By:
-----------------------------------------------
Title:
-------------------------------------------
HARVARD INDUSTRIES, INC.,
HARMAN AUTOMOTIVE, INC.
and HARMAN AUTOMOTIVE OF
PUERTO RICO, INC.
By:
-----------------------------------------------
Title:
-------------------------------------------
-12-
<PAGE>
MOTOROLA, INC. and MOTOROLA
TELCARRO DE PUERTO
RICO, INC.
By:
-----------------------------------------------
Title:
--------------------------------------------
THE WEST COMPANY INCORPORATED
and THE WEST COMPANY OF
PUERTO RICO, INC.
By:
-----------------------------------------------
Title:
--------------------------------------------
-13-
<PAGE>
33. This Agreement may be signed in two or more counterparts, all of
which together shall be the original Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first set forth
above.
GENERAL ELECTRIC COMPANY and
CARIBE GENERAL ELECTRIC
PRODUCTS, INC.
By:
-----------------------------------------------
Title:
-------------------------------------------
UNISYS CORPORATION
By:
-----------------------------------------------
Title:
-------------------------------------------
HARVARD INDUSTRIES, INC.,
HARMAN AUTOMOTIVE, INC.
and HARMAN AUTOMOTIVE OF
PUERTO RICO, INC.
By:
-----------------------------------------------
Title:
-------------------------------------------
-14-
<PAGE>
11. This Agreement may be signed in two or more counterparts, all of
which together shall be the original Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first set forth
above.
GENERAL ELECTRIC COMPANY and
CARIBE GENERAL ELECTRIC
PRODUCTS, INC.
By:
-----------------------------------------------
Title:
-------------------------------------------
UNISYS CORPORATION
By: S.W. Martin
-----------------------------------------------
Title: Vice President-Corporate Securities
HARVARD INDUSTRIES, INC.,
HARMAN AUTOMOTIVE, INC.
and HARMAN AUTOMOTIVE OF
PUERTO RICO, INC.
By:
-----------------------------------------------
Title:
-------------------------------------------
-15-
<PAGE>
11. This Agreement may be signed in two or more counterparts, all of
which together shall be the original Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first set forth
above.
GENERAL ELECTRIC COMPANY and
CARIBE GENERAL ELECTRIC
PRODUCTS, INC.
By:
---------------------------------------------
Title:
------------------------------------------
UNISYS CORPORATION
By:
---------------------------------------------
Title:
------------------------------------------
HARVARD INDUSTRIES, INC.,
HARMAN AUTOMOTIVE, INC.
and HARMAN AUTOMOTIVE OF
PUERTO RICO, INC.
By:
---------------------------------------------
Title: Secretary
-16-
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first set forth
above.
GENERAL ELECTRIC COMPANY and
CARIBE GENERAL ELECTRIC
PRODUCTS, INC.
By:
-----------------------------------------------
Title:
-------------------------------------------
UNISYS CORPORATION
By:
-----------------------------------------------
Title:
-------------------------------------------
HARVARD INDUSTRIES, INC.,
HARMAN AUTOMOTIVE, INC.
and HARMAN AUTOMOTIVE OF
PUERTO RICO, INC.
By:
-----------------------------------------------
Title:
-------------------------------------------
MOTOROLA, INC. and MOTOROLA
TELCARRO DE
PUERTO RICO, INC.
By:
-----------------------------------------------
Title: Corporate Vice President and
General Manager
-17-
<PAGE>
THE WEST COMPANY, INCORPORATED
By: Victor E. Zieglar
----------------------------------------------
Victor E. Zieglar
Executive Vice President
THE WEST COMPANY OF PUERTO RICO, INC.
By: Stephen M. Haumann
----------------------------------------------
Stephen M. Haumann
President
-18-
<PAGE>
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
)
STIPULATION AND ORDER BETWEEN THE
DEBTORS AND THE FONALLEDAS CLAIMANTS
This stipulation and order (the "Stipulation") is made and entered into
this 17 of November, 1998, by and between the above-captioned debtors and
debtors in possession (collectively, the "Debtors") on the one hand and M.R.
(Vega Alta), Inc. ("M.R."), Santa Cruz, Inc. ("Santa Cruz"), Gomera (Dorado),
Inc. ("Gomera") and Monte Rey S.E. ("Monte Rey") and Empresas Fonalledas II,
Inc. ("Empresas" and collectively with M.R., Santa Cruz, Gomera and Monte Rey,
the "Fonalledas Claimants") on the other hand, by and through their respective
undersigned counsel.
WHEREAS, on May 8, 1997 (the "Petition Date"), Harvard Industries, Inc.
