SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _________ to _________
Commission file number 0-11427
HART HOLDING COMPANY INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-1467390
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1120 Boston Post Road
Darien, Connecticut 06820
- - - - - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 655-6855
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
- - - - - -----------------------------------------------------------------------------
(Title of class)
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 the
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
x
---
12,895,100 shares of $.01 par value common stock of the Registrant
were outstanding at the close of business on March 31, 1994.
Aggregate market value of the voting stock held by non-affiliates as
of March 31, 1994: $1,477,482.50.
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
PART I
ITEM 1. BUSINESS
Hart Holding Company Incorporated was incorporated in Delaware in
1940 ("Hart Holding", "the Registrant" or "the Company") and is a diversified
industrial company engaged in two business segments through its subsidiary
Reeves Industries, Inc. ("Reeves"). Reeves' principal asset is the common
stock of its wholly-owned subsidiary, Reeves Brothers, Inc. ("Reeves
Brothers"). Reeves is a diversified industrial company with operations in
two principal business segments, industrial coated fabrics, conducted
through its Industrial Coated Fabrics Group ("ICF"), and apparel textiles,
conducted through its Apparel Textile Group ("ATG").
Effective October 25, 1993, HHCI, Inc., a newly formed,
wholly-owned subsidiary of Hart Holding, merged with and into Reeves
with Reeves surviving the merger. HHCI, Inc. was formed as a shell
corporation (no operations). As a result of this merger, Hart Holding
obtained ownership of 100% of the outstanding shares of the common stock
of Reeves. See Footnote 10, Stockholders' Equity, of the Notes to
Consolidated Financial Statements of Hart Holding.
INDUSTRY SEGMENTS
The Registrant, through its subsidiary, Reeves, is a diversified
industrial company with operations in two principal business segments,
industrial coated fabrics, conducted through its Industrial Coated Fabrics
Group, and apparel textiles, conducted through its Apparel Textile Group.
In 1993, ICF contributed approximately 49.6% of the Company's net sales
and approximately 71.7% of its operating income, and ATG contributed
approximately 50.4% of the Company's net sales and approximately 28.3% of
its operating income (in each case, excluding corporate expenses, goodwill
amortization and facility restructuring charges). Throughout its
businesses, Reeves emphasizes specialty products, product quality,
technological innovation and rapid responses to the changing needs of
its customers.
ICF specializes in the coating of various substrate fabrics with a
variety of products such as synthetic rubber, vinyl, neoprene, urethane and
other elastomers, to produce a diverse line of products for industrial
applications. ICF's principal products include: (1) a complete line of
printing blankets used in offset lithography, (2) coated automotive airbag
materials, (3) specialty coated fabrics and (4) coated fabrics used in
industrial coverings.
The Company believes that ICF is one of the world's leading producers of
offset printing blankets and that ICF has the leading share of the domestic
market for coated automotive airbag materials. The Company also believes that
ICF is a leading domestic producer of specialty coated fabrics used for a
broad range of industrial applications. ICF's products generally involve
significant amounts of technological expertise and precise production
tolerances. The Company believes that ICF's product development, formulation
and production methods are among the most sophisticated in the coated fabrics
industry.
ATG manufactures, processes and sells specialty textile fabrics to
apparel and other manufacturers. Through its Greige Goods Division, ATG
processes raw materials into greige goods (i.e., undyed woven fabrics).
Through its Finished Goods Division, ATG functions as a converter and
commission finisher, purchasing greige goods (from the Greige Goods Division
and others) and contracting to have the goods dyed and finished or dyeing
and finishing the goods itself. The dyed and finished goods are then sold
for use in a variety of end-products.
The Company believes that ATG has developed strong positions in niche
markets in the apparel textile industry by offering unique, custom-designed
fabrics to leading apparel and specialty garment manufacturers. ATG
emphasizes "short-run" product orders and targets market segments in which
its manufacturing flexibility, rapid response time, superior service and
quality and the ability to supply exclusive blends are key competitive
factors.
The Company's business strategy has focused on the sale of
higher-margin niche products and the establishment of leading positions
in its principal markets. The Company believes that this strategy,
combined with its diverse product and customer base, the development
of new products and substantial capital investment, has helped
the Company increase its sales and profitability in spite of adverse
economic conditions in its U.S. and European markets during 1990-1993.
The following table shows the amount of total revenue contributed
by product lines which accounted for 10% or more of the Company's
consolidated revenues in any of the last three fiscal years (in thousands).
Year Ended December 31,
1991 1992 1993
---- ---- ----
Industrial Coated Fabrics Group:
Specialty Materials $ 55,581 $ 61,684 $ 78,151
Graphic Arts 65,683 64,892 62,584
-------- -------- --------
$121,264 $126,576 $140,735
======== ======== ========
Apparel Textile Group:
Finished Goods and Dyeing
and Finishing $ 74,893 $ 72,977 $ 77,416
Greige Goods 73,402 71,551 65,502
-------- -------- --------
$148,295 $144,528 $142,918
======== ======== ========
Hart Holding does not hold any patents, trademarks, licenses and/or
franchises the loss of which would have a material adverse affect on any
of its industry segments.
Additional information about industry segments of Hart Holding is
contained in Footnote 14, Financial Information About Industry Segments,
of the Notes to Consolidated Financial Statements of Hart Holding.
INDUSTRIAL COATED FABRICS GROUP
The Industrial Coated Fabrics Group specializes in the coating of
various substrate fabrics with a variety of products such as synthetic
rubber, vinyl, neoprene, urethane, and other elastomers to produce a diverse
line of products for industrial applications.
ICF's products comprise four categories: (1) a complete line
of printing blankets used in offset lithography, (2) coated automotive airbag
materials, (3) specialty coated fabrics, including fluid control
diaphragm materials, tank seals, ducting materials and coated fabric
materials used for military and commercial life rafts and vests,
aircraft escape slides, flexible fuel tanks and general aviation
products, and (4) coated fabrics used in industrial coverings,
including fabrics coated with rubber and vinyl which are used to make
tarpaulins, loading dock shelters and other industrial products.
ICF's products require significant amounts of technological expertise
and the Company believes that ICF's product development, formulation and
production methods are among the most sophisticated in the coated fabric
industry. Since 1990, ICF has been awarded six patents with respect to
polyurethane coatings and has nine pending patent applications relating
to printing blankets, airbag fabric and specialty coatings. Approximately
eight other patent applications are in process.
ICF generally manufactures specialty coated fabrics according to a
production backlog. ICF's products, other than printing blankets and
coated automotive airbag material, involve relatively short runs and
custom manufacturing. Printing blankets are sold primarily to distributors
and dealers. ICF's other products are sold directly to end-users and
fabricators by its direct sales force.
Printing Blankets
The Company believes that ICF is one of the world's leading producers
of printing blankets used in offset lithography, the predominant printing
process for the commercial, financial, publication and industrial printing
markets.
Offset printing blankets are used in the printing process to transfer
a printed image from a metal printing plate onto paper or other printing
material. ICF markets a complete line of conventional, compressible and
sticky-back blankets under the VULCAN (Registered Trademark) name. The
Company's line includes the 714 (Registered Trademark), the first
compressible printing blanket, the 2,000 (Registered Trademark) PLUS, an
advanced general purpose blanket, the VISION SR (Trademark), a
premium blanket targeted at the sheet-fed market, and the MARATHON
(Registered Trademark), a blanket targeted to the high-speed web press
market. Each blanket in the product line is designed for a specific printing
need and ICF sells an appropriate blanket for most types of commercial,
financial, publication and industrial printing applications.
The Company believes that ICF's blankets consistently offer high
performance and quality. This performance is due to a number of proprietary
features of the blankets, many of which are the subject of pending patent
applications. Distinctive characteristics of ICF's blankets include unique
printing surface compounds, improved composition and placement of
compressible layers, surface buffing and water and solvent-resistant back
plies.
Purchasers of ICF's blankets include commercial, financial and industrial
printers and publishers of newspapers and magazines. ICF's blankets are sold
to over 10,000 U.S. printers and more than 15,000 foreign printers, in 64
countries worldwide.
ICF has established a network of over 60 distributors and 125 dealers
in the United States, Canada and Latin America to market its printing
blankets. In addition, ICF is represented by a distributor in most of the
other countries in which it does business. The Company's distributors
typically purchase rolls of uncut blankets from ICF and then cut, finish
and package the blankets prior to delivery to dealers or end-users.
Internationally, ICF's relationships with distributors tend to be long-
standing and exclusive, with most distributors dealing only in ICF's
printing blankets and ICF selling only to such distributors in their
respective territories. Domestic distributors tend to carry printing
blankets from a number of manufacturers. Dealers generally purchase
finished blankets from distributors for resale. ICF services all of its
customers, and its direct sales force actively markets and promotes
ICF's printing blankets.
Automotive Airbag Materials
The Company believes that ICF has the leading share of the domestic
market for coated automotive airbag materials. ICF is a significant supplier
of such material to TRW, Inc. ("TRW") and the Safety Restraints Division of
Allied-Signal, Inc. ("Allied-Signal"). Allied-Signal supplies Morton
International ("Morton") with airbag components. TRW and Morton are two of
four major domestic manufacturers of airbag systems and, together with
Allied-Signal, supply all of the domestic automobile manufacturers and many
of the European and Japanese automobile manufacturers. The Company believes
that TRW and Morton account for in excess of 50% of the worldwide market for
airbag systems.
National Highway Traffic Safety Administration regulations currently
mandate the use of both driver-side and passenger-side airbags for all 1998
model year passenger cars and 1999 model year light trucks, vans and
multipurpose vehicles ("LTVs"). A phase-in schedule establishes that at
least 95% of a manufacturer's passenger cars built on or after September 1,
1996 for sale in the United States, must be equipped with an airbag at the
driver's and the right front passenger's seating positions. All LTVs built
after September 1, 1997, must have some form of automatic occupant
protection, and at least 80% must have either driver-side or driver-side and
passenger-side airbags.
Due to market demand for airbag-equipped vehicles, automobile
manufacturers have been installing airbags (primarily driver-side) more
extensively than required by the foregoing regulations. The Company expects
sales of airbag systems and coated airbag fabric to increase substantially
in future years and believes that ICF is well-positioned to benefit from
such growth.
Following the lead of the U.S. automobile manufacturers, European and
Asian automobile manufacturers have begun installation of automobile airbags.
No legislation or regulation presently requires the installation of airbags
outside of the United States market. Reeves Italian subsidiary, Reeves
S.p.A., has sufficient capacity for production of coated airbag material if
demand develops outside of the United States for such products.
Company participation in the airbag market to date has been through the
use of coated airbag fabric in driver-side applications where coated airbag
fabric offers certain advantages such as greater thermal insulation to
withstand the rapid inflation of the airbag by means of hot gases and
impermeability to prevent the escape of gases. Side-impact airbags (presently
offered on certain models of Volvo and Mercedes Benz) are expected to use
coated airbag fabric.
Most passenger-side airbags are currently designed to use uncoated
fabrics. Passenger-side airbags deploy more slowly than driver-side airbags.
Consequently, they can be manufactured at a lower cost using uncoated fabric.
The Company does not presently produce an uncoated airbag fabric. Although
there can be no assurance that it will be able to do so, the Company plans
to participate in the growth of passenger-side applications through an
expansion program capitalizing on its textile expertise and research and
development efforts. As part of this program, the Company is constructing
an approximately 100,000 square foot facility in Spartanburg, South Carolina
for weaving both coated and uncoated airbag fabric. The facility is expected
to be operational by the end of 1994.
Through its research and development activities, the Company is
continuously working to develop new proprietary fabric technologies and
procedures for the next generation of driver-side and passenger-side airbags.
Airbag fabrics must meet rigorous specifications, testing and certification
requirements and airbag fabric contracts tend to be awarded several years
in advance. These factors may deter the entry of other manufacturers into
this business.
Specialty Coated Fabrics
The Company believes that ICF is a leading domestic producer of specialty
coated fabrics used for a broad range of industrial applications. ICF's
specialty coated fabrics business is largely customer or "job shop" oriented.
In 1993, more than 90% of ICF's sales of specialty coated fabrics were
derived from fabrics manufactured to meet particular customers' specifications.
