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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER: 0-21362
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HARVARD INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 21-0715310
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3 WERNER WAY
LEBANON, NEW JERSEY 08833
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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908-437-4100
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
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
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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. Yes /x/ No / /
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, 1999 THERE WERE
10,234,222 SHARES OUTSTANDING.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the annual meeting
of stockholders scheduled for March 15, 2000 ("Proxy Statement") to be filed
with the Securities and Exchange Commission no later than 120 days following its
fiscal year ending September 30, 1999, are incorporated by reference in
Part III of this Annual Report on Form 10-K. With the exception of those
portions which are specifically incorporated by reference, such Proxy Statement
shall not be deemed filed as part of this report.
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PART I.
This Annual Report on Form 10-K contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the Company
from time to time, in filings with the Securities and Exchange Commission or
otherwise. Such forward-looking statements are 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. Such statements may include, but not be limited to,
projections of revenues, income or losses, covenants provided for in the
financing agreements, capital expenditures, plans for future operations,
financing needs or plans, plans relating to products or services of the Company,
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
the Notes to Consolidated Financial Statements and "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, and increases in borrowing costs.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 1. BUSINESS
COMPANY OVERVIEW
Harvard Industries, Inc. ("Harvard" or the "Company" or the "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"). During
the past year the Company conducted 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. On September 30, 1999
substantially all the assets of Kingston-Warren were sold to a subsidiary of
Hutchinson S.A. Accordingly, the remaining business discussion excludes
Kingston-Warren unless otherwise indicated.
COMPANY HISTORY
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
("Chapter 11") 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
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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.
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.
Pursuant to the Plan of Reorganization, on the effective date 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") each
received 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 September 30, 1999, Kingston-Warren, a wholly-owned subsidiary of
Harvard, completed its sale of substantially all of its assets and the
assignment of certain liabilities to KWC Acquisition Corp., a subsidiary of
Hutchinson, S.A., a French corporation, for $115 million in cash, less certain
adjustments. Prior to the sale, Kingston-Warren was principally engaged in the
business of manufacturing, selling and distributing products for automotive
window and body sealing systems, including glass run channels, belt strips and
body seals. The assets purchased include all real property, capital assets,
inventory, supplies, trademarks and patents, accounts receivable, contracts and
leases, and all other rights and assets owned by Kingston-Warren, except real
property located at Lebanon, New Jersey and Farmington Hills, Michigan, certain
computer systems and software, and cash on hand as of the day of the closing.
The purchaser was assigned substantially all liabilities of Kingston-Warren,
except guarantees of the outstanding debt of Kingston-Warren's parent, Harvard
Industries, Inc.
The Company used part of the proceeds of the sale of the assets of
Kingston-Warren on September 30, 1999, to repurchase all of its 14 1/2% Senior
Secured Notes due 2003 for $30,585,361, a formula price which includes interest
and prepayment premiums, as well as other adjustments. The Company deposited
such amount with the Trustee of the Senior Secured Notes on September 30, 1999
and, pursuant to Section 8.1 of the related Indenture, the Trustee discharged
and released the Indenture and the Collateral Agreement securing the notes.
The Company also used part of the proceeds of the sale of the assets of its
Kingston-Warren subsidiary to satisfy all obligations under its $115 million
senior secured revolving credit facility with General Electric Capital
Corporation ("GECC"). The Company paid $69,020,272 in satisfaction of
outstanding principal balance, interest accrued through September 30, 1999 and
other charges. GECC terminated the credit facility and issued a Pay-Off
Confirmation Letter dated as of September 30, 1999.
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On September 30, 1999, the Company put in place a new $50 million credit
facility with GECC, secured by substantially all of the assets of the Company
and its domestic subsidiaries. The credit facility provides for up to
$50 million of revolving credit borrowings with a $15 million sub-limit letter
of credit facility. The proceeds will be used to finance working capital and
other general corporate purposes and for acquisitions.
On October 5, 1999, the Company used part of the proceeds of the sale of
the assets of its Kingston-Warren subsidiary to purchase 762,000 shares of its
common stock in a private transaction at an aggregate cost of approximately
$4.95 million. As of September 30, 1999, the Company had 10,234,222 shares of
common stock outstanding.
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. 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.
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. 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
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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 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. These
agreements often require that suppliers 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"). 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, could
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.
Demand. As an OEM supplier, the Company is significantly affected by
consumer demand for new vehicles in North America. Demand in North American car
and light truck markets is tied closely to the overall strength of the North
American economies. After attaining a production level of approximately
13.6 million units in 1985, North American car and light truck production fell
to 10.4 million units in 1991. Since this low, production rose to 15.6 million
units for the 1998 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.
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 has a research
and development facility in 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
an engineering facility at Jackson, Michigan. 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
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adopting this approach the Company is able to save costs typically related to
engineering changes which can hamper the production of new products, as well as
reduce the amount of time it takes to get new products to market.
Consistent with the Company's design approach is its increasing involvement
in cooperative supplier programs. As a cooperative supplier, the Company
receives the initial design responsibilities for a specific product or component
for a particular vehicle in the early stages of its design. These programs,
which effectively move the burden of design and development of new products from
OEMs to their suppliers, resulting in corresponding increased costs, have
represented an increasing trend in the automotive industry
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.
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. Over the past two years, 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 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, 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.
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 individually supplying parts on a contract basis.
Harvard may also make selected 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. Between January 1998 and
March 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. In April 1998 Harvard divested certain tooling assets associated with
the underperforming mirrors business of its
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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 and sold
substantially all of the assets and assigned certain liabilities of its wholly
owned subsidiary, Doehler-Jarvis Greeneville, Inc., for $10.9 million.
In January 1999 the Company sold its Tiffin plant of the Hayes-Albion
subsidiary for approximately $1.5 million, and between March 1999 and July 1999
sold the land and building and certain machinery and equipment of its wholly
owned subsidiary, Doehler-Jarvis Toledo, Inc., for approximately $3.0 million.
The operations formerly of the Company's Hayes-Albion Corporation subsidiary at
the Snover, Michigan facility were moved to other locations and the Snover
facility is currently for sale. In August 1999 the Company ceased production at
the Ripley, Tennessee facility of Hayes-Albion Corporation, and is pursuing a
sale as a result of its changed market outlook for magnesium products.
On September 30, 1999, Kingston-Warren, a wholly-owned subsidiary of
Harvard, completed its sale of substantially all of its assets and the
assignment of certain liabilities to KWC Acquisition Corp., a subsidiary of
Hutchinson, S.A., a French corporation, for $115 million, less certain
adjustments.
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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Sevierville, TN facility (Harman Automotive)............................................... Aug-97
King-Way Assets (Material Handling Division of Kingston-Warren)............................ Nov-97
St. Louis Facility (Harvard Interiors)..................................................... Jan-98
Certain assets of Furniture Business (Harvard Interiors)................................... Mar-98
Tooling for Automotive Component Parts (Harman Automotive)................................. Apr-98
Union, NJ, Facility (Speciality Fastener Division ("ESNA"))................................ Jun-98
Remaining assets of Furniture Business (Harvard Interiors)................................. Jun-98
Tooling and Equipment for Automotive Component Parts (Toledo).............................. Aug-98
Greeneville, TN Plant (Doehler-Jarvis)..................................................... Sep-98
Bolivar, TN fixed assets (Harman Automotive)............................................... Sep-98
Tiffin, OH--land, building and equipment (Hayes-Albion).................................... Jan-99
Toledo, OH--equipment (Doehler-Jarvis)..................................................... Mar-99
Toledo, OH--land and building (Doehler-Jarvis)............................................. Jul-99
Kingston-Warren Corporation (substantially all assets)..................................... Sep-99
Snover, MI (land, building)................................................................ Pending
Ripley, TN (building and equipment)........................................................ Pending
Salem, SC (building)....................................................................... Pending
Farmington Hills, MI (building)............................................................ Pending
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SUBSIDIARIES
POTTSTOWN PRECISION CASTING ("Pottstown") (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, 1999, the Pottstown plant employed approximately 400 persons.
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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 other
alloys per day. Pottstown has over 40 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.
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CUSTOMER PRODUCT PLATFORM
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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
Ford Oil Pump Body Various Vehicles
Ford Stator (Transmission) Passenger Cars
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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 CORPORATION ("Hayes-Albion")
Hayes-Albion Corporation 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 has sold its Tiffin Ohio plant and has closed its
Ripley, Tennessee plant. Hayes-Abion's four remaining manufacturing facilities
located in Albion, and Jackson, Michigan; Bridgeton, Missouri; and Rock Valley,
Iowa occupy approximately 890,000 square feet and at September 30, 1999,
employed approximately 1,200 persons. Hayes-Albion's primary customers are Ford,
General Motors and Caterpillar.
Hayes-Albion's products consist of ferrous and non-ferrous castings, fans
and machined shafts. Ferrous castings are made from iron or steel, while
non-ferrous castings are made from other components such as aluminum or zinc.
Products made from ferrous castings include transmission parts, universal joint
yokes, rear axle housings and suspension parts. Products made from aluminum 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. Machined shafts are used
in transmissions, generators, starters, alternators and are manufactured for the
automotive, transportation, construction and machinery industries.
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The following table represents a product summary of Hayes-Albion.
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CUSTOMER PRODUCT PLATFORM
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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 F250 and F350 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 utilizes a technology driven approach to manufacturing which
employs 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 800 tons of iron daily. Heat treating capacity exceeds 100 tons per day and
Hayes-Albion can produce a broad range of castings from under two pounds to 150
pounds.
Hayes-Albion's primary competitors include Intermet, Grede, Schwitzer, Lunt
and Racine.
TRIM TRENDS, DIVISION OF HAYES-ALBION CORPORATION ("Trim Trends")
Trim Trends, acquired as a wholly owned subsidiary by the Company in
February of 1986 and merged into Hayes-Albion Corporation in 1994, 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 with certain
production equipment moved to Spencerville, Ohio, and Dundalk, Ontario. At
September 30, 1999, Trim Trends employed approximately 700 persons.
Trim Trends manufactures specialty metal products from roll formed and
stamped fabrication 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 Trends has capabilities in roll forming, stretch
bending, general metal assembly technology and design and engineering. Trim
Trends received 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
9
<PAGE>
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
General Motors Door Beams All Light Trucks
General Motors Door Beams Cadillac DeVille
General Motors Door Tracks Mini Van
General Motors(1) Door Beams Mini Van
General Motors(1) Cross Member Cadillac 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 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, and
fabrication. 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.
RELIANCE ON MAJOR CUSTOMERS
Of the Company's consolidated net sales for fiscal year 1999, approximately
48%, 25%, and 9% were attributable to General Motors, Ford and Chrysler
respectively (27%, 34% and 12%, respectively, excluding Kingston-Warren).
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.
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.
COMPETITION
Overview
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: 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.
10
<PAGE>
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 $15.9 million in 1999 and forecasts
capital spending to be approximately $16.5 million in 2000. Through 2003
(inclusive of 1999), the Company expects to spend approximately $77 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. 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.
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 "Business--Industry Overview.")
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.
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.
EMPLOYEES
At September 30, 1999, Harvard had approximately 2,500 employees, a
decrease of approximately 1,900 employees from September 30, 1998 resulting from
the wind-down and/or divestiture of several operating facilities as discussed
elsewhere herein. Approximately 62% of Harvard's employees as of September 30,
1999 were covered by collective bargaining agreements negotiated with 9 locals
of 6 unions (collectively, the "Unions"). These contracts expire at various
times through the year 2003. Discussions with various Unions
11
<PAGE>
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 3/22/02
Jackson UAW 7/17/02
St. Louis IAM 5/01/00
Spencerville UAW 4/30/02
Bryan Paper-Workers 6/01/03
Dundalk/Canada USWA 6/27/02
Arnold Painters 3/13/01
Transportation Teamsters 3/31/00
Pottstown Master + Local UAW 1/31/00
</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 materially adversely 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.
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, and paint. The Company considers its major raw material suppliers to
include: Hayes-Albion: Consumer's Power, Jackson Iron and Metal and Superior
Aluminum; and Trim Trends: Chrysler. These suppliers furnish energy and steel 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 1999 for continuing businesses were:
<TABLE>
<CAPTION>
DOLLARS/YEAR
(APPROXIMATE) HARVARD
SUPPLIER (IN THOUSANDS) PRODUCT DIVISION
- --------------------- -------------- ------------- ---------------------------
<S> <C> <C> <C>
Chrysler $ 10,000 Steel Coil Trim Trends Div.
Consumer Energy 8,150 Gas/Electric Hayes-Albion
Jackson Iron & Metal 6,700 Steel Scrap Hayes-Albion
Service Aluminum 5,500 Aluminum Hayes-Albion and
Pottstown Precision
Castings
Superior Aluminum 4,900 Aluminum Hayes-Albion
Allied Chucker 4,800 Machining Hayes-Albion
Asian Metals 4,600 Magnesium Hayes-Albion
Steel Technologies 4,500 Steel Coil Trim Trends
Kenwal Steel 2,700 Aluminum Trim Trends
Stanton Moss, Inc. 2,600 Aluminum Hayes-Albion
</TABLE>
12
<PAGE>
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.
ITEM 2. PROPERTIES
FACILITIES
The Company maintains its principal executive offices in 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.
The following table sets forth certain information with respect to the
Company's principal properties:
<TABLE>
<CAPTION>
SUBSIDIARY OR
DIVISION LOCATION TYPE OF FACILITY SQUARE FEET
- -------------------- --------------------- --------------------------------------- -----------
<S> <C> <C> <C>
Harvard Industries Farmington Hills, MI Administrative offices(1) 70,000
Harman Bolivar, TN Mfg. plant, office 294,400
and warehouse(1)(2)
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(1)(3) 100,000
Trim Trends Div. Deckerville, MI Mfg. plant 74,900
Trim Trends Div. Snover, MI Mfg. plant(1)(2) 75,500
Trim Trends, Canada Dundalk, ON, Canada Mfg. plant 80,000
Trim Trends Div. Bryan, OH Mfg. plant 141,500
Trim Trends Div. Spencerville, OH Mfg. plant 159,000
Pottstown Pottstown, PA Mfg. Plant 470,000
Precision Casting
Harvard Industries Arnold, MO Mfg. plant 31,400
Harvard Industries Salem, SC Mfg. plant(1)(2) 51,000
</TABLE>
- ------------------
(1) Facility is currently for sale.
(2) Idle.
(3) Facility shut down in August, 1999.
13
<PAGE>
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 settled this matter for $475,000 in May
of 1999.
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. Any recovery is payable
in common stock of the Company.
On June 11, 1999, Doehler-Jarvis, Inc. and Harvard Industries, Inc. (the
"Companies") filed a declaratory judgment action in the United States District
Court for the Eastern District of Pennsylvania seeking a declaration that the
termination of certain insurance benefits, including health insurance benefits,
to individuals on the seniority list when they retired from active or inactive
employee status at Doehler-Jarvis facilities in Pottstown, Pennsylvania or
Toledo, Ohio after July 16, 1999, and/or their eligible surviving spouses and/or
eligible dependents does not violate the Employee Retirement Income Security Act
("ERISA") or any other law, applicable collective bargaining agreement, or
contract. Thomas E. Kopystecki was named as the representative of the proposed
class of defendants.
On June 23, 1999, John C. Gilbert, Eugene Appling, Robert A. LaClair, John
E. Malkulan, Christiane J. Myers, Kenneth McKnight, Thomas F. Klejta, and Fern
M. Yerger, on behalf of themselves and a class of persons similarly situated
filed an action against the Companies in the United States District Court for
the Northern District of Ohio seeking a declaration that the termination of
insurance benefits violates ERISA and the Labor Management Relations Act
("LMRA") and seeking unspecified damages resulting from the anticipated
termination of benefits. The Companies filed a motion to transfer the Ohio
action to Pennsylvania because the Pennsylvania action was the first filed
action and is the more convenient forum for the resolution of the issues. The
United States District Court for the Eastern District of Pennsylvania dismissed
the Pennsylvania action finding that the United States District Court for the
Northern District of Ohio was a more appropriate venue. The motion by the
Companies to dismiss the Ohio action was denied and the Companies are vigorously
defending the action in Ohio. 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.
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, if allowed by
the Court, are payable in common stock of the Company, and 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.
14
<PAGE>
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 are payable in common stock of the Company and will be discharged 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 not exceed $7 million. This estimate 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.
Motorola, West Company and Harman completed construction of the OUI remedy
pursuant to a cost-sharing arrangement. In June 1995, the parties agreed that
the total amount due from Harman to West Company and Motorola was $557,297
payable in twenty equal quarterly installments. Payments were suspended due to
the Chapter 11 Case. West Company and Motorola have each made claims for
$139,324 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.
15
<PAGE>
As to Harman's share of all other costs, pursuant to a Settlement
Agreement, dated June 30, 1993, Harman, Motorola and West Company each agreed to
pay General Electric the sum of $800,000 in return for General Electric's and
Unisys' agreement to assume liability for, and indemnify and hold Harman and the
others harmless against, the EPA's cost recovery claim, to undertake operation
and maintenance of the OUI cleanup system and to construct, operate and maintain
any other proposed system that may be required by the EPA under OUI, and to
conduct any further work concerning further phases of work at the Vega Alta
Site. Harman, West Company and Motorola retained liability for any cleanup
activities that may in the future be required by EPA at their respective
facilities due to their own actions, for toxic tort claims and for natural
resource damage claims. Harman's settlement payment to General Electric was
being made in 20 equal quarterly installments that commenced in January 1995
with 9% interest per annum. As a result of Harman's bankruptcy filing in May
1997, such payments were suspended. General Electric 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 is to pay General Electric a total of $300,000 in cash in
settlement of its claims in installments of $100,000. As of December 23, 1999
two installments totaling $200,000 have been made and the final installment is
to be made in July 2000.
In light of the settlement agreement described above, the PRPs (including
Harman) have stipulated with the EPA as to liability in order to avoid further
litigation. 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"), 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.
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. 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 agreed to assume the
Settlement Agreement
16
<PAGE>
with the modification that the Company will pay ARCO $575,000 in cash 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
cash 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. The
Bankruptcy Court approved the Harvard and Hayes-Albion settlement with the State
of Ohio by the entry of a consent decree dated December 23, 1998. Under the
settlement the Company paid Ohio a civil penalty of $205,857.
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
17
<PAGE>
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 provided notice to Harvard that it has withdrawn its claim. Harvard
objected to Amerace's claim. Any recovery by Amerace will be paid in common
stock of the Company and the liability will be discharged.
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 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. Believing that Sonoco Products
is solely responsible for all matters related to the operation and closure of
the tank, Hayes-Albion objected to the claim. The parties agreed to settle the
matter for $29,000 payable in common stock of the Company.
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, a civil penalty for Clean Water
Act violations at the Pottstown Precision Casting, Inc., Pennsylvania facility,
was allowed by order of the Bankruptcy Court, as an unsecured claim under the
Plan of Reorganization, payable in common stock of the Company.
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 in cash has been
approved by the Bankruptcy Court. The final payment was made in December 1999.
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. All
such claims were disallowed by order of the Bankruptcy Court.
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 Settlement Agreement with the Town of
Newmarket (dated July 8, 1992, as amended March 11, 1997) and 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
18
<PAGE>
Settlement Agreements (other than those listed above as being assumed) are
payable in common stock of the Company and 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.
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.
19
<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 "HAVA."
The table below sets forth the high and low bid quotations for the
Company's Old Common Stock from October 1, 1997 through November 24, 1998 and
the high and low market prices for the Company's new stock from November 25,
1998 through September 30, 1999. The 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. The New Common Stock prices are market quotations.
COMMON STOCK PRICE RANGE(1)
<TABLE>
<CAPTION>
FISCAL YEAR END HIGH LOW
- -------------------------------------------------------------------------------------------- ------- -------
<S> <C> <C>
September 30, 1999:
First Quarter:
October 1--November 24, 1998 ("Old Stock")................................................ $ 0.75 $ 0.00
November 25--December 31, 1998 ("New Stock").............................................. $ 8.00 $ 7.25
Second Quarter ("New Stock")................................................................ $ 8.00 $ 6.875
Third Quarter ("New Stock")................................................................. $ 9.375 $ 7.00
Fourth Quarter ("New Stock")................................................................ $ 9.312 $ 6.00
September 30, 1998: ("Old Stock"):
First Quarter............................................................................. $ 1.375 $ 0.375
Second Quarter............................................................................ $1.0625 $ 0.5
Third Quarter............................................................................. $ 0.75 $ 0.5
Fourth Quarter............................................................................ $ 0.75 $ 0.25
</TABLE>
- ------------------
(1) Reflects prices on the NASDAQ National Market after November 24, 1998, and
on the Over the Counter Bulletin Board of NASDAQ before November 24, 1998.