("Harvard"), Harman Automotive, Inc. ("Harman") and each of the other Debtors
filed a voluntary petition for relief under chapter 11 of title 11 of the United
States Code (the "Bankruptcy Cases") and since the Petition Date, the Debtors
have operated their businesses and remained in possession of their property as
debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code;
and
WHEREAS, on October 23, 1997, certain of the Fonalledas Claimants (the
"Plaintiffs") filed a First Amended Complaint For
<PAGE>
Cost Recovery, Injunctive Relief, Declaratory Judgment, Damages and Other Relief
in the Unites States District Court for the District of Puerto Rico in the case
captioned M.R. (Vega Alta), Inc. et al. v. Caribe General Electric Products,
Inc., et al., Civil No. 97-2294 (JAF) (the "Complaint") against Harman
Automotive Puerto Rico, Inc. ("Harman Puerto Rico")1 and Harvard as well as
certain other named defendants unrelated to the Debtors (collectively, the
"Defendants"); and
WHEREAS, the Complaint alleges that the Defendants are liable to the
Plaintiffs, the owners of certain parcels of real property in Vega Alta, Puerto
Rico (the "Puerto Rico Properties"), for among other things, recovery of
response costs incurred under CERCLA, failure to comply with an unilateral order
issued under CERCLA, negligence, nuisance, trespass, strict liability and
interference with contract in connection with alleged environmental
contamination on the Puerto Rican Properties arising from the Vega Alta Public
Well Field Site as well as the Defendants' failure to comply with clean-up
orders; and
WHEREAS, the Complaint seeks in excess of $50 million in damages from
the Defendants; and
- ----------------
1 Harman Puerto Rico was a former subsidiary of Harman Automotive, Inc.,
one of the Debtors. Harman Puerto Rico has been dissolved and is not a
debtor in these chapter 11 cases.
-2-
<PAGE>
WHEREAS, the Complaint, with respect to the Debtors, has not been
served and is subject to the automatic stay provided by section 362 of the
Bankruptcy Code; and
WHEREAS, on or about February 9, 1997, Empresas Fonalledas filed ten
proofs of claim (Claim Nos. 2901, 2902, 2903, 2904, 2905, 2906, 2907, 2908, 2909
and 2910) (collectively, the "Empresas Fonalledas Claims") asserting unsecured,
unliquidated claims against each of the Debtors. The amount of the Empresas
Fonalledas Claims, eliminating duplicative claims, is in excess of $50,000,000;
and
WHEREAS, on or about February 9, 1997, Gomera filed ten proofs of claim
(Claim Nos. 2911, 2912, 2913, 2914, 2915, 2916, 2917, 2918, 2919 and 2920)
(collectively, the "Gomera Claims") asserting unsecured, unliquidated claims
against each of the Debtors. The amount of the Gomera Claims, eliminating
duplicative claims, is in excess of $50,000,000; and
WHEREAS, on or about February 9, 1997, M.R. filed ten proofs of claim
(Claim Nos. 2921, 2922, 2923, 2924, 2925, 2926, 2927, 2928, 2929 and 2930)
(collectively, the "M.R. Claims") asserting unsecured, unliquidated claims
against each of the Debtors. The amount of the M.R. Claims, eliminating
duplicative claims, is in excess of $50,000,000; and
WHEREAS, on or about February 9, 1997, Monte Rey filed ten proofs of
claim (Claim Nos. 2931, 2932, 2933, 2934, 2935, 2936, 2937, 2938, 2939 and 2940)
(collectively, the "Monte Rey Claims") asserting unsecured, unliquidated claims
against each of
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<PAGE>
the Debtors. The amount of the Monte Rey Claims, eliminating duplicative claims,
is in excess of $50,000,000; and
WHEREAS, on or about February 9, 1997, Santa Cruz filed ten proofs of
claim (Claim Nos. 2941, 2942, 2943, 2944, 2945, 2946, 2947, 2948, 2949 and 2950)
(collectively, the "Santa Cruz Claims" and collectively with the Empresas
Fonalledas Claims, Gomera Claims, M.R. Claims, and the Monte Rey Claims,
hereafter referred to as the "Claims") asserting unsecured, unliquidated claims
against each of the Debtors. The amount of the Santa Cruz Claims, eliminating
duplicative claims, is in excess of $50,000,000; and
WHEREAS, the Fonalledas Claimants objected to confirmation of the Plan
(as defined herein), however, prior to the confirmation hearing, the Fonalledas
Claimants and Debtors resolved the issues underlying the Fonalledas Claimants'
objection to the Plan in principle and the Fonalledas Claimants withdrew their
objection; and
WHEREAS, on October 15, 1998, the United States District Court for the
District of Delaware (the "Bankruptcy Court") confirmed the Debtors' First
Amended and Modified Consolidated Plan Under Chapter 11 of the Bankruptcy Code,
dated August 19, 1998 (the "Plan"); and
WHEREAS, the Debtors and the Fonalledas Claimants have amicably
resolved all outstanding issues regarding the Complaint and the Claims upon the
terms and conditions set forth herein;
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<PAGE>
NOW, THEREFORE, IT IS HEREBY STIPULATED, CONSENTED AND AGREED TO by and
between the Debtors and the Fonalledas Claimants, by and through their
undersigned counsel, as follows:
1. The Debtors agree to pay the Fonalledas Claimants $150,000.00 in
cash (the "Settlement Amount") in full and final satisfaction of the Claims and
the Complaint and any other claims related in any manner to the Puerto Rico
Properties. The Settlement Amount shall be paid as follows:
a) The Debtors shall pay the Fonalledas Claimants the sum of
$90,000 within thirty (30) days of the later of (i) the Effective Date of the
Plan (as such term is defined in the Plan) and (ii) the date of the Bankruptcy
Court's approval and entry of this Stipulation; and
b) The Debtors shall pay the Fonalledas Claimants the sum of
$60,000 on or before the one year anniversary of the Effective Date.
