Highly Confidential
Project Harbor
SUMMARY PROCESS OVERVIEW
July 28, 2000
SALOMON SMITH BARNEY
--------------------
A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Confidential Information
The following pages contain material provided to the Board of Directors of
Harbor (the "Company") in the context of a meeting of the Board of Directors
held to consider a possible transaction involving the Company. The accompanying
materials were compiled or prepared on a confidential basis solely for use by
the Board of Directors and not with a view toward public disclosure under state
or federal securities laws or otherwise. The information utilized in preparing
this presentation was obtained from the Company and public sources. Any
estimates and projections for the Company contained herein have been prepared
by the Company, or are based upon such estimates and projections, and involve
numerous and significant subjective determinations, which may or may not prove
to be correct. No representation or warranty, expressed or implied, is made as
to the accuracy or completeness of such information and nothing contained
herein is, or shall be relied upon as, a representation, whether as to the past
or the future. Because this material was prepared for use in the context of an
oral presentation to the Board of Directors, which is familiar with the
business and the affairs of the Company, neither the Company nor Salomon Smith
Barney nor any of their respective legal or financial advisors or accountants
take any responsibility for the accuracy or completeness of any of the material
if used by persons other than the Board of Directors of the Company. Neither
the Company nor Salomon Smith Barney undertakes any obligation to update or
otherwise revise the accompanying materials.
SALOMON SMITH BARNEY
--------------------
A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Table of Contents
1 REVIEW OF STRATEGIC ALTERNATIVES
2 SALE PROCESS
3 SITUATION OVERVIEW
SALOMON SMITH BARNEY
--------------------
A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
1 REVIEW OF STRATEGIC ALTERNATIVES
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Background
o In March 1999, Harbor requested that Salomon Smith Barney Inc.
("SSB") review strategic alternatives available to maximize
shareholder value
o During April and May, SSB met with management to perform initial due
diligence
o On May 18, 1999, Harbor's Board of Directors met with management and
SSB to review the following:
o Factors generally influencing market valuation
o Shareholder value creation alternatives
o Following this review, Harbor's Board of Directors requested that SSB
assist Harbor in pursuing a sale of Harbor
SALOMON SMITH BARNEY
--------------------
1 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Relative Valuation Issues
o Despite a number of high margin niche businesses with attractive
growth opportunities, Harbor has been undervalued relative to its
peers
o A combination of corporate, industry and market factors have led to
Harbor's relative undervaluation
------------- ------------ -----------
| Corporate | + | Industry | + | Market |
| Factors | | | | Factors |
------------- ----------- -----------
Small Size Cyclicality Low Liquidity
High Leverage Consolidation Trend Limited Research
Coverage
Lower Relative Growth Systems vs. Components
Expectations
Complex Corporate
Structure
Mixed Earnings
Performance and
Predictability
-------------------------------------------------------------------
|
|
v
Low Harbor Public Market Value
SALOMON SMITH BARNEY
--------------------
2 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Shareholder Value Creation Alternatives
o A number of alternatives were reviewed
---Equity Carve-Out
--- Status Quo |
| |-- Spin-Off
| Leveraged |
--Stand Alone-----|- Recapitalization --|-- Split-Off
| | | |
| | | --- Tracking Stock
| -- Major Acquisition |
| |
| |
| |
| Public |
| --Distribution--------
| |
HARBOR----Separation -----| Private
| --Distribution--------
| |
| | --- Leveraged
| | | Partnership
| ---- Cash | |
| | (Taxable) | |
| | ---|-- Sale
---- Sale---------|--- Stock |
| (Tax Free) |
| --- Morris Trust
---- LBO
SALOMON SMITH BARNEY
--------------------
3 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Review of Strategic Alternatives
<TABLE>
STANDALONE ALTERNATIVES
--------------------------------------------------------------------------------------------
Alternative Key Considerations
--------------------------------------------------------------------------------------------
Advantages Disadvantages
<S> <C> <C>
Status Quo o Execution of management's o Does not address valuation
plan should result in value challenges in the near term
creation
o Subject to execution risks and
o Maintains flexibility to pursue changes in market/competitive
alternatives in the future dynamics
--------------------------------------------------------------------------------------------
Major Acquisition o Would add critical mass and o Debt levels limit large cash
demonstrate growth acquisitions
o Stock is not attractive acquisition
currency at current stock price
--------------------------------------------------------------------------------------------
</TABLE>
SALOMON SMITH BARNEY
--------------------
4 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Review of Strategic Alternatives (continued)
<TABLE>
SEPARATION: PUBLIC DISTRIBUTION
--------------------------------------------------------------------------------------------
Alternative Key Considerations
--------------------------------------------------------------------------------------------
Advantages Disadvantages
<S> <C> <C>
Spin/Split Off o Creates two "pure play" o Exacerbates most of Harbor's
companies valuation challenges related to
corporate and market factors
o Tax leakage associated with leverage
in excess of basis
--------------------------------------------------------------------------------------------
Tracking Stock o Tax efficient, non-permanent o Exacerbates most of Harbor's
separation with retention of valuation challenges related to
synergies of consolidated corporate and market factors
company
o Creates complex corporate
o Avoids separation costs governance issues and generates
potential conflicts of interest
o Queers pooling on tracking stock
entity and eliminates possibility of
control premium
--------------------------------------------------------------------------------------------
</TABLE>
SALOMON SMITH BARNEY
--------------------