Specialty coated fabrics generally consist of a fabric base, or substrate
layer, and an elastomer coating (i.e., coating consisting of an elastic
substance, such as rubber) which is applied to the fabric base. The Company
believes that ICF's line of elastomer-fabric combinations is the most
comprehensive in the industry, enabling it to design products to satisfy its
customers' needs. Fabric bases used in ICF's specialty coated fabrics include
polyester, nylon, cotton, fiberglass and silk. ICF's elastomers include
natural rubber, nitrile, THIOKOL (Registered Trademark), NEOPRENE (Registered
Trademark), silicone, HYPALON (Registered Trademark), VITON (Registered
Trademark) and polyurethane.
ICF sells its specialty coated fabrics under the registered trademark
REEVECOTE (Registered Trademark). The Company believes that ICF has
established a reputation for quality and product innovation in specialty
coated fabrics by virtue of ICF's technological capability, advanced plant
and equipment, research and development facilities and specialized chemists
and engineers.
ICF's specialty coated fabrics are separated into five product lines:
General Purpose Goods. This product line includes air cells, tank seals,
gaskets, compressor valves, aerosol seals and washers and coated fabrics used
by other manufacturers in the production of insulation materials, soundproofing
and inflatable "lifting bags" used to jack up automobiles or trucks.
Gas Meter Diaphragms. ICF manufactures a line of rubber diaphragm
material for use in gas meters which are the primary mechanisms in gas
meters for controlling gas flow. ICF's products are sold to most of the
major manufacturers of gas meters.
Synthetic Diaphragms. The Company's synthetic diaphragms are used in
carburetors, controls, meters, compressors, fuel pumps, and other applications.
Specialty Products. ICF manufactures a large number of miscellaneous
specialty coated products, including v-cups for oil rig drills, expansion
joints and urethane specialty items, such as fuel containers, commercial
diaphragms and desiccant bags.
Military, Marine and Aerospace Products. ICF produces coated fabrics
used in truck and equipment covers, waterproof duffel bags, pneumatic air
mattresses, collapsible tanks for fuel and water storage, temporary shelters,
rafts, inflatable boats, various types of safety devices, pneumatic and
electrical plane de-icers, specialty molded aircraft parts, aerospace fuel
cells, aircraft evacuation slides, helicopter floats, surveillance balloons
and miscellaneous items. A portion of ICF's work in this area is performed
as a subcontractor on United States government contracts.
ICF's direct sales force sells primarily to fabricators who use ICF's
specialty coated fabrics in products sold to end-users.
Industrial Coverings Fabrics
ICF sells coated fabrics to customers that produce a wide variety of
industrial coverings, including truck tarpaulins, trailer covers, cargo
covers, agricultural covers, hangar curtains, industrial curtains, boat
covers, athletic field covers, temporary shelters, semi-bulk containers
and specialized flotation devices used for the containment of oil spills
and other environmental pollutants. ICF's industrial coverings fabrics
are produced by the same methods as its specialty coated fabrics and are
sold under the COVERLIGHT registered trademark.
The industrial coverings fabrics business also includes coated fabric
for loading dock shelters, which are pads or bumpers placed around the
exterior of a loading dock door for weathersealing. ICF sells to
manufacturers of loading dock shelter systems and believes it is the
leading supplier of loading dock shelter material produced with rubber
and other special elastomers.
ICF's sales force sells primarily to fabricators of industrial coverings
who in turn sell to end-users. Sales personnel concentrate on the largest
producers of industrial coverings and loading dock shelter systems in the
United States.
Principal Customers
ICF did not have a customer accounting for more than 10% of consolidated
Hart Holding's sales during the years 1991, 1992 or 1993.
Competition
ICF's competitive environment varies by product line. For graphic
arts products, the Company's principal competitors are Day International
and W. R. Grace. To a lesser extent, the Company also competes with a
number of other firms, including David M., Kinyo, Zippy, Sumitomo, DYC
and Meiji. The specialty materials product line, except for airbag
materials, competes in a number of highly fragmented market segments
where competition varies by product. In the United States, competition
comes from Chemprene, Archer Rubber, Seaman Corp., Cooley, Fairprene and
selected foreign suppliers. Airbag products compete against those of
Milliken and Highland Industries as well as several other small manufacturers.
Quality, compliance with exacting product specifications, delivery terms and
price are important factors in competing effectively in ICF's markets.
APPAREL TEXTILE GROUP
The Apparel Textile Group consists of two divisions, Greige Goods and
Finished Goods. ATG concentrates on segments of the market where its
manufacturing flexibility, rapid response time, superior service, quality
and the ability to supply customers with exclusive blends are key
competitive factors.
ATG's Greige Goods Division processes raw materials into undyed woven
fabrics known as greige goods. The Greige Goods Division manufactures
greige goods of synthetic fibers, wool, silk, flax and various combinations
of these fibers. Products of the Greige Goods Division are primarily
utilized for apparel and the Greige Goods Division's most significant
customers are outside converters and, to a lesser extent, ATG's Finished
Goods Division.
The Company believes that the Greige Goods Division is distinguished
from its competitors by its ability to efficiently manufacture small
yardage runs, its rapid response time, the high quality of its products
and its ability to produce samples rapidly on demand. ATG's greige goods
plants engage principally in short production runs producing specialty
fabrics requiring a variety of blends and textures. Fabrics are produced
by the Greige Goods Division according to an order backlog and are
typically "sold ahead" three to four months in advance. Most of the
Greige Goods Division's sales are sold under firm contracts. In comparison
to manufacturers of large volume commodity fabrics such as print cloth,
corduroy and denim, the Greige Goods Division has been less adversely
affected in recent years by foreign imports because of its position as a
small quantity, specialty fabric producer.
ATG's Finished Goods Division functions as a converter and commission
finisher. The Finished Goods Division purchases greige goods from the
Greige Goods Division and other greige suppliers and either contracts
to have such goods converted into finished fabrics of varying weights,
colors, designs and finishes or converts them itself. The dyed and
finished fabrics are used in various end-products and sold primarily to
apparel manufacturers in the women's wear, rainwear/outerwear, men's/boys'
wear and career apparel markets.
The Company believes that ATG's Finished Goods Division is one of the
most flexible operations of its kind in the United States due to the
variety of products it can finish and the broad range of dyeing processes
and finishes it is able to offer. The Finished Goods Division focuses on
high value-added fabrics with unique colors and specialty finishes. The
Finished Goods Division's fabrics are currently being used by a number of
the leading men's and women's sportswear manufacturers and its dyeing and
finishing services are sold to major domestic converters.
A wide variety of fabrics can be woven at the Greige Goods Division's
two weaving plants. The dyeing and finishing plant of the Finished Goods
Division is equipped to do a variety of piece dyeing, as well as to provide
specialty finishings. This manufacturing flexibility increases ATG's
ability to respond rapidly to changes in market demand.
Substantially all of the Apparel Textile Group's products are sold
directly to customers through its own sales force. The balance is sold
through brokers and agents.
Principal Customers
ATG markets its fabrics to a wide range of customers including
H.I.S., the THOMPSON (registered trademark) men's pants division of Salant
Corporation, Eddie Haggar Ltd. and V.F. Corporation. ATG also markets its
fabrics to major retailers, including J.C. Penney, which specify the
Company's fabrics. ATG is a direct supplier of rainwear fabric to Londontown
Corporation, the maker of LONDON FOG (registered trademark), and also markets
its fabrics to specialty catalogue houses such as Patagonia, L.L. Bean and
Eddie Bauer.
ATG did not have a customer accounting for more than 10% of consolidated
Hart Holding's sales during 1991, 1992 or 1993.
Competition
The textile industry is highly competitive. While there are a number
of integrated textile companies, many larger than ATG, no single company
dominates the United States market. Competition from imported fabrics
and garments continues to be a significant factor adversely affecting
much of the domestic textile industry. Because of the nature of ATG's
markets, the Company believes it is less susceptible to foreign imports
than the industry as a whole and is more insulated from the risk of
foreign imports than high-volume commodity producers. The most important
factors in competing effectively in ATG's product markets are service,
price, quality, styling, texture, pattern design and color. ATG seeks
to maintain its market position in the industry through a high degree
of manufacturing flexibility, product quality and competitive pricing
policies.
The Greige Goods Division distinguishes itself from its competitors
by its ability to manufacture runs as small as 40,000 square yards, its
rapid response time and the high quality of the products manufactured. The
Greige Goods Division has extensive proprietary technical knowledge in
the structure of its spinning and weaving operations, which the Company
believes represents a significant competitive advantage.
The Finished Goods Division is capable of finishing a wide variety
of products and offers a broad range of dyeing processes and finishes.
This manufacturing flexibility increases the Finished Goods Division's
ability to respond rapidly to changes in market demand, which the
Company believes enhances its competitive position.
RAW MATERIALS, MANUFACTURERS AND SUPPLIERS
The principal raw materials used by ICF include polymeric resins,
natural and synthetic elastomers, organic and inorganic pigments, aromatic
and aliphatic solvents, polyurethanes, polyaramids and calendered fabrics.
ATG principally utilizes wool, flax, specialty yarn, man-made fibers,
including acrylics, polyesters, acetates, rayon and nylon and a wide
variety of dyes and chemicals. Such raw materials are largely purchased
in domestic markets and are available from a variety of sources. The
Company is not presently experiencing any difficulty in obtaining raw
materials. However, the Company has from time to time experienced
difficulty in obtaining the substrate fabric that it uses to produce coated
automotive airbag materials. The Company anticipates that the completion
of its new weaving facility in Spartanburg, South Carolina may reduce
the risk of such supply shortages. Airbag fabric produced by the new
facility will be subject to rigorous testing and certification before it
will be available for production.
FOREIGN OPERATIONS
All of Reeves' foreign operations are conducted through Reeves S.p.A.,
a wholly-owned subsidiary located in Lodi Vecchio, Italy. Reeves S.p.A.
forms a part of Reeves' ICF Group. The financial data of Reeves' S.p.A.
is as follows (in thousands):
1991 1992 1993
-------- -------- --------
Sales $ 35,437 $ 38,444 $ 36,932
Net income 6,808 9,165 7,446
Assets 33,011 31,608 33,092
The financial results of Reeves S.p.A. do not include any allocations
of corporate expenses or consolidated interest expense.
BACKLOG
The following is a comparison of open order backlogs at December 31
of each year presented (in thousands):
1991 1992 1993
-------- -------- --------
Industrial Coated Fabrics Group $ 16,942 $ 16,824 $ 17,072
Apparel Textile Group 47,129 32,994 39,390
-------- -------- --------
Totals $ 64,071 $ 49,818 $ 56,462
======== ======== ========
The increase in ICF's backlog from 1992 to 1993 is due to growth in
the coated automotive airbag materials business. The decrease in the
Apparel Textile Group backlog from 1991 to 1992 was the result of a
decrease in government business and reduced orders due to market
uncertainty. The increase in the ATG backlog from 1992 to 1993 is due
to the addition of several new customers in the Finished Goods Division.
The December 31, 1993 backlogs for the Industrial Coated Fabrics
Group and the Apparel Textile Group are reasonably expected to be filled
in 1994. Under certain circumstances, orders may be canceled at the
Company's discretion prior to the commencement of manufacturing. Any
significant decrease in backlog resulting from lost customers could
adversely affect future operations if these customers are not replaced
in a timely manner.
ENVIRONMENTAL MATTERS
The Company is subject to a number of federal, state and local laws
and regulations pertaining to air emissions, water discharges, waste
handling and disposal, workplace exposure and release of chemicals.
During 1993, expenditures in connection with the Company's compliance with
federal, state and local environmental laws and regulations did not have
a material adverse effect on its earnings, capital expenditures or
competitive position. Although the Company cannot predict what laws,
regulations and policies may be adopted in the future, based on current
regulatory standards, the Company does not expect such expenditures to
have a material adverse effect on its operations.
EMPLOYEES
On February 1, 1994, the Company employed approximately 2,291 people,
of whom 1,855 were in production, 185 were in general and administrative
functions, 52 were in sales and 199 were at Reeves S.p.A. At such date,
ICF had approximately 639 employees and ATG had approximately 1,398
employees, with the remainder of the Company's employees in general
and administrative positions.