2. The Fonalledas Claimants and the Debtors hereby agree that the
Complaint (a) shall not be served upon or otherwise prosecuted against the
Debtors or Reorganized Debtors (as such term is defined in the Plan) and (b)
shall be withdrawn and dismissed with prejudice as it relates to the Debtors and
the Reorganized Debtors.
3. Claim Nos. 2901, 2902, 2903, 2904, 2905, 2906, 2907, 2908, 2909,
2910, 2911, 2912, 2913, 2914, 2915, 2916, 2917, 2918, 2919, 2920, 2921, 2922,
2923, 2924, 2925, 2926, 2927, 2928, 2929, 2930, 2931, 2932, 2933, 2934, 2935,
2936, 2937, 2938, 2939, 2940, 2941, 2942, 2943, 2944, 2945, 2946, 2947, 2948,
2949 and
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<PAGE>
2950 shall be deemed withdrawn by the Fonalledas Claimants with prejudice on the
later to occur of (a) the Effective Date and (b) the date of the Bankruptcy
Court's approval and entry of the Stipulation.
4. The Fonalledas Claimants shall not file any other claims in the
Bankruptcy Cases or seek to refile, modify or amend Claim Nos. 2901, 2902, 2903,
2904, 2905, 2906, 2907, 2908, 2909, 2910, 2911, 2912, 2913, 2914, 2915, 2916,
2917, 2918, 2919, 2920, 2921, 2922, 2923, 2924, 2925, 2926, 2927, 2928, 2929,
2930, 2931, 2932, 2933, 2934, 2935, 2936, 2937, 2938, 2939, 2940, 2941, 2942,
2943, 2944, 2945, 2946, 2947, 2948, 2949 and 2950.
5. The Fonalledas Claimants, their officers, directors, partners,
principals, affiliates, professionals and agents, together with their successors
and assigns, shall release the Debtors, any and all of the Reorganized Debtors
and successors and assigns of the Debtors and the Reorganized Debtors from any
and all past, present or future causes of action, claims, suits, actions and
liabilities, whether known or unknown, arising out of, relating to, or in
connection with the Claims, including without limitation claims for personal
injury, property damage or response costs arising out of, relating to, or in
connection with contamination at, under, adjacent to, or migrating from the Vega
Alta Public Well Field Site in Vega Alta, Puerto Rico.
6. The Debtors, the Reorganized Debtors and successors and assigns of
the Debtors and the Reorganized Debtors shall release the Fonalledas Claimants,
their officers,
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<PAGE>
directors, partners, principals, affiliates, professionals and agents, together
with their successors and assigns, from any and all past, present or future
causes of action, claims, suits, actions and liabilities, whether known or
unknown, arising out of, relating to, or in connection with the Claims,
including without limitation claims for personal injury, property damage or
response costs arising out of, relating to, or in connection with contamination
at, under, adjacent to, or migrating from the Vega Alta Public Well Field Site
in Vega Alta, Puerto Rico.
7. Pursuant to (a) Section 11.1 of the Plan, (b) the Order of the
Bankruptcy Court dated October 15, 1998 confirming the Plan and (c) sections 524
and 1141(d) of the Bankruptcy Code, the Debtors and the Reorganized Debtors
shall be deemed discharged from any and all past, present or future causes of
action, claims, suits, actions and liabilities, whether known or unknown,
arising out of, relating to, or in connection with the Claims, including,
without limitation, claims for personal injury, property damage or response
costs arising out of, relating to, or in connection with contamination at,
under, adjacent to, or migrating from the Vega Alta Public Well Field Site in
Vega Alta, Puerto Rico.