On December 23, 1999, the closing price for the Company's New Common Stock
was $7.00. There were approximately 1,660 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 has paid no cash dividends on its New Common Stock since
issuing the first shares November 24, 1998 and 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 new $50,000,000 revolving credit
facility, from paying cash dividends on its New Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated historical financial
data for the Company as of the dates and for the fiscal periods indicated. The
selected financial data for each of the periods ended September 30, 1995 through
September 30, 1999, has been derived from the Consolidated Financial Statements
of the Company for the applicable periods. From May 8, 1997 through
November 23, 1998, the Company was operating under Chapter 11, which afforded
the Company protection from the claims of its creditors and caused the Company
to incur certain bankruptcy-related expenses including legal fees, financial
advisory fees, investment banking fees and independent auditor fees. As a result
of the fact that the Company has emerged from Chapter 11 and the
20
<PAGE>
prospective effect of Fresh Start Reporting, the Company does not believe that
its historical results of operations are necessarily indicative of its results
of operations as an ongoing entity following its emergence on November 24, 1998
from Bankruptcy Reorganization. Accordingly, the results of operations for the
ten months ended September 30, 1999 have been segregated by a black line from
pre-confirmation periods. The following information should be read in
conjunction with and is qualified by reference to "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contained in this
Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
TEN MONTHS ENDED TWO MONTHS ENDED -------------------------------------------------
($ IN THOUSANDS) SEPTEMBER 30, 1999 NOVEMBER 29, 1998 1998 1997 1996 1995(1)
- ------------------------------- ------------------ ----------------- ---------- ---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Sales........................ $ 406,081 $ 89,050 $ 690,076 $ 810,769 $ 824,837 $ 631,832
Cost of sales................ 364,747 79,628 656,243 797,774 776,141 557,340
---------- ----------- ---------- ---------- ---------- ----------
Gross profit................. 41,334 9,422 33,833 12,995 48,696 74,492
Selling, general and
administrative expenses.... 34,189 5,151 66,546 45,822 42,858 33,037
Impairment and restructuring
charges(3)................. (2,405) -- 10,842 288,545 -- --
(Gain) loss on sale of
operations(4).............. 25,654 -- (28,673) -- -- --
Amortization of intangibles.. 52,320 264 1,584 8,448 15,312 2,986
Interest expense(2).......... 9,878 1,636 14,231 36,659 47,004 19,579
Other (income) expense,
net(5)..................... 1,905 (34) 3,980 5,530 1,538 (1,789)
---------- ----------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations before
reorganization items,
income taxes and
extraordinary item......... (80,207) 2,405 (34,677) (372,009) (58,016) 20,679
Reorganization items......... -- 50,384 14,920 16,216 -- --
---------- ----------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations before income
taxes and extraordinary
item....................... (80,207) (47,979) (49,597) (388,225) (58,016) 20,679
---------- ----------- ---------- ---------- ---------- ----------
Provision for income taxes... 542 584 6,207 1,204 3,196 11,566
---------- ----------- ---------- ---------- ---------- ----------
Loss from discontinued
operations, net of
tax(6)..................... -- -- -- -- (7,500) --
---------- ----------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary item......... (80,749) (48,563) (55,804) (389,429) (68,712) 9,113
---------- ----------- ---------- ---------- ---------- ----------
Extraordinary item(8)........ 9,701 (206,363) -- -- -- 2,192
---------- ----------- ---------- ---------- ---------- ----------
Net income (loss)............ $ (90,450) $ 157,800 $ (55,804) $ (389,429) $ (68,712) $ 6,921
---------- ----------- ---------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ---------- ----------
PIK preferred dividends and
accretion(7)............... $ -- $ -- $ -- $ 10,142 $ 14,844 $ 14,809
---------- ----------- ---------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ---------- ----------
Net loss attributable to
common stockholders........ $ (90,450) $ 157,800 $ (55,804) $ (399,571) $ (83,556) $ (7,888)
---------- ----------- ---------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ---------- ----------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
TEN MONTHS ENDED TWO MONTHS ENDED -------------------------------------------------
($ IN THOUSANDS) SEPTEMBER 30, 1999 NOVEMBER 29, 1998 1998 1997 1996 1995(1)
- ------------------------------- ------------------ ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHARE DATA:
Basic and diluted earnings
per share:
Income (loss) from continuing
operations................. $ (8.98) $ (6.91) $ (7.94) $ (56.91) $ (10.87) $ (0.82)
Loss from discontinued
operations................. -- -- -- -- (1.07) --
---------- ----------- ---------- ---------- ---------- ----------
Extraordinary item........... (1.08) 29.37 -- -- -- (0.32)
---------- ----------- ---------- ---------- ---------- ----------
Net income (loss) per
share ..................... $ (10.06) $ 22.46 $ (7.94) $ (56.91) $ (11.94) $ (1.14)
---------- ----------- ---------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ---------- ----------
Weighted average number of
shares and equivalents..... 8,994,900 7,026,437 7,026,437 7,020,692 6,999,279 6,894,093
FINANCIAL RATIOS AND OTHER
DATA:
Depreciation and
amortization............... $ 65,808 $ 3,979 $ 27,904 $ 60,186 $ 65,658 $ 34,856
Cash flows (used in) provided
by continuing operations... 4,327 (17,543) 23,526 11,045 (3,133) 24,305
Capital expenditures......... 13,074 2,856 24,887 36,572 40,578 22,080
Cash flows (used in) provided
by investing activities.... 100,787 (2,856) 3,564 (34,156) (43,001) (226,023)
Cash flows (used in) provided
by financing activities.... (88,288) 13,789 (24,678) 31,216 27,316 161,283
BALANCE SHEET DATA:
Working capital
(deficiency)............... (10,304) (90,024) 2,096 (7,158) 19,417
Total assets................. 337,153 250,981 307,494 617,705 662,262
Liabilities subject to
compromise................. -- 385,665 397,319 -- --
DIP credit facilities,
including current
portion.................... -- 39,161 87,471 -- --
Long-term debt, including
current portion............ -- 25,000 14,087 360,603 324,801
PIK preferred stock.......... -- 124,637 124,637 114,495 99,651
Shareholder's equity
(deficiency)............... 85,075 (609,230) (547,128) (145,724) (62,206)
</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 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. During 1998,
the Company recorded charges for impairment of long-lived assets of
restructuring its Tiffin, Ohio facility and for certain assets relating to a
platform that ended earlier than anticipated, and a restructuring charge.
During the ten-month period ended September 30, 1999, the Company recorded
restructuring charges related to the shut-down of the Ripley, Tennessee
facility and reversed previously recorded restructuring charges related to
Harman Automotive, Harvard Interiors
(Footnotes continued on next page)
22
<PAGE>
(Footnotes continued from previous page)
Furniture Division, the Tampa corporate office and the Toledo, Ohio
facility. See Note 3 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 assignment of certain liabilities of
the Doehler-Jarvis Greeneville Facility. During the ten month period ended
September 30, 1999 the Company recorded a loss of $25,654 as a result of the
sale of the land, building, and certain other assets of the Toledo, Ohio and
Tiffin, Ohio facilities and substantially all of the assets and the
assignment of certain liabilities of the Kingston-Warren Subsidiary.
(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.
(7) PIK Preferred dividends after May 7, 1997 do not include $6,749 and $19,010
of accrued dividends for the years ended September 30, 1997 and 1998,
respectively.
(8) The two-month period ended November 29, 1998 includes an extraordinary gain
of $206,363 from the forgiveness of debt upon emergence from Chapter 11. The
ten-month period ended September 30, 1999 includes an extraordinary loss of
$9,701 resulting from the early extinguishment of debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (IN THOUSANDS OF DOLLARS)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Effective November 24, 1998, the Company emerged from Chapter 11 bankruptcy
proceedings and implemented "Fresh Start Reporting" as of November 29, 1998 (its
normal interim closing date). Accordingly, all assets and liabilities were
restated to reflect their respective fair values. The consolidated financial
statements after that date are those of a new reporting entity and are not
comparable to the Pre-Confirmation periods. However, for purposes of this
discussion, the ten months ended September 30, 1999 (Post-Confirmation) were
combined with the two months ended November 29, 1998 (Pre-Confirmation) and then
compared to the twelve months ended September 30, 1998. Differences between
periods due to "Fresh Start Reporting" adjustments are explained when necessary.
23
<PAGE>
1999 COMPARED TO 1998
The following table is included solely for use in comparative analysis of
the results of operations, and to complement management's discussion and
analysis.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Sales..................................................................... $ 495,131 $ 690,076
Cost of sales............................................................. 444,375 656,243
--------- ---------
Gross profit............................................................ 50,756 33,833
Selling, general & administrative......................................... 39,340 66,546
--------- ---------
Operating income (loss)(a)................................................ 11,416 (32,713)
Amortization of intangibles............................................... 52,584 1,584
Impairment/restructuring charges.......................................... (2,405) 10,842
Interest expense.......................................................... 11,514 14,231
(Gain) loss on sale of operations......................................... 25,654 (28,673)
Other (income) expense.................................................... 1,871 3,980
--------- ---------
Income (loss) before income taxes, reorganization items and extraordinary
items................................................................... (77,802) (34,677)
Reorganization items...................................................... 50,384 14,920
Provision for taxes....................................................... 1,126 6,207
Extraordinary (gain)...................................................... (196,662) --
--------- ---------
Net income (loss)......................................................... $ 67,350 $ (55,804)
--------- ---------
--------- ---------
</TABLE>
- ------------------
(a) Includes depreciation expense of $16,153 and $24,209 for 1999 and 1998
respectively.
Sales. Consolidated sales decreased $194,945 from $690,076 to $495,131, or
28.2%. Aggregate sales for the Operations designated for sale or wind down
decreased approximately $206,637 from $371,654 to $165,017 as the Company's
divestiture program as contemplated under the Company's Plan of Reorganization
nears completion and lower sales at Kingston-Warren due to the transition from
old to new platforms. The remaining operations sales increased $11,692 from
$318,422 to $330,114 as auto and light truck demand remains strong.
Gross Profit. The consolidated gross profit expressed as a percentage of
sales increased from 4.9% to 10.3%, or $16,923. The gross profit for Operations
designated for sale or wind-down decreased from $20,481 to $12,181. After
adjusting 1999 results for $4,513 of operating losses charged to loss contract
reserves established in the fourth quarter of fiscal 1998, reported gross profit
in 1999 for operations designated for sale or wind-down would have been $7,668.
Gross profit decreased approximately $12,813 primarily due to one-time tooling
profits of approximately $1,900 in 1998 that did not recur in 1999,
significantly lower volume in 1999 as a result of the Company's divestiture
program, accelerated depreciation on long-lived assets at its Ripley, Tennessee
facility and higher launch costs during the transition from old to new platforms
at Kingston-Warren. The gross profits from the remaining operations increased
$25,223 due to lower depreciation expense as a result of the reorganization
($9,100), improved operating efficiencies, strong auto and light truck demand
and management's focus on higher margin business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $66,546 to $39,340 due to reduced
staffing and spending levels as a result of the reorganization program
implemented by current management, and $16,000 of emergence related payments and
deferred compensation arrangements made in 1998.
Interest Expense. Interest expense decreased from $14,231 to $11,514 due
to a lower effective interest rate on post-emergence financing and improved
working capital management.
Amortization of Intangibles. Amortization of intangibles increased from
$1,584 to $52,584 as a result of the amortization on the $314,901 reorganization
asset, established as part of "Fresh Start Reporting," which is being amortized
over five years.
Restructuring Charges. During 1999, the Company recorded restructuring
charges of $1,200 for the shutdown of its Ripley, Tennessee facility. In
addition, the Company has reversed to income previously provided restructuring
reserves of $3,605 relating to the divestiture program as contemplated under the
Company's Plan of
24
<PAGE>
Reorganization, primarily as a result of lower severance and related costs for
the Tampa office, Harman Automotive and the Harvard Interiors Furniture Division
($2,300) and lower facility shut-down costs at Toledo ($1,200) due to the sale
of that facility. During 1998 the company recorded $5,000 in restructuring
charges for shutdown and relocation costs relating to the move of the corporate
headquarters from Tampa, Florida to Lebanon, New Jersey and a $5,842 charge for
the impairment write-off of certain property, plant and equipment.
(Gain) loss on Sale of Operation. In 1999 the Company sold substantially
all the assets and assigned certain liabilities of it's Kingston-Warren
subsidiary resulting in a loss on sale of approximately $27,938 and sold the
land building and certain other assets of the Toledo facility for a gain of
approximately $2,284. In 1998 the Company recorded a gain on the sale of the
Material Handling division of Kingston-Warren of $11,354, a gain on the sale of
the land, building and certain other assets of the Harvard Interiors' St. Louis
facility of $1,217, a gain of $13,999 on the transfer of certain assets at the
Toledo facility and their related lease obligations to a third party and a gain
on the sale of certain assets and the assignment of certain liabilities of the
Doehler-Jarvis Greeneville subsidiary of $2,103.
Other Expense, Net. Other expense decreased from $3,980 to $1,871 due to
rental and interest income and a favorable legal settlement in 1999 and lower
losses on disposal of equipment in 1999 compared to 1998.
Reorganization Items. During 1999, the Company recognized, as part of
"Fresh Start Reporting," charges that aggregated $50,431 for adjustments to
reflect all assets and liabilities at their respective fair values.
Reorganization charges during 1998 represent mainly professional fees incurred
in connection with the bankruptcy proceedings.
Provision for Income Taxes. The foreign tax provision increased from $485
to $1,126 as a result of increased profitability of the Canadian subsidiary. The
domestic tax provision decreased $5,722 as a result of the reorganization of the
Company in 1998.
Extraordinary Items. In November 1998 the Company recorded an
extraordinary gain of $206,363 as a result of the forgiveness of debt that
resulted from the reorganization of the Company in accordance with "Fresh Start
Reporting." In September 1999 the Company recorded an extraordinary loss of
$9,701 as a result of the early extinguishment of the $25,000 14 1/2% Senior
Secured Notes and the $115,000 Senior Credit Facility.
Net Income (Loss). The net income increased from $(55,804) to $67,350 for
the reasons described above.
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.
25
<PAGE>
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 two 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.
LIQUIDITY AND CAPITAL RESOURCES
On a pro-forma basis, the cash flow (usage) for the two months ended
November 29, 1998 (pre-confirmation) and the ten months ended September 30, 1999
(post-confirmation) have been combined for purposes of comparison to the year
ended September 30, 1998.
For the year ended September 30, 1999, the Company had net cash usage from
operations of $13,216 as compared with cash flow from operations of $23,526 for
the year ended September 30, 1998. The 1999 cash flows decreased due to an
increase in financing, legal and professional fees and other payments related to
the Company's emergence from Chapter 11 proceedings on November 24, 1998. The
prior year's results included substantial payments from two major customers to
partially defray the cost of shutting down the Toledo, Ohio facility and also
working capital reductions at facilities being shutdown. Cash flows generated
from the sale of operations of $113,837 and credit facility borrowings were used
to pay reorganization items, capital expenditures of $15,930, and ultimately on
September 30, 1999, to retire all outstanding borrowings.
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. On
September 30, 1999 the Company used part of the proceeds of the sale of the
assets of Kingston-Warren to prepay the 14 1/2% Senior Secured Notes and all
obligations under the $115 million Senior Secured Credit Facility. The Company
then put in place a new $50 million revolving credit facility with GECC. No
amounts were drawn down on this facility as of September 30, 1999, except for
$9,720 of Letters of Credit. Management anticipates having sufficient liquidity
to conduct its activities in fiscal 2000 as a result of the borrowing
availability provided by this facility.
Capital Expenditures. Capital expenditures for property, plant and
equipment during 1999 and 1998 were $15,930 and $24,887, respectively,
(including capital spending for Kingston-Warren of $5,755 and $14,174 for 1999
and 1998 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 $16,500 principally for machinery and
equipment in 2000. The projected capital expenditures are required for new
business and on-going cost saving programs necessary to maintain competitive
position, and the balance for normal replacement. The actual timing of capital
expenditures for new business may be impacted by customer
26
<PAGE>
delays and acceleration of program launches and the Company's continual review
of priority of the timing of capital expenditures.
YEAR 2000 COMPLIANCE
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. The
Company is subject to various risks associated with the year 2000 impact on
information systems and hardware. 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.
The Company has completed its assessment of year 2000 impact on internal
information and facilities systems and has successfully installed 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 has obtained
assurances from vendors that timely updates will be made available to make all
remaining purchased software Year 2000 compliant. The Company utilized both
internal and external resources to reprogram or replace and test all of its
software for Year 2000 compliance. The cost for this project was $14.5 million.
The Company spent approximately $7.7 million for Year 2000 compliance in fiscal
1998 and approximately $6.8 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 and has resourced most suppliers that had not made
commitments to become Year 2000 compliant. 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.
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.
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.
27
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
Derivative Transactions. In June 1999, the Financial Accounting Standards
Board agreed to defer for one year the effective date for Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," (SFAS No. 133)
which is now required to be adopted in years beginning after June 15, 2000. The
SFAS No. 133 permits early adoption as of the beginning of any fiscal quarter
after its issuance. SFAS No. 133 will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The adoption of SFAS No. 133 will have no impact on the
Company's consolidated results of operations, financial position or cash flows.
ITEM 7A. MARKET RISK DISCLOSURE
Harvard Industries, Inc. may be subject to market risk with respect to its
credit facility and foreign currency earnings. At the present time the Company
has no debt outstanding. However in the event that the Company draws on its
credit facility it would be subject to interest rate risk. The Company's
revolving credit agreement carries interest rates at prime rate plus 1.25% or
LIBOR plus 2.50%. As the prime rate or LIBOR increases, the Company would incur
higher relative interest and expense on any outstanding debt and similarly a
decrease in the prime rate would reduce relative interest expense. In recent
years there have not been significant fluctuations in the prime rate. Trim
Trends Canada, Ltd., Company's Canadian subsidiary, conducts its transactions in
Canadian currency. During 1999 and 1998 Trim Trends Canada, Ltd.'s sales
represented 5% and 3% respectively of the Company's net sales and as a result
the impact of market risk on foreign currency transactions is not considered
material. These market risks are not considered significant and therefore the
Company does not intend to engage in hedging transactions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14.
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<PAGE>
PART III
The Company has incorporated by reference certain responses to the items of
this Part III pursuant to Rule 12b-23 under the Exchange Act and General
Instructions G(3) to Form 10-K. The Company's definitive proxy statement for the
annual meeting of stockholders scheduled for March 15, 2000 ("Proxy Statement")
will be filed no later than 120 days after September 30, 1999.
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: 62
JON R. BAUER. Director Since December 1998 Jon R. Bauer is a Managing
Partner of Contrarian Capital Management, L.L.C., 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: 2 years
Age: 43
THOMAS R. COCHILL. Director since November 24, 1998 Thomas R. Cochill is a
founding partner and serves as CEO of Ingenium, LLC, a crisis and transition
management consulting firm. 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, U.S. Leather, Inc., a producer of leather and leather products, Golden
Books Family Entertainment, Inc., a marketer of children's and family-related
media and entertainment products and Goss Graphic Systems, Inc., a manufacturer
of printing presses and related equipment worldwide. 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: 2 years
Age: 60
RAYMOND GARFIELD, JR. Director since November 24, 1998 Raymond Garfield,
Jr. 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: 2 years
Age: 55
DONALD P. HILTY. Director since November 24, 1998 Donald P. Hilty is a
business consultant. From 1980 to 1994, Mr. Hilty served as the Chief Economist
of the Chrysler Corporation. Also 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
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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: 2 years
Age: 70
ANDREW P. HINES. Director effective January 2000 Andrew P. Hines was
appointed to the Board in December 1999 to become effective January 25, 2000.
Mr. Hines has been the Executive Vice President and Chief Financial Officer of
Outboard Marine Corporation since October 6, 1997, and a director since
October 7, 1997. Prior to joining the Outboard Marine Corporation, Mr. Hines
held the position of Senior Vice President and Chief Financial Officer for
Woolworth Corporation since 1994. During 1993, Mr. Hines was a consultant to
Pentland PLC, England. From 1989 to 1992, Mr. Hines held the position of
Executive Vice President and Chief Financial Officer with Adidas USA. Prior to
that, Mr. Hines held various senior financial positions with RJR Nabisco, Inc.
from 1976 to 1989.
Term of Office: 1 year
Age: 60
GEORGE A. POOLE, JR. Director Since November 24, 1998 George A. Poole, Jr.
has been a 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 served on the Board of
Directors of Bibb Company until it was sold in October 1998 and has served on
the Board of Directors of Bucyrus International, Inc. and Spreckles Industries.
Term of Office: 2 years
Age: 68
JAMES P. SHANAHAN, JR. Director Since November 24, 1998 James P. Shanahan,
Jr. 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: 2 years
Age: 38
RICHARD W. VIESER. Director since December 1998 Richard W. Vieser retired
from active employment in 1989. He was Chairman, Chief Executive Officer and
President of Lear Siegler, Inc. (a diversified manufacturing company) from 1987
to 1989. He was 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. He
is a 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: 2 years
Age: 72
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. Prior
to joining the Company, he was the Managing Director of Tenneco Europe since
1996. From 1989 to 1996, Mr. Gray was President of the Elastomers division of
Pullman.
Term of Office: 1 year
Age: 57
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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: 60
J. VINCENT TOSCANO. Executive Vice President of Strategic
Planning/Acquisition and Divestitures since November 17, 1997. 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: 51
THEODORE W. VOGTMAN. Executive Vice President and Chief Financial Officer
since November 17, 1997. 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: 59
DAVID C. STEGEMOLLER. Senior Vice President, Powertrain since August 1995.
He has been a Senior Vice President of the Company since August 1995. For the
past five years, Mr. Stegemoller served as Vice President with 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 23 years.
Term of Office: 1 year
Age: 58
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: 64
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: 44
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: 53
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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: 54
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: 45
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: 48
All other information required by this item 10 is incorporated by reference
from the Company's definitive proxy statement for the annual meeting of
stockholders scheduled for March 15, 2000 to be filed with the Securities and
Exchange Commission pursuant to Reg. 14A no later than 120 days following its
fiscal year ending September 30, 1999.
The information set forth in response to item 405 of Regulation S-K under
the heading "Section 16(a) of Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement is incorporated by reference in partial response to
this item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in response to item 402 of Regulation S-K in the
Company's Proxy Statement is incorporated by reference in response to this item
11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in response to item 402 of Regulation S-K under
"Principal Stockholders and Stock Owned Beneficially by Directors and Certain
Executive Officers" in the Company's Proxy Statement is incorporated by
reference in response to this item 12.
The Company has no knowledge of any arrangement the operation of which may
at a subsequent date result in a change of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
32
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PART IV.
FINANCIAL INFORMATION
HARVARD INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
(a) (1) Financial Statements and Auditors' Reports........................................................ 35
The following financial statements and schedules are filed as part of this Annual Report on Form 10-K.