ITEM 2. PROPERTIES
The Company's principal facilities, their primary functions and
their locations as of March 31, 1994, are as follows:
Size (Sq. Ft.)
------------------
Location Function Owned Leased
Manufacturing Facilities
Industrial Coated
Fabrics Group
Rutherfordton, NC Specialty Materials 215,000
Spartanburg, SC Graphic Arts 308,364
Lodi Vecchio, Italy Graphic Arts and
Coated Fabrics 160,000 4,900
--------- ------
Subtotal 683,364 4,900
--------- ------
Apparel Textile Group
Woodruff, SC Greige Goods 368,587
Chesnee, SC Greige Goods 303,100
Bessemer City, NC Greige Goods 218,992
Bishopville, SC Finished Goods 226,684 2,400
Bishopville, SC Warehouse 72,650
--------- ------
Subtotal 1,117,363 75,050
--------- ------
Total Manufacturing Facilities 1,800,727 79,950
--------- ------
Non-Manufacturing Facilities
New York, NY Administrative & Sales 12,000
Spartanburg, SC Administrative & Sales 43,000
Darien, CT Administrative 6,800
--------- ------
Total Non-Manufacturing Facilities 43,000 18,800
--------- ------
TOTAL 1,843,727 98,750
========= ======
Hart Holding and/or its subsidiaries is a party to leases with terms
ranging from month-to-month to fifteen years, with rental expense
aggregating $1.5 million for the twelve months ended December 31, 1993.
Hart Holding believes that all of its facilities are suitable and adequate
for the current conduct of its operations.
ITEM 3. LEGAL PROCEEDINGS
On December 18, 1992, Hart Holding announced that it intended to
effect a 300 to one reverse stock split of its common stock. Two separate
lawsuits entitled Clare Lois Spark Loeb v. James W. Hart, et al.,
CA 12830, and Rochelle Brooks v. James W. Hart, et al., CA 12831, were
filed as class actions in the Court of Chancery of the State of Delaware,
challenging the proposed reverse split on behalf of stockholders other
than officers and directors of Hart Holding. In May 1993, the parties
reached a tentative settlement of the lawsuits which includes revising
the terms of the reverse stock split to change the split ratio to 600 to
one and increasing the price per share to be paid for cashed out shares to
$2.25 per share. The settlement terms have been filed with the Court of
Chancery and a hearing on the fairness of such terms is scheduled for April
15, 1994. If the terms are approved, Hart Holding anticipates consummating
the proposed reverse split promptly.
Except as noted above, Hart Holding believes that there are no legal
proceedings, other than ordinary routine litigation incidental to the
business of Hart Holding, to which Hart Holding or any of its subsidiaries
is a party. Management is of the opinion that the ultimate outcome of
existing legal proceedings would not have a material adverse effect on Hart
Holding's consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock is traded in the over-the-counter market.
The range of high and low bid prices of the common stock for each
quarterly period during the last two fiscal years as supplied by the
National Quotation Bureau, Inc. is set forth below. These over-the-counter
market quotations represent inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
Fiscal Year Ended High Low
December 31, 1992
First Quarter 2 1/2 2 1/2
Second Quarter 2 1/2 2 1/2
Third Quarter 2 3/4 2 1/2
Fourth Quarter 3 1/4 1
December 31, 1993
First Quarter 1 1
Second Quarter 1 1/2 1
Third Quarter 1 1
Fourth Quarter 1 1
As of the close of business on March 30, 1994, there were 2,005
record holders of the Registrant's common stock.
No dividends were declared during the past two fiscal years with
respect to the Registrant's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The historical operations and balance sheet data included in the
selected financial data set forth below are derived from the consolidated
financial statements of Hart Holding Company Incorporated (in thousands
except per share data and ratios).
December 31,
-----------------------------------------------------
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
Statement of
Operations Data (1):
Net sales
Industrial Coated
Fabrics Group $ 114,313 $ 119,749 $ 121,264 $ 126,576 $ 140,735
Apparel Textile Group 143,035 138,110 148,295 144,528 142,918
--------- --------- --------- --------- ---------
Total net sales $ 257,348 $ 257,859 $ 269,559 $ 271,104 $ 283,653
========= ========= ========= ========= =========
Operating income
Industrial Coated
Fabrics Group $ 24,715 $ 23,250 $ 23,940 $ 24,732 $ 29,287
Apparel Textile Group 11,513 10,059 10,121 10,693 11,583
Corporate expenses (6,888) (8,137) (8,059) (8,851) (10,915)
Facility restructuring
charges (1,003)
--------- --------- --------- --------- ---------
Total operating
income $ 29,340 $ 25,172 $ 26,002 $ 26,574 $ 28,952
========= ========= ========= ========= =========
Income from
continuing
operations $ 5,812 $ 5,348 $ 4,214 $ 6,145 $ 8,238
========= ========= ========= ========= =========
Interest expense
and amortization
of financing costs
and debt discount $ 22,590 $ 19,934 $ 21,777 $ 17,633 $ 16,426
========= ========= ========= ========= =========
Income from
continuing
operations
per share $ .33 $ .35 $ .28 $ .41 $ .56
Ratio of earnings
to fixed
charges (2) 1.5x 1.3x 1.2x 1.5x 1.8x
==== ==== ==== ==== ====
Earnings (loss)
per common share
Primary:
Income from
continuing
operations $ .33 $ .35 $ .28 $ .41 $ .56
Income (loss)
before
extraordinary
item .83 (1.77) .44 .41 .56
Dividends paid
Net income (loss) .85 (1.77) .44 .23 .56
Fully diluted:
Income from
continuing
operations $ .33 $ .35 $ .27 $ .41 $ .56
Income (loss)
before
extraordinary
item .83 (1.77) .43 .41 .56
Dividends paid
Net income (loss) .85 (1.77) .43 .23 .56
Weighted average number
of shares
Primary 15,998 15,242 15,228 15,130 14,686
Fully diluted 15,998 15,256 15,339 15,130 14,686
Operating Data:
Depreciation and
goodwill amortization
expense $ 6,394 $ 6,707 $ 7,178 $ 8,187 $ 8,624
Capital expenditures 6,821 7,007 11,015 15,788 16,506
Balance Sheet Data:
Total assets (3) $ 249,550 $ 230,597 $ 217,135 $ 196,006 $ 206,375
Long-term debt
(including current
portion) 149,863 148,837 148,960 132,921 132,677
Stockholders'
equity (4) 39,675 11,513 17,283 14,184 20,409
Footnotes to Statement of Operations and Balance Sheet Data:
(1) The fiscal year ended December 31, 1989 has been restated to
reflect the exclusion of the discontinued operations of the
ARA Automotive Group. See Footnote 3, Discontinued Operations
and Facility Restructuring Charges, of the Notes to Consolidated
Financial Statements of Hart Holding.
(2) For the purpose of calculating the ratio of earnings to fixed
charges, earnings consist of income from continuing operations
before income taxes, plus fixed charges. Fixed charges consist
of interest on all indebtedness, amortization of financing
costs and debt discount, and one-third of all rentals, which is
considered representative of the interest portion included
therein, after adjustments for amounts related to discontinued
operations.
(3) Total assets include the assets of discontinued operations
prior to disposal. In 1990, Reeves discontinued the operations
of Reeves' ARA Automotive Group.
(4) The decline in stockholders' equity from 1989 to 1990 includes
the recognition of a net loss of $34,594,000 from the disposal
of the remaining operations of Reeves' ARA Automotive Group.
The decline in stockholders' equity from 1991 to 1992 primarily
reflects translation adjustments of $6,626,000 caused by
foreign currency fluctuations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (1991-1993)
SALES
Consolidated sales increased from $269.6 million in 1991 to $283.7
million in 1993 (5.2%) due to increased sales of the Industrial Coated
Fabrics Group (16.0%) related primarily to growth in coated automotive
airbag materials, partially offset by a decline in sales of the Apparel
Textile Group (3.6%) due to a shift to basic, lower margin products, price
competition, adverse recessionary influences affecting domestic textile
markets and the cessation of ATG's weaving operations at its Woodruff,
South Carolina facility in 1993.
Industrial Coated Fabrics Group. ICF's sales were $121.3 million,
$126.6 million and $140.7 million in 1991, 1992 and 1993, respectively.
The 16.0% increase during the period was due to increased sales of specialty
coated fabrics, primarily coated automotive airbag materials, partially
offset by a decline in offset printing blanket volume. The increase in
coated automotive airbag materials sales was due to an increase in unit
volume caused by the increased use of driver-side airbags primarily in cars
manufactured in the United States. The decline in domestic printing
blanket sales was primarily due to reduced demand as a result of the
slowdown in the printing industry. Sales of Reeves Brothers' Italian
subsidiary ("Reeves S.p.A.") fluctuated during the period primarily due to
movements in foreign currency exchange rates.
Apparel Textile Group. ATG's sales were $148.3 million, $144.5 million
and $142.9 million in 1991, 1992 and 1993, respectively. The 2.6% sales
decline in 1992 as compared to 1991 was evenly distributed between ATG's
greige and finishing divisions. The decline in each division was primarily
due to unusually strong sales in 1991 to the U.S. military as a result of
Operation Desert Storm and, to a lesser extent, the economic recession in
the United States in 1992. ATG's products experienced both a decline in unit
volume as well as a shift to more basic, lower margin products in 1992 as
compared to 1991. The 1.1% decline experienced in 1993 as compared to 1992
resulted from a decrease in greige goods sales as a result of the cessation
of weaving operations at the Woodruff, South Carolina facility due to
declining sales to the U.S. military, offset partially by increased sales of
finished goods due to greater demand for higher quality and more varied
product offerings and styles.
OPERATING INCOME
Consolidated operating income was $26.0 million, $26.6 million and
$29.0 million in 1991, 1992 and 1993, respectively. The 11.5% increase
between 1991 and 1993 resulted primarily from increased profits contributed
by ICF's specialty materials products (predominantly coated automotive
airbag materials) and to a lesser extent, increased profits contributed
by ATG (in spite of reduced sales volume) as a result of cost reductions
and productivity gains achieved during the period related to its capital
investment program. The operating income increase experienced during the
period was partially offset by increased corporate expenses and, in 1993,
by facility restructuring charges of $1.0 million. Operating income, as a
percentage of sales, increased from 9.6% in 1991 to 9.8% in 1992 and to
10.2% in 1993.
Industrial Coated Fabrics Group. ICF's operating income was $23.9
million, $24.7 million and $29.3 million in 1991, 1992 and 1993, respectively,
and represented 19.7%, 19.5% and 20.8% of ICF's sales in such years.
Operating income growth in 1992 as compared to 1991 was due primarily to
increased sales of coated automotive airbag materials and, to a lesser
extent, the elimination of certain lower-margin specialty coated fabric
products. The 18.6% increase in operating income in 1993 as compared to
1992 was primarily due to the benefits of economies of scale realized in
connection with increased sales of coated automotive airbag materials.
Operating income from printing blankets declined in 1992 and 1993 reflecting
the worldwide slowdown in the printing industry partially offset by
efficiencies experienced by Reeves S.p.A. primarily related to increased
material yields.
Apparel Textile Group. ATG's operating income was $10.1 million,
$10.7 million and $11.6 million in 1991, 1992 and 1993, respectively, and
represented 6.8%, 7.4% and 8.1% of ATG's sales in such years. The operating
income and margin improvement experienced during the period was achieved in
spite of an overall 3.6% sales decline reflecting the benefits of cost
reductions and productivity improvements realized from ATG's capacity
modernization program initiated at its Chesnee and Bishopville, South
Carolina facilities.
Corporate Expenses. Corporate expenses were $8.1 million, $8.9 million
and $10.9 million in 1991, 1992 and 1993, respectively, and represents
3.0%, 3.3% and 3.8% of consolidated sales in such years. The increase in
corporate expenses during the period related primarily to increased staffing
and compensation expense necessary to support corporate development
activities. In 1993, corporate expenses included a provision for costs
related to the Company's discontinued Buena Vista, Virginia facility of
$.5 million.
Facility Restructuring Charges. In 1993, the Company recorded
facility restructuring charges of $1.0 million. The one-time charges
related primarily to the cessation of weaving activities at the Company's
Woodruff, South Carolina facility due to declining sales to the U. S.
military, the conversion of that facility into a captive yarn mill and
consolidation of weaving capacity at ATG's remaining facilities.