8. Neither the Fonalledas Claimants nor the Debtors or the Reorganized
Debtors release, settle or waive any claim, right, or cause of action they may
have against or in regard to any person or entity other than the persons or
entities identified in paragraphs 5 or 6 above. By way of example and without
limitation, neither the Fonalledas Claimants nor the
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<PAGE>
Debtors release, settle or waive any claim, right or cause of action they may
have against or in regard to the following entities: Caribe General Electric
Products, Inc.; General Electric Company; West Company of Puerto Rico, Inc.; The
West Company, Inc.; Motorola Inc.; Motorola International Development
Corporation; Motorola Electronica de Puerto Rico; Unisys Corporation; the United
States Environmental Protection Agency ("USEPA"); Carol Browner, Administrator,
USEPA; Jeanne M. Fox, Regional Administrator, USEPA, Region II; and the United
States. The Fonalledas Claimants and the Debtors expressly reserve all rights
that they may have against the entities identified in the preceding sentence and
any other person or entity not identified in paragraph 5 and 6 above.
9. Other than in an action to enforce the terms of this Stipulation,
this Stipulation and Order shall not constitute, be interpreted, construed, or
used as evidence of any admission of liability, law or fact, a waiver of any
right or defense, nor an estoppel against the Fonalledas Claimants or the
Debtors.
10. This Stipulation and Order constitutes the entire understanding of
the Debtors and the Fonalledas Claimants with respect to the Complaint and
Claims filed by the Fonalledas Claimants and supersedes any previous agreements
entered into with respect to the Complaint and Claims filed by the Fonalledas
Claimants.
11. The Bankruptcy Court shall retain jurisdiction to hear and
determine any matter arising from or relating to this
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<PAGE>
Stipulation and the Claims which are the subject hereof.
12. This Stipulation is subject to the approval of the Bankruptcy Court
and is conditioned and is effective only upon the Effective Date of the Plan.
Dated: November 17, 1998
YOUNG CONAWAY STARGATT & OPPENHEIMER WOLFF DONNELLY & BAYH LLP
TAYLOR, LLP
/s/ Victoria Watson Counihan /s/ Margaret N. Strand
- ------------------------------- ------------------------------------
James L. Patton (No. 2202) Margaret N. Strand
S. David Peress (No. 2679) 1350 Eye Street N.W.
Victoria W. Counihan (No. 3488) Washington, D.C. 20005-3324
Rodney Square North
P.O. Box 391 Attorneys for Fonalledas Claimants
Wilmington, DE 19899-0391
(302) 571-6600
Co-Counsel for the Debtors and
Debtors in Possession
-and-
WILLKIE FARR & GALLAGHER
Myron Trepper
787 Seventh Avenue
New York, New York 10019
(212) 728-8000
Co-Counsel for the Debtors and
Debtors in Possession
SO ORDERED AND APPROVED
This 2d day of December, 1998
/s/ Sue L. Robinson
- --------------------------------
UNITED STATES DISTRICT JUDGE
<PAGE>
Exhibit 10.14
Second Amendment to Settlement Agreement
----------------------------------------
This Second Amendment to Settlement
Agreement (the "Second Amendment") made the
_____ day of February, 1997 between
Harvard Industries, Inc., a Florida
Corporation, referred to herein as "Harvard"
and The Kingston-Warren Corp., a New
Hampshire Corporation, referred to here as
"Kingston-Warren", both located c/o Harvard
Industries, Inc., 2502 N. Rocky Point Drive,
Suite 960, Tampa, Florida 33607,
-and-
The Town of Newmarket, a public body
corporate and politic, organized and
existing under the laws of the State of New
Hampshire, referred to here as "Newmarket",
located c/o Newmarket Town Hall, Main
Street, Newmarket, New Hampshire 03857.
Background
----------
A. On July 8, 1992, Harvard, Kingston-Warren and Newmarket entered into
a settlement agreement (the "Initial Settlement Agreement") with respect to the
investigation and cleanup of Contaminants at the Landfill.
B. Harvard, Kingston-Warren and Newmarket amended the settlement
agreement by amendment to settlement agreement executed by Harvard and
Kingston-Warren on October 9, 1992 and Newmarket on October 6, 1992 (the "First
Amendment"). The Initial Settlement Agreement and the First Amendment are
collectively referred to here as the "Settlement Agreement".