Consolidated Balance Sheets
September 30, 1999 and 1998............................................................................. 37
Consolidated Statements of Operations
Ten Months Ended September 30, 1999, Two Months Ended November 29, 1998 and Years Ended September 30,
1998 and 1997........................................................................................ 38
Consolidated Statements of Shareholders' Equity (Deficiency)
Ten Months Ended September 30, 1999, Two Months Ended November 29, 1998 and Years Ended September 30,
1998 and 1997........................................................................................ 39
Consolidated Statements of Cash Flows
Ten Months Ended September 30, 1999, Two Months Ended November 29, 1998 and Years Ended September 30,
1998 and 1997........................................................................................ 40
Notes to Consolidated Financial Statements................................................................ 41
</TABLE>
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> <C>
4* -- Rights Agreement, dated as of March 24, 1999, between Harvard Industries, Inc. and State Street Bank
and Trust Company as Rights Agent, which includes (i) as Exhibit A thereto the form of Certificate of
Designation of the Series A Junior Participating Preferred Stock, (ii) as Exhibit B thereto the form
of Right certificate (separate certificates for the Rights will not be issued until after the
Distribution Date), (iii) as Exhibit C thereto the Summary of Stockholder Rights Agreement, and
(iv) as Exhibit D thereof the form of Irrevocable Proxy. (Incorporated by reference from the
Company's Registration Statement on Form 8-A dated March 24, 1999)
10.1* -- Asset Purchase Agreement among the Company, its Kingston-Warren Corporation subsidiary, KWC
Acquisition Corporation, dated September 10, 1999. (Incorporated by reference from the Company's
current report on Form 8-K filed on October 15, 1999)
10.2* -- Credit Agreement, dated as of September 30, 1999, between the Company, its subsidiaries, General
Electric Capital Corporation, as Administrative Agent and lender.
10.3* -- Warrant Agreement, dated as of November 24, 1998, between the Company and State Street Bank and Trust
Company, as Warrant Agent.
10.4* -- 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)).
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.5* -- 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)).
10.6* -- Harvard Industries, Inc. 1998 Stock Incentive Plan
10.7* -- 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).
10.8* -- 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.)
10.9* -- Stipulation and Order between the Debtors and the Fonalledas Claimants.
10.10 -- Equipment Purchase Agreement by Hayes-Albion Corporation and MacDonald's Industrial Products, Inc.
dated December 21, 1999. Regarding certain assets of Hayes-Albion's facility in Ripley, TN.
10.11 -- Asset Purchase Agreement between Outboard Marine Corporation and Harvard Industries, Inc. dated
November 29, 1999.
10.12 -- Services Agreement between Outboard Marine Corporation and Harvard Industries, Inc. dated
December 3, 1999.
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.
24 -- Powers of Attorney (contained in the signature pages hereto).
</TABLE>
(c) Reports on Form 8-K
Form 8-K filed August 24, 1999
Form 8-K/A filed September 16, 1999
Form 8-K filed October 15, 1999
- ------------------
* Previously filed.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Harvard Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Harvard
Industries, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
September 30, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity (deficiency) and cash flows for the ten month
period ended September 30, 1999 (post-confirmation), the two month period ended
November 29, 1998, and the year ended September 30, 1998 (pre-confirmation).
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 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 audits provide 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, 1999 and 1998, and the results of their
operations and their cash flows for the ten month period ended September 30,
1999 (post-confirmation), the two month period ended November 29, 1998, and the
year ended September 30, 1998 (pre-confirmation) in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the Consolidated Financial Statements, the Company
emerged from bankruptcy on November 24, 1998. The effects from the adoption of
fresh start reporting and the forgiveness of debt were reflected in the
statement of operations for the two months ended November 29, 1998. Accordingly,
the consolidated financial statements for periods subsequent to the Company's
emergence from bankruptcy are not comparable to the consolidated financial
statements presented for prior periods.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
December 23, 1999
35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Harvard Industries, Inc.
In our opinion, the accompanying consolidated statements of operations, cash
flows and shareholders deficiency present fairly, in all material respects, the
results of operations and cash flows of Harvard Industries, Inc. and its
subsidiaries (the "Company") for the year ended September 30, 1997 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 audit. We conducted our
audit 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
audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Tampa, Florida
November 14, 1997, except
for Note 9 as to which the
date is December 29, 1997
36
<PAGE>
HARVARD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(DEBTOR-IN-POSSESSION)
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 21,840 $ 11,624
Accounts receivable, net of allowance of $2,383 in 1999 and $1,675 in
1998............................................................... 35,324 57,046
Inventories........................................................... 18,107 26,646
Prepaid expenses and other current assets............................. 6,453 5,701
-------- ----------
Total current assets............................................. 81,724 101,017
Property, plant and equipment, net...................................... 72,358 122,579
Intangible assets, net.................................................. 177,581 2,833
Other assets, net....................................................... 5,490 24,552
-------- ----------
Total assets..................................................... $337,153 $ 250,981
-------- ----------
-------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current portion of debtor-in-possession (DIP) loans................... $ -- $ 39,161
Creditors subordinated term loan...................................... -- 25,000
Accounts payable...................................................... 28,489 25,098
Accrued expenses...................................................... 57,654 93,337
Income taxes payable.................................................. 5,885 8,445
-------- ----------
Total current liabilities........................................ 92,028 191,041
Liabilities subject to compromise....................................... -- 385,665
Long-term debt.......................................................... -- --
Postretirement benefits other than pensions............................. 96,734 95,515
Other................................................................... 63,316 63,353
-------- ----------
Total liabilities................................................ 252,078 735,574
-------- ----------
Commitments and contingencies........................................... -- --
14 1/4% Pay-in-kind exchangeable preferred stock (at September 30,
1998--includes $10,142 of undeclared accrued dividends)............... -- 124,637
-------- ----------
Shareholders' equity (deficiency):
Common stock, $.01 par value; 50,000,000 shares authorized; 10,234,222
shares issued and outstanding at September 30, 1999 15,000,000
shares authorized; 7,026,437 shares issued and outstanding at
September 30, 1998................................................. 102 70
Additional paid-in capital............................................ 174,898 32,134
Accumulated (deficit)................................................. (90,450) (629,541)
Accumulated other comprehensive income (loss)......................... 525 (11,893)
-------- ----------
Shareholders' equity (deficiency).................................. 85,075 (609,230)
-------- ----------
Total liabilities and shareholders' equity (deficiency).......... $337,153 $ 250,981
-------- ----------
-------- ----------
</TABLE>
The accompanying notes to Consolidated Financial Statements are an integral part
of these Statements.
37
<PAGE>
HARVARD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED SEPTEMBER 30, 1999, TWO MONTHS ENDED NOVEMBER 29, 1998
AND YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DEBTOR-IN-POSSESSION
--------------------------------------------
TEN MONTHS TWO MONTHS YEAR ENDED
ENDED ENDED SEPTEMBER 30,
SEPTEMBER 30, NOVEMBER 29, ----------------------------
1999 1998 1998 1997
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales.............................................. $ 406,081 $ 89,050 $ 690,076 $ 810,769
----------- ---------- ---------- ----------
Costs and expenses:
Cost of sales........................................ 364,747 79,628 656,243 797,774
Selling, general and administrative.................. 34,189 5,151 66,546 45,822
Amortization of intangibles.......................... 52,320 264 1,584 8,448
Impairment of long-lived assets and restructuring
costs............................................. (2,405) -- 10,842 288,545
Interest expense (contractual interest of $49,849 in
1998 and $50,264 in 1997)......................... 9,878 1,636 14,231 36,659
(Gain) loss on sale of operations.................... 25,654 -- (28,673) --
Other (income) expense, net.......................... 1,905 (34) 3,980 5,530
----------- ---------- ---------- ----------
Total costs and expenses........................ 486,288 86,645 724,753 1,182,778
----------- ---------- ---------- ----------
Income (loss) from operations before reorganization
items and income taxes............................... (80,207) 2,405 (34,677) (372,009)
Reorganization items................................... -- 50,384 14,920 16,216
----------- ---------- ---------- ----------
Loss from operations before income taxes............... (80,207) (47,979) (49,597) (388,225)
Provision for income taxes............................. 542 584 6,207 1,204
----------- ---------- ---------- ----------
Loss from operations................................... (80,749) (48,563) (55,804) (389,429)
Extraordinary (gain) loss.............................. 9,701 (206,363) -- --
----------- ---------- ---------- ----------
Net income (loss)............................... $ (90,450) $ 157,800 $ (55,804) $ (389,429)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
PIK preferred dividends and accretion (contractual
amount of $3,219 for the two months ended
November 29, 1998 and $19,010 and $16,891 for the
years ended September 30, 1998 and 1997
respectively)........................................ $ -- $ -- $ -- $ 10,142
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Net income (loss) attributable to
common shareholders.......................... $ (90,450) $ 157,800 $ (55,804) $ (399,571)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Basic and diluted earnings (loss) per share:
Loss from operations................................. $ (8.98) $ (6.91) $ (7.94) $ (56.91)
Extraordinary gain (loss) per share.................. (1.08) 29.37 -- --
----------- ---------- ---------- ----------
Net income (loss) per share.......................... $ (10.06) $ 22.46 $ (7.94) $ (56.91)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Weighted average number of common and common equivalent
shares outstanding................................... 8,994,900 7,026,437 7,026,437 7,020,692
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Statements.
38
<PAGE>
HARVARD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE TEN MONTHS ENDED SEPTEMBER 30, 1999,
TWO MONTHS ENDED NOVEMBER 29, 1998 AND
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE
NO. OF SHARES AMOUNTS CAPITAL INCOME (LOSS) DEFICIT INCOME (LOSS)
------------- ------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance September 30, 1996.......... 7,014,357 $ 70 $ 42,245 $ (3,731) $(184,308)
Comprehensive income (loss), year
ended September 30, 1997:
Net loss--1997...................... -- -- -- -- (389,429) $ (389,429)
----------
Minimum pension liability......... -- -- -- (1,898) -- (1,898)
Foreign Currency
Adjustment...................... -- -- -- 34 -- 34
----------
Comprehensive Income (loss)......... $ (391,293)
----------
----------
PIK preferred stock dividend........ -- -- (9,854) -- --
Accretion of discount on PIK
preferred stock................... -- -- (288) -- --
Sale of stock....................... 12,080 -- 31 -- --
----------- ----- -------- -------- ---------
Balance September 30, 1997.......... 7,026,437 70 32,134 (5,595) (573,737)
Comprehensive Income (loss), year
ended September 30, 1998:
Net loss--1998.................... -- -- -- -- (55,804) $ (55,804)
----------
Minimum pension liability......... -- -- -- (5,237) -- (5,237)
Foreign Currency
Adjustment...................... -- -- -- (1,061) -- (1,061)
----------
Comprehensive Income (loss)......... $ (62,102)
----------- ----- -------- -------- --------- ----------
----------
Balance September 30, 1998.......... 7,026,437 70 32,134 (11,893) (629,541)
----------- ----- -------- -------- ---------
----------- ----- -------- -------- ---------
Comprehensive Income (loss), two
month period ended November 29,
1998:
Income from operations before
reorganization items for the
two month period ended November
29, 1998....................... -- -- -- -- 1,868 $ 1,868
----------
Foreign Currency Adjustment....... -- -- -- (172) -- (172)
----------
Comprehensive Income (loss)......... $ 1,696
----------
----------
Fresh-start adjustments............. (7,026,437) (70) (32,134) 12,065 421,310
Reorganization adjustments.......... 8,240,295 82 174,918 -- 206,363
----------- ----- -------- -------- ---------
Balance November 29, 1998........... 8,240,295 82 174,918 -- --
----------- ----- -------- -------- ---------
----------- ----- -------- -------- ---------
Comprehensive Income (loss), ten
month period ended September 30,
1999:
Net loss--ten month period ended
September 30, 1999.............. -- -- -- -- (90,450) $ (90,450)
----------
Foreign Currency
Adjustment...................... -- -- -- 525 -- 525
----------
Comprehensive Income (loss)......... $ (89,925)
----------
----------
Additional shares issued in
connection with the Plan of
Reorganization.................... 1,993,927 20 (20) -- --
----------- ----- -------- -------- ---------
Balance September 30, 1999.......... 10,234,222 $ 102 $174,898 $ 525 $ (90,450)
----------- ----- -------- -------- ---------
----------- ----- -------- -------- ---------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Statements.
39
<PAGE>
HARVARD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED SEPTEMBER 30, 1999,
TWO MONTHS ENDED NOVEMBER 29, 1998
AND THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DEBTOR-IN-POSSESSION
--------------------------------------------
TEN MONTHS TWO MONTHS YEAR ENDED
ENDED ENDED SEPTEMBER 30,
SEPTEMBER 30, NOVEMBER 29, ----------------------------
1999 1998 1998 1997
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows related to operating activities:
Income (Loss) from continuing operations before reorganization
items......................................................... $ (80,749) $ 1,821 $(40,884) $ (373,213)
Add back (deduct) items not affecting cash and cash equivalents:
Depreciation.................................................. 12,650 3,503 24,209 46,377
Amortization.................................................. 53,158 476 3,695 13,809
Impairment of long-lived assets and restructuring charges..... (2,405) -- 10,842 288,545
(Gain) Loss on sale of operations............................. 28,472 -- (28,673) --
(Gain) Loss on disposition of property, plant and equipment
and property held for sale.................................. 124 -- 1,030 1,931
Curtailment (gain) loss....................................... (2,818) -- 4,390 (8,249)
Write-off of deferred debt expense............................ 0 -- -- 1,792
Senior notes interest accrued not paid........................ 0 -- -- 9,728
Changes in operating assets and liabilities of continuing
operations, net of effects from acquisitions and
reorganization items:
Accounts receivable........................................... 22,532 (15,077) 10,673 22,798
Inventories................................................... 2,616 (1,168) 21,862 (7,225)
Other current assets.......................................... 920 402 1,460 (5,965)
Accounts payable.............................................. (9,656) 21,676 (6,658) (56,806)
Accounts payable prepetition.................................. -- -- -- 81,429
Accrued expenses and income taxes payable..................... (5,056) (23,745) 18,567 (10,254)
Postretirement benefits....................................... (701) -- 1,386 (4,138)
Other noncurrent.............................................. (10,139) (1,413) 10,683 13,350
--------- -------- -------- ----------
Net cash provided by (used in) continuing operations before
reorganization items.......................................... 8,948 (13,525) 32,582 13,909
Net cash used in reorganization items........................... (4,621) (4,018) (9,056) (2,864)
--------- -------- -------- ----------
Net cash provided by (used in) continuing operations............ 4,327 (17,543) 23,526 11,045
--------- -------- -------- ----------
Cash flows related to investing activities:
Acquisition of property, plant and equipment.................... (13,074) (2,856) (24,887) (36,572)
Cash flows related to discontinued operations................... -- -- 557 713
Proceeds from sales of operations............................... 113,837 -- 27,822 --
Proceeds from disposition of property, plant and equipment...... 24 -- 72 1,703
--------- -------- -------- ----------
Net cash provided by (used in) investing activities............. 100,787 (2,856) 3,564 (34,156)
--------- -------- -------- ----------
Cash flows related to financing activities:
Issuance costs of Senior Notes and financing agreements......... -- -- -- (2,200)
Net borrowings (and repayments) under credit agreement.......... 11,247 81,425 -- (38,834)
Net borrowings (and repayments) under DIP financing agreement... -- 1,062 (45,810) 87,471
Net borrowings under Unsecured Creditors Term Loan.............. -- -- 25,000 --
Retirement of DIP Financing Agreement........................... -- (40,360) -- --
Retirement of Creditors Unsecured Term Loan..................... -- (25,000) -- --
Retirement of Financing/Credit Agreement........................ (92,672) -- -- --
Penalty Paid on Early Retirement of Debt........................ (6,386) -- -- --
Proceeds from sale of stock and exercise of stock options....... -- -- -- 31
Repayments of long-term debt.................................... -- -- (88) (7,682)
Pension fund payments pursuant to PBGC settlement agreement..... -- -- -- (6,000)
Deferred financing costs........................................ (477) (3,338) (3,725) --
Payment of EPA settlements...................................... -- -- (55) (1,570)
--------- -------- -------- ----------
Net cash provided by financing activities....................... (88,288) 13,789 (24,678) 31,216
Net increase (decrease) in cash and cash equivalents.............. 16,826 (6,610) 2,412 8,105
Beginning of period............................................... 5,014 11,624 9,212 1,107
--------- -------- -------- ----------
End of period..................................................... $ 21,840 $ 5,014 $ 11,624 $ 9,212
--------- -------- -------- ----------
--------- -------- -------- ----------
Supplemental disclosure of cash flow information:
Interest paid................................................... 9,225 1,870 $ 14,039 $ 37,328
Income taxes paid............................................... $ 2,199 $ 228 $ 776 $ 2,244
--------- -------- -------- ----------
--------- -------- -------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Statements.
40
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION AND EMERGENCE FROM BANKRUPTCY
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 one business segment: 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
48%, 25%, and 9%, respectively, of the consolidated sales in 1999 (27%, 34% and
12%, respectively, excluding Kingston-Warren), 39%, 34%, and 10% respectively,
in 1998 and 43%, 33%, and 7%, respectively, in 1997.
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").
On November 24, 1998 (the "Effective Date") the Company emerged from
Chapter 11 reorganization under the United States Bankruptcy Code. On the
Effective Date, pursuant to the Company's First Amended Modified Consolidated
Plan under Chapter 11 of the Bankruptcy Code ("Plan of Reorganization"),
substantially all pre-petition unsecured debt of pre-reorganization Harvard was
converted into equity of post-reorganization Harvard in the form of common stock
(the "New Common Stock"). Each one hundred dollars ($100) of pre-petition debt
allowed as a claim by the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") is entitled to receive 2.6667 shares of new
Common Stock. Under the terms of the Plan of Reorganization, holders of
Harvard's Pay-In-Kind Exchangeable Preferred ("PIK Preferred Stock") and holders
of Harvard's then existing common stock (the "Old Common Stock") have each
received 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. The Company also issued $25 million of 14 1/2% Senior Secured Notes
and entered into a $115 million Senior Credit Facility to finance ongoing
operations and repaid all obligations under its two year Post-Petition Loan and
Security Agreement ("DIP financing") and the $25,000 term loan agreement dated
as of January 16, 1998. (See Note 9).
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 for 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.
The reorganization value of the Company was determined by management, with
assistance from Chanin Kirkland Messina LLC, independent financial
professionals. The methodology employed involved estimation of
41
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION AND EMERGENCE FROM BANKRUPTCY--(CONTINUED)
enterprise value (i.e., the market value of the Company's debt and stockholders'
equity which was determined to be $275,000), taking into account a discounted
cash flow analysis (Enterprise Value). 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 reorganization value of the Company was
determined to be $552,428 as of November 29, 1998.
The reorganization value of the Company has been allocated to specific
asset categories as follows:
<TABLE>
<S> <C>
Current assets.......................................................... $110,250
Property, plant and equipment........................................... 121,516
Other noncurrent assets................................................. 5,761
Reorganization value in excess of amounts allocable to identifiable
assets................................................................ 314,901
--------
$552,428
--------
--------
</TABLE>
Current assets have been recorded at their historical carrying values.
Property, plant and equipment have been recorded at their appraised value as
determined by an independent appraisal performed by Norman Levy Associates,
Inc., independent appraiser, based on "orderly liquidation value," which assumes
that the assets will be used for the purpose for which they were designed and
constructed. Property held for sale is valued at net realizable value. Other
noncurrent assets are stated at historical carrying values which approximate
fair value. The portion of the reorganization value which cannot be attributed
to specific tangible or identifiable intangible assets of the reorganized
Company has been reported as "Reorganization value in excess of amounts
allocable to identifiable assets (Reorganization Value). " This intangible asset
is being amortized using the straight-line method over 5 years.
The Company selected a useful life of 5 years based on the Company's
previous experience, methodologies employed by independent financial experts and
the Company's turnaround business strategy.
42
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION AND EMERGENCE FROM BANKRUPTCY--(CONTINUED)
The effect of the Plan on the Company's consolidated balance sheet as of
November 29, 1998 was as follows:
<TABLE>
<CAPTION>
ADJUSTMENTS TO RECORD EFFECTS OF THE PLAN
---------------------------------------------------------------
PRE- POST-
CONFIRMATION CONFIRMATION
------------- -------------
CONSOLIDATED REORGANIZATION FRESH START CONSOLIDATED
BALANCE SHEET ADJUSTMENTS ADJUSTMENTS BALANCE SHEET
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Current Assets.............................. $ 103,518 $ -- $ 6,732 $ 110,250
Property, plant and equipment, net.......... 121,820 -- (304) 121,516
Intangible assets, net...................... 2,569 -- (2,569) --
Other assets, net........................... 24,121 -- (18,360) 5,761
Reorganization value in excess of amounts
allocable to identifiable assets.......... -- -- 314,901 314,901
--------- ---------- --------- ---------
$ 252,028 0 $ 300,400 $ 552,428
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Current Liabilities......................... $ 193,216 $ -- $ (70,398) $ 122,818
Liabilities subject to compromise........... 385,665 (381,363) (4,302) --
Long-term debt.............................. -- -- 81,425 81,425
Postretirement benefits other than pension.. 95,515 -- (49) 95,466
Other....................................... 60,529 -- 17,190 77,719
14 1/4% PIK exchangeable preferred stock.... 124,637 -- (124,637) --
Common Stock................................ 70 82 (70) 82
Additional paid-in capital.................. 32,134 174,918 (32,134) 174,918
Additional minimum pension liability........ (8,902) -- 8,902 --
Foreign currency translation adjustments.... (3,163) -- 3,163 --
Accumulated deficit......................... (627,673) 206,363 421,310 --
--------- ---------- --------- ---------
$ 252,028 0 $ 300,400 $ 552,428
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
Reorganization adjustments reflect the conversion of both the 12% Notes and
the 11 1/8% Notes and the related accrued interest as of May 7, 1997 and other
prepetition trade payables into new common stock resulting in an extraordinary
gain of $206,363. Fresh start adjustments reflect the adjustments to state
assets and liabilities at their respective fair values which resulted in a net
fair value adjustment of $50,431, which adjustment, net of interest income of
$47, has been shown as a reorganization item. All of the reorganization and
fresh start adjustments have been reflected in the consolidated statement of
operations for the two months ended November 29, 1998.