5 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Review of Strategic Alternatives (continued)
<TABLE>
SEPARATION: PRIVATE DISTRIBUTION
--------------------------------------------------------------------------------------------
Alternative Key Considerations
--------------------------------------------------------------------------------------------
Advantages Disadvantages
<S> <C> <C>
Sale of Segment o Creates more focused company o Tax leakage
with potentially stronger
balance sheet o Potential earnings dilution
o Reduces critical mass
--------------------------------------------------------------------------------------------
Morris Trust o Achieves separation in tax o Inhibited by limited number of
efficient manner possible partners with smaller equity
values
o Potential for modest M&A
premium for merged entity if o Public market valuation issues
control is given up exacerbated for spun-off entity
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</TABLE>
SALOMON SMITH BARNEY
--------------------
6 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Review of Strategic Alternatives (continued)
<TABLE>
SALE OF COMPANY
--------------------------------------------------------------------------------------------
Alternative Key Considerations
--------------------------------------------------------------------------------------------
Advantages Disadvantages
<S> <C> <C>
Sale of Company o Potentially alleviates many of o Debt levels make strategic sale
Harbor's valuation challenges challenging
related to corporate and
market factors o Strategic interest may be limited by
diversified/automotive business
o Greatest potential to maximize portfolio
value in near term -
acquisition premium
o Active M&A market
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</TABLE>
SALOMON SMITH BARNEY
--------------------
7 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
2 SALE PROCESS
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Overview of Sale Process
o In May 1999, Harbor's Board of Directors requested that SSB assist
Harbor in pursing a sale of Harbor
o In June and July 1999, in-depth due diligence was conducted and
confidential marketing materials were prepared
o A comprehensive group of potential buyers was reviewed
o Subsequently approached a selected group of both strategic and
financial parties
o In August 1999, a customary marketing process began
o Throughout the process, Harbor, with the assistance of SSB, continued
to:
o evaluate potential alternatives
o maintain contact with previously identified potential buyers
o initiate contact with new potential buyers
SALOMON SMITH BARNEY
--------------------
8 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Sale Process Summary
Potential Buyers
-------------------------
Strategic Financial
--------- ---------
Initially Identified (58) 46 12
Contacted (19) 13 6
Sent Confidential Memorandum (10) 6 4
Received Indications (2)(a) 0 2
Entered into Negotiations (1) 0 1
-------------------------------------------------------------------------------
(Re) Contacted (7)(b) 5 2
Sent Confidential Memorandum/ 2 1
Updated Information (3)
Received Indications (3)(c) 2 1
Entered into
Negotiations 0 1
(1)
Note: (#) indicates number of parties involved.
(a) One potential buyer rescinded its bid due to antitrust concerns.
(b) Includes 3 newly identified parties.
(c) 2 indications for automotive segment.
SALOMON SMITH BARNEY
--------------------
9 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Overview of Sale Process (continued)
o Throughout the process, and particularly after initial discussions
ended, Harbor continued to evaluate strategic alternatives, including
but not limited to:
o Status quo
o Leveraged recapitalization
o Sale of segment
o Spin-off of segment
o Sale of investments
o Throughout the process, previously identified, potential buyers were
again contacted and newly identified potential buyers were approached
SALOMON SMITH BARNEY
--------------------
10 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Overview of Sale Process (continued)
o A Confidential Memorandum and / or updated information were
distributed to 3 parties
o 2 indications of interest for the automotive segment and 1 indication
for the entire Company were received
o Indications for the automotive segment were considered insufficient
in terms of value, structure and/or commitment to pursue a
transaction
o Negotiations for sale of the entire Company began
SALOMON SMITH BARNEY
--------------------
11 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
3 SITUATION OVERVIEW
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Overview of Harbor's Current Situation
THE COMBINATION OF CORPORATE, INDUSTRY AND MARKET FACTORS THAT LED TO
HARBOR'S RELATIVE UNDERVALUATION STILL PERSIST
CORPORATE FACTORS INDUSTRY FACTORS MARKET FACTORS
----------------- ---------------- --------------
o Small Size o Cyclicality o Low Liquidity
o High Leverage o Consolidation Trend o Limited Research
o Lower Relative Growth o Systems vs. Components Coverage
Expectations
o Complex Corporate Structure
o Mixed Earnings Predictability
and Performance
MARKET AND COMPANY-SPECIFIC FACTORS CONSIDERED IN CONNNECTION WITH A SALE
OF THE ENTIRE COMPANY INCLUDED:
o Stock Price Performance
o Public Market Multiples
o High Leverage / Inability to Fund Acquisitions
o Tax Leakage on Separation of Businesses
o Industry Outlook
SALOMON SMITH BARNEY
--------------------
12 A member of citigroup
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HIGHLY CONFIDENTIAL
PROJECT HARBOR / JULY 28, 2000
Industry Outlook
DECLINE IN BUILD RATE EXPECTED
o Record North American production levels are anticipated to slow
CHANGING INDUSTRY DYNAMICS
o OEM and supplier consolidation continues
o Pressures placed on suppliers increases
o Competitors are growing larger and more global
o M&A drivers in supplier sector remain intact
NEGATIVE EQUITY INVESTOR SENTIMENT TOWARD AUTOMOTIVE SECTOR
o Concerns of cyclical peak have depressed public valuations
o Value funds have experienced outflows, impacting demand for industrial
sectors
WEAK FINANCING ENVIRONMENT
o No automotive equity new issues in over 12 months
o High yield market experienced mutual fund outflows, widening spreads and
difficult new issue conditions
o Bank debt remains available, but leverage is limited and terms are not
issuer-friendly
o Mezzanine funds have grown, yet this capital is costly
SALOMON SMITH BARNEY
--------------------
13 A member of citigroup