C. A dispute arose between Harvard, Kingston-Warren and Newmarket
regarding an interpretation of the Settlement Agreement. As a result, Newmarket
filed a Complaint against Harvard and
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<PAGE>
Kingston-Warren in the state court of New Hampshire, which suit was transferred
to the United States District Court for the District of New Hampshire under
Docket Number C-96-249-JRM. Harvard and Kingston-Warren filed an Answer to the
Complaint and a Counterclaim. The District Court action is referred to here as
the "Litigation".
D. Harvard, Kingston-Warren and Newmarket desire to settle the
Litigation by further amending the Settlement Agreement according to the terms
and conditions set forth in this Second Amendment.
Now, therefore, in consideration of the premises and the mutual
covenants contained in this Second Amendment, the parties agree as follows:
1. Definitions of Words Used in this Second Amendment. For purposes of
this Second Amendment, the terms used in this Second Amendment as defined terms,
which are not defined here, shall have the meaning ascribed to such terms in the
Settlement Agreement.
2. Background. The parties incorporate the Background Section of this
Second Amendment here by reference as though set forth at length.
3. Settlement Sum.
(a) Within thirty (30) days of the signing and delivery of this
Second Amendment by all parties, Kingston-Warren shall pay to Newmarket, the sum
of Four Hundred Eighty Thousand ($480,000) Dollars, which payment, except in the
event of a catastrophic failure of the cap installed on the Landfill, as
provided for
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<PAGE>
below, shall constitute full and final payment of the Settlement Sum due from
Kingston-Warren to Newmarket pursuant to the Settlement Agreement.
(b) In the event of a catastrophic failure of the cap installed on the
Landfill, Kingston-Warren shall remain responsible to pay to Newmarket
twenty-five (25%) percent of the first Five Million, Three Hundred Thousand
($5,300,000) Dollars of Costs with respect to the repair of the cap required as
a result of a catastrophic failure of the cap, and ten (10%) percent of the next
One Million ($1,000,000) Dollars of Costs with respect to the repair of the cap
required as a result of a catastrophic failure of the cap. Kingston-Warren shall
not be obligated to pay any sum towards any Costs in excess of Six Million,
Three Hundred Thousand ($6,300,000) Dollars, and the maximum liability of
Kingston-Warren to Newmarket shall be no greater than One Million, Four Hundred
Twenty Five Thousand ($1,425,000) Dollars, plus any interest due pursuant to
subparagraph 4(b) of the Initial Settlement Agreement. Newmarket acknowledges
that (i) inclusive of all payments made to date under the Settlement Agreement
and this Second Amendment, Kingston-Warren has paid to Newmarket Seven Hundred
Twenty Four Thousand, Two Hundred Sixty and 94/100 ($724,260.94) Dollars, and
(ii) the sum of Seven Hundred Twenty Four Thousand, Two Hundred Sixty and
94/100 ($724,260.94) Dollars shall be credited against the maximum liability of
One Million, Four Hundred Twenty Five Thousand ($1,425,000) Dollars of Kingston-
Warren so that Kingston-Warren's potential future liability to Newmarket, in the
event of
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<PAGE>
a catastrophic failure of the cap, shall not exceed Seven Hundred Thousand,
Seven Hundred Thirty Nine and 06/100 ($700,739.06) Dollars. Newmarket further
acknowledges that the sum equal to all Costs incurred by Newmarket from and
after July 8, 1992, including without limitation, Three Hundred Thousand
($300,000) Dollars of pre-petition engineering fees and administrative costs as
referred to in paragraph 1(b) of the Initial Settlement Agreement, shall be
credited against the Six Million, Three Hundred Thousand ($6,300,000) Dollar
threshold referred to above in this paragraph 3(b), regardless of whether the
Costs relate to the repair of the cap required as a result of a catastrophic
failure of the cap. Furthermore, in determining Costs, a reasonable value shall
be attributable to work performed by Newmarket employees and/or materials
supplied by Newmarket to the extent such work and/or materials have a dollar
value of One Hundred ($100.00) Dollars or more.
(i) By way of illustration of the foregoing provision, but not in
substitution of it:
(A) In the event Newmarket has incurred Five Million, Nine
Hundred Thousand ($5,900,000) Dollars of Costs prior to a catastrophic failure
of the cap, and then incurs Two Million ($2,000,000) Dollars of Costs with
respect to the repair of the cap required as a result of a catastrophic failure
of the cap, Kingston-Warren shall be obligated to pay Newmarket Forty Thousand
($40,000) Dollars, calculated on the basis of ten (10%) percent of Four Hundred
Thousand ($400,000) Dollars, which is that portion of
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<PAGE>
the Costs in excess of Five Million, Nine Hundred Thousand ($5,900,000) Dollars,
up to Six Million, Three Hundred Thousand ($6,300,000) Dollars of Costs.