The following table summarizes unaudited pro forma financial information as
if the Plan of reorganization had become effective on October 1, 1998. The
unaudited pro forma financial information combines the Company's operations for
the two months ended November 29, 1998 with the ten months ended September 30,
1999 and contains adjustments for depreciation expense, pension expense and the
amortization of reorganization
43
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION AND EMERGENCE FROM BANKRUPTCY--(CONTINUED)
value. The unaudited pro forma financial information does not purport to be
indicative of the results which would have been obtained had the Plan been
effective as of October 1, 1998, or which may be obtained in the future.
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------
TWELVE MONTHS
ENDED
SEPTEMBER 30, PRO FORMA
1999 ADJUSTMENTS AS ADJUSTED
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net Sales.................................................. $ 495,131 $ -- $ 495,131
Cost of Sales.............................................. 444,375 (1,666) 442,709
--------- --------- -----------
Gross Profit............................................... 50,756 1,666 52,422
Selling, General and Administrative Expenses............... 39,340 -- 39,340
--------- --------- -----------
Operating Income........................................... 11,416 1,666 13,082
Other (Income) Expenses
Interest expense......................................... 11,514 (160) 11,354
Other--net............................................... 25,120 -- 25,120
Amortization of reorganization asset..................... 52,584 10,200 62,784
--------- --------- -----------
Total other (income) expense.......................... 89,218 10,040 99,258
--------- --------- -----------
Income (loss) before income taxes.......................... (77,802) (8,374) (86,176)
Reorganization Items....................................... 50,384 (50,384) --
Provision (benefit) for income taxes....................... 1,126 -- 1,126
Extraordinary Item......................................... (196,662) 206,363 9,701
--------- --------- -----------
Net income (loss).......................................... $ 67,350 $(164,353) $ (97,003)
--------- --------- -----------
--------- --------- -----------
Basic and diluted earnings per share....................... $ (9.48)
-----------
-----------
Weighted average number of common and common equivalent
shares outstanding....................................... 10,234,222
-----------
-----------
</TABLE>
Liabilities subject to compromise consisted of the following at
September 30:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Accounts Payable........................................................ 71,635
Senior notes............................................................ 309,728(a)
Other................................................................... 4,302
--------
Total.............................................................. $385,665
--------
--------
</TABLE>
(a) Includes accrued interest to the date of bankruptcy of $9,728.
44
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION AND EMERGENCE FROM BANKRUPTCY--(CONTINUED)
Reorganization expenses included in the consolidated statements of
operations are comprised of the following:
<TABLE>
<CAPTION>
TWO MONTHS YEAR ENDED
ENDED SEPTEMBER 30,
NOVEMBER 29, ------------------
1998 1998 1997
------------ ------- -------
<S> <C> <C> <C>
Adjustment to record senior notes to amount of allowed claims................ $ -- $ -- $10,408
Professional fees............................................................ -- 15,350 5,828
Fresh Start adjustments to state assets and liabilities at their respective
fair values................................................................ 50,431 -- --
Interest income on cash resulting from Chapter 11 proceedings................ (47) (430) (20)
-------- ------- -------
Total................................................................... $ 50,384 $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" on the September 30, 1998 Balance Sheet.
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.
Trade Receivables. A substantial portion of the Company's trade
receivables is 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 26%, 19% and 18%,
respectively, of consolidated trade receivables at September 30, 1999, and 46%,
11% and 17%, respectively, at September 30, 1998.
Inventories. Inventories are stated at the lower of cost or aggregate
market. Cost is determined using the first-in, first-out (FIFO) method.
Property, Plant and Equipment. All property, plant and equipment owned at
November 29, 1998 were restated to reflect fair value in accordance with "Fresh
Start Reporting". Additions after November 29, 1998 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,
45
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
Reorganization value in excess of amounts allocated to identifiable assets
established as of November 29, 1998 is being amortized using the straight-line
method over 5 years. (see Note 13 for impairment of goodwill.) Reorganization
value in excess of amounts allocated to identifiable assets for amounts
established prior to November 29, 1998 were amortized using the straight-line
method over ten years.
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.) The Company evaluates whether changes have
occurred that would require revision of the remaining estimated useful life of
the reorganization value or render such assets not recoverable. To determine if
reorganization value is recoverable, the Company compares the net carrying
amounts to undiscounted projected cash flows. If the reorganization value asset
is not recoverable, the Company would record an impairment based on the
differences between the net carrying amount and fair value.
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 "Accounting for
Income Taxes." 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' equity
(deficiency), "Accumulated Other Comprehensive Income (Loss)". Net foreign
currency transaction gains or losses are not material in any of the periods
presented.
Earnings per Common Share. Statement of Financial Accounting Standards
No. 128, "Earnings per Share," which became effective for fiscal 1998,
established 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.
46
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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. Income (loss) available to common shareholders
used in determining both basic and diluted EPS was ($90,450) for the ten months
ended September 30, 1999, $157,800 for the two months ended November 29, 1998,
($55,804) for the year ended September 30, 1998 and ($399,571) for the year
ended September 30, 1997. The weighted average number of shares of common stock
used in determining basic and diluted EPS was 8,994,900 for the ten months ended
September 30, 1999, 7,026,437 for the two months ended November 29, 1998,
7,026,437 for the year ended September 30, 1998 and 7,020,692 for the year ended
September 30, 1997.
Although on December 15, 1999, 9,472,222 of the Company's 50,000,000
authorized shares were outstanding, the Company's Chapter 11 Plan of
Reorganization requires it to issue additional shares to certain claimants in
the Bankruptcy case. The exact number of shares to be issued is presently
unknown, as certain claims are unliquidated and others are disputed as to amount
or validity. However, management estimates that approximately 1,766,000
additional shares will be issued in the process of resolving claims. The
issuance of additional shares will not involve additional consideration, and
therefore no accounting recognition other than the impact on outstanding share
and per share amounts is expected.
Reclassifications. Certain amounts in the 1998 and 1997 Consolidated
Financial Statements and Notes to Consolidated Financial Statements have been
reclassified to conform to the 1999 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
Derivative Transactions. In June 1999, the Financial Accounting Standards
Board agreed to defer for one year the effective date for Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," (SFAS No. 133)
which is now required to be adopted in years beginning after June 15, 2000. SFAS
No. 133 permits early adoption as of the beginning of any fiscal quarter after
its issuance. SFAS No. 133 will require the Company to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The adoption of SFAS No. 133 will have no impact on the Company's consolidated
results of operations, financial position or cash flows.
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. 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. 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 resulting in no material gain
or loss. In September 1998, the Company sold substantially all of
47
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
3. DISPOSITION OF BUSINESSES--(CONTINUED)
the assets of Doehler-Jarvis Greeneville, Inc. for $10,907 of gross proceeds
which resulted in a gain on sale of approximately $2,100.
Production ceased in 1998 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 land, building and certain
machinery and equipment was sold between March 1999 and July 1999 for gross
proceeds of approximately $3,000. These transactions resulted in a gain on sale
of approximately $2,200.
In September 1998, the Company sold, at auction, certain assets of Harman
for approximately $2,000 resulting in no material gain or loss.
In January, 1999, the Company sold the land, building and certain other
assets of its Tiffin, Ohio facility for gross proceeds of approximately $1,500.
The Company recognized no material gain or loss on the sale. The Company
attempted to sell its Ripley, Tennessee facility during fiscal 1999, as a result
of its changed market outlook for magnesium products. Such efforts did not
result in any acceptable offers and as a result, in April 1999, the Company
announced its intention to shut down the facility in August 1999 after customer
requirements were fulfilled and recorded a $1,200 charge which is included in
Impairment of Long-Lived Assets and Restructuring Charges in the accompanying
Statement of Operations for the ten-month period ended September 30, 1999. This
charge relates to severance for approximately 230 hourly and salaried employees
($1,000) and facility shutdown costs ($200). As of September 30, 1999, the
Company has made severance and related payments of approximately $626 and
facility related payments of approximately $95. In order to depreciate the March
31, 1999 carrying value of the Ripley long-lived assets to their estimated net
realizable value, the Company recorded an additional $2,317 of depreciation in
the quarter ended June 30, 1999 and an additional $1,505 of depreciation through
the August 1999 shutdown date.
In September 1999, the Company sold substantially all the assets and
certain assigned liabilities of its Kingston-Warren subsidiary to a subsidiary
of Hutchinson S.A. for gross proceeds of $115,000. This transaction resulted in
a loss on sale of approximately $27,900. (See Note 4 below)
Condensed unaudited operating data of operations that have been or are
designated for sale or wind-down (Harman Automotive, Harvard Interiors, Material
Handling, Toledo, Greeneville, the Tiffin, Ohio and Ripley, Tennessee facilities
of the Hayes-Albion subsidiary and Kingston-Warren) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
TEN MONTHS ENDED TWO MONTHS ENDED -------------------------
SEPTEMBER 30, 1999 NOVEMBER 29, 1998 1998 1997
------------------ ------------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales......................... $131,523 $ 33,494 $371,654 $487,155
Gross Profit...................... $ 9,281 $ 2,900 $ 20,481 $ 5,304
</TABLE>
4. SALE OF KINGSTON-WARREN
On September 30, 1999, the Company sold substantially all the assets and
assigned certain liabilities of its Kingston-Warren subsidiary to a subsidiary
of Hutchinson S.A. for gross proceeds of $115,000 subject to certain
adjustments. The transaction resulted in loss of approximately $27,900, which
included the write-off of $85,000 of reorganization value.
The following table summarizes unaudited pro forma financial information as
if the plan of reorganization and the sale of Kingston-Warren had become
effective on October 1, 1998. The unaudited pro forma financial
48
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
4. SALE OF KINGSTON-WARREN--(CONTINUED)
information combines the Company's operations for the two months ended November
29, 1998 and the ten months ended September 30, 1999 and contains adjustments
for depreciation expense, pension, amortization of reorganization value and
interest expense. The unaudited pro forma financial information does not purport
to be indicative of the results which would have been obtained had the sale and
the plan of reorganization been effective as of October 1, 1998, or which may be
obtained in the future.
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
TWELVE MONTHS ----------------------
ENDED SALE OF
SEPTEMBER 30, KINGSTON-
1999 EMERGENCE WARREN AS ADJUSTED
------------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales...................................... $ 495,131 $ $(136,676) $ 358,455
Cost of Sales.................................. 444,375 (1,666) (119,503) 323,206
--------- --------- --------- -----------
Gross Profit................................... 50,756 1,666 (17,173) 35,249
Selling, General and Administrative Expenses... 39,340 -- (8,327) 31,013
--------- --------- --------- -----------
Operating Income............................... 11,416 1,666 (8,846) 4,236
Other (Income) Expenses
Interest expense............................. 11,514 (160) (11,354) --
Other--net................................... 25,120 -- (28,062) (2,942)
Amortization of reorganization asset......... 52,584 10,200 (17,132) 45,652
--------- --------- --------- -----------
Total other (income) expense.............. 89,218 10,040 (56,548) 42,710
Income (loss) before income taxes.............. (77,802) (8,374) 47,702 (38,474)
Reorganization Items........................... 50,384 (50,384) -- --
Provision (benefit) for income taxes........... 1,126 -- -- 1,126
Extraordinary Items............................ (196,662) 206,363 (9,701) --
--------- --------- --------- -----------
Net income (loss).............................. $ 67,350 $(164,353) $ 57,403 $ (39,600)
--------- --------- --------- -----------
--------- --------- --------- -----------
Basic and diluted earnings per share........... $ (3.87)
-----------
-----------
Weighted average number of common and common
equivalent shares outstanding................ 10,234,222
-----------
-----------
</TABLE>
5. INVENTORIES
Inventories at September 30 consist of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Finished goods................................................ $ 5,005 $ 6,476
Work-in-process............................................... 2,918 2,078
Tooling....................................................... 2,132 5,991
Raw materials................................................. 8,052 12,101
------- -------
Total Inventories............................................. $18,107 $26,646
------- -------
------- -------
</TABLE>
49
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30 consist of the following:
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Land......................................................... $ 1,504 $ 3,445
Buildings and improvements................................... 23,091 52,590
Machinery and equipment...................................... 52,698 161,875
Furniture and fixtures....................................... 149 1,768
Construction in progress..................................... 4,362 26,331
------- --------
Total................................................... 81,804 246,009
Less accumulated depreciation................................ (9,446) (123,430)
------- --------
Property, Plant and Equipment, Net........................... $72,358 $122,579
------- --------
------- --------
</TABLE>
Depreciation expense amounted to $12,650, $3,503, $24,209, and $46,377 for
the ten-month period ended September 30, 1999, the two-month period ended
November 29, 1998, and the years ended September 30, 1998 and 1997,
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>
1999 1998
-------- -------
<S> <C> <C>
Reorganization value......................................... $212,873 $12,339
Less accumulated amortization................................ (35,292) (9,506)
-------- -------
Intangible assets, net.................................. $177,581 $ 2,833
-------- -------
-------- -------
</TABLE>
Amortization expense related to reorganization value was $52,320, $264,
$1,584, and $8,448 for the ten-month period ended September 30, 1999, the
two-month period ended November 29, 1998, and the years ended September 30, 1998
and 1997, respectively.
8. OTHER ASSETS
Other assets at September 30 consist of the following:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1999 1998
------------- ------ -------
<S> <C> <C> <C>
life of
Deferred financing costs................................... agreement $ 477 $ 3,862
units
Deferred tooling........................................... produced -- 10,297
Pension Asset.............................................. N/A 4,475 18,675
Other...................................................... N/A 538 3,321
------ -------
Total................................................. 5,490 36,155
Less Accumulated Amoritzation.............................. -- (11,603)
------ -------
Other Assets, Net..................................... $5,490 $24,552
------ -------
------ -------
</TABLE>
Amortization expense related to deferred financing costs was $838, $212,
$1,262, and $1,627, for the ten months ended September 30, 1999, the two months
ended November 29, 1998, and the years ended September 30, 1998 and 1997,
respectively. Amortization expense related to deferred tooling amounted to $849
50
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
8. OTHER ASSETS--(CONTINUED)
and $3,743, in 1998, and 1997, 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 as described in
Note 9. In the two-month period ended November 29, 1998, the Company wrote-off
deferred financing costs of $1,222 as part of Fresh Start reporting and in the
ten-month period ended September 30, 1999 recorded an extraordinary loss of
$3,315 for the write-off of deferred financing costs in connection with the
early extinguishment of debt.
9. DIP FINANCING AND CREDITORS SUBORDINATED TERM LOAN
On May 8, 1997, the Company and certain of the Company's subsidiaries
obtained DIP financing to enable it to continue operations during the
Chapter 11 proceedings. The DIP financing provided for $65,000 of Term Loans and
$110,000 of Revolving Credit Loans which included a $25,000 sub-limit of credit
facility principally for standby letters of credit. As collateral, the Debtors
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 was subordinated to the
security interests under the existing DIP loans. The loan was payable on the
earlier of May 8, 1999 or the date the existing DIP loan is 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 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. As
discussed in Note 1, both of these financing facilities were repaid upon
emergence from bankruptcy on November 24, 1998.
All of the pre-petition indebtedness outstanding at May 8, 1997 under the
financing agreement amounting to $105,044 was repaid from borrowings under the
DIP financing. At September 30, 1998, the amount outstanding under the term
loans was $64,161, the amount outstanding under the Revolving Credit Loans was
$0, and outstanding letters of credit (principally standby) were $12,243.
The Revolving Credit Loans bore interest at the rate of 1.5% in excess of
the Base Rate (Prime) and the Term Loans bore 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 earned 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 received 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 provided 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 the DIP
Financing with its lenders whereby the lenders waived all defaults or events of
default which had occurred prior to such date from the Company's 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 DIP
Financing, 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.
51
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
9. DIP FINANCING AND CREDITORS SUBORDINATED TERM LOAN--(CONTINUED)
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
On November 24, 1998, the Company issued $25,000 of 14 1/2% Senior Secured
Notes (the "Notes") due September 1, 2003. The Notes were issued pursuant to an
indenture by and among the Company and Guarantors, which are subsidiaries of the
Company, and Norwest Bank Minnesota, National Association, as Trustee. In
addition to the stated coupon interest rate the Notes had a Cash Flow
Participation Interest provision which entitled the holder to additional
interest computed as a percentage of consolidated cash flow as set forth in the
indenture. This interest can be no less than $1,000 for any 12 month period. The
Notes are subject to restrictive covenants for Consolidated Leverage Ratio and
Consolidated Interest Coverage Ratio as defined. The Notes were repurchased on
September 30, 1999 with a portion of the proceeds of the sale of the assets of
Kingston-Warren (See Note 4).
On November 24, 1998, the Company entered into a $115,000 senior credit
facility ("the Facility") that provides for up to $50,000 in term loan
borrowings and up to $65,000 of revolving credit borrowings. The term loan has
an interest rate equal to the base rate (prime rate) plus 2.250% or the
EURODOLLAR base rate (Eurodollar loan rate) plus 3.500%. The term loan had 16
quarterly installment payments of principal in the amount of $250 which
commenced on January 3, 1999 with the balance of the loan due on September 30,
2002. The revolver has an interest rate of the base rate plus 2.125% or the
Eurodollar base rate plus 3.375%. The revolving credit facility terminates on
November 24, 2001. The Facility is subject to restrictive covenants for
Consolidated Leverage Ratio, Consolidated Interest Coverage Ratio and Fixed
Charge Ratio, as defined. The Facility was repaid on September 30, 1999 with a
portion of the proceeds of the sale of the assets of Kingston-Warren (See
Note 4). Penalties paid as a result of the prepayments of the Facility and the
Notes along with the writeoff of financing fees incurred as part of the
emergence from bankruptcy resulted in an extraordinary loss of approximately
$9,701 for early extinguishment of debt.
On September 30, 1999 the Company put in place a new $50,000 revolving
credit facility with GECC. The Facility is secured by substantially all of the
assets of the Company. The interest rate is base rate (prime rate) plus 1.25% or
LIBOR plus 2.50% (interest rate at September 30, 1999 was 9.50%). Effective
March 2000, the interest rate will be adjusted (up or down) prospectively based
upon the Company's achievement of consolidated financial performance targets.
The facility commitment terminates on September 30, 2001. No amounts were drawn
down on the facility as of September 30, 1999 except for $9,720 of letters of
credit.
The Company no longer has any publicly registered securities outstanding
that are guaranteed by its subsidiaries, and no debt facilities other than its
new $50,000 revolving credit facility.
52
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
11. ACCRUED EXPENSES
Accrued expenses at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Interest...................................................... $ -- $ 758
Salaries and wages............................................ 9,806 17,080
Pension liabilities........................................... 2,353 3,404
Workers' compensation and medical............................. 10,015 11,510
Costs related to discontinued/divested operations............. 6,886 7,885
Tooling and maintenance costs................................. 4,433 3,031
Environmental................................................. 1,750 2,785
Post-retirement benefits...................................... 7,000 2,112
Reorganization costs.......................................... 1,682 8,808
Restructuring costs (see Note 13)............................. 625 4,064
Other......................................................... 13,104 31,900
------- -------
Total.................................................... $57,654 $93,337
------- -------
------- -------
</TABLE>
12. OTHER LIABILITIES
Other liabilities at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Pension liabilities (see Note 20)............................. $24,849 $23,566
Workers' compensation......................................... 19,349 26,478
Environmental................................................. 5,250 5,748
Deferred taxes................................................ 8,543 4,345
Tool and die replacement...................................... 2,268 3,189
Other......................................................... 3,057 27
------- -------
Total.................................................... $63,316 $63,353
------- -------
------- -------
</TABLE>
13. IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES
In 1999, 1998 and 1997 the Company recorded the following charges:
<TABLE>
<CAPTION>
TEN MONTHS TWO MONTHS YEAR ENDED
ENDED ENDED SEPTEMBER 30,
SEPTEMBER 30, NOVEMBER 29, -------------------
1999 1998 1998 1997
------------- ------------ ------- --------
<S> <C> <C> <C> <C>
Impairment of Doehler-Jarvis long-lived assets.... $ -- $ -- $ -- $266,545
Impairment of long-lived assets................... -- -- 5,842 12,000
Severance payments related to facilities scheduled
for closing..................................... (1,405) -- 2,500 3,285
Restructuring charges............................. (1,000) -- 2,500 6,715
------- ---- ------- --------
Total........................................ $(2,405) $ 0 $10,842 $288,545
------- ---- ------- --------
------- ---- ------- --------
</TABLE>
During the ten-month period ended September 30, 1999 the Company recorded a
$1,200 restructuring charge representing shut-down costs for the Ripley,
Tennessee facility, which included $1,000 for severance and $200 for
facility-related costs. In addition, during this period the Company reversed
previously provided restructuring reserves in the amount of $3,605, primarily as
a result of lower severance and related costs for the
53
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
13. IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES--(CONTINUED)
Tampa office, Harman Automotive and the Harvard Interiors Furniture Division
($2,300) and lower facility-related costs at the Toledo, Ohio facility ($1,200)
due to the sale of that facility and all other of ($105).
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 costs for twenty-two salaried office personnel
and moving costs 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 three 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 recorded a charge of $3,042 for the impairment of long
lived assets. In addition, it recorded a charge of $2,800 for the impairment of
certain long lived assets relating to a platform that will end sooner than
planned.
Doehler-Jarvis incurred significant operating losses since its acquisition
date in 1995. A corrective action plan was initiated (focusing on cost
reduction, improved manufacturing yields, attraction and retention of key
personnel and seeking price concessions from customers) in 1996 and early 1997.
However, Doehler-Jarvis continued to incur significant operating losses during
the first and second quarters of 1997. In addition, during the second quarter of
1997, Doehler-Jarvis lost a significant contract from a customer who decided to
resource this major contract to another supplier. As a result of these changes
in Doehler-Jarvis's business, the Company performed an impairment analysis of
the Doehler-Jarvis long-lived assets. A revised operating plan was developed.