INTEREST EXPENSE, NET
Interest expense, net consists of consolidated interest expense plus
amortization of financing costs and debt discounts less interest income on
investments. Interest expense, net was $20.7 million, $17.2 million and
$16.2 million in 1991, 1992 and 1993, respectively. Included in such net
amounts are provisions for the amortization of financing costs and debt
discounts totaling $1.3 million, $1.0 million and $.7 million in 1991,
1992 and 1993, respectively. The decline in interest expense, net during
the period resulted primarily from the repayment of bank debt, the
refinancing of Reeves' long-term debt in 1992 with proceeds from the sale
of the 11% Senior Notes and the repurchase of a portion of the 13 3/4%
Subordinated Debentures.
INCOME TAXES
The Company's effective income tax rate on income from continuing
operations before income taxes in 1991, 1992 and 1993 was 9.8%, 30.6%
and 34.9%, respectively. The effective income tax rate on income from
continuing operations for 1991 and 1992 differed from the federal
statutory rate of 34% primarily due to the impact of goodwill amortization
and Reeves S.p.A.'s lower effective tax rate. The higher effective
income tax rate in 1992 as compared to 1991 was primarily due to an
increase in domestic taxable income which is taxed at a higher rate than
income earned at Reeves S.p.A., a new Italian tax affecting Reeves S.p.A.'s
tax liability and the adoption of Statement of Financial Accounting
Standard's No. 109, "Accounting for Income Taxes" ("FAS 109").
During 1993, Reeves established a $.8 million valuation reserve against
the Company's deferred tax assets reflecting estimated utilization of
foreign tax credits. The Company has foreign tax credit carry forwards
of $1.9 million of which $1.7 million expire in 1994 and $.2 million
expire at varying dates through 1997. The valuation reserve was established
based on the Company's estimate of foreign source taxable income expected
to be received from Reeves S.p.A. during the foreign tax credit
carryover period.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations was $4.2 million, $6.1 million
and $8.2 million in 1991, 1992 and 1993, respectively. Income from
continuing operations excluded (i) a gain on disposal of discontinued
operations, net of taxes, aggregating $2.8 million 1991, (ii) an
extraordinary loss of $6.1 million in 1992 from the write-off of
financing costs and debt discounts related to the early extinguishment
of long-term debt in the Company's 1992 refinancing and (iii) a gain of
$3.0 million in 1992 related to the cumulative effect of adopting a change
in accounting principle (FAS 109).
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures
Commencing in 1991, the Company began significantly increasing its levels
of capital investment in its businesses in order to modernize and expand
capacity, reduce its overall cost structure, increase productivity and
enhance its competitive position. Between 1991 and 1993, the Company
invested approximately $52.1 million in aggregate ($11.0 million in 1991,
$15.8 million in 1992, $16.5 million in 1993 and $8.8 million, representing
the cost of manufacturing equipment leased under operating leases, in 1992
and 1993).
Between 1991 and 1993, the Company invested approximately $13 million
in ICF's domestic facilities in order to purchase new production equipment,
to increase productivity and expand capacity in its traditional lines of
business as well as to enter the coated automotive airbag materials market.
In addition, ICF spent approximately $12 million in its Reeves S.p.A.
facilities to construct an 80,000 square foot addition and purchase related
equipment. Such investment increased capacity to manufacture offset
printing blankets and installed coated fabrics capacity in Europe to meet
anticipated demand for sophisticated specialty materials. Between 1991 and
1993, the Company invested approximately $24.2 million in ATG's facilities
at Chesnee and Bishopville, South Carolina to increase productivity
and manufacturing flexibility, expand capacity for more sophisticated
fabrics and allow more rapid response to market demand and a broader
product offering. Of such $24.2 million, approximately $8.8 million
represents the cost of manufacturing equipment leased under operating
leases.
The Company intends to substantially increase its capital investment
in its existing businesses during the 1994-1997 period. The Company
currently anticipates in excess of $40 million of capital expenditures
in 1994 and in excess of $100 million of aggregate spending between
1995 and 1997. In 1994, the Company anticipates spending approximately
$17 million to construct, furnish and equip a state-of-the-art plant in
Spartanburg, South Carolina to weave automotive airbag materials,
approximately $5 million to complete the capacity expansion at ATG's
Chesnee, South Carolina plant and approximately $16 million to expand the
capacity of and improve productivity at ICF's worldwide coated fabrics and
offset printing blanket facilities. Projected capital expenditures beyond
1994 are expected to complete ATG's modernization and expansion of its
textile capacity, expand ICF's automotive airbag materials capacity in
response to anticipated domestic and international market requirements and
enhance the profitability and competitive position of ICF's printing blanket
and traditional coated fabrics businesses through additional spending for
cost reductions and productivity improvements.
As a result of the nature of the Company's business and its substantial
expenditures for capital improvements over the last several years, current
and future capital expenditure requirements are flexible as to both
timing and amount of capital required. In the event that cash flow proves
inadequate to fund currently projected expenditures, such expenditures
can be adjusted so as not to exceed available funds.
Liquidity
The Company's net cash provided by operating activities increased
from $8.4 million in 1991 to $15.3 million in 1992 and $25.6
million in 1993. The improvement in net cash provided by operating
activities resulted from higher levels of income from continuing
operations and significant improvements in working capital management.
The Company anticipates that it will be able to meet its projected
working capital, capital expenditure and debt service requirements
through internally generated funds and borrowings available under its
existing $35 million Bank Credit Agreement.
In August 1992, in conjunction with the refinancing of Reeves'
bank and institutional indebtedness, Reeves and Reeves Brothers entered
into the Bank Credit Agreement which provides Reeves with an aggregate
$35 million revolving line of credit and letter of credit facility.
The Bank Credit Agreement expires on December 31, 1995 and is secured by
accounts receivable and inventories. As of March 31, 1994, Reeves had
available borrowing capacity (net of $1.3 million of outstanding letters
of credit) of $28.6 million under the Bank Credit Agreement.
IMPACT OF INFLATION
The Company does not believe that its financial results have been
materially impacted by the effects of inflation.
OTHER MATTERS
In February 1992, the Company received approximately $17 million from
the federal government in payment of a tax refund. The refund resulted
from the Company carrying back tax operating losses generated in 1991,
primarily related to the disposal of the ARA Automotive Group, to offset
previous years' taxable income.
In 1992, the Company adopted FAS 109 effective as of the beginning of
1992. Under FAS 109, in the year of adoption, previously reported results of
operations for the year are restated to reflect the effects of applying
FAS 109, and the cumulative effect of adoption on prior years' results of
operations is shown in the income statement in the year of change. The
cumulative effect of this change in accounting principle increased net
income by $3.0 million in 1992.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14, for index to financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Hart Holding Company Incorporated
In our opinion, the consolidated financial statements listed
in the index appearing under Item 14(a)(1) and (2)
present fairly, in all material respects, the financial
position of Hart Holding Company Incorporated and its
subsidiaries at December 31, 1992 and 1993, and the results
of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Company's management; our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Notes 2 and 8 to the consolidated financial
statements, the Company changed its method of accounting for
income taxes in 1992.
PRICE WATERHOUSE
Atlanta, Georgia
February 11, 1994, except as to Note 16,
which is as of March 31, 1994
<PAGE>
HART HOLDING COMPANY INCORPORATED
CONSOLIDATED BALANCE SHEET
(in thousands except share data)
December 31,
----------------
1992 1993
---- ----
ASSETS
Current assets
Cash and cash equivalents of $3,936
and $7,222 $ 4,318 $ 12,149
Accounts receivable, less allowance for doubtful
accounts of $1,570 and $1,467 38,876 45,925
Inventories (Note 4) 35,310 33,969
Deferred income taxes (Note 8) 6,477 5,442
Other current assets 10,331 3,487
Investment in discontinued operations (Note 3) 2,466
--------- ---------
Total current assets 97,778 100,972
Property, plant and equipment, at cost less
accumulated depreciation (Note 5) 43,548 51,415
Unamortized financing costs, less accumulated
amortizationof $550 and $1,177 4,390 3,946
Goodwill, less accumulated amortization of
$8,280 and $9,695 47,079 45,664
Deferred income taxes (Note 8) 1,951 2,153
Other assets 604 2,225
Investment in discontinued operations (Note 3) 656
--------- ---------
Total assets $ 196,006 $ 206,375
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 15,352 $ 22,810
Accrued expenses and other
liabilities (Note 6) 23,000 25,661
Liabilities related to discontinued
operations (Note 3) 3,367
--------- ---------
Total current liabilities 41,719 48,471
Long-term debt (Note 7) 132,921 132,677
Deferred income taxes (Note 8) 4,393 4,254
Other liabilities 564
Liabilities related to discontinued
operations (Note 3) 2,575
Minority interest 214
--------- ---------
Total liabilities 181,822 185,966
--------- ---------
Stockholders' equity (Note 10)
Common stock, $.01 par value, 40,000,000
shares authorized; 15,987,495 shares
issued; and 12,895,100 shares outstanding 160 160
Capital in excess of par value 14,783 14,783
Retained earnings 7,103 15,341
Equity adjustments from translation (1,879) (3,892)
Common stock held in treasury, at cost,
3,092,395 shares (5,983) (5,983)
--------- ---------
Total stockholders' equity 14,184 20,409
--------- ---------
Commitments and contingencies (Note 15)
--------- ---------
Total liabilities and stockholders'
equity $ 196,006 $ 206,375
========= =========
The accompanying notes are an integral part of these financial
statements.
<PAGE>
HART HOLDING COMPANY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
Year Ended December 31,
----------------------------
1991 1992 1993
-------- -------- --------
Net sales $269,559 $271,104 $283,653
Cost of sales 216,179 216,043 222,016
-------- -------- --------
Gross profit on sales 53,380 55,061 61,637
Selling, general and
administrative expenses 27,378 28,487 31,682
Facility restructuring charges (Note 3) 1,003
-------- -------- --------
Operating income 26,002 26,574 28,952
Other income (expense)
Other income, net 1,072 435 249
Interest expense and amortization
of financing costs and debt
discounts (21,777) (17,633) (16,426)
-------- -------- --------
(20,705) (17,198) (16,177)
-------- -------- --------
Income from continuing operations
before income taxes, extraordinary
item and cumulative effect
of a change in accounting principle 5,297 9,376 12,775
Income taxes (Note 8) 520 2,871 4,455
Minority interest 563 360 82
-------- -------- --------
Income from continuing operations 4,214 6,145 8,238
Discontinued operations
Net gain on disposal of discontinued
operations less applicable income
tax provision of $1,732 (Note 3) 2,830
Minority interest in discontinued
operations (377)
-------- -------- --------
2,453
-------- -------- --------
Income before extraordinary item
and cumulative effect of a change
in accounting principle 6,667 6,145 8,238
Extraordinary loss from early
extinguishment of debt, less
applicable income tax benefits
of $3,148 (Note 7) (5,715)
Cumulative effect of a change in
accounting for income taxes (Note 8) 3,012
-------- -------- --------
Net income $ 6,667 $ 3,442 $ 8,238
======== ======== ========
Earnings per common share (Note 10)
Primary
Income from continuing
operations $ .28 $ .41 $ .56
Income before extraordinary item
and cumulative effect of a change
in accounting principle .44 .41 .56
Cumulative effect of a change in
accounting for income taxes .20
Net income .44 .23 .56
Fully diluted
Income from continuing
operations .27 .41 .56
Income before extraordinary item
and cumulative effect of a change
in accounting principle .43 .41 .56
Cumulative effect of a change in
accounting for income taxes .20
Net income .43 .23 .56
Weighted average number of
common shares outstanding
Primary 15,228 15,130 14,686
Fully diluted 15,339 15,130 14,686
The accompanying notes are an integral part of these financial
statements.