(B) In the event Newmarket has incurred Six Million, Three Hundred
Thousand ($6,300,000) Dollars of Costs prior to a catastrophic failure of the
cap, Kingston-Warren shall have no obligation to Newmarket for Costs with
respect to the repair of the cap required as a result of a catastrophic failure
of the cap.
(C) In the event Newmarket has incurred Five Million, Four Hundred
Thousand ($5,400,000) Dollars of Costs prior to a catastrophic failure of the
cap, and then incurs Seven Hundred Thousand ($700,000) Dollars of Costs with
respect to the repair of the cap required as a result of a catastrophic failure
of the cap and thereafter Two Hundred Fifty Thousand ($250,000) Dollars
of Costs unrelated to a catastrophic failure of the cap, Kingston-Warren shall
be obligated to pay Newmarket Seventy Thousand ($70,000) Dollars, calculated on
the basis of ten (10%) percent of Seven Hundred Thousand ($700,000) Dollars, and
zero percent of the Two Hundred Fifty Thousand ($250,000) Dollars of Costs
unrelated to the catastrophic failure of the cap. Furthermore, Kingston-Warren
shall thereafter have no further obligation to Newmarket regardless of whether
there is a subsequent catastrophic failure of the cap or additional sums are
incurred with respect to the initial catastrophic failure of the cap since Costs
incurred shall equal Six Million, Three Hundred Fifty Thousand ($6,350,000)
Dollars ($5,400,000 + $700,000 + $250,000), thereby meeting the Six
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<PAGE>
Million, Three Hundred Thousand ($6,300,000) Dollar threshold of Costs.
(D) In the event Newmarket has incurred Four Million ($4,000,000)
Dollars of Costs prior to a catastrophic failure of the cap, and then incurs One
Million ($1,000,000) of Costs with respect to the repair of the cap required as
a result of a catastrophic failure of the cap, Kingston-Warren shall be
obligated to pay Newmarket Two Hundred Fifty Thousand ($250,000) Dollars,
calculated on the basis of twenty-five (25%) percent of One Million ($1,000,000)
Dollars.
(E) In the event Newmarket has incurred Three Million, Five Hundred
Thousand ($3,500,000) Dollars of Costs prior to a catastrophic failure of the
cap and then incurs Two Million ($2,000,000) Dollars of Costs with respect to
the repair of the cap required as a result of a catastrophic failure of the cap,
Kingston-Warren shall be obligated to pay Newmarket Four Hundred Fifty Thousand
($450,000) Dollars, calculated on the basis of twenty-five (25%) percent of One
Million, Eight Hundred Thousand ($1,800,000) Dollars, which is that portion of
the Costs in excess of Three Million, Five Hundred Thousand ($3,500,000)
Dollars, up to Five Million, Three Hundred Thousand ($5,300,000) Dollars and ten
(10%) percent of the Two Hundred Thousand ($200,000) Dollars, which is that
portion of the Costs in excess of Five Million, Three Hundred Thousand
($5,300,000) Dollars.
(c) Kingston-Warren's obligation to pay any sums due pursuant to this
paragraph 3 shall not arise unless and until
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<PAGE>
Newmarket has used reasonable efforts to pursue all guarantees and warranties
issued with respect to the Landfill and all parties potentially responsible for
the catastrophic failure of the cap, and thereafter, Kingston-Warren's
responsibility shall be calculated on the basis of the amount of Costs actually
incurred by Newmarket with respect to the repair of the cap required as a result
of a catastrophic failure of the cap, minus the difference between (x) all sums
received by Newmarket with respect to such warranties and guarantees and from
all parties potentially responsible for the catastrophic failure of the cap and
(y) the amount equal to twenty-five (25%) percent of the costs paid by Newmarket
to pursue such warranties and guaranties and such parties potentially
responsible for the catastrophic failure of the cap. In no event shall
Kingston-Warren have any obligation with respect to costs paid by Newmarket to
pursue such warranties and guaranties, and such parties potentially responsible
for the catastrophic failure of the cap, if Newmarket is unsuccessful in these
pursuits. Kingston-Warren shall have a right of input with respect to (x) the
efforts, and legal strategies, used to pursue all guaranties and warranties and
potentially responsible parties and (y) the selection of experts retained with
respect to the pursuit of all guaranties and warranties and potentially
responsible parties.