The Company calculated the expected future cash flows from Doehler-Jarvis's
operations to determine the fair value of the long-lived assets. The expected
cash flows under this analysis were sufficient to recover the net book value of
the fixed assets but not the goodwill balance. Accordingly, the Company recorded
an impairment charge of $114,385 in the second quarter of 1997 to write-off the
unamortized goodwill related to its 1995 acquisition of Doehler-Jarvis.
During the third quarter of 1997, the Company concluded that it did not
have the financial capability to continue to fund the capital investments
required to improve the Doehler-Jarvis operations and retained investment
advisors to sell Doehler-Jarvis. Based upon advice from the investment advisor,
the Company initially determined that the range of possible proceeds (net of
disposal costs) from the sale of Doehler-Jarvis could result in recovery of
their fixed assets. However, after three months of discussions with prospective
buyers, the lack of support for a sale by major customers, and continued adverse
operating results, the Company concluded that it would be unable to sell the
Doehler-Jarvis division at a price which would recover any of the fixed asset
book value and accordingly recorded an impairment loss of $152,160 at
September 30, 1997.
In fiscal 1998, the new management of the Company decided to dispose of the
Doehler-Jarvis Greenville and Toledo facilities (see Note 3 related to
dispositions) and to continue to operate the Doehler-Jarvis Pottstown Plant.
Depreciation expense would have been $3.2 million greater in each of the
twelve-month periods ended September 30, 1999 and 1998 for the Pottstown
facility if the assets had not been written down as impaired in fiscal 1997.
In February 1997, due to significant recurring operating losses at the
Harman Automotive subsidiary, the Company announced its plan to sell Harman. In
March 1997 the Company performed an impairment analysis of Harman's long-lived
assets and the expected cash flows under this analysis were insufficient to
recover the net book value of the fixed assets resulting in an impairment charge
of $8,800 in March 1997. Due to the absence of acceptable third party offers,
the Company closed down the Harman operation in April 1998 and sold certain
machinery and equipment in September 1998 (see Note 3 related to dispositions).
In February 1997, due to significant recurring operating losses at the
Tiffin, Ohio operation, the Company performed an impairment analysis of Tiffin's
long-lived assets. The expected cash flows from this analysis were
54
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
13. IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES--(CONTINUED)
insufficient to recover the net book value of the fixed assets and an impairment
charge of $3,200 was recorded in March 1997.
In September 1997, the Company reflected a restructuring charge of $10,000
for employee severance covering 539 salaried and hourly employees and plant
closing costs relating primarily to annual maintenance, insurance and inventory
for the Harman and Harvard Interiors facilities. The restructuring was
substantially completed by May 1998 for Harvard Interiors and by July 1998 for
Harman Automotive.
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>
TEN MONTHS TWO MONTHS YEAR ENDED
ENDED ENDED SEPTEMBER 30,
SEPTEMBER 30, NOVEMBER 29, ----------------
1999 1998 1998 1997
------------- ------------ ------ ------
<S> <C> <C> <C> <C>
(Gain) loss on disposal of equipment.................. $ 124 $ -- $1,030 $1,931
Loss on joint venture................................. -- -- -- 2,221
Interest income....................................... (282) (2) (37) (106)
Other, net............................................ 2,063 (32) 2,987 1,484
------- ---- ------ ------
Total............................................ $ 1,905 $(34) $3,980 $5,530
------- ---- ------ ------
------- ---- ------ ------
</TABLE>
15. INCOME TAXES
Provision for income tax expense for continuing operations consists of the
following:
<TABLE>
<CAPTION>
TEN MONTHS TWO MONTHS YEAR ENDED
ENDED ENDED SEPTEMBER 30,
SEPTEMBER 30, NOVEMBER 29, ----------------
1999 1998 1998 1997
------------- ------------ ------ ------
<S> <C> <C> <C> <C>
Domestic.............................................. $ (344) $344 $5,722 $ --
Foreign............................................... 886 240 485 1,204
------- ---- ------ ------
Income tax provision.................................. $ 542 $584 $6,207 $1,204
------- ---- ------ ------
------- ---- ------ ------
</TABLE>
55
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
15. INCOME TAXES--(CONTINUED)
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, 1999 and 1998 are as follows:
Deferred tax assets:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1999 1998
--------- --------
<S> <C> <C>
Net operating loss carry forwards.......................... $ 124,118 $ 96,788
Pension and post-retirement benefits obligations........... 45,901 34,264
Reorganization items capitalizable for tax purposes........ 4,094 4,094
Reserves and accruals not yet recognized for tax
purposes................................................. 102,304 116,546
--------- --------
Total................................................. 276,417 251,692
Less valuation allowance................................... (221,108) (201,354)
--------- --------
Total deferred tax assets............................. $ 55,309 $ 50,338
--------- --------
--------- --------
</TABLE>
The Company believes it will more likely than not be able to realize its
net deferred tax assets of $55,309 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 1999 and 1998 primarily represents
recognition of the deferred tax asset related to reserves and accruals not yet
recognized for tax purposes.
Deferred tax liabilities:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1999 1998
------- -------
<S> <C> <C>
Depreciation.................................................. $61,845 $51,580
Other......................................................... 2,007 3,103
------- -------
Total deferred tax liabilities................................ $63,852 $54,683
------- -------
------- -------
</TABLE>
The net deferred tax liabilities of $8,543 and $4,345 are included in other
liabilities in the consolidated balance sheets at September 30, 1999 and 1998,
respectively.
56
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
15. INCOME TAXES--(CONTINUED)
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>
TEN MONTHS TWO MONTHS YEAR ENDED
ENDED ENDED SEPTEMBER 30,
SEPTEMBER 30, NOVEMBER 29, ---------------------
1999 1998 1998 1997
------------- ------------ -------- ---------
<S> <C> <C> <C> <C>
Tax expense (benefit) at statutory rate.......... $ (31,665) $(16,511) $(16,863) $(135,879)
State income taxes, net of federal benefit....... 2,093 419 1,529 549
Permanent items.................................. 17,963 35 1,241 43,105
Earnings of foreign subsidiaries subject to a
different tax rate............................. 132 36 134 109
U.S. Federal Minimum Tax......................... -- -- 500 --
Amount for which no tax benefit is recognized.... 12,019 16,605 19,666 93,320
--------- -------- -------- ---------
Actual tax expense from continuing
operations................................ $ 542 $ 584 $ 6,207 $ 1,204
--------- -------- -------- ---------
--------- -------- -------- ---------
</TABLE>
At September 30, 1999, the Company had available net operating loss
carryforwards and general business tax credits of approximately $310,760 for
Federal income tax purposes. These carryforwards expire in the years 2003
through 2009. Of this total, approximately $291,000 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 are reduced by income realized as a result of the reorganization
plan, in particular, any discharge of indebtedness income ("COD Income")
excluded from income pursuant to Section 108 of the Tax Code. In addition,
because the reorganization resulted 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 is 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 unless
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,
resulted in the realization of COD income, which reduced 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.
16. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, which was adopted as of October 1, 1998, establishes a
standard for reporting and displaying comprehensive income and its components
within the financial statements. Comprehensive income includes charges and
credits to equity that are not the result of transactions with shareholders.
Comprehensive income is composed of two subsets--net income and other
comprehensive income. Included in other comprehensive income for the Company are
cumulative translation adjustments and minimum pension liability adjustments.
These adjustments are disclosed within the Consolidated Statement of
Shareholders' Equity (Deficiency). As of September 30, accumulated other
57
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
16. COMPREHENSIVE INCOME--(CONTINUED)
comprehensive income/(loss), as reflected in the consolidated statement of
shareholders' equity, was comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- -------- -------
<S> <C> <C> <C>
Minimum pension liability adjustments........................... $ -- $ (8,902) $(3,665)
Cumulative translation adjustments.............................. 525 (2,991) (1,930)
---- -------- -------
$525 $(11,893) $(5,595)
---- -------- -------
---- -------- -------
</TABLE>
The amounts reflected at September 30, 1998 were eliminated as of November
29, 1998 as part of Fresh Start Reporting.
17. 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 provided 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. A stipulation resolving all claims of
Mr. Naimoli arising out of his employment and shareholder and other
relationships with the Company was approved by the Court on April 9, 1999. In
conjunction with said stipulation, the Company paid life insurance premiums on
behalf of Mr. Naimoli, in the amount of $269, and assigned the benefits of the
underlying life insurance policy, paid in full, to him. On May 1, 1999, the
Company agreed to retain Vincent J. Naimoli as a consultant for a period of five
months for a fee of $97.
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
year ended September 30, 1997 Nice and Easy billed the Company, $2,100 for
travel services and rebated $28 to the Company in 1997.
In October 1995, the Board of Directors of the Company approved the lease
of a private suite at the Tropicana Field in St. Petersburg, Florida for Tampa
Bay Devil Rays baseball. Mr. Naimoli is the Managing General Partner of Tampa
Bay Devil Rays, Ltd. 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 Tampa Bay Devil Rays filed a claim in the
Chapter 11 proceeding for the unpaid balance of the suite subscription but did
not provide Harvard access to the private suite according to the lease
agreement. In May of 1999, the Company applied to the Court for an Order
directing the Tampa Bay
58
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
17. RELATED PARTY TRANSACTIONS--(CONTINUED)
Devil Rays to turn over the down payment made by Harvard. A stipulation
resolving all claims of the Tampa Bay Devil Rays and Harvard arising out of this
transaction was approved by the Court on November 10, 1999.
The Company paid in 1997 to The Blackstone Group, LP, an investment banking
firm of which Mr. Hoffman, a former 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.
18. 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, Inc. ("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.
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 cash 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.
59
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
18. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
("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 whereby Harman owed West Company and
Motorola a total of approximately $557 payable in twenty equal installments.
Payments were suspended due to the Chapter 11 cases. West Company and Motorola
each filed a claim for the remaniing amounts due them in the amount of
approximately $139. The claims were allowed under the Plan and are payable in
common stock of the Company.
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 . General Electric filed a claim in
the Chapter 11 Cases for the remaining amounts due it 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 paid
General Electric a total of $300 in three installments of $100 in settlement of
its claim. 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. As of December 23, 1999, two installments totaling $200
had been paid.
Pursuant to a letter dated January 31, 1994 and subsequent notices since
that date, Harman and the other PRPs have been put on notice of potential claims
for damages, allegedly suffered by the owners and operators of farms located in
the vicinity of the Vega Alta Site. If Harman were to be found liable in any
future lawsuit, some of the alleged damages (e.g., personal injury, property and
punitive damages) would not be covered by the settlement agreement with General
Electric. In a letter to General Electric's counsel, counsel for the owners and
operators alleged estimated losses of approximately $400 "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
60
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
18. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
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. Such penalty is a prepetition
liability, payable in common stock of the Company. The $125 penalty was allowed
as a claim by order of the Bankruptcy court payable in common stock of the
Company.
As of September 30, 1999, 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 $7,000 as of
September 30, 1999. 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. Any recovery is payable
in common stock of the Company.
61
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
18. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
On June 11, 1999, Doehler-Jarvis, Inc. and Harvard Industries, Inc. (the
"Companies") filed a declaratory judgment action in the United States District
Court for the Eastern District of Pennsylvania seeking a declaration that the
termination of certain insurance benefits, including health insurance benefits,
to individuals on the seniority list when they retired from active or inactive
employee status at Doehler-Jarvis facilities in Pottstown, Pennsylvania or
Toledo, Ohio after July 16, 1999, and/or their eligible surviving spouses and/or
eligible dependents does not violate the Employee Retirement Income Security Act
("ERISA") or any other law, applicable collective bargaining agreement, or
contract. Thomas E. Kopystecki was named as the representative of the proposed
class of defendants.
On June 23, 1999, John C. Gilbert, Eugene Appling, Robert A. LaClair, John
E. Malkulan, Christiane J. Myers, Kenneth McKnight, Thomas F. Klejta, and Fern
M. Yerger, on behalf of themselves and a class of persons similarly situated
filed an action against the Companies in the United States District Court for
the Northern District of Ohio seeking a declaration that the termination of
insurance benefits violates ERISA and the Labor Management Relations Act
("LMRA") and seeking unspecified damages resulting from the anticipated
termination of benefits. The Companies filed a motion to transfer the Ohio
action to Pennsylvania because the Pennsylvania action was the first filed
action and is the more convenient forum for the resolution of the issues. The
United States District Court for the Eastern District of Pennsylvania dismissed
the Pennsylvania action finding that the United States District Court for the
Northern District of Ohio was a more appropriate venue. The motion by the
Companies to dismiss the Ohio action was denied and the Companies are vigorously
defending the action in Ohio. 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.
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 claims, will not have a material adverse effect on the financial
position or results of operations of the Company.
19. LEASES
Rent expense under operating leases, consisted of the following:
<TABLE>
<CAPTION>
TEN MONTHS TWO MONTHS YEAR ENDED
ENDED ENDED SEPTEMBER 30,
SEPTEMBER 30, NOVEMBER 29, ----------------
1999 1999 1998 1997
------------- ------------ ------ ------
<S> <C> <C> <C> <C>
Rent Expense.......................................... $ 4,052 $710 $4,354 $5,624
</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, 1999.
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30 AMOUNT
- -------------------------------------------------------------------------- ------
<S> <C>
2000...................................................................... $2,053
2001...................................................................... 1,525
2002...................................................................... 1,127
2003...................................................................... 661
2004...................................................................... 488
</TABLE>
62
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
20. 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 $833 in 1999 (including a curtailment gain of $2,818)
$10,248 in 1998 (including a curtailment loss of $7,182), and $3,619 in 1997.
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 $450 in 1999, $349 in 1998, and $459 in 1997. 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>
TEN MONTHS TWO MONTHS YEAR ENDED
ENDED ENDED SEPTEMBER 30,
SEPTEMBER 30, NOVEMBER 29, ------------------------------
1999 1998 1998 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Service cost............................... $ 3,343 $ 497 $ 2,988 $ 2,823
Interest cost.............................. 9,846 1,608 9,584 8,790
Expected return on plan assets............. (11,250) (2,063) (23,265) (17,378)
Net amortization and deferral.............. 0 0 12,806 8,318
Curtailment (gain) loss.................... (2,818) 0 7,182 0
--------- -------- --------- ---------
Net periodic pension cost (income)......... $ (879) $ 42 $ 9,295 $ 2,553
--------- -------- --------- ---------
--------- -------- --------- ---------
</TABLE>
During 1999, the Company recorded curtailment gains of $2,818 primarily to
reflect the curtailment of benefits due to the sale of its Kingston-Warren
business. The gain was included as a component of the loss on disposal.
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.
63
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
20. RETIREMENT PLANS--(CONTINUED)
The following tables set forth reconciliations of the beginning and ending
balances of the benefit obligation, fair value of plan assets, funded status and
amounts recognized in the Consolidated Balance Sheets related to the defined
benefit plans.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1999 1998
--------- ---------
(THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................. $ 162,771 $ 119,554
Service cost............................................ 3,840 2,988
Interest cost........................................... 11,454 9,584
Actuarial (gain) loss................................... (18,034) 34,788
Benefits paid........................................... (11,469) (8,900)
Business combinations................................... 8,120 0
Plan amendments......................................... 0 11,939
Curtailments............................................ (2,818) (7,182)
--------- ---------
Benefit obligation at end of year....................... $ 153,864 $ 162,771
--------- ---------
--------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year.......... 144,784 121,943
Actual return on plan assets............................ 10,801 24,156
Employer contributions.................................. 5,651 7,585
Business combinations................................... (3,194) 0
Benefits paid........................................... (11,469) (8,900)
--------- ---------
Fair value of plan assets at end of year................ $ 146,573 $ 144,784
--------- ---------
--------- ---------
Reconciliation of funded status:
Funded status........................................... (7,291) (17,987)
Unrecognized prior service cost......................... 0 2,312
Unrecognized actuarial (gain) loss...................... (17,614) 18,082
Contributions after measurement date.................... 2,178 0
--------- ---------
Net amount recognized................................... $ (22,727) $ 2,407
--------- ---------
--------- ---------
Amounts recognized in consolidated balance sheets:
Prepaid benefit cost.................................... 4,475 18,676
Accrued benefit cost.................................... (27,202) (26,970)
Intangible asset........................................ 0 1,799
Additional minimum pension liability.................... 0 8,902
--------- ---------
Net amount recognized................................... $ (22,727) $ 2,407
--------- ---------
--------- ---------
</TABLE>
In determining the projected benefit obligation, the assumed discount rate
was 8.0% and 7.2% for 1999 and 1998, respectively. The expected long-term rate
of return on assets, used in determining net periodic pension cost (income), was
9.5% for 1999 and 1998.
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
64
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
20. RETIREMENT PLANS--(CONTINUED)
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. In
order to secure minimum funding contributions required for the Doehler-Jarvis
Plan and underfunding of the Doehler-Jarvis Plan, Harvard provided the PBGC, for
the benefit of the Doehler-Jarvis Plan and PBGC, with a pledge of new common
stock of Reorganized Harvard ("New Common Stock"), in an amount equal to what
the PBGC would have received as an unsecured general creditor of Harvard having
an allowed Class 5 Claim (as such term is defined in the Plan of Reorganization)
of $18,700, less the amount of all contributions made after April 15, 1998 but
prior to the Effective Date. The number of shares of New Common Stock received
by the PBGC is 399,156.
In January 1999, the Company adopted a Supplemental Employee Retirement
Plan ("SERP"), the provisions of which were effective January 1, 1998. Such plan
was subsequently amended in July 1999. In connection with such amendment the
Company reversed approximately $5,500 of previously provided charges associated
with such SERP.
21. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
Certain of the Company's subsidiaries provide post-retirement health care
and life insurance benefits for all salaried and for hourly retirees of certain
of its plants. The obligation, as of September 30, 1999 and 1998 was determined
by utilizing a discount rate of 8.0% and 7.2% respectively, and a graded medical
trend rate projected at annual rates ranging ratably from 3.5% and 6.5% in 1999
to 3.5% by the year 2001 and remain level thereafter. Since the Company does not
fund post-retirement benefit plans, there are no plan assets.
The net periodic post-retirement benefit cost included the following
components:
<TABLE>
<CAPTION>
TEN MONTHS TWO MONTHS YEAR ENDING
ENDED ENDED SEPTEMBER 30,
SEPTEMBER 30, NOVEMBER 29, ------------------------------
1999 1998 1998 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Service cost............................... $ 784 $157 $ 1,100 $ 1,593
Interest on accumulated post-retirement
benefit obligation....................... 5,797 827 5,827 6,955
Net amortization and deferral.............. (11) 0 (1,337) (959)
Curtailment gains.......................... (415) 0 (2,792) (8,249)
------- ---- ------- -------
Net periodic post-retirement benefit cost
(benefit)................................ $ 6,155 $984 $ 2,798 $ (660)
------- ---- ------- -------
------- ---- ------- -------
</TABLE>
During 1999, the Company recorded a curtailment gain to reflect the
curtailment of medical benefits due to the sale of its Kingston-Warren business.
The gain was recorded as a component of the loss on disposal. 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.
65
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
21. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS--(CONTINUED)
The following table sets forth reconciliations of the beginning and ending
balances of the post-retirement benefit obligation, funded status and amounts
recognized in the Consolidated Balance Sheets related to post-retirement medical
and life insurance benefits:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1999 1998
--------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.................. $ 92,290 $ 78,433
Service cost............................................. 941 1,100
Interest cost............................................ 6,624 5,827
Actuarial (gain) loss.................................... (10,986) 14,121
Business combinations.................................... 11,502 0
Benefits paid............................................ (7,197) (4,399)
Curtailments............................................. (415) (2,792)
--------- --------
Benefit obligation at end of year........................ $ 92,759 $ 92,290
--------- --------
--------- --------
Change in plan assets:
Fair value of plan assets at beginning of year........... 0 0
Employer contributions................................... 7,197 4,399
Benefits paid............................................ (7,197) (4,399)
--------- --------
Fair value of plan assets at end of year................. $ 0 $ 0
--------- --------
--------- --------
Reconciliation of funded status:
Funded status............................................ (92,759) (92,290)
Unrecognized actuarial (gain) loss....................... (10,975) (5,337)
--------- --------
Net amount recognized.................................... $(103,734) $(97,627)
--------- --------
--------- --------
Included in accrued expenses............................. 7,000 2,112
--------- --------
Noncurrent postretirement benefit obligations............ $ 96,734 $ 95,515
--------- --------
--------- --------
</TABLE>
The effect of a 1% annual increase in the assumed cost trend rates
discussed above would increase the accumulated post-retirement obligation at
September 30, 1999 by approximately $11,611, and would increase the aggregate of
the service and interest cost components by approximately $910.
The effect of a 1% annual decrease in the assumed cost trend rates
discussed above would decrease the accumulated post-retirement obligation at
September 30, 1999 by approximately $11,263 and would decrease the aggregate of
the service and interest cost components by approximately $882.
22. PREFERRED STOCK
On March 24, 1999, the Board of Directors of Harvard Industries, Inc., a
Delaware corporation (the "Company"), declared a dividend of one preferred share
purchase right ("Right") on each outstanding share of the Company's common
stock, par value $0.01 per share (the "Common Shares"), payable to stockholders
of record on April 5, 1999 (the "Record Date"). Each Right, when exercisable,
entitles the holder thereof to purchase from the Company one one-hundredth of a
share of Series A Junior Participating Preferred Stock, par value $0.01 per
share (the "Preferred Shares"), of the Company at an exercise price of $30 per
one one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and State Street Bank and Trust Company,
a Massachusetts trust company, as Rights Agent.
66
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
22. PREFERRED STOCK--(CONTINUED)
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.
23. STOCK OPTIONS
On December 9, 1998, the Board of Directors approved a Stock Incentive Plan
(the "Plan") (regarding stock option awards), which provides for up to 2,229,102
shares of the Company's Common Stock to be granted to members of the Board of
Directors and key employees. Options under the plan 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 33 1/3% per year.