<PAGE>
HART HOLDING COMPANY INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Captial Equity
Common Stock in Excess Retained Adjustments Common Stock
$0.01 Par Value of Earnings From in Treasury
Shares Amount Par Value (Deficit) Translation Shares Amount Total
------ ------- --------- --------- ----------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 16,346 $163 $ 15,848 $ (3,006) $ 4,500 3,097 $ (5,992) $ 11,513
Purchase and cancellation of
common stock (273) (2) (814) (816)
Net income 6,667 6,667
Translation adjustments (81) (81)
------ ---- -------- -------- ------- ----- -------- --------
Balance at December 31, 1991 16,073 161 15,034 3,661 4,419 3,097 (5,992) 17,283
Purchase and cancellation of
common stock (81) (1) (242) (243)
Cancellation of treasury stock (5) (9) (5) 9
Net income 3,442 3,442
Translation adjustments (6,298) (6,298)
------ ---- -------- -------- ------- ----- -------- --------
Balance at December 31, 1992 15,987 160 14,783 7,103 (1,879) 3,092 (5,983) 14,184
Net income 8,238 8,238
Translation adjustments (2,013) (2,013)
------ ---- -------- -------- ------- ----- -------- --------
Balance at December 31, 1993 15,987 $160 $ 14,783 $ 15,341 $(3,892) 3,092 $ (5,983) $ 20,409
====== ==== ======== ======== ======= ===== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
HART HOLDING COMPANY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
----------------------------
1991 1992 1993
-------- -------- --------
Cash flows from operating activities
Net income $ 6,667 $ 3,442 $ 8,238
Adjustments to reconcile net income
to net cash provided by operating
activities
Write-off of financing costs due
to early extinguishment of debt 5,715
Cumulative effect of a change
in accounting for income taxes (3,012)
Net gain on disposal of
discontinued operations (2,830)
Depreciation and amortization 8,458 9,216 9,352
Deferred income taxes 601 (112) 694
Minority interest 940 360 (214)
Changes in operating assets and
liabilities
Decrease (increase) in accounts
receivable 565 2,574 (7,049)
Decrease in inventories 486 4,200 1,341
(Increase) decrease in other
current assets (2,002) (9,605) 6,844
(Increase) decrease in other
assets (254) 134 (1,621)
Increase (decrease) in accounts
payable 492 (546) 7,458
(Decrease) increase in accrued
expenses and other liabilities (4,407) 6,009 605
Equity adjustments from translation (345) (3,121) (89)
-------- -------- --------
Net cash provided by operating activities 8,371 15,254 25,559
-------- -------- --------
Cash flows from investing activities
Purchases of property, plant and
equipment (11,015) (15,788) (16,506)
Net proceeds (payments) from disposal
of discontinued operations 2,331 12,438 (536)
-------- -------- --------
Net cash used by investing activities (8,684) (3,350) (17,042)
-------- -------- --------
Cash flows from financing activities
Principal payments of long-term debt (56) (108,726) (345)
Net payments on revolving loans (30,000)
Borrowings of long-term debt 121,989
Debt issuance costs (5,115)
Premium on early retirement of debt (4,876)
Purchases of common stock (816) (1,318)
-------- -------- --------
Net cash used by financing activities (872) (28,046) (345)
-------- -------- --------
Effect of exchange rate changes on cash 122 (535) (341)
-------- -------- --------
(Decrease) increase in cash and
cash equivalents (1,063) (16,677) 7,831
Cash and cash equivalents,
beginning of year 22,058 20,995 4,318
-------- -------- --------
Cash and cash equivalents,
end of year $ 20,995 $ 4,318 $ 12,149
======== ======== ========
The accompanying notes are an integral part of these financial
statements.
<PAGE>
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1993
1. BUSINESS AND ORGANIZATION
Hart Holding Company Incorporated ("Hart Holding" or the "Company") is a
holding company whose principal asset is 100% of the outstanding common
stock of its wholly-owned subsidiary, Reeves Industries, Inc. ("Reeves").
Hart Holding acquired Reeves on May 6, 1986. Reeves is a holding company
whose principal asset is the common stock of its wholly-owned subsidiary,
Reeves Brothers, Inc. ("Reeves Brothers"). Reeves Brothers is a
diversified industrial company engaged in two business segments:
industrial coated fabrics and apparel textiles.
Effective September 30, 1991, the Company formed Hart Investment
Properties Corporation ("HIPC"), a wholly-owned subsidiary.
HIPC was incorporated for the purpose of investing in real
estate properties. In addition, during 1992 the Company formed
Hart Capital Corporation, a wholly-owned subsidiary whose
primary business will be the investment of its own equity and
that of outside investors in buy-outs, build-ups, leveraged
minority positions and restructurings. Hart Capital Corporation
had no activity during 1992 or 1993.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost or market. Cost for
approximately 29% and 27% of total inventories was determined on
the last-in, first-out (LIFO) method at December 31, 1992 and
1993, respectively. With respect to the remainder of the inventories,
cost is determined principally on the first-in, first-out (FIFO) method.
Market is determined on the basis of replacement costs or selling prices
less costs of disposal. The application of Accounting Principles Board
Opinion No. 16, "Business Combinations," for the acquisition of Reeves
Industries caused the inventories in the accompanying consolidated
balance sheet to exceed inventories used for income tax purposes by
approximately $7,320,000 as of December 31, 1993.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Improvements
which extend the useful lives of the assets are capitalized
while repairs and maintenance are charged to operations as
incurred. Depreciation is provided using primarily the
straight-line method for financial reporting purposes while
accelerated methods are used for income tax purposes. When
assets are replaced or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts
and any gain or loss is reflected in income.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued
liabilities are reflected in the financial statements at fair
value because of the short-term maturity of these instruments.
The fair value of Reeves Industries' debt instruments is
determined based upon a recent market price quote and is
disclosed in Note 7. The fair value of the foreign exchange
contracts (used for hedging purposes) is estimated using quoted
exchange rates and is disclosed in note 11.
Foreign Currency Exchange and Translation
For Reeves' wholly-owned foreign subsidiary, the local currency
of the country of operation is used as the functional currency
for purposes of translating the local currency asset and
liability accounts at current exchange rates into the reporting
currency. The resulting translation adjustments are accumulated
as a separate component of stockholders' equity reflected in the
equity adjustments from translation account in the accompanying
financial statements. Gains and losses resulting from translating
asset and liability accounts that are denominated in currencies
other than the functional currency are included in income.
Amortization Policy
The Company is amortizing goodwill on a straight-line basis over
forty years. Financing costs and debt discounts are being
amortized by the interest method over the life of the respective
debt securities. Preoperating costs associated with the start
up of significant new operations are deferred and amortized over
five years.
Revenue Recognition
Sales are generally recorded when the goods are shipped. At the
customer's request, shipment of the completed product is sometimes
delayed. In such instances, revenues are recognized when the customer
acknowledges transfer of title and accepts the related billing.
Income Taxes
During 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (FAS
109). Income tax accounting information is disclosed in Note 8
to the consolidated financial statements.
For the years ended December 31, 1992 and 1993, the provision
for income taxes was based on reported earnings before income
taxes, and includes appropriate provisions for deferred income
taxes resulting from the tax effect of the differences between
the tax basis of assets and liabilities and their carrying
amounts for financial reporting purposes. Prior to January 1,
1992, deferred income taxes arose from the reporting of certain
expenses, principally depreciation, pension costs and other
expenses, differently for financial reporting purposes than for
income tax reporting purposes.
At December 31, 1993, unremitted earnings of Reeves Brothers'
foreign subsidiary were approximately $19,500,000. United States
income taxes have not been provided on these unremitted earnings
as it is the Company's intention to indefinitely reinvest these
earnings. However, the foreign subsidiary has, in previous
years, remitted a portion of its current year earnings as
dividends and expects to continue this practice in the future.
Pension Plans
The Company has noncontributory pension plans covering all
eligible domestic employees (Note 9).
Earnings Per Share
Earnings per share are computed based on the weighted average
number of common and common equivalent shares, where dilutive,
outstanding during each period. Fully diluted earnings per
share are computed assuming that outstanding stock options,
where dilutive, were exercised at the beginning of the period or
date of issuance, if later.
Statement of Cash Flows
For purposes of the statement of cash flows, cash equivalents
are defined as highly liquid investment securities with an
original maturity of three months or less.
3. DISCONTINUED OPERATIONS AND FACILITY RESTRUCTURING CHARGES
During 1990 the Company elected to dispose of the operations of
its ARA Automotive Group. The Company has realized all of the
significant assets and continues to settle remaining estimated
liabilities related to the discontinued operation. The
remaining estimated amounts to settle such liabilities have been
included in accrued expenses and other liabilities as of
December 31, 1993.
During 1993, a facility restructuring plan was implemented to reduce
the Company's overall cost structure and to improve productivity.
The Consolidated Statement of Income includes a charge of
approximately $1,003,000 related to this plan. The plan
includes the cessation of weaving activities at one location and
conversion of that facility into a captive yarn mill,
consolidating weaving capacity at remaining facilities and
implementing cost saving/state-of-the-art finishing technology.
4. INVENTORIES
Inventories at December 31, 1992 and 1993, are comprised of the
following (in thousands):
1992 1993
Raw materials $ 7,084 $ 6,815
Work in process 8,777 8,792
Manufactured and finished goods 19,449 18,362
------- -------
$35,310 $33,969
======= =======
If inventories had been calculated on a current cost basis, they
would have been valued higher by approximately $2,933,000 and
$2,038,000 at December 31, 1992 and 1993, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
The principal categories of property, plant and equipment at
December 31, 1992 and 1993, are as follows (in thousands):
1992 1993
Land and land improvements $ 794 $ 797
Buildings and improvements 14,355 16,654
Machinery and equipment 56,845 65,400
------- -------
71,994 82,851
Less - Accumulated depreciation
and amortization (28,446) (31,436)
------- -------
$43,548 $51,415
======= =======
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 31, 1992 and
1993, are comprised of the following (in thousands):
1992 1993
Accrued salaries, wages and incentives $ 3,013 $ 3,145
Product claims reserve 1,277 1,237
Interest payable 6,493 6,512
Income taxes payable 4,538 4,944
Deferred compensation 1,322 1,187
Accrued costs related to discontinued
operations 145 1,390
Italian severance pay program 2,405 2,391
Other 3,807 4,855
------- -------
$23,000 $25,661
======= =======
7. LONG-TERM DEBT
Long-term debt at December 31, 1992 and 1993, consists of the
following (in thousands):
1992 1993
11% Senior Notes due July 15,
2002, net of unamortized
discount of $835 and $747 $121,665 $121,753
13 3/4% Subordinated Debentures
due May 1, 2000, net of
unamortized discount of $89 and $76 10,911 10,924
Other 345
-------- --------
132,921 132,677
======== ========
In June 1992, Reeves completed a public offering of $122,500,000 of
11% Senior Notes due 2002 ("the Senior Notes"). Proceeds of the
offering were used to redeem all of Reeves' then outstanding 12 1/2%
Senior Notes and 13% Senior Subordinated Debentures and to pay and
terminate the revolving loan outstanding under a prior loan agreement.
In connection with the liquidation of the 12 1/2% Senior Notes, the
13% Senior Subordinated Debentures and the prior revolving loan,
Reeves paid early payment premiums of $4,601,000 and wrote off related
debt issuance costs and debt discounts of $3,016,000. In addition,
during 1992, Reeves purchased $5,000,000 face value of its 13 3/4%
Subordinated Debentures for $5,275,000. As a result of these
transactions, the Company recognized an extraordinary loss of
$5,378,000 ($.36 per share), net of applicable income tax benefits of
$3,148,000.
Reeves is required to make sinking fund payments with respect to the
remaining 13 3/4% Subordinated Debentures of $6,000,000 on May 1,
1999 and $5,000,000 on May 1, 2000.
On August 7, 1992, Reeves and Reeves Brothers entered into the
Bank Credit Agreement with a group of banks, which was amended in
1993, and which provides Reeves and Reeves Brothers with an aggregate
$35,000,000 revolving line of credit (the "Revolving Loan") and
letter of credit facility. The Revolving Loan bears interest at
the Alternate Base Rate (defined below) plus 1 1/2% or Eurodollar
Rate plus 2 1/2%, at the election of the borrower. The Alternate Base
Rate is defined as the higher of the Prime Rate (6% at December 31,
1993), Base CD Rate plus 1%, or the Federal Funds Effective Rate
plus 1/2%. The applicable rates above the Base Rate and Eurodollar
Rate decline based on a ratio of earnings to fixed charges, as defined.