(d) All payments due from Kingston-Warren pursuant to this paragraph 3
shall be paid in accordance with and subject to the terms and conditions of
paragraphs 4(a)(ii) and 5 of the
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<PAGE>
Initial Settlement Agreement, and interest shall be paid by Kingston-Warren in
accordance with and pursuant to the provisions of paragraph 4(b) of the Initial
Settlement Agreement.
(e) Notwithstanding anything to the contrary set forth in this Second
Amendment, in no event shall any of the following constitute in whole or in
part, or be a compensable Cost in connection with, a catastrophic failure of the
cap: (i) all maintenance or repair of the Landfill, including without limitation
the cap, other than repairs to the cap due to a catastrophic failure of the cap;
(ii) any action required as a result of a failure to undertake or properly
perform all appropriate maintenance or repair of the Landfill, including without
limitation the cap; (iii) all types of sampling or monitoring of the Landfill;
(iv) slope alterations (unless resulting from a catastrophic failure of the
cap); (v) permitting and reporting requirements; (vi) groundwater investigation
of any kind; (vii) design, construction, investigation or operation of a
groundwater treatment system of any kind; (viii) design, construction,
investiagation or operation of an air abatement system of any kind; (ix) permit
renewals and related fees; (x) oversight, engineering and counsel fees; (xi)
fines and penalties; and (xii) any action required as a result of the negligence
of Newmarket or its employees (as opposed to its independent contractors) in the
operation and maintenance of the Landfill, including without limitation the cap.
Newmarket represents and warrants, that to the best of its knowledge, as of this
date, there has been no catastrophic failure of the cap, nor
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<PAGE>
has an event occurred which could result in a catastrophic failure of the cap.
(f) Commencing January 15, 1997, and annually thereafter, Newmarket
shall deliver to Kingston-Warren, an accounting of all Costs, including without
limitation, Costs with respect to the repair of the cap required as a result of
a catastrophic failure of the cap, and administrative costs as referred to in
paragraph 1(b)(v) of the Initial Settlement Agreement (records of which shall
continue to be maintained by Newmarket), which accounting shall delineate all
Costs incurred during the immediately preceding calendar year, as well as a
cumulative summary of all Costs incurred from and after July 8, 1992 through the
calendar year to which the accounting relates, which cumulative summary shall
also include Three Hundred Thousand ($300,000) Dollars of pre-petition
engineering fees as referred to in paragraph 1(b) of the Initial Settlement
Agreement. Together with each accounting, Newmarket shall deliver to
Kingston-Warren, a copy of the documentation referred to in paragraph 5 of the
Initial Settlement Agreement with respect to the Costs delineated in the annual
accounting only, and not the cumulative summary.
(g) In the event of a catastrophic failure of the cap, Newmarket shall
give Kingston-Warren immediate notice of the fact, specifying in detail the
cause and consequences of the catastrophic failure of the cap to the extent
determinable by Newmarket at the time, all warranties and guarantees issued to
Newmarket with respect to the Landfill, including without limitation the cap,
and
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<PAGE>
the identity and address of all parties potentially responsible for the
catastrophic failure of the cap to the extent determinable by Newmarket at the
time. Newmarket shall at least on a quarterly basis provide Kingston-Warren
with an update of the foregoing information, and a written status report of all
efforts by Newmarket to enforce all guarantees and warranties relating to, and
to collect from all parties potentially responsible for, the catastrophic
failure of the cap. Provided Kingston-Warren is not materially prejudiced
thereby, failure by Newmarket to give any notice required by this subparagraph
shall not void Kingston-Warren's obligations under this Second Amendment;
however, Kingston-Warren shall have no obligation to make any payments to
Newmarket unless and until the notices and information required to be provided
to Kingston-Warren by this subparagraph are provided to Kingston-Warren.
4. Stipulation of Dismissal. The parties acknowledge that the parties
have signed and delivered a Stipulation of Dismissal with Prejudice and Without
Costs, which Newmarket represents has been filed with the court.
5. Notices. Paragraph 13 of the Settlement Agreement is deleted and the
following substituted in its place:
All notices required or permitted by this Settlement Agreement shall
be in writing and shall be delivered (i) personally; (ii) by
certified or registered mail, return receipt requested; or (iii) by
facsimile, followed the same date by regular mail, addressed as
follows:
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<PAGE>
If to Kingston-Warren or Harvard: Richard T. Dawson, General
Counsel
Harvard Industries, Inc.
2502 N. Rocky Point Drive
Suite 960
Tampa, Florida 33607
Fax: 813-289-3678
-and-
Allan B. Currie, Jr., Corporate
Manager, Environmental Affairs
Harvard Industries, Inc.