The Company's Plan of Reorganization also provides for holders of its Old
Common Stock and PIK Preferred Stock to receive in the aggregate approximately
633,000 warrants, expiring November 23, 2003, permitting the purchase of new
common shares at an exercise price of $41.67 per share.
Seven members of the Company's Board of Directors have each been granted
20,000 shares which vest over five (5) years. A total of 120,000 shares will be
issued as one director declined the grant.
The above options, warrants and shares to be issued have been excluded from
the computation of earnings per share as their effect would be antidilutive.
The Company has elected the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and applies APB Opinion No. 25 and
related interpretations in accounting for the Plan. If the Company had elected
to recognize compensation cost based on the fair value of awards under the Plan
at grant dates, the Company's pro forma net loss for the ten months ended
September 30, 1999 would have been ($93,021), and pro forma loss per share would
have been ($10.34). The fair value of the Company's stock options used to
compute pro forma net income and earnings per share is the estimated present
value at the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions: risk free interest rate 5.7%; expected
life of 5 years; expected votality of 51.6%; and dividend yield of 0%.
A summary of the Company's stock option activity under the Plan is as
follows:
<TABLE>
<CAPTION>
KEY EXERCISE PRICE
EMPLOYEES DIRECTORS TOTAL RANGE PER SHARE
--------- --------- --------- ----------------
<S> <C> <C> <C> <C>
Granted 1999................................... 1,845,000 120,000 1,965,000 $6.10 to $7.50
Exercised...................................... -- -- -- 0
Cancelled...................................... -- -- -- 0
--------- ------- ---------
Balance 9/30/99................................ 1,845,000 120,000 1,965,000 $6.10 to $7.50
--------- ------- ---------
--------- ------- ---------
1999........................................... 615,000 40,000 655,000 $6.10 to $7.50
--------- ------- ---------
--------- ------- ---------
</TABLE>
67
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
23. STOCK OPTIONS--(CONTINUED)
The following table summarizes the status of stock options outstanding and
exercisable under the Plan at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISEABLE
RANGE OF ----------------------------------------------- ----------------------------
EXERCISE WTD. AVG. WTD. AVG. WTD. AVG.
PRICES SHARES EXERCISE PRICE REMAINING LIFE SHARES EXERCISE PRICE
---------- --------- -------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 7.50 1,675,000 $ 7.50 9 yrs 558,278 $ 7.50
$ 6.10 290,000 $ 6.10 9 yrs 96,324 $ 6.10
--------- ---------
Total 1,965,000 $ 7.29 9 yrs 654,602 $ 7.29
--------- ---------
--------- ---------
</TABLE>
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
bankruptcy.
<TABLE>
<CAPTION>
KEY EXERCISE PRICE
EMPLOYEES DIRECTORS ANCHOR TOTAL RANGE PER SHARE
--------- --------- -------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Balance September 30, 1996......... 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 September 30, 1997......... 223,475 44,000 569,096 836,571 $.8125 to $28.00
--------- ------- -------- ---------
--------- ------- -------- ---------
Granted 1998....................... -- -- -- --
Exercised.......................... -- -- -- --
Cancelled.......................... -- -- -- --
--------- ------- -------- ---------
Balance September 30, 1998......... 223,475 44,000 569,096 836,571 $.8125 to $28.00
--------- ------- -------- ---------
--------- ------- -------- ---------
Cancelled in connection with
bankruptcy emergence............. (223,475) (44,000) (569,096) (836,571)
--------- ------- -------- ---------
Balance November 29, 1998.......... 0 0 0 0
--------- ------- -------- ---------
--------- ------- -------- ---------
Exercisable at September 30:
1997............................... 108,200 42,000 369,096 519,296 $.8125 to $28.00
1998............................... 108,200 42,000 369,096 519,296 $.8125 to $28.00
--------- ------- -------- ---------
--------- ------- -------- ---------
</TABLE>
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
68
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
23. STOCK OPTIONS--(CONTINUED)
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 exercisable without regard to the per share price of Common
Stock if Anchor is continuing to provide services to the Company at such date.
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 and
antidilutive.
24. 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, Accounts Payable and DIP
Financing. 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 Senior Notes is estimated
based upon the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.
PIK Preferred Stock. The fair value was determined by quoted market price.
The estimated fair value of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998
CARRYING 1999 FAIR CARRYING 1998 FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................... $ 21,840 $21,840 $ 11,624 $11,624
Accounts receivable......................................... 35,324 35,324 57,046 57,046
Accounts payable............................................ 28,489 28,489 25,098 25,098
DIP financing (including current portion)................... -- -- 39,161 39,161
Senior notes................................................ -- -- 309,728 140,543
PIK preferred stock......................................... -- -- 124,637 --
</TABLE>
69
<PAGE>
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
25. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
TWO MONTHS ONE MONTH
FISCAL 1999 ENDED ENDED
QUARTERS ENDED NOVEMBER 29 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
- ------------------------------------ --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 89,050 $ 40,166 $128,727 $129,908 $107,280
Gross profit........................ 9,422 4,532 15,057 12,981 8,764
Net loss before extraordinary item.. (48,563) (4,997) (14,117) (14,613) (47,022)
Extraordinary item.................. 206,363 -- -- -- (9,701)
Net income (loss)................... $ 157,800 $ (4,997) $(14,117) $(14,613) $(56,723)(b)
Earnings (loss) per share of common
stock
(basic and diluted)(a):
Net loss before extraordinary item.. $ (6.91) $ (0.61) $ (1.71) $ (1.62) $ (4.70)
Extraordinary item.................. 29.37 0.00 0.00 0.00 (0.97)
--------- --------- -------- -------- --------
Net income (loss)................... $ 22.46 $ (0.61) $ (1.71) $ (1.62) $ (5.67)
--------- --------- -------- -------- --------
--------- --------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998
QUARTERS ENDED DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
- -------------------------------------------------- ----------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net 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) $(39,891)(c)
--------- -------- -------- --------
--------- -------- -------- --------
Earnings per share of common stock
(basic and diluted)(a)
Net Loss per share................................ ($ 0.79) ($ 0.44) ($ 1.04) ($ 5.68)
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>
(a) Year-to-date earnings per share do not equal the sum of the quarterly
earnings per share.
(b) Includes extraordinary loss on early extinguishment of debt and loss on
sale of Kingston-Warren.
(c) 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.
26. SUBSEQUENT EVENTS
On October 5, 1999, the Company used part of the proceeds of the sale of
the assets of its Kingston-Warren subsidiary to purchase 762,000 shares of its
common stock in a private transaction at an aggregate cost of approximately
$4,950.
On December 21, 1999, the Company sold the land and building and certain
machinery and equipment of the Ripley, TN facility of its Hayes-Albion
subsidiary for approximately $2,325 in cash.
ITEM 9. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
N/A
70
<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.
Date: December 23, 1999 HARVARD INDUSTRIES, INC.
By: /s/ ROGER G. POLLAZZI
----------------------------------
Roger G. Pollazzi
Chairman of the Board
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Roger G. Pollazzi, acting individually,
as such person's true and lawful attorney-in-fact and agent, with full power of
substitution for such person, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this report on Form 10-K,
and to file with the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ ROGER G. POLLAZZI Chairman of the Board, Chief December 23, 1999
- ------------------------------------------ Executive Officer and Director
Roger G. Pollazzi (Principal Executive Officer)
/s/ THEODORE W. VOGTMAN Executive Vice President and Chief December 23, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Theodore W. Vogtman Officer)
/s/ KEVIN L. B. PRICE Vice President, Controller and Treasurer December 23, 1999
- ------------------------------------------ (Principal Accounting Officer)
Kevin L. B. Price
/s/ JON R. BAUER Director December 23, 1999
- ------------------------------------------
Jon R. Bauer
/s/ THOMAS R. COCHILL Director December 23, 1999
- ------------------------------------------
Thomas R. Cochill
/s/ RAYMOND GARFIELD, JR. Director December 23, 1999
- ------------------------------------------
Raymond Garfield, Jr.
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ DONALD P. HILTY Director December 23, 1999
- ------------------------------------------
Donald P. Hilty
/s/ GEORGE A. POOLE, JR. Director December 23, 1999
- ------------------------------------------
George A. Poole, Jr.
/s/ JAMES P. SHANAHAN, JR. Director December 23, 1999
- ------------------------------------------
James P. Shanahan, Jr.
/s/ RICHARD W. VIESER Director December 23, 1999
- ------------------------------------------
Richard W. Vieser
</TABLE>
72
<PAGE>
EQUIPMENT PURCHASE AGREEMENT
THIS EQUIPMENT PURCHASE AGREEMENT, dated as of December 17, 1999 (the
"Agreement"), is made between MACDONALD'S INDUSTRIAL PRODUCTS, INC., a Michigan
corporation ("Buyer"), and HARVARD INDUSTRIES, INC., a Delaware corporation, and
HAYES-ALBION CORPORATION, a Michigan corporation (together, "Seller").
Seller is engaged in the die casting business (the "Business") at a
facility it leases in Ripley, Tennessee (the "Leased Real Property"). Buyer
desires to purchase from Seller, and Seller desires to sell to Buyer, certain of
the equipment associated with Seller's Business, on the terms and subject to the
conditions set forth in this Agreement.
ARTICLE 1 PURCHASE AND SALE OF EQUIPMENT
1.1 Agreement to Purchase and Sell Equipment. On the terms and subject to
the conditions of this Agreement, Buyer shall purchase and acquire from Seller,
and Seller shall sell, convey, assign, transfer, and deliver to Buyer, all of
the assets and property of Seller described on Exhibit 1.1 and described below
(the "Purchased Assets") which shall include 125,000 pounds of secondary type
magnesium metal ingot inventory alloyed to Specification AZ91D at the Leased
Real Property which has been produced by Spectralite, Halco, Magcorp or primary
type Chinese production. Seller shall transfer the Purchased Assets to Buyer
free and clear of all claims, liens, mortgages, security interests,
encumbrances, charges, obligations, and other restrictions. Buyer has inspected
the Purchased Assets and agrees to purchase them on an "As Is" basis regarding
their physical condition. Purchaser has requested that some other materials
remain on site at Closing. Purchases agrees to take any and all containers of
oils (including but not limited to lubricating oils, die lubricants, compressor
oils, hydraulic oils/fluids, etc.); chemicals (including but not limited to
water treatment chemicals, cooling tower treatment chemicals, process chemicals,
fluxes, etc.); maintenance items (including but not limited to paints, solvents,
building maintenance materials, floor cleaners, floor waxes, etc.); testing
laboratory chemicals; fuels (including but not limited to gasoline, kerosene,
etc.); that remain on site at date of Closing. Purchaser agrees that in the
event Purchaser does not want or need the material, any disposal of this type of
material, whether hazardous or not, will be at Purchaser's expense. Nothing
contained in this paragraph shall be deemed to limit Seller's representations,
warranties or indemnification obligations.
1.2 Purchase Price. As consideration for the transfer of the
Purchased Assets to Buyer and Seller's other convenants in this
Agreement (the "Purchase Price"), Buyer shall pay to Seller at Closing
in immediately available funds the amount of $2,325,000, less the amount
of any escrow holdback described in Section 2.3(h).
1.3 No Assumed Liabilities. Buyer shall not assume or be obligated to pay,
perform, or discharge any liability, obligation, debt, charge, or expense of
Seller of any kind, description, or character, whether accrued, absolute,
contingent, or otherwise or whether or
<PAGE>
not disclosed to Buyer in this Agreement, the Disclosure Schedule (defined
below), or otherwise (collectively, the "Excluded Liabilities"). Without
limiting the generality of the foregoing, and notwithstanding anything to the
contrary contained in this Agreement, Buyer shall not assume or be obligated to
pay, perform, or discharge any liability, obligation, debt, charge, or expense
of Seller even if imposed upon Buyer as a successor to Seller, with respect to
any action, suit, proceeding, or claim arising out of or relating to any event
occurring, or with respect to any cause of action arising, before or after the
Closing Date, whether or not asserted before or after the Closing Date;
including any liablity, obligation, debt, charge, or expense related to taxes,
environmental matters, agreements with sales representatives, employee benefits,
obligations or policies, judgments, product warranty claims, product liability
claims, and contractual claims. Seller shall be liable for all product warranty
claims and all product liability claims arising from products shipped by Seller.
1.4 Allocation of Purchase Price. Within one hundred twenty (120) days
after the Closing Date, Buyer shall deliver to Seller a Certificate of
Allocation detailing the allocation of the Purchase Price among the Purchased
Assets and Seller's other covenants set forth in this Agreement. The Seller
shall review the Purchase Price Allocation set forth by the Buyer. The Purchase
Price Allocation as set forth must be satisfactory to both the Buyer and the
Seller. If within forty-five (45) days following delivery of its computation of
the Purchase Price Allocation, Seller has not given the Buyer written notice of
Seller's objection to the Buyer's computation of the Purchase Price Allocation,
then the Purchase Price Allocation will be final and binding on the Buyer and
the Seller. If Seller gives such notice of objection, Buyer and the Seller shall
negotiate in good faith to resolve any such disputes within fifteen (15) days
following the delivery of such objection by Seller. If Buyer and the Seller are
unable to resolve such disputes, then the issues in dispute will immediately be
submitted to a mutually agreed upon CPA Firm (the "Accountants") for resolution
within thirty (30) days after such submission. If issues in dispute are
submitted to the Accountants for resolution, (i) each party will furnish to
the Accountants such work papers and other documents and information relating to
the disputed issues as the Accountants may request and are available to that
party or its stockholders (or its independent public accountants), and will be
afforded the opportunity to present to the Accountants any material relating to
the determination of the Purchase Price Allocation as of the Closing Date and to
discuss the determination of the Purchase Price Allocation as of the Closing
Date with the Accountants; (ii) the determination of the final Purchase Price
Allocation as of the Closing Date by the Accountants, as set forth in a notice
delivered to both parties by the Accountants, will be final and binding on the
Buyer and the Seller; and (iii) Seller and the Buyer shall each bear 50% of the
fees of the Accountants for such determination. The Buyer and the Seller shall
use the agreed upon or arbitrarily assigned Purchase Price Allocation for all
income tax purposes and agree to file all required Returns (including, without
limitation, Returns required under Section 1060 of the Code) consistent with
such Purchase Price Allocation.
ARTICLE 2 CLOSING
2.1 Place and Date of Closing. The purchase and sale contemplated by
this Agreement (the "Closing") shall take place at the offices of Miller,
Johnson, Snell &
2
<PAGE>
Cummiskey, P.L.C. on December 17, 1999 (which may be completed by facsimile and
a wire transfer), or at any other place, time, and date specified by either
Buyer or Seller upon five (5) business days' notice to the other, after
fulfillment or waiver of the conditions precedent set forth in this Agreement
(the "Closing Date"). The Closing shall be deemed to be effective upon the close
of business on the Closing Date.
2.2 Deliveries at Closing.
(a) Buyer's Deliveries. At the Closing, Buyer shall execute
and/or deliver, or cause to be executed and/or delivered: (i) the Cash Payment;
(ii) a closing certificate from a duly authorized officer of Buyer as required
by this Agreement; and (iii) any and all other agreements, certificates,
instruments, and other documents required of Buyer under this Agreement.
(b) Seller's Deliveries. At the Closing, Seller shall execute
and/or deliver, or cause to be executed and/or delivered: (i) bills of sale,
certificates of title, vehicle certificates, endorsements, assignments, and
other instruments of conveyance, reasonably acceptable to Buyer, that shall be
sufficient to transfer title to the Purchased Assets to Buyer; (ii) written
consents of third parties (including debt holders), if necessary, with respect
to the transfer of the Purchased Assets to Buyer and lien releases from Seller's
secured parties regarding the Purchased Assets; (iii) a closing certificate from
a duly authorized officer of Seller as required by this Agreement; and (iv) any
and all other agreements, certificates, instruments, and other documents
required of Seller under this Agreement.
2.3 Conditions to Buyer's Closing Obligations. Notwithstanding anything
to the contrary contained in this Agreement, Buyer's obligation to complete the
Closing is subject to the complete fulfillment (unless expressly waived in
writing by Buyer) of all of the following conditions at or before the Closing:
(a) Representations and Warranties; Performance. Each of the
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects as of the date of this Agreement, and
shall be true and correct in all material respects as of the Closing Date, with
the same force and effect as if made again as of the Closing Date. Seller shall
have performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by Seller
at or before the Closing, including the delivery of all bills of sale,
assignments, and other documents required by this Agreement to be delivered by
Seller at the Closing, all reasonably acceptable to Buyer.
(b) Closing Certificate. Buyer shall have received a certificate
reasonably acceptable to Buyer, signed by Seller and dated as of the Closing
Date, to the effect that all representations, warranties, and covenants made in
this Agreement by Seller are on the Closing Date and correct in all material
respects and that Seller has performed in all material respects the obligations,
agreements, and covenants undertaken by it, in this Agreement to be performed
on or before the Closing Date.
3
<PAGE>
(c) No Material Adverse Change. Except as contemplated by this Agreement,
there shall have been no material adverse change in the condition of the
Purchased Assets from the date of this Agreement to the Closing Date, including,
without limitation, the removal of any assets listed on Exhbit 1.1 from the
Leased Real Property.
(d) Litigation. On the Closing Date, there shall not be any pending or
threatened litigation in any court or any proceedings by or before any
governmental commission, board, agency, arbitration tribunal, or other
instrumentality with a view to seeking to restain or prohibit the consummation
of the transactions contemplated by this Agreement or in which it is sought to
obtain divestiture, recission, or damages in connection with the transactions
contemplated by this Agreement.
(e) Necessary Consents and Notices. All authorizations, consents, and
approvals by any third parties, including federal, state, local and foreign
regulatory bodies and officials, that are necessary for the consummation of the
transactions contemplated by this Agreement, shall have been received in writing
and shall be in full force and effect. All necessary filings, declarations, and
notices of Buyer and Seller with or to third parties shall also have been made
or given.
(f) Lease for Real Property. Buyer shall have entered into an agreement
with the City of Ripley regarding the transfer of the lease for the Leased Real
Property in form acceptable to Buyer. Such agreement shall include an option to
purchase the Leased Real Property and an arrangement regarding pre-Closing
environmental matters on terms acceptable to Buyer.
(g) Buyer's Examination. Buyer shall be satisfied with the contents of all
exhibits, schedules, information, and other documents and materials (including
the Disclosure Schedule) and with the results of Buyer's examination of Seller,
the Purchased Assets, the condition and value of the Purchased Assets as of
Closing, and the environmental condition of the Leased Real Property.
(h) Tax Clearance Certificate. Seller shall deliver to Buyer a tax
clearance certificate from the appropriate Tennessee state authority which
states that all taxes required to be paid by Seller in Tennessee have been
paid. If such certificate is not available at Closing, $100,000 of the
Purchase Price shall be withheld by Buyer and will be delivered to Seller
within seven (7) days of receipt of such certificate from Seller.
2.4 Conditions to Seller's Closing Obligations. Notwithstanding anything to
the contrary contained in this Agreement, Seller's obligation to complete the
Closing is subject to the complete fulfillment (unless expressly waived in
writing by Seller) of all of the following conditions at or before the Closing:
(a) Representations and Warranties; Performance. Each of the
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects as of the date of this Agreement, and
shall be true and correct in all material respects as of the Closing Date, with
the same force and effect as if made again as of the Closing Date. Buyer shall
have performed and complied in all material respects with
4
<PAGE>
all agreements and conditions required by this Agreement to be performed or
complied with by Buyer at or before the Closing, including payment of the
Purchase Price and all other documents required by this Agreement to be
delivered by Buyer at the Closing, all reasonably acceptable to Seller.
(b) Closing Certificate. Seller shall have received a certificate
reasonably acceptable to the Seller, signed by Buyer and dated as of the
Closing Date, to the effect that all representations and warranties in this
Agreement are true and correct in all material respects as if made again on the
Closing Date and that Buyer has performed in all material respects the
obligations, agreements, and covenants undertaken by Buyer in this Agreement to
be performed on or before the Closing Date.
(c) Litigation. On the Closing Date, there shall not be any pending or
threatened litigation in any court or any proceedings by or before any
governmental commission, board, agency, arbitration tribunal, or other
instrumentality with a view to seeking, to restrain or prohibit the consummation
of the transactions contemplated by this Agreement.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 Disclosure Schedule. At least three (3) days before the date of this
Agreement, Seller has delivered to Buyer individually numbered schedules
(collectively, the "Disclosure Schedule") corresponding to the sections and
subsections of this Article. Each individual schedule in the Disclosure Schedule
contains exceptions to the specifically identified section and subsection
contained in this Article and sets forth each exception in reasonable detail,
with attached documentation as necessary to reasonably explain the exception.
Any exception to the representations and warranties contained in a section or
subsection of this Article is described in a separate schedule of the Disclosure
Schedule that specifically identifies the applicable section or subsection of
this Article. The Disclosure Schedule is complete and accurate in all respects.
Seller has provided Buyer with true and complete copies of all documents
referenced in the Disclosure Schedule.
3.2 Seller's Organization and Good Standing. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of Seller's incorporation. Seller has all requisite corporate power
and authority to own, lease, and operate the properties now owned or leased by
Seller and to carry on Seller's Business as presently conducted.
3.3 Enforceability. Seller has full capacity, power, and authority to
enter into this Agreement and to carry out the transactions contemplated by this
Agreement, and this Agreement is binding upon Seller and is enforceable against
Seller in accordance with the terms of this Agreement.
5
<PAGE>
3.4 No Conflict with Other Instruments or Proceedings. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement will not (a) result in the breach of any of the
terms or conditions of, or constitute a default under, Seller's corporate
charter or bylaws or any contract, agreement, lease, commitment, indenture,
mortgage, pledge, note, bond, license, or other instrument or obligation to
which Seller is now a party or by which Seller or any of Seller's properties or
assets may be bound or affected; (b) result in the imposition of any lien or
encumbrance on any of the Purchased Assets; or (c) give rise to any right of
first refusal or similar right to any third party with respect to any of the
Purchased Assets.