The Revolving Loan is due December 31, 1995. The Revolving Loan is
secured by Reeves Brothers' accounts receivable and inventories. As of
December 31, 1993, Reeves and Reeves Brothers had available borrowings,
net of $1,415,000 of outstanding letters of credit, of $33,585,000.
A commitment fee of 1/2% per annum is required on the unused portion of
the Revolving Loan.
The Senior Notes, Revolving Loan, and 13 3/4% Subordinated Debentures
contain certain restrictive covenants with respect to Reeves and Reeves
Brothers including, among other things, maintenance of working capital,
limitations on the payments of dividends, the incurrence of additional
indebtedness and certain liens, restrictions on capital expenditures,
mergers or acquisitions, investments and transactions with affiliates,
and require the maintenance of certain financial ratios and compliance
with certain financial tests and limitations.
During 1993, the Company repaid a $345,000 mortgage note assumed in
1992 in connection with the purchase of real estate property by HIPC.
Interest paid amounted to $18,155,000, $12,350,000 and $15,338,000
in 1991, 1992 and 1993, respectively.
The estimated fair value of Reeves' 11% Senior Notes and 13 3/4%
Subordinated Debentures at December 31, 1993 is $131,075,000 and
$12,980,000, respectively.
8. INCOME TAXES
During the third quarter of 1992, the Company adopted FAS 109
effective as of the beginning of 1992. Under FAS 109, in the
year of adoption, previously reported results of operations for
the year are restated to reflect the effects of applying FAS
109, and the cumulative effect of adoption on prior years'
results of operations is shown in the income statement in the
year of change. The adoption of FAS 109 did not have a material
effect on the Company's 1992 income from continuing operations
before income taxes.
The provision (benefit) for income taxes from continuing
operations is comprised of the following (in thousands):
1991 1992 1993
Current:
Federal $(2,551) $ (129) $1,606
Foreign 354 954 811
State 147 180 264
------- ------ ------
(2,050) 1,005 2,681
------- ------ ------
Deferred:
Federal 1,770 983 945
Foreign 641 826
State 800 242 3
------- ------ ------
2,570 1,866 1,774
------- ------ ------
$ 520 $2,871 $4,455
======= ====== ======
The provision (benefit) for income taxes from continuing
operations differs from taxes computed using the statutory
federal income tax rate as follows (in thousands):
1991 1992 1993
Consolidated computed statutory
taxes $ 1,801 $ 3,187 $ 4,369
State income taxes, net of
federal income tax benefit 412 281 174
Amortization of goodwill 415 456 477
Foreign tax rate less than
statutory rate (2,081) (868) (1,451)
Valuation reserve 800
Other, net (27) (185) 86
------- ------- -------
$ 520 $ 2,871 $ 4,455
======= ======= =======
In 1990, Reeves' foreign subsidiary implemented a reorganization
allowed under the applicable country's income tax laws. This
transaction resulted in the foreign subsidiary revaluing upward
its net assets for income tax purposes. Additional depreciation
and amortization relating to this revaluation is deductible in
determining income tax expense for both financial and income tax
reporting. The effect of this revaluation resulted in the
foreign subsidiary's effective income tax rate declining from
its statutory rate of approximately 46% to 5% for 1991. Due to
tax rate increases, other tax law changes, and the adoption of
FAS 109, the foreign subsidiary's effective income tax rate for both
1992 and 1993 is approximately 22% versus the statutory rate of 52.2%.
The provision from continuing operations for deferred federal
income taxes for 1991, the year prior to the effective date of
adoption of FAS 109, is comprised of timing differences related
to provisions for items not deductible until incurred, principally
product claims, bad debts and insurance, depreciation and
amortization, compensation agreements and pension costs.
Deferred tax liabilities and assets under FAS 109 are comprised of
the following temporary differences (in thousands):
1992 1993
Deferred tax liabilities
Inventories $ 2,523 $ 2,584
Depreciation 1,870 1,670
------- -------
Total deferred tax liabilities $ 4,393 $ 4,254
======= =======
Deferred tax assets
Current
Tentative minimum tax credits $ 854 $ 854
Accrued expenses 3,677 3,490
Foreign tax credit carryforwards 1,946 1,898
Valuation reserve (800)
------- -------
$ 6,477 $ 5,442
------- -------
Long-term
Depreciation on foreign
subsidiary assets $ 1,951 $ 1,219
Foreign exchange 934
------- -------
$ 1,951 $ 2,153
------- -------
Total deferred tax assets $ 8,428 $ 7,595
======= =======
In adopting FAS 109, the Company recorded deferred tax assets
which included foreign tax credit carryovers and the benefits of
future depreciation related to the Company's foreign subsidiary.
The realization of these deferred tax assets is evaluated
annually based on expected future taxable income and the
carryover period of the credits. During 1993, the Company
established an $800,000 valuation reserve against the benefit
for utilization of foreign tax credits. The Company has foreign tax
credit carry forwards of $1,898,000 of which $1,680,000 expire
in 1994 and $218,000 expire at varying dates through 1997.
The valuation reserve was established based on the Company's
estimate of foreign source taxable income expected to be received from
Reeves Brothers' foreign subsidiary during the credit carryover period.
The sources of income (loss) from continuing operations before
income taxes are as follows (in thousands):
1991 1992 1993
Domestic $(1,865) $ 2,134 $ 3,691
Foreign 7,162 7,242 9,084
------- ------- -------
$ 5,297 $ 9,376 $12,775
======= ======= =======
Income taxes paid amounted to approximately $0, $2,406,000 and
$1,686,000 in 1991, 1992 and 1993, respectively.
9. PENSION PLANS
Reeves sponsors two noncontributory defined benefit pension
plans covering substantially all of its domestic salaried and
hourly employees. The Reeves Brothers salaried pension plan
benefits are based on an employee's years of accredited service.
The Reeves Brothers hourly pension plan provides benefits, exclusive
of benefits related to former ARA Automotive Group retirement plan
participants, of stated amounts based on years of accredited
service. The Reeves Brothers hourly pension plan also provides benefits
to both the ARA union and non-union employees in accordance with
their separate benefit calculations. The ARA non-union plan was
merged with the Reeves Brothers hourly pension plan effective December
1990; the ARA union plan was merged with the Reeves Brothers hourly
pension plan effective April 1993. The Company's funding policy is to
fund at least the minimum amount required by the Employee Retirement
Income Security Act of 1974.
Combined data
The following table presents the combined funded status of the
Company's plans at December 31, 1992 and 1993 (in thousands):
1992 1993
Actuarial present value of accumulated
benefit obligation:
Vested $13,731 $19,300
Nonvested 866 914
------- -------
Accumulated benefit obligation $14,597 $20,214
======= =======
Plan assets at fair value $24,148 $25,450
Projected benefit obligation for
services rendered to date 19,129 24,553
------- -------
Plan assets greater than projected
benefit obligation 5,019 897
Unrecognized net transition obligation 2,132 1,955
Unrecognized net gain subsequent to
transition (7,097) (3,696)
------- -------
Pension asset (liability) recognized
in the consolidated balance sheet $ 54 $ (844)
======= =======
Plan assets consist primarily of fixed income securities, equity
securities, and certificates of deposit.
Pension cost includes the following components (in thousands):
1991 1992 1993
Service cost - benefits earned
during the period $ 929 $ 942 $ 936
Interest cost on projected benefit
obligation 1,409 1,456 1,643
Actual return on plan assets (3,700) (2,961) (2,531)
Net amortization and deferral 2,283 1,351 754
------- ------- -------
Pension cost $ 921 $ 788 $ 802
======= ======= =======
A weighted average discount rate of 8.5% and 7.25%, and rate of
increase in future compensation of 5.5% and 5.0% were used in
determining the actuarial present value of the projected benefit
obligation in 1992 and 1993, respectively. The long-term expected
rate of return on assets was 8.0% in both 1992 and 1993.
In December 1990, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106), which requires accrual, during an
employee's active years of service, of the expected costs of
providing postretirement benefits to employees and their
beneficiaries and dependents. The Company adopted FAS 106 in
1992, the effect of which was not material to the financial
statements.
10. STOCKHOLDERS' EQUITY
Capital Stock
Effective December 31, 1991, Reeves' Board of Directors approved
the exchange of all of the outstanding Reeves preferred stock owned
by Hart Holding for 18,820,000 shares of Reeves common stock.
Stock Options
Stock options are available for issuance to key employees,
independent contractors and consultants, and directors of the
Company pursuant to the Company's 1975 Stock Option Plan (the
"Plan"), as amended. Options issued pursuant to the Plan are
exercisable as determined on an option-by-option basis. In
1991, the Board of Directors of the Company approved an amendment
to the Plan whereby the total number of shares of common stock
which may be issued pursuant to options granted under the
Plan was increased from 5,000,000 shares to 13,000,000 shares.
Additionally, pursuant to the amended Plan, the Board of
Directors, at its discretion, can provide within the option
agreement for a cash bonus to be paid to the optionee upon
exercise of the options granted, subject to the limitations as
defined in the Plan. Options granted under the Plan are not
qualified within the meaning of the Internal Revenue Code. At
December 31, 1991 and 1992, there were 4,594,000 shares reserved
and 3,232,500 options outstanding at exercise prices ranging
from $.375 to $1.88 per share.
Effective November 15, 1993, under the provisions of the amended
Plan, the Company entered into an agreement (the "Agreement")
with the Chairman of the Board of Directors which grants new
options and rescinds all options previously issued to the
Chairman under the Plan. The Agreement grants an option to
purchase up to 4,000,000 shares of common stock of the Company,
par value $.01 per share, and has an expiration date of December
31, 2028. The option contains an exercise price of $2.25 per
share for 1,500,000 shares (exercisable immediately), $2.50 per
share for 1,500,000 shares (exercisable one year from grant
date) and $2.75 per share for 1,000,000 shares (exercisable two
years from grant date). As of December 31, 1993, there were
4,182,500 options outstanding at exercise prices ranging from
$1.375 to $2.75 per share.
Settlement of Litigation
In November 1992, pursuant to a court ordered settlement of a
lawsuit brought by Reeves against Drexel Burnham Lambert and
certain of its affiliates (collectively, the Defendants), Reeves
received 1,918,132 shares of its common stock from the Defendants
which were subsequently cancelled and retired.
HHCI, Inc. Merger with Reeves Industries
Effective October 25, 1993, HHCI, Inc., a newly formed, wholly-
owned subsidiary of Hart Holding, merged with and into Reeves
with Reeves surviving the merger. HHCI, Inc. was formed as a
shell corporation (no operations) with a $300,000 capital contribution
from Hart Holding. As a result of the merger, Hart Holding was
issued 535,000 shares of Reeves' common stock and acquired the
481,307 shares of its common stock not held by Hart Holding. These
shares were subsequently cancelled and retired. As a result of this
merger, Hart Holding obtained ownership of 100% of the outstanding
shares of the common stock of Reeves and the other stockholders of
Reeves received $.56 per share in cash.
11. FOREIGN EXCHANGE
The Company enters into foreign exchange forward contracts to hedge
risk of changes in foreign currency exchange rates associated with
certain assets and future foreign currency transactions, primarily
cash flows from accounts receivable and firm purchase commitments.
The Company does not engage in speculation. While the forward
contracts affect the Company's results of operations, they do so only
in connection with the underlying transactions. Gains and losses
on these contracts are deferred until the underlying hedged transaction
is completed. The cash flows from the forward contracts are classified
consistent with the cash flows from the transactions being hedged.
As a result, they do not subject the Company to risk from foreign
exchange rate movements, because gains and losses on these contracts
offset losses and gains on the transactions being hedged.
At December 31, 1993, the Company had foreign currency hedge contracts
outstanding, equivalent to $14,883,000, to exchange various currencies,
including the U.S. dollar, Japanese yen, pound sterling, Deutsche mark,
and French franc into Italian Lire. The contracts mature during 1994.
The December 31, 1993 fair value of these foreign currency contracts as
hedge instruments was $14,407,000.
12. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables
are limited due to the wide variety of customers and markets
into which the Company's products are sold, as well as their
dispersion across many different geographic areas. As a result,
at December 31, 1993, the Company does not consider itself to
have any significant concentrations of credit risk.