1999 Wildwood Avenue
Jackson, Michigan 49202
Fax: 517-782-1758
With a copy to: Farer Siegal Fersko, a
Professional Association
600 South Avenue
P.O. Box 580
Westfield, New Jersey 07091
Attn: Jack Fersko, Esq.
Fax: 908-789-8550
If to Newmarket: Joyce Fulweiler,
Town Administrator
Town of Newmarket
Town Hall
Main Street
Newmarket, New Hampshire 03857
Fax: 603-659-8508
With a copy to: McNeill & Taylor
Hale Schoolhouse
180 Locust Street
P.O. Box 815
Dover, New Hampshire 03820
Attn: Robert J. Gallo, Esq.
Fax: 603-749-1187
Harvard, Kingston-Warren and Newmarket may, by notice given in the same manner
set forth above, designate a different address to which subsequent notices shall
be sent. Notice shall be deemed given (i) when delivered, if delivered
personally; (ii) when mailed, if delivered by certified or registered mail,
return receipt requested; or (iii) when a good facsimile transmission is
completed, if by facsimile, followed by regular mail.
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<PAGE>
6. No Admission of Liability. The parties acknowledge that neither this
Second Amendment, nor the Settlement Agreement, nor any part of either of the
foregoing documents, nor the entry into nor the performance under this Second
Amendment by the parties shall constitute or be construed as a finding,
admission or acknowledgement of any of the factual or legal allegations
contained in or underlying the Litigation, this Second Amendment or the
Settlement Agreement, or of any liability, fault or wrongdoing or evidence of
such, or an admission of a violation of any law, rule, regulation or policy, nor
shall the entry into or performance of this Second Amendment be admissible in
any action or proceeding, except only in an action or proceeding to enforce the
Settlement Agreement, as amended by this Second Amendment.
7. Binding Effect. This Second Amendment shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
8. Miscellaneous. Except as amended and modified by this Second
Amendment, the Settlement Agreement remains in full force and effect. In all
references in this Second Amendment to any parties, persons, entities or
corporations, the use of any particular gender or the plural or singular number
is intended to include the appropriate gender and number as the text of this
Second Amendment may require.
9. Entire Agreement. The Settlement Agreement, as amended and modified
by this Second Amendment, contains the entire agreement between and among
Newmarket, Harvard and Kingston-Warren.
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<PAGE>
10. Authority. The individuals signing this Second Amendment, by
signing this Second Amendment, represent and warrant that they have the
authority to sign this Second Amendment on behalf of the party for whom they are
so signing.
11. Counterparts. This Second Amendment may be signed in one or more
counterparts, all of which shall constitute a single entire agreement.
12. Captions. The paragraph headings contained in this Second Amendment
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Second Amendment.
13. Legal Fees. All parties shall bear their own legal fees in
connection with this Second Amendment and the Litigation.
14. Drafting Ambiguities. In interpreting any provision of the
Settlement Agreement or this Second Amendment, no weight shall be given to, nor
shall any construction or interpretation be influenced by the fact that counsel
for one of the parties drafted the Settlement Agreement or this Second
Amendment, each party recognizing that it and its' counsel have had an
opportunity to review the Settlement Agreement and the Second Amendment and have
contributed to the final form of each of those agreements.
15. Governing Law. This Second Amendment shall be governed by New
Hampshire law in all respects, whether as to interpretation or enforcement. The
parties agree that jurisdiction over any action brought under the terms of this
Second Amendment or the
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<PAGE>
Settlement Agreement shall be vested in the federal courts of New Hampshire.
Signed and sealed by the parites.
Harvard Industries, Inc., a Florida
Corporation
By:
Dated: March 11, 1997 Richard T. Dawson
---------------- -----------------------------------------------
Richard T. Dawson, Vice President
The Kingston-Warren Corp., a
New Hampshire Corporation
By:
Dated: March 11, 1997 Richard T. Dawson
--------------- -----------------------------------------------
Richard T. Dawson, Vice President
The Town of Newmarket
By:
Dated: March 6, 1997 Joyce Fulweiler
---------------- -----------------------------------------------
Joyce Fulweiler, Town
Administrator
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<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-90166 and 33-98748) of Harvard Industries, Inc.
of our report (which contains an explanatory paragraph relating to the ability
of Harvard Industries, Inc. to continue as a going concern) dated November 14,
1997, except for Note 9 as to which the date is December 29, 1997, appearing
on Page F-3 of this Form 10-K.
PRICEWATERHOUSECOOPERS, LLP
11 Madison Avenue
New York, New York
April 14, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants we hereby consent to the incorporation of our
report, dated January 12, 1999, included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 33-90166 and 33-98748 on Form
S-8.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 14, 1999