3.5 Absence of Certain Changes or Events. Since September 10, 1999, there
has been no adverse change in the condition of the Purchased Assets and Seller
has not (i) subjected any of the Purchased Assets to any claim, lien, mortgage,
security interest, encumbrances, charge, or other restriction; or (ii) sold,
transferred, or otherwise disposed of any of the Purchased Assets.
3.6 Taxes. Seller has paid all taxes and assessments due and payable by
Seller relating to the Purchased Assets.
3.7 Personal Property. Seller has good and marketable title to all
of Purchased Assets, subject to no security interest, mortgage, pledge,
lien, encumbrance, charge, obligation, assignment, leasing, or other
restriction. All personal property included in the Purchased Assets will
be in the possession of Seller on the Closing Date.
3.8 Employee Relations. Seller is not a party to any written or oral,
express or implied, collective bargaining agreement or other contract,
agreement, or arrangement with any labor union or any other similar arrangement
at the Leased Real Property, and Seller has no knowledge of any current union
organizing activity at the Leased Real Property. Seller represents to Buyer
that the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section
2101 et seq. ("WARN"), or any other similar state, local or foreign statute or
government regulation or ordinance, is either inapplicable to the transactions
contemplated in this Agreement or Seller has fully complied with all those
statutes.
3.9 Environmental Matters.
(a) Definitions. For purposes of this Agreement: (i) "Environmental
Claim" means any claim, action, cause of action, investigation, or notice
(written or oral) by any person or entity alleging potential liability
(including potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or civil or criminal penalties) arising out of or resulting
from (A) the actual or alleged presence or release into the environment of any
Hazardous Material (defined below) at any location, whether or not owned or
operated by Seller, (B) circumstances forming the basis of any actual or
alleged violation of any Environmental Law, or (C) a consent order, consent
decree, judgment, government order or notice; (ii) "Environmental Laws" means
all federal, state, local, and foreign laws, regulations, ordinances, rules,
standards, and common law principles of tort liability relating to protection
6
<PAGE>
of human health or the environment (including ambient air, surface
water, ground water, wetlands, land surface, subsurface strata, and
indoor and outdoor workplace), remediation of the environment (including
the Comprehensive Environmental Response, Compensation, and Liability
Act, and all other analogous federal and state laws), management
(including transportation, storage, treatment and disposal) of solid or
hazardous waste (as defined by the Resource Conservation and Recovery
Act, and all other analogous federal and state laws); (iii) "Hazardous
Material" means any contaminant, pollutant, waster, petroleum, petroleum
product, genetically modified organism, chemical or other substance
defined, designated, or classified as hazardous, toxic, radioactive, or
dangerous, or that is otherwise regulated by any Environmental Law; and
(iv) "CONTAMINATION" means the presence of any Hazardous Material in,
on, or under the air, soil, groundwater, or surface water, that may
result in an Environmental Claim.
(b) Compliance. To Seller's knowledge, Seller is, and has been, in
full compliance with all applicable Environmental Laws regarding the
Leased Real Property and its operations there, which compliance includes
(i) Seller's possession of all permits and other governmental
authorization required under applicable Environmental Laws, and
compliance with the terms and conditions thereof, at the Leased Real
Property and (ii) compliance with notification, reporting, and
registration provisions of the Toxic Substances Control Act, Federal
Insecticide, Fungicide, and Rodenticide Act, and other federal, state,
local, and foreign laws that may apply to Seller's manufacture,
importation, processing, use, and other handling of chemical substances
at the Leased Real Property.
(c) Notices and Permits. Seller has not received any
communication (written or oral), whether from a governmental authority,
citizens group, employee, or otherwise, that alleges that Seller is not
or was not in full compliance with the Environmental Laws at the Leased
Real Property and, to Seller's knowledge, there are no circumstances
that may prevent or interfere with full compliance in the future. All
permits, governmental authorizations, and compliance schedules currently
held by Seller pursuant to the Environmental Laws regarding the Leased
Real Property are identified in the Disclosure Schedule.
(d) Environmental Claims. To Seller's knowledge, there is no
Environmental Claim existing, pending, or threatened against Seller
regarding the Leased Real Property. There are no past or present
actions, activities, circumstances, conditions, events, or incidents
caused by Seller, including the release, emission, discharge, presence
or disposal of any Hazardous Material, that could form the basis of any
Environmental Claim against Seller regarding the Leased Real Property.
(e) Real Property. Without in any way limiting the generality of
the foregoing: (i) to Seller's knowledge, the Leased Real Property is
not listed on or is being considered for listing on any list of
contaminated sites maintained under any Environmental Law or is subject
to or is being considered for enforcement action under any Environmental
Law, and of the Leased Real Property has not been designated as an area
under the control of any conservation authority; (ii) to Seller's
knowledge, the Leased Real Property is free of Contamination; (iii) to
Seller's knowledge, no underground storage tanks, receptacles, or
7
<PAGE>
other similar containers or depositories are, or ever have been, present on the
Leased Real Property; (iv) to Seller's knowledge, none of the buildings,
building components, structures, or improvements that are part of this
transaction is constructed in whole or in part of any material that, in its
present form, releases or may release any substance, whether gaseous (including
radon gas), liquid, or solid, that may give rise to an Environmental Claim,
including asbestos; (v) to Seller's knowledge, there have been no investigations
conducted, or other proceedings taken or threatened by any governmental body or
any other person pursuant to any Environmental Law with respect to the Leased
Real Property or the Purchased Assets; (vi) to Seller's knowledge, no
polychlorinated biphenyls (PCB's) were ever used, stored or disposed of at any
of the Leased Real Property; (vii) there is no consent decree, consent order, or
other agreement to which Seller is a party in relation to any environmental
matter and no agreement is necessary for Seller's continued compliance with all
Environmental Laws at the Leased Real Property; (viii) to Seller's knowledge,
Seller has not caused any contamination on the Leased Real Property and no
Hazardous Material or any other material was used, generated, emitted,
transported, stored, treated, or disposed of by Seller in violation of any
Environmental Law or which may result in any Environmental Claim regarding the
Leased Real Property; or (ix) Seller has not disposed of, permitted the disposal
of, or knows of the disposal of any Hazardous Material on the Leased Real
Property.
3.10 Litigation. There is no suit, action, proceeding (legal,
administrative, or otherwise), claim, investigation, or inquiry (by an
administrative agency, governmental body, or otherwise) pending or threatened
by, against, or otherwise affecting Seller regarding the Purchased Assets or the
Leased Real Property, and to Seller's knowledge there is no factual basis upon
which any such suit, action, proceeding, claim, investigation, or inquiry could
be asserted or based.
3.11 Accuracy of Statements. No representation or warranty made by Seller
in this Agreement, or any written statement, certificate, or schedule furnished,
or to be furnished, to Buyer pursuant to this Agreement contains or will
contain any untrue statement of a material fact. The representations and
warranties of Seller shall be deemed to be made as of the date of this Agreement
and again as of the Closing Date.
ARTICLE 4 BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to Seller as follows:
4.1 Buyer's Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Michigan.
4.2 Enforceability. Buyer has full capacity, power, and authority to
enter into this Agreement and to carry out the transactions contemplated by this
Agreement, and this Agreement is binding upon Buyer and is enforceable against
Buyer in accordance with the terms of this Agreement.
8
<PAGE>
ARTICLE 5 COVENANTS
5.1 Employees.
(a) Offers of Employment. Buyer has no obligation to hire or offer
employment to any of Seller's employees. However, Buyer is free, without
obligation, to interview, seek employment applications from, and employ any of
Seller's former employees.
(b) Employee Benefit Plans or Other Obligations. With respect to any
employee of Seller hired by Buyer, Buyer shall not assume, honor, or be
obligated to perform, and Seller shall remain solely responsible for, any
duties, responsibilities, commitments, or obligations of Seller with respect to
any qualified or non-qualified employee benefit plan presently maintained by
Seller or for the benefit of Seller's employees or any contract or commitment
concerning any of Seller's employees. The terms and conditions of employment, if
any, offered by Buyer to any former employee of Seller shall be determined by
Buyer in Buyer's sole discretion.
5.2 Pre-Closing and Post-Closing Access. During the period from the date
of this Agreement to the Closing Date, Seller shall permit Buyer and Buyer's
designated representatives and agents free access to the buidings, offices,
records, and files, for the purpose of conducting an investigation of the
Purchased Assets and the Leased Real Property. For a period of ninety (90) days
after the Closing Date, Buyer shall permit Seller and Seller's designated
representatives and agents reasonable access to the Leased Real Property for
any reason or purpose including removing assets which are not purchased assets.
5.3 Disclosure of Breaches. Buyer and Seller shall promptly notify the
other of the occurrence of any event or condition that could reasonably be
expected to adversely affect the ability of any party to perform fully the
transactions comtemplated by this Agreement or to make that party's respective
representations and warranties set forth in this Agreement not be materially
true and correct at the Closing.
5.4 Further Assurances. Buyer and Seller shall execute all documents and
take all further actions as may be reasonably required or desirable to carry out
the provisions of this Agreement and the transactions contemplated by this
Agreement at or after the Closing to evidence the consummation of the
transactions contemplated pursuant to this Agreement. Upon the terms and subject
to the conditions of this Agreement, Buyer and Seller shall take all actions and
do, or cause to be done, all other things necessary, proper, or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and obtain in a timely manner all necessary
waivers, consents, and approvals, and to effect all necessary registrations and
filings.
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ARTICLE 6 INDEMNIFICATION
6.1 Indemnity. Seller shall, defend, indemnify, and hold harmless Buyer
and Buyer's affiliates, and their respective directors, officers, employees,
shareholders, representatives, agents, successors and assigns, against and with
respect to any and all loss, cost, damage, assessment, administrative fine or
penalty, decrease in value, liability, obligation, claim, expense (including
professional fees and similar expenses), or deficiency (collectively, the
"Indemnified Losses") from, resulting by reason of, or arising in connection
with: (a) any and all liabilities of Seller of any nature, whether accrued,
absolute, contingent, or otherwise (including any Excluded Liabilities, tax,
severence/pension benefits, workers' compensation claims, and environmental
liabilities); (b) facts, circumstances, or events constituting an inaccuracy,
misrepresentation, breach, or nonperformance of any representation, warranty,
covenant, undertaking, condition, or agreement made or to be performed by Seller
pursuant to this Agreement or any document delivered to Buyer in the
consummation of the transactions contemplated by this Agreement, regardless of
whether the inaccuracy, misrepresentation, breach, or omission was deliberate,
reckless, negligent, innocent, or unintentional; (c) any failure to comply with
any applicable bulk sale or transfer laws relating to this Agreement and any
claims against Buyer by creditors of Seller; (d) any claim relating to any
failure to comply with WARN or any similar federal, state, local, or foreign
plant closing law, whether asserted against Buyer or Seller, arising from the
transactions set forth in this Agreement; (e) any claims asserted by current or
former employees of Seller (who are not employed by Buyer after the Closing
Date) for benefits pursuant to COBRA, whether the claim is asserted against
Buyer or Seller; (f) any pollution or threat to human health or the environment
that is directly related to Seller's management, use, control, ownership or
operation of the Purchased Assets or the Leased Real Property, including all
on-site and off-site activities involving Hazardous Material, and that occurred,
existed, arises out of conditions or circumstances that occurred or existed, or
was caused, on or before the Closing Date, whether or not the pollution or
threat to human health or the environment is described in the Disclosure
Schedule or is known to Seller and Buyer; and (g) any use of the Purchased
Assets and the conduct of the Business by Seller on or before the Closing Date,
including any environmental related matters arising from Seller's actions,
inactions, or events occurring on or before the Closing Date.
6.2 Indemnification Period. Buyer's right to seek indemnification under
this Article shall survive for a period of three (3) years from the Closing Date
(the "Indemnity Period"), except that the Indemnity Period shall not expire, but
shall survive forever, for claims with respect to representations, warranties,
covenants, and agreements relating to unencumbered title to the Purchased
Assets, and the representations, warranties, covenants, and agreements regarding
taxes, environmental matters, and the enforceability of this Agreement. The
making of a claim for indemnification under this Agreement shall toll the
running of the limitation period with respect to that claim. For purposes of the
preceding sentence, a claim shall be deemed made upon the commencement of an
independent judicial proceeding with respect to the matter underlying the claim
or receipt by the Seller of a written notice of claim setting forth the amount
of the claim (if known by Buyer) and a general description of the facts
underlying the claim.
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6.3 Third-Party Claims. If after the Closing Date Seller or Buyer
(in either case, the "Indemnitee") shall receive notice of any third
party claim or alleged third party claim asserting the existence of any
matter of the nature as to which the Indemnitee has been indemnified
against under this Article VI by the other parties hereto
("Indemnitor"), Indemnitee shall promptly notify Indemnitor in writing
with respect thereto. Indemnitor shall have the right to defend against
any such claim provided (i) Indemnitor shall, within 10 days after the
giving of such notice by Indemnitee, notify Indemnitee that it disputes
such claim, giving reasons therefor, and that Indemnitor will, at its
own cost and expense, defend the same, and (ii) such defense is
instituted and continuously maintained in good faith by Indemnitor. In
such event the defense may, if necessary, be maintained in the name of
Indemnitee. Indemnitee may, if it so elects, designate its own counsel
to participate with the counsel selected by Indemnitor in the conduct of
such defense at its own expense. Indemnitor shall not permit any lien or
execution to attach to the assets of the Indemnitee as a result of such
claim, and the Indemnitor shall provide such bonds or deposits as shall
be necessary to prevent the same. In any event Indemnitee shall be kept
fully advised as to the status of such defense. If Indemnitor shall be
given notice of a claim and shall fail to notify Indemnitee of its
election to defend such claim within 10 days, or after having so elected
to defend such claim shall fail to institute and maintain such defense
in accordance with the foregoing, or if such defense shall be
unsuccessful, then, in any such event, the Indemnitor shall fully
satisfy and discharge the claim within 10 days after notice from
Indemnitee requesting Indemnitor to do so. No Indemnitor shall settle
any such claim without the prior written consent of the Indemnitee,
which consent shall not be unreasonably withheld.
6.4 Remedies Cumulative. The remedies provided in this Article
are cumulative and shall not prevent the assertion by Buyer of any other
rights or the seeking of any other remedies against Seller.
ARTICLE 7 TERMINATION
7.1 Termination Events. This Agreement may, by notice given before or at
the Closing, be terminated: (a) by either Buyer or Seller if a material breach
of any provision of this Agreement has been committed by the other party and the
breach has not been waived; (b) by Buyer if any of the conditions precedent to
Buyer's closing obligations have not been satisfied as of the Closing Date or if
satisfaction of a condition is or becomes impossible (other than through the
failure of Buyer to comply with Buyer's obligations under this Agreement) and
Buyer has not waived the condition on or before the Closing Date; (c) by Seller
if any of the conditions precedent to Seller's closing obligations have not been
satisfied as of the Closing Date or if satisfaction of a condition is or becomes
impossible (other than through the failure of Seller to comply with Seller's
obligations under this Agreement) and Seller has not waived the condition on or
before the Closing Date; (d) by mutual consent of Buyer and Seller or (e) by
either Buyer or Seller if the Closing has not occurred (other than through the
failure of any party seeking to terminate this Agreement to
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comply fully with that party's obligations under this Agreement) on or before
December 31, 1999, or any later date as the parties may agree.
7.2 Termination Procedure and Effect. If this Agreement is terminated
pursuant to this Article, the party or parties so electing to terminate shall
give written notice to that effect to the other party or parties, and this
Agreement shall terminate and the transactions contemplated by this Agreement
shall be abandoned without further action by either party. Buyer shall then
return to Seller all documents and copies and other materials received by Buyer.
If this Agreement is terminated other than pursuant to a breach by Buyer or by
Seller, the parties shall have no further duties, obligations, or rights to or
against each other except for the provisions of this Agreement relating to
confidentiality and use of confidential or proprietary information. If this
Agreement is terminated pursuant to a breach of this Agreement by Buyer, Seller
shall have the right to pursue any rights and remedies as Seller may have, at
law or in equity, against Buyer with respect to the breach. If this Agreement is
terminated pursuant to a breach of this Agreement by Seller, Buyer shall have
the right to pursue any rights and remedies as Buyer may have, at law or in
equity, against Seller with respect to the breach.
ARTICLE 8 GENERAL
8.1 Survival Of Representations, Warranties, Covenants, and Indemnities.
Subject to the limitation of the Indemnity Period described above, all
representations, warranties, covenants, and indemnities made by any party to
this Agreement shall survive the Closing and any investigation at any time made
by or on behalf of any party before or after the Closing. No investigation by
Buyer shall in any way affect Buyer's right to rely on the representations,
warranties, and covenants of Seller set forth in this Agreement or any document
related to this Agreement.
8.2 Assignment and Benefits. No party to this Agreement may assign or
transfer this Agreement, either directly or indirectly, by merger, liquidation,
consolidation, sale of stock, change of control, operation of law, or other
means, without the prior written consent of all parties of this Agreement,
except that Buyer may assign all or part of Buyer's interest in this Agreement
to one or more persons or entities controlling, controlled by, or under common
control with Buyer. Any assignment of the obligations of this Agreement shall
not release the assignor or any guarantor from the duty to perform that person's
obligations under this Agreement. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by and against the respective successors and
permitted assigns of each of the parties to this Agreement.
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8.3 Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given when delivered, sent by telecopy, or sent by express delivery service with
charges prepaid and receipt requested, or, if those services are not reasonably
available, mailed (postage prepaid) by certified mail with return receipt
requested:
To Buyer at: With a copy to:
MacDonald's Industrial Products, Inc. Miller, Johnson, Snell & Cummiskey
4242 44th Street SE 800 Calder Plaza Building
Kentwood, MI 49512 250 Monroe Avenue NW
Fax: (616) 554-6400 Grand Rapids, MI 49503
Attn: Robert E. MacDonald Fax: (616) 831-1701
Attn: J. Lee Murphy
To Seller at:
Harvard Industries
3 Werner Way
Lebanon, NJ 08833
Attn: D. Craig Bowman
Fax: (908) 236-0072
Any party may change that party's address by prior written notice to
the other parties.
8.4 Expenses. Each party to this Agreement shall pay that party's
respective expenses, costs, and fees (including professional fees) incurred in
connection with the negotiation, preparation, execution, and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement. Seller shall pay the cost of any conveyance, transfer, excise,
storage, sales, use, recording, or similar taxes or fees, if any, arising out of
the sale, transfer, conveyance, or assignment of the Purchased Assets to Buyer.
8.5 Entire Agreement. This Agreement, and the exhibits and schedules
(including the Disclosure Schedule) to this Agreement (which are incorporated in
this Agreement by reference), and the agreements referred to in this Agreement,
contains the entire agreement and understanding of the parties and supersede all
prior agreements, negotiations, arrangements, and understandings relating to the
subject matter of this Agreement.
8.6 Amendments and Waivers. This Agreement may be amended, modified,
superseded, or canceled, and any of the terms, covenants, representations,
warranties, or conditions of this Agreement may be waived, only by a written
instrument signed by each party to this Agreement or, in the case of a waiver,
by or on behalf of the party waiving compliance. The failure of any party at any
time to require performance of any provision in this Agreement shall not affect
the right of that party at a later time to enforce that or any
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other provision. No waiver by any party of any condition, or or any breach of
any term, covenant, representation, or warranty contained in this Agreement, in
any one or more instances, shall be deemed to be a further or continuing waiver
of any condition or of any breach of any other term, covenant, representation,
or warranty.
8.7 No Third-Party Beneficiaries. The provisions of this Agreement are
solely between and for the benefit of the respective parties to this Agreement,
and do not inure to the benefit of, or confer rights upon, any third party,
including any employee of Buyer or Seller.
8.8 Severability. Except as otherwise specifically provided in this
Agreement, this Agreement shall be interpreted in all respects as if any
invalid or unenforceable provision were omitted from this Agreement. All
provisions of this Agreement shall be enforced to the full extent permitted by
law.
8.9 Headings. The headings of the sections and subsections of this
Agreement have been inserted for convenience of reference only and shall not
restrict or modify any of the terms or provisions of this Agreement.
8.10 Governing Law. This Agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of Michigan, as applied
to contracts made and to be performed in that state, without regard to
conflicts of law principles.
8.11 Counterparts. This Agreement may be signed in original or by fax in
counterparts, each of which shall be deemed to be an original, and the
counterparts shall together constitute one complete document.
8.12 Seller. Harvard Industries, Inc. and Hayes-Albion Corporation shall
be jointly and severally liable for the obligations of Seller under this
Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.]
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Signed by the parties.
MACDONALD'S INDUSTRIAL HARVARD INDUSTRIES, INC.
PRODUCTS, INC.
By By /s/ D. Craig Bowman
-------------------------- ------------------------------
Its Its Vice President
----------------------- ---------------------------
"Buyer" "Seller"
HAYES-ALBION CORPORATION
By /s/ D. Craig Bowman
-------------------------------
Its Vice President
----------------------------
"Seller"
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<PAGE>
ASSET PURCHASE AGREEMENT
between
OUTBOARD MARINE CORPORATION
and
HARVARD INDUSTRIES, INC.
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of November 29
1999, among OUTBOARD MARINE CORPORATION, a Delaware corporation (the "Seller")
and HARVARD INDUSTRIES, INC., a Delaware corporation, (the "Purchaser").
WITNESETH:
WHEREAS, Seller owns certain tooling, machinery and equipment located at its
Milwaukee, Wisconsin facility; and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, the tooling, machinery and equipment, on the terms and
subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. SALE OF ASSETS
1.1 Purchased Assets. In reliance upon the representations, warranties and
agreements herein contained and upon the terms and subject to the conditions set
forth in this Agreement, Seller hereby agrees to sell, assign, transfer, convey
and deliver to Purchaser, and Purchaser hereby agrees to purchase and acquire
from Seller on an as is, where is basis all of Seller's right, title and
interest, free and clear of liens and encumbrances, in and to all of the
following assets, rights and interests as the same exist on the date hereof (all
of such assets, rights and interests of Seller being referred to herein as the
"Purchased Assets"):
See Exhibit A, attached hereto and incorporated herein.