13. RELATED PARTY TRANSACTIONS
During 1992, Reeves Brothers purchased the residences of three officers
of Reeves Brothers for an aggregate amount of $1,015,000. During 1993,
the Company recognized a loss of approximately $161,000 on the
sale of two of the properties including related expenses. The
remaining residence, which has a carrying value of $244,000 at
December 31, 1993, is presently being marketed for sale.
14. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company, through Reeves, operates in two principal industry
segments: industrial coated fabrics and apparel textiles. The
Industrial Coated Fabrics Group manufactures newspaper and
graphic arts printing press blankets, protective coverings,
inflatable aerospace and survival equipment, diaphragms for
meters, pump and tank seals and material used in automotive
airbags. The Apparel Textiles Group manufactures, dyes and
finishes greige goods.
The products of the Industrial Coated Fabrics Group and the
Apparel Textiles Group are sold in the United States and in
certain foreign countries primarily by Reeves Brothers'
merchandising and sales personnel and through a network of
independent distributors to a variety of customers including
converters, apparel manufacturers, industrial users and
contractors. Sales offices are maintained in New York, New
York, Dallas, Texas, Spartanburg, South Carolina and Milan, Italy.
The following table presents certain information concerning each
segment (in thousands):
1991 1992 1993
Net sales
Industrial coated fabrics $ 121,264 $ 126,576 $ 140,735
Apparel textiles 148,295 144,528 142,918
--------- --------- ---------
$ 269,559 $ 271,104 $ 283,653
========= ========= =========
Operating income
Industrial coated fabrics $ 23,940 $ 24,732 $ 29,287
Apparel textiles 10,121 10,693 11,583
Corporate expenses (8,059) (8,851) (10,915)
Facility restructuring charges (1,003)
--------- --------- ---------
Operating income 26,002 26,574 28,952
Other income, net 1,072 435 249
Interest expense and amortization
of financing costs (21,777) (17,633) (16,426)
--------- --------- ---------
Income from continuing
operations before income
taxes, extraordinary item
and cumulative effect of a
change in accounting
principle $ 5,297 $ 9,376 $ 12,775
========= ========= =========
Depreciation
Industrial coated fabrics $ 2,598 $ 3,175 $ 3,632
Apparel textiles 2,983 2,913 3,465
Corporate 377 695 112
--------- --------- ---------
$ 5,958 $ 6,783 $ 7,209
========= ========= =========
Capital expenditures
Industrial coated fabrics $ 7,579 $ 6,353 $ 11,459
Apparel textiles 2,994 8,623 4,693
Corporate 442 812 354
--------- --------- ---------
$ 11,015 $ 15,788 $ 16,506
========= ========= =========
Identifiable assets
Industrial coated fabrics $ 68,403 $ 65,752 $ 75,625
Apparel textiles 60,410 65,111 63,822
Corporate, principally
discontinued operations
(in 1991 and 1992), goodwill
and debt issuance costs 88,322 65,143 66,928
--------- --------- ---------
$ 217,135 $ 196,006 $ 206,375
========= ========= =========
Financial data of Reeves' foreign operation is as follows (in
thousands):
1991 1992 1993
Sales $35,437 $38,444 $36,932
Net income 6,808 9,165 7,446
Assets 33,011 31,608 33,092
Intersegment sales are not material.
15. COMMITMENTS AND CONTINGENCIES
The Company leases certain operating facilities and equipment
under long-term operating leases. At December 31, 1993 future
minimum rentals, related to continuing operations, required by
operating leases having initial or remaining noncancellable
lease terms in excess of one year are as follows: 1994 - $1,951,000;
1995 - $1,811,000; 1996 - $1,800,000; 1997 - $1,800,000; 1998
- $1,800,000; thereafter - $2,945,000.
Rental expense charged to continuing operations was approximately
$1,388,000, $1,434,000 and $1,473,000 during the years ended
December 31, 1991, 1992 and 1993, respectively.
There are various lawsuits and claims pending against the Company
and its subsidiary, including those relating to commercial
transactions. The outcome of these matters is not presently
determinable but, in the opinion of management, the ultimate
resolution of these matters will not have a material adverse
effect on the results of operations and financial position of
the Company.
16. SUBSEQUENT EVENTS
On January 26, 1994, the Board of Directors approved a non-
qualified stock option agreement between Reeves and the Chairman
of the Board of Directors. The agreement grants an option to
purchase up to 3,800,000 shares of common stock of Reeves, par
value $.01 per share, and has an expiration date of December 31,
2023. The option is exercisable at $.56 per share for 1,400,000
shares (exercisable immediately), $.75 per share for 1,400,000
shares (exercisable one year from grant date) and $1.00 per share
for 1,000,000 shares (exercisable two years from grant date).
On March 9, 1994 Hart Holding organized Reeves Holdings, Inc. as a
wholly-owned subsidiary (the "Issuer") through a capital contribution
of $1,000. The Issuer was formed for the purpose of holding all of
the outstanding common stock of Reeves. On March 31, 1994 the Issuer
filed a Registration Statement on Form S-1 under the Securities Act of
1933, as amended, for the purpose of offering Senior Discount
Debentures due 2006 anticipated to yield proceeds of approximately
$100,000,000. As of March 31, 1994 Reeves' common stock has not been
contributed to the Issuer.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table and narrative sets forth the name, position with
Hart Holding, Reeves and Reeves Brothers, age and principal business
experience during the past five years of each director, executive officer
and significant employee of Hart Holding. Significant employees are
employed by Reeves.
NAME POSITION AGE
Richard W. Ball Treasurer of Reeves 47
and Reeves Brothers
Anthony L. Cartagine Vice President of Reeves 59
and Reeves Brothers;
President - Apparel
Textile Group
David L. Dephtereos Vice President of Reeves 39
and Reeves Brothers and
General Counsel of Hart
Holding, Reeves
and Reeves Brothers
Jennifer H. Fray Secretary and Assistant 29
General Counsel of Hart
Holding, Reeves and
Reeves Brothers
Douglas B. Hart Senior Vice President - 31
Operations of Reeves
and Reeves Brothers
James W. Hart Chairman of the Board, 60
President, Chief Executive
Officer, Chief Operating
Officer, Chief Financial
Officer and Director of Hart
Holding; Chairman of the Board
and Director of Reeves
and Reeves Brothers
James W. Hart, Jr. President, Chief Executive 40
Officer and Chief Operating
Officer of Reeves and
Reeves Brothers
Steven W. Hart Executive Vice President 37
and Chief Financial Officer
of Reeves and Reeves Brothers
V. William Lenoci Vice President of Reeves 58
and Reeves Brothers and
Chief Executive Officer -
Industrial Coated Fabrics
Group
Joseph P. O'Brien Vice President - Finance 53
of Reeves and Reeves Brothers
Richard A. Vollmer Director of Hart Holding 66
Patrick M. Walsh Vice President - Administration 53
of Reeves and Reeves Brothers
Mr. Ball joined Reeves and Reeves Brothers in January 1992 as
Treasurer. He served as Treasurer of Hart Holding from June 1992 to
December 1992. From 1990 through 1991, Mr. Ball was Corporate Treasurer
for Turner Corporation, a world-wide construction and development company.
From 1988 through 1989, Mr. Ball was Vice President and Chief Financial
Officer of Nuclear Energy Services, Inc., an engineering services
subsidiary of Penn Central Corporation.
Mr. Cartagine has been with Reeves Brothers since 1964. He
was named President - Greige Goods Division of the Apparel Textile Group
in 1984 and President of the Apparel Textile Group in 1986. He was
named Vice President of Reeves and Reeves Brothers in 1988.
Mr. Dephtereos joined Reeves and Reeves Brothers in May 1991 as
Vice President, General Counsel and Secretary. He served as
Vice President and Secretary of Hart Holding from 1991 to 1992 and
Secretary of Reeves and Reeves Brothers from 1991 until 1992. From
1985 through May 1991, Mr. Dephtereos was Vice President, General
Counsel and Secretary of Air Express International Corporation, a
publicly-held, international transportation company.
Ms. Fray joined Hart Holding, Reeves and Reeves Brothers in September
1992 as Assistant General Counsel. In 1992, she was named Secretary
of Hart Holding, Reeves and Reeves Brothers. From 1990 to 1992,
Ms. Fray was engaged in studies leading to a Master of Laws Degree
in Taxation from Boston University, from 1990 to 1991 she was employed
as a Tax Associate at Coopers & Lybrand, certified public accountants,
in Boston, Massachusetts and from 1987 to 1990 she was engaged in
studies leading to a Juris Doctor Degree from Suffolk University.
Mr. Douglas B. Hart served as a Director of Reeves and Reeves
Brothers from 1991 to 1992. He was named Vice President - Real Estate
in 1989, Senior Vice President in 1991 and Senior Vice President
- - - - - - Operations in 1992 of Reeves and Reeves Brothers. Mr. Hart served
as a Director of Hart Holding from 1991 to 1992, as Vice
President - Real Estate of Hart Holding from 1989 to 1991 and as
Senior Vice President of Hart Holding from 1991 to 1992. In 1992,
Mr. Hart became President, Chief Executive Officer and Chief
Operating Officer of Hart Investment Properties Corporation, a
wholly-owned diversified corporate investment entity of Hart Holding,
with current holdings in real estate. Prior to 1989, Mr. Hart was
an Assistant Vice President at Sentinel Real Estate Corporation in
New York, an owner/developer of malls, shopping centers, office
buildings and single family residential communities throughout the
United States.
Mr. James W. Hart has been a Director of Reeves and Reeves
Brothers since 1986 and became Chairman of the Board in 1987.
Mr. Hart served as President and Chief Executive Officer of Reeves
and Reeves Brothers from 1988 until 1992. Mr. Hart has been a
Director, President, Chief Executive Officer, and Chairman of the
Board of Hart Holding since 1975 and became Chief Operating Officer
and Chief Financial Officer of Hart Holding in 1992.
Mr. James W. Hart, Jr. served as a Director of Reeves and Reeves
Brothers from 1986 to 1992. Mr. Hart became Vice President of Reeves
and Reeves Brothers in 1987 and was named Senior Vice President - Operations
in 1988 and Executive Vice President and Chief Operating Officer in 1989.
In 1992, he was named President, Chief Executive Officer and Chief Operating
Officer of Reeves and Reeves Brothers. Mr. Hart served as a Director of
Hart Holding from 1984 to 1992. He served as Vice President of Hart
Holding from 1984 to 1992, Senior Vice President - Operations of Hart
Holding from 1988 to 1992 and as Executive Vice President and Chief
Operating Officer of Hart Holding from 1989 to 1992.
Mr. Steven W. Hart served as a Director of Reeves and Reeves
Brothers from 1986 to 1992. He became Vice President of Reeves
and Reeves Brothers in 1987 and was named Senior Vice President
and Chief Financial Officer in 1988 and Executive Vice President
and Chief Financial Officer in 1989. Mr. Hart served as a Director,
Treasurer and Chief Financial Officer of Hart Holding from 1984 to
1992, Vice President of Hart Holding from 1984 to 1988, Senior Vice
President of Hart Holding from 1988 to 1989 and Executive Vice
President of Hart Holding from 1989 to 1992. Mr. Hart joined
Hart Holding in 1983 as Vice President - Strategic Planning.
Mr. Lenoci has been with Reeves Brothers since 1967. He was
named President - Industrial Coated Fabrics Group in 1986 and Vice
President of Reeves and Reeves Brothers in 1988. In 1990 he became
Chief Executive Officer of the Industrial Coated Fabrics Group.
Mr. O'Brien joined Reeves and Reeves Brothers in 1993 as Vice
President - Finance. From 1980 to 1993, Mr. O'Brien served as Vice
President - Finance of Howmet Corporation, an integrated manufacturer
of components for gas turbine jet engines and aircraft structural parts.
Mr. Richard A. Vollmer has been a Director of Hart Holding
since 1983. Mr. Vollmer served as a Director of Reeves and Reeves
Brothers from 1987 to 1989. From 1989 to 1992, Mr. Vollmer served
as Director - Financial Planning of Reeves and Reeves Brothers.
In 1992, Mr. Vollmer retired from Reeves and Reeves Brothers.