1.2 Closing. The closing of such sale and purchase (the "Closing") shall
take place at 10:00 A.M., Eastern Daylight time, on November 30, 1999 or at such
other time and date as the parties hereto shall agree in writing (the "Closing
Date"), at such place as the parties hereto shall agree in writing. At the
Closing, Seller shall deliver to Purchaser a bill of sale in the form of Exhibit
"B", attached hereto and incorporated herein.
1.3 Purchase Price: Manner of Payment. The total consideration for the
Purchased Assets (the "Consideration"), shall be: Nine Hundred Ten Thousand
Dollars ($910,000.00), in the form of a check, or wire transfer, one-third (1/3)
payable upon the signing of this agreement, one-third (1/3)
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<PAGE>
payable on January 15, 2000, and one-third (1/3) payable on February 28,
2000.
2. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser that the execution
and delivery of this Agreement and the performance by the Seller of its
obligations hereunder and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all
necessary acts on the part of Seller and no further acts are required to
approve the execution and delivery of this Agreement, the performance by
Seller of its obligations hereunder and the consummation of the
transactions contemplated hereby.
3. CONDITIONS TO OBLIGATIONS OF PURCHASER
All obligations of Purchaser under this Agreement are subject to the
fulfillment, at or prior to the Closing Date, of the following
conditions;
3.1 Representations and Warranties of Seller. All representations
and warranties made by Seller in this Agreement shall be true and
correct on and as of the Closing Date.
3.2 Deliveries to Purchaser. Seller shall have delivered to
Purchaser a Bill of Sale conveying the Purchased Assets to Purchaser
substantially in the form of Exhibit B hereto.
4. CONDITIONS TO OBLIGATIONS OF SELLER
4.1 Obligations. All obligations of Seller under this Agreement
are subject to the fulfillment, at or prior to the Closing Date, of the
following conditoins;
4.2 Purchase Price. Purchaser shall deliver to Seller the Purchase
Price.
5. TERMINATION
5.1 Termination of Agreement. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written consent of the Purchaser and the
Seller; or
(b) by either the Purchaser or the Seller, if the Closing
shall not have occurred on or before December 15, 1999; or
5.2 Procedure and Effect of Termination. In the event of
termination of this Agreement by either or both of the parties pursuant
to Section 5.1 hereof, written notice thereof shall forthwith be given
to the other party specifying the provision hereof pursuant to which
such termination is made, and this Agreement shall forthwith become void
and there shall be no liability on the part of
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<PAGE>
the parties hereto (or their respective officers, directors or affiliates),
except that nothing herein shall relieve either party from liability for any
willful breach thereof.
6. MISCELLANEOUS PROVISIONS
6.1 Publicity and Non-Disclosure. Neither Seller nor Purchaser shall
issue or cause the publication of any press release or other announcement with
respect to this Agreement or the transactions contemplated hereby without the
consent of the other parties hereto, which consent shall not be unreasonably
withheld, and shall not be withheld where such release or announcement is
required by applicable law or is made on advice of counsel to Purchaser.
6.2 Successors and Assigns. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors, heirs,
representatives and assigns, as the case may be.
6.3 Brokers and Finders. Seller and Purchaser represent and warrant to
each other that he or it has nor engaged any broker, finder or investment banker
in connection with the transactions contemplated by this Agreement.
6.4 Expenses. Except as otherwise provided in this Agreement, the parties
hereto shall bear their respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and the transactions
contemplated hereby, including, without limitation, all fees and expenses of
agents, representatives, counsel and accountants.
6.5 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been given or made if in
writing and delivered personally or sent by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses:
(a) if to Purchaser, to:
Outboard Marine Corporation
Attn: Gordon G. Repp
100 Sea Horse Drive
Waukegan, Illinois 60085
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<PAGE>
(b) if to Seller, to:
Harvard Industries, Inc.
Attn: D. Craig Bowman
3 Werner Way
Lebanon, New Jersey 08833
or to such other persons or at such other addresses as shall be furnished
by any party by like notice to the others, and such notice or
communication shall be deemed to have been given or made as of the date
so delivered or mailed.
6.6 Entire Agreement. This Agreement, together with the Exhibits
attached hereto, represents the entire agreement and understanding of
the parties hereto with reference to the transactions set forth herein,
and no representations, warranties or covenants have been made in
connection with this Agreement other than those expressly set forth
herein, in the Schedules or in the certificates, agreements and other
documents delivered in accordance herewith. This Agreement supersedes
all prior negotiations, discussions, correspondence, communications,
understandings and agreements between the parties relating to the
subject matter of this Agreement and all prior drafts of this Agreement,
all of which are merged into this Agreement.
6.7 Waivers, Amendments and Remedies. This Agreement may be
amended, superseded, canceled, renewed or extended, and the terms hereof
may be waived, only by a written instrument signed by Purchaser and
Seller or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof; nor shall any
waiver on the party of any party of any such right, power or
privilege, nor any single or partial exercise of any such right, power
or privilege, preclude any further exercise thereof or the exercise of
any such right, power or privilege. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies
that any part may otherwise have at law or in equity. The rights and
remedies of any party based upon, arising out of or otherwise in respect
of any inaccuracy in or breach of any representation, warranty, covenant
or agreement contained in this Agreement shall in no way be limited by
the fact that the act, omission, occurrence or other state of facts upon
which any claim of any such inaccuracy or breach is based may also be
the subject matter of any other representation, warranty, covenant or
agreement contained in this Agreement (or in any other agreement among
the parties) as to which there is no inaccuracy or breach.
6.8 Severability. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other
term or provision hereof.
6.9 Section Headings. The Section headings contained in this
Agreement are solely for convenience of reference and shall not affect
the meaning or interpretation of this Agreement or of any
term or provision hereof.
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<PAGE>
6.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement. All references herein
to Sections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
6.11 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
6.12 Exhibits and Schedules. The Exhibits and Schedules attached hereto are
a part of this Agreement as if fully set forth herein.
6.13 Parties. Nothing in this Agreement, expressed or implied, is intended
to confer upon any person not a party hereto any rights or remedies hereunder.
IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be
signed all as of the date first written above.
Seller: OUTBOARD MARINE CORPORATION
By: /s/ S. Meurlot
----------------------------
Title: V.P. Marketing
-------------------------
Purchaser: HARVARD INDUSTRIES, INC.
By: /s/ Signature
----------------------------
Title: Executive Vice President
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<PAGE>
SERVICES AGREEMENT
This Agreement, dated this 3rd day of December, 1999, is made by and
between Outboard Marine Corporation, a Delaware corporation (hereinafter
referred to as "OMC"), and Harvard Industries, Inc., a Delaware corporation
located at 3 Werner Way, Lebanon, New Jersey 08833 (hereinafter referred to as
"Harvard").
WHEREAS, Harvard has experience in opening and managing aluminum die cast
manufacturing facilities and operations; and,
WHEREAS, OMC desires to retain Harvard to manage certain aspects of its
aluminum die cast operation located in Waukegan, Illinois (the "Project").
NOW THEREFORE, in and for good and valuable consideration as provided for
herein, the parties hereto agree as follows:
I. Services. OMC hereby retains Harvard to perform the following services (the
"Services") beginning on January 3, 2000:
a. General management of the die cast operation and certain associated
machining of the Products (the "Products") produced at OMC's Waukegan,
Illinois aluminum die cast facility (the "Facility") as more particularly
described on Exhibit "A", attached hereto and incorporated herein, and
OMC's employees working at the Facility;
b. Purchasing management of all direct and indirect materials and products
required for the operation of the Facility and the manufacture of the
Products through OMC's Supply Management Department using existing OMC
processes;
c. Scheduling of production, including inventory required to cover
requirements during transition of production from the Facility to locations
designated by Harvard and approved by OMC ("Designated Locations"), and
delivery of the Products to the designated OMC facilities in accordance
with OMC's build schedule, Harvard shall take no direct action which would
result in a negative variance to OMC's cost for the Products, except for
overtime labor which is required to meet OMC's production requirements.
d. Quality control of the Facility, manufacturing processes and the
Products to ensure that all Products are built to specification provided by
OMC;
e. Oversight of OMC's Facility accounting staff responsible for the
accounting function for the Facility, including determination of actual
cost for each Product manufactured based on OMC's fiscal 1998 actual
financial results and further based on Harvard's costing and allocation
systems and methodologies;
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<PAGE>
f. In the event that Harvard reasonably determines, pursuant to Section
II below, that additional business is not obtainable to justify the
purchase of all of the machinery and equipment and lease of the
Facility from OMC, Harvard shall manage and be responsible for the
orderly and timely relocation and transition of the manufacture of the
Products from the Facility to Designated Locations, including the
relocation of machinery and equipment, and all other relevant assets
(e.g. dies, drawings, etc.) required to meet OMC's production
requirements and the costs associated therewith, by not later than
December 31, 2000. Notwithstanding the foregoing, if such relocation
and transfer shall not have occurred by December 31, 2000, the time
frame may be extended by mutual agreement of the parties, on a month
to month basis, for a period not to exceed three months. No service
fee will be due or payable to Harvard during such extension.
g. Use its best efforts to achieve any and all costs savings, which
must be approved in writing in advance by OMC, which shall be passed
through to OMC;
h. Communicate with OMC regarding the Services and timing of the
transition of the production of Products from the Facility to
Designated Locations; and
i. At no time shall Harvard have the authority to terminate any
employee of OMC. However, from time to time, in order to reduce direct
costs of labor, Harvard may suggest to OMC that certain positions be
eliminated to reduce costs.
Harvard shall report to and consult with Sandra Meurlot at OMC on a regular
basis regarding the Project and the Services provided for hereunder.
II. Location Evaluation Period. From the date hereof through December 31, 1999,
Harvard shall use its best efforts to evaluate the viability of obtaining
additional die casting and machining business in order to utilize excess
capacity currently existing at the Facility, or some mutually agreeable
reconfiguration thereof, currently being used for the manufacture of the
Products. Harvard shall, in its sole discretion after consultation with OMC,
determine whether any such additional business would make it cost effective for
Harvard to acquire the machinery and equipment associated with or required for
the manufacture of the Products and any additional business at the then fair
market value, pursuant to a Lease/Purchase Agreement to be entered into between
the parties and to lease that portion of the Facility required for the
manufacture of the Products and any additional business. Harvard shall provide
OMC with written notice of its decision not later than January 3, 2000.
III. OMC Responsibilities. During the Term of the Agreement OMC shall be
responsible for the following:
a. Providing firm build forecasts to Harvard under OMC's manufacturing
control system;
b. The costs of operating the Facility, including all production costs;
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<PAGE>
c. Human resources administration; and
d. Shut down costs associated with the Facility and its employees located
there, excluding costs associated with the relocation of the machinery
and equipment required for the manufacture of the Products.
IV. Term of Agreement. This Agreement shall begin on the date written above
and continue until the earlier of (i) December 31, 2000, (ii) the commencement
date of a Supply Agreement between the parties for the continuing supply of all
of the Products by Harvard from the Facility, or (iii) the date all of the
production of the Products has been transferred from the Facility to the
Designated Locations, at which time the Project shall be completed, unless
terminated earlier in accordance with the terms of this agreement.
V. Time Devoted by Harvard. Harvard shall work the hours required to perform
the Services over the term. Harvard shall not perform any services, except those
provided for herein, without first receiving the prior written approval of OMC.
VI. Place Where Services will be Rendered. Harvard will perform most of the
services required under this Agreement at the Facility in cooperation with
employees of OMC and shall make itself available to OMC on a regular basis.
VII. Payment to Harvard. Harvard will be compensated for Services at the rate
of One Hundred Fifty Thousand dollars ($150,000.00) per month for the first
twelve months of this Agreement. The parties will meet at least every three
months in order to review the progress of the transition and to review the
service fee.
VIII. Independent Contractor. Both OMC and Harvard agree that Harvard will act
as an independent contractor in the performance of its duties under this
Agreement. Accordingly, Harvard shall be responsible for payment of all taxes,
filings and Social Security Administration reporting arising out of Harvard's
activities in accordance with this Agreement. Harvard hereby waives any and all
rights or claims to participation in or benefits under any and all of OMC's
welfare and pensions plans.
IX. Warranty. Services shall be performed in a professional manner and meet
the reasonable satisfaction of OMC.
X. Confidentiality. The parties shall abide by the terms of the
"Confidentiality Agreement" entered into between the parties on January 14,
1999.
XI. Drawings. All drawings, models, specifications and other documents
prepared by Harvard in connection with the Products or Services covered by this
Agreement shall become the property of OMC. Thereafter, OMC shall have full
right to use such drawings, models, specifications and
3
<PAGE>
other documents for any purpose without any claim on Harvard's part for
additional compensation for such use. Harvard shall not place any restrictive
legend or proprietary notice on any of the foregoing which are inconsistent with
the rights of OMC hereunder, and Harvard hereby authorizes OMC to obliterate or
disregard any such legend or notice appearing on same.
XII. Ability of Harvard to Bind Company. Harvard may not enter into any
contract or otherwise bind OMC in any way without the prior written authority
from OMC. Any contracts or other agreements entered into by Harvard on behalf of
OMC without the requisite authority shall be null and void and non-binding on
OMC.
XIII. Termination. Either party may terminate this Agreement upon thirty (30)
days notice to the other in the event of a breach of this Agreement by the other
party. This Agreement shall automatically terminate ninety (90) days from (i)
the date that the Supply Agreement between the parties for the manufacture of
the Products currently being manufactured at Facility is terminated in
accordance with its terms, (ii) January 31, 2000 in the event that the above
referenced Supply Agreement is not consummated by that date, (iii) the date that
the Lease Agreement between the parties for the machinery and equipment located
at the Facility and required for the manufacture of the Products at the
Designated Locations is terminated, or (iv) January 31, 2000 in the event that
the aboved referenced Lease Agreement is not consummated by that date. In the
event of termination of this Agreement as a result of a breach by OMC hereunder
or of the Supply Agreement or Lease Agreement, OMC shall compensate Harvard for
any and all time spent by Harvard on this project through the date of
termination. In the event of a termination of this Agreement for cause by either
party, Harvard agrees to continue to provide the Services during the period of
transition to a new Service provider, not to exceed 90 days.
XIV. Controlling Law. This Agreement shall be construed in accordance with the
laws of the State of Illinois and jurisdiction shall be with the State and
Federal courts located therein.
XV. Harvard Indemnification. Harvard shall indemnify, hold harmless and
defend, OMC, its officers, directors, Affiliates, agents and employees from any
and all claims, demands, litigation, expenses and liabilities (including costs
and attorneys' fees) of every nature ("Liabilities") arising from or incident to
a breach of this Agreement or any warranty and representation contained herein.
Except to the extent of OMC's negligence, Harvard shall further indemnify, hold
harmless and defend, OMC, its officers, directors, Affiliates, agents and
employees from any and all Liabilities arising from any claim, demand,
litigation, expense or liability resulting from any violation or alleged
violation of the collective bargaining agreement between OMC and the employees
of the Facility (which results from actions taken by Harvard without the prior
written approval of OMC), the presence of Harvard's employees or agents on OMC
premises, or Harvard's negligent actions or omissions. All defense of such
claims shall be with counsel of OMC's choosing. Notwithstanding any other
provision herein, Harvard shall not indemnify OMC for contract disputes or
violations arising in the ordinary course of business, grievances filed or
arbitration demanded pursuant to the provisions of the collective bargaining
agreement, arising from the mere existence of this Agreement or the mere fact
that Harvard performs according to its terms.
4
<PAGE>
XVI. Limitation of Liability. Neither party shall be liable to the other for
consequential, incidental, indirect, or punitive damages, however caused and
regardless of legal theory or foreseeability, directly or indirectly arising
under this Agreement. Notwithstanding the foregoing, the parties are liable in
accordance with the provisions of this Agreement and this limitation of
liability shall not apply to the indemnification obligations under this
Agreement.
XVII. Insurance. Harvard shall maintain insurance as follows: (a) Commercial
General Liability covering claims for bodily injury, death, personal injury, or
property damage with minimum limits of $1,000,000 each occurrence and in the
aggregate and naming OMC as an additional insured as its interest may appear
with respect to this Agreement, (b) Comprehensive Automobile Liability, covering
the ownership, operation and maintenance of all owned, non-owned and hired
automobiles used in connection with the performance of this Agreement, with
minimum limits of $500,000 each occurrence; (c) Workers' Compensation with
statutory limits as required in the state where Services are being provided and
Employers' Liability or "Stop Gap" coverage with limits of $100,000 each
accident. OMC shall be given thirty (30) days advance written notification of
any cancellation or material change of such policy. Certificate(s) of insurance
evidencing coverage shall be forwarded to OMC prior to Services being provided
and upon any renewal of such insurance during the term of this Agreement.
XVIII. Safety, Health and Accident Reports. The saftey and health of Harvard's
employees and agents brought on OMC's premises shall be the sole reponsibility
of Harvard. Harvard shall comply with all local, state and federal
environmental, health and safety requirements, including those relating to the
use and handling of hazardous materials. Harvard shall report all accidents,
injury-inducing occurrences or property damage arising from the performance of
Services. OMC shall have the right to receive, at its request, copies of any
reports filed with Harvard's insurer or others. Harvard's employees and agents
on OMC premises shall comply with all facility rules and regulations.
XIX. Compliance with Laws. Harvard shall, at its expense, obtain all permits
and licenses, pay all fees, and comply with all federal, state and local laws,
ordinances, rules, regulations and orders ("Laws") applicable to Harvard's
performance under this Agreement.
XX. Modifications. This Agreement shall not be modified except as in writing
and signed by both parties hereto.
XXI. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors, heirs,
representatives and assigns as the case may be; provided, however, that Harvard
shall not assign or delegate this Agreement or any of the rights or obligations
hereunder without OMC's prior written consent, except that no such written
consent is necessary with respect to an assignment of this Agreement to its
wholly owned subsidiary, operating unit or any entity succeeding to its
business.
5
<PAGE>
XXII. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been given or made, if in
writing and delivered personally or sent by expedited courier or facsimile, to
the parties at the following address:
A. If to OMC, to: Outboard Marine Corporation, 100 Sea Horse Drive,
Waukegan, Illinois 60085, Attn: Vice President, Manufacturing with a copy to the
General Counsel.
B. If to Harvard, to: Pottstown Precision Casting, Inc. 400 Old Reading
Pike, Stowe, PA 19464 Attn: Carl Coslow, Group Vice President, with a copy to
the General Counsel.
or such other addresses as shall be furnished by any party by like
notice to the other.
XXIII. Entire Agreement. This Agreement represents the entire agreement and
understanding of the parties hereto and supersedes all prior negotiations,
discussions, correspondence, communications, understandings and agreements
between the parties relating to the subject matter hereof and all prior drafts
of this Agreement, all of which are merged into this Agreement.
XXIV. Severability. This Agreement shall be deemed severable and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof.
XXV. Force Majeure. Neither party shall be liable to the other for default
hereunder due to strikes, fires, floods, acts of God or the public enemy, acts
of the government or other causes beyond its control and without its fault or
negligence, provided that notification is provided in writing to the other party
within a reasonable time from the beginning thereof. The parties shall consult
with each other with respect to performance, suspension or alteration and shall
endeavor to remove rapidly the cause and resume their obligations as soon as
possible after such cause is removed.
XXVI. Year 2000 Compliance. Year 2000 compliance is required for all Services
provided by Harvard for the Project under this Agreement. Year 2000 Compliance
shall be defined as the ability to continue to provide services or deliver
products and to continue normal use of a system or item of software such that
neither the performance nor the functionality of the system or software will be
affected by any changes to the date format (no value for current date or any
manipulations of date values will cause interruption to the system) caused by
the advent of the year 2000.
IN WITNESS WHEREOF, OMC and Harvard have caused Agreement to be signed
as of the date first written abvove.
By: /s/ signature Witnessed: /s/ signature
--------------------------- ------------------------
Outboard Marine Corporation
By: /s/ signature Witnessed: /s/ signature
--------------------------- ------------------------
Harvard Industries, Inc.
6
<PAGE>
SUBSIDIARIES:
- -------------
Executive Office Jurisdictions
- ---------------- -------------
Harman Automotive Michigan
3 Werner Way, Suite 210
Lebanon, NJ 08833
Hayes-Albion Corporation Michigan
3 Werner Way, Suite 210
Lebanon, NJ 08833
Trim Trends Canada, Inc. Canada
3 Werner Way, Suite 210
Lebanon, NJ 08833
Kingston-Warren Corp, New Hampshire
3 Werner Way, Suite 210
Lebanon, NJ 08833
Harvard Transportation, Inc. Michigan
3 Werner Way, Suite 210
Lebanon, NJ 08833
Doehler-Jarvis, Inc. Delaware
3 Werner Way, Suite 210
Lebanon, NJ 08833
Doehler-Jarvis Greeneville, Inc. Delaware
3 Werner Way, Suite 210
Lebanon, NJ 08833
Pottstown Precision Casting, Inc. Delaware
(Formerly Doehler-Jarvis Pottstown, Inc.)
3 Werner Way, Suite 210
Lebanon, NJ 08833
Doehler-Jarvis Technologies, Inc. Delaware
3 Werner Way, Suite 210
Lebanon, NJ 08833
Doehler-Jarvis Toledo, Inc. Delaware
3 Werner Way, Suite 210
Lebanon, NJ 08833
177192 Canada, Inc. Canada
c/o The Law Firm Of
Stikeman, Elliott
1155, Boulevard
Rene-Levesque Quest
Montreal, Canada H3B 3V2
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> NOV-30-1998
<PERIOD-END> SEP-30-1999
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