Prior to 1989, Mr. Vollmer was an independent financial consultant.
Mr. Walsh has been with Reeves Brothers since 1987, as Director
of Human Resources. In 1990, he was elected Vice President - Administration
of Reeves Brothers and, in 1993, Vice President - Administration of Reeves.
Mr. James W. Hart is the father of Ms. Fray and Messrs. Douglas
B. Hart, James W. Hart, Jr. and Steven W. Hart.
Directors of Hart Holding are elected at each annual meeting
of the stockholders. The term of office of each director
is from the time of his election and qualification until the next
annual meeting of stockholders and until his successor shall have
been duly elected and qualified, unless such director shall have
earlier been removed. Executive officers serve at the discretion of
the Boards of Directors of Hart Holding, Reeves and Reeves Brothers.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth information concerning the
cash compensation and cash equivalent remuneration paid or accrued
by Hart Holding during the years ended December 31, 1993, 1992 and
1991, for those persons who were at December 31, 1993, (i) the chief
executive officer and (ii) the other four most highly compensated
executive officers of Hart Holding and its subsidiaries.
Summary Compensation Table
Annual Compensation All
Other
Name and Principal Position Year Salary Bonus(1) Compensation
Douglas B. Hart 1993 $315,500 $125,000 -
Senior Vice President - 1992 198,406 225,000 -
Operations of Reeves 1991 151,441 70,000 -
and Reeves Brothers
James W. Hart 1993 125,000 - -
Chairman of the Board, 1992 - - -
President, Chief Executive 1991 - - -
Officer, Operating Officer,
Chief Financial Officer and
Director of Hart Holding;
Chairman of the Board
and Director of Reeves
and Reeves Brothers
James W. Hart, Jr. 1993 398,750 452,000 -
President, Chief Executive 1992 365,000 330,000 -
Officer and Chief Operating 1991 355,000 185,000 -
Officer of Reeves and Reeves
Brothers
Steven W. Hart 1993 398,750 302,000 -
Executive Vice President and 1992 365,000 330,000 $ 31,819 (2)
Chief Financial Officer of 1991 355,000 185,000 -
Reeves and Reeves Brothers
V. William Lenoci 1993 293,750 142,000 -
Vice President of Reeves 1992 240,249 105,000 -
and Reeves Brothers; President 1991 204,079 87,500 19,272 (3)
and Chief Executive Officer -
Industrial Coated Fabrics
Group
(1) Annual bonus amounts are earned and accrued under the Management
Incentive Bonus Plan during the years indicated and paid
subsequent to the end of each year except for a portion of
those amounts awarded and paid to the officers during 1993.
Also, a portion of those amounts awarded during 1992 for James
W. Hart, Jr., Steven W. Hart and Douglas B. Hart were paid in
1992.
(2) Represents reimbursement of certain moving expenses.
(3) Represents the payment of certain life insurance premiums.
EMPLOYMENT CONTRACTS
Reeves Brothers entered into an employment agreement with Mr.
Lenoci during 1991 which provides for base compensation and participation
in the Management Incentive Bonus Plan, plus certain other benefits.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION
VALUES*
The following table provides information as to the value of
options held by the named executive officers of Hart Holding and
its subsidiaries at year end measured in terms of the average bid
and ask price of Hart Holding Common Stock on December 31, 1993.
The average bid and ask price, as supplied by the National Quotation
Bureau, Inc., is an over-the-counter market quotation representing
inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
There is no material trading in the Hart Holding common stock. The
Company does not believe that the average bid and ask price represent a
meaningful market price of its common stock.
Value of Unexercised
Name Number of Unexercised Options In-The-Money Options
at FY-End at FY-End
Exercisable / Unexercisable Exercisable / Unexercisable
Douglas B. Hart - - - -
James W. Hart 1,500,000 2,500,000 $375,000 -
James W. Hart, Jr. 60,000 - 37,200 -
Steven W. Hart 60,000 - 37,200 -
V. William Lenoci - - - -
* As no options were exercised, no shares were granted upon exercise
of options by the named individuals during the fiscal year ended
December 31, 1993.
DIRECTORS' COMPENSATION
All Directors of Hart Holding, other than Richard A.
Vollmer, serve in such capacity without compensation. Mr. Vollmer
is paid $13,000 a year for his service as a Director.
PENSION PLANS
Reeves and Reeves Brothers
Annual Pension at Age 65 After Years of Service
Remuneration 15 20 25 30 35
$ 125,000 $ 21,357 $ 30,732 $ 40,107 $ 49,482 $ 58,857
150,000 26,982 38,232 49,482 60,732 71,982
175,000 32,607 45,732 58,857 71,982 85,107
200,000 38,232 53,232 68,232 83,232 98,232
225,000 43,857 60,732 77,607 94,482 111,357
250,000 49,482 68,232 86,982 105,732 118,800
300,000 60,732 83,232 105,732 118,800 118,800
350,000 71,982 98,232 118,800 118,800 118,800
Notes To Pension Plan Table
(A)(1) Compensation covered by the tax-qualified salaried employees
pension plan each year is generally all compensation reported on a
participant's Form W-2. The plan's formula is based on average
compensation for the participant's highest five consecutive calendar
years. However, except in the cases of Messrs. Cartagine and
Lenoci, compensation for any year is limited by the compensation cap
for that year under section 401(a)(17) of the Internal Revenue Code.
For 1993, that limit is $235,840. A supplemental plan provides
Messrs. Cartagine and Lenoci the benefits limited under the
tax-qualified plan.
(2) Starting in 1994, the maximum annual compensation that may
be taken into account is $150,000. Participants in the pension plan
prior to 1994 may have accrued higher benefits than those shown in
the table to the extent their average highest compensation exceeded
$150,000. Those higher accrued benefits are preserved by law.
(3) For 1994, the maximum benefit under the pension plan is $118,800.
(B) Years of service for named executive officers:
Officer Years of Service
Douglas B. Hart 4.42
James W. Hart N/A
James W. Hart, Jr. 9.68
Steven W. Hart 10.59
V. William Lenoci 26.63
James W. Hart does not participate in the pension plan.
(C) Benefits are computed on the basis of a straight life annuity
and are reduced by 50% of the participant's primary Social Security
benefit.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION IN COMPENSATION DECISIONS
The Audit Committee of Hart Holding reviews compensation of the
officers of Hart Holding and its subsidiaries. Mr. Richard A. Vollmer,
who was an employee of Reeves Brothers until his retirement in 1992,
is the sole member of the Audit Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Ownership of Common Stock of Hart Holding
The following table sets forth certain information at March 31,
1994 with respect to ownership of Hart Holding common stock by each
person who is known by Hart Holding to own beneficially, or who may
be deemed to own beneficially, more than 5% of the outstanding shares
of Hart Holding common stock, directors, the chief executive officer,
the other four most highly compensated executive officers of Hart Holding
and its subsidiaries and all directors and executive officers of Hart
Holding and its subsidiaries and directors as a group. Unless otherwise
stated, Hart Holding common stock is directly owned.
Amount and
Name and Nature of Percent of
address of beneficial Class
beneficial owner ownership
Douglas B. Hart . . . . . . . 0 0.0%
1120 Boston Post Road
Darien, CT 06820
James W. Hart (1) (2). . . . . 13,623,507 94.6%
1120 Boston Post Road
Darien, CT 06820
James W. Hart, Jr. (3) . . . . 60,300 0.5%
1120 Boston Post Road
Darien, CT 06820
Steven W. Hart (4) . . . . . . 240,300 1.9%
1120 Boston Post Road
Darien, CT 06820
V. William Lenoci. . . . . . . 5,000 0.0%
Highway 29 South
Spartanburg, SC 29304
Richard A. Vollmer . . . . . . 0 0.0%
6001-0 Lomas N.E., Suite 108
Albuquerque, NM 87110
Hart Holding . . . . . . . . . . . 13,930,107 96.0%
Directors and Executive
Officers as a Group
(1) As of March 31, 1994, James W. Hart is the beneficial owner
of 13,623,507 shares of common stock of Hart Holding (94.6%),
of which (i) 12,123,507 shares are owned directly, and (ii)
1,500,000 shares are subject to a presently exercisable option
(the "Hart Holding Option") issued in November 1993. The Hart Holding
Option expires on December 31, 2028 and provides for the issuance of up
to 4,000,000 shares upon exercise of options as follows: 1,500,000
immediately exercisable at $2.25 per share; 1,500,000 exercisable
one year from grant date at $2.50 per share; and 1,000,000 exercisable
two years from grant date at $2.75 per share. James W. Hart may
be deemed the controlling person of Hart Holding.
(2) On January 26, 1994, James W. Hart was granted an option to
purchase up to 3,800,000 shares of common stock of Reeves, which
has an expiration date of December 31, 2023. The option is exercisable
at $.56 per share for 1,400,000 shares (exercisable immediately),
$.75 per share for 1,400,000 shares (exercisable one year from
grant date) and $1.00 per share for 1,000,000 shares (exercisable
two years from grant date).
(3) As of March 31, 1994, James W. Hart, Jr. is the beneficial owner of
60,300 shares of Hart Holding common stock (representing less than 1%
of such outstanding common stock), of which 300 shares are owned
directly and the balance is subject to a presently exercisable option.
(4) As of March 31, 1994, Steven W. Hart is the beneficial owner of 240,300
shares of Hart Holding common stock (1.9%) of which 180,300 shares are
owned directly and the balance is subject to a presently exercisable
option.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the acquisition of Reeves, Hart Holding, Reeves,
Reeves Brothers and certain subsidiaries entered into a Tax Allocation
Agreement dated as of May 1, 1986, as amended and restated effective
January 1, 1992 (the "Tax Agreement"). The Tax Agreement provides that
Hart Holding and Reeves will file consolidated Federal income tax returns
as long as they remain members of the same affiliated group. Pursuant to
the Tax Agreement, Reeves and its subsidiaries generally will pay to the
Company amounts equal to the taxes that the Company and its subsidiaries
would otherwise have to pay if they were to file separate federal, state
or local income tax returns but for the use of tax deductible items of the
Company.
During the years ended December 31, 1991, 1992 and 1993, Reeves
paid management fees to Hart Holding of $1.2 million, $1.9 million
and $1.8 million, respectively.
Effective October 25, 1993, HHCI, Inc., a newly formed,
wholly-owned subsidiary of Hart Holding, merged with and into Reeves
with Reeves surviving the merger. HHCI, Inc. was formed as a shell
corporation (no operations) with a $300,000 capital contribution
from Hart Holding. As a result of this merger, Hart Holding obtained
ownership of 100% of the outstanding shares of common stock of Reeves
and the other stockholders of Reeves received $.56 in cash for each
share held by such stockholders.
In November 1993, James W. Hart was granted the Hart Holding Option.
The Hart Holding Option grants Mr. Hart the right to purchase up to 4,000,000
shares of the Company's common stock and is exercisable (i) immediately,
with respect to 1,500,000 shares at an exercise price of $2.25 per share;
(ii) from and after November 1994, with respect to 1,500,000 shares at an
exercise price of $2.50 per share; and (iii) from and after November 1995,
with respect to 1,000,000 shares at an exercise price of $2.75 per share.
The Hart Holding Option expires on December 31, 2028. The Hart Holding
Option was granted in consideration of cancellation of outstanding options
entitling Mr. Hart to purchase an aggregate of 3,050,000 shares of common
stock at an exercise price of $.375 per share for 2,000,000 shares exercisable
through June 13, 2000 and an exercise price of $1.88 per share for 1,050,000
shares exercisable through December 31, 2002. The Hart Holding Option was
the only stock option granted by the Company during 1993. The Company does
not believe that it is possible to determine a meaningful market price of
its common stock as of the date of grant of the Hart Holding Option or any
subsequent date.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this
report:
1. Consolidated Financial Statements of Hart Holding
Company Incorporated and Subsidiaries:
Report of Independent Accountants
Consolidated Balance Sheet at December 31, 1992
and 1993
Consolidated Statement of Income for the years
ended December 31, 1991, 1992, and 1993
Consolidated Statement of Changes in Stockholders'
Equity for the years ended December 31, 1991,
1992, and 1993
Consolidated Statement of Cash Flows for the years
ended December 31, 1991, 1992, and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules for the years ended
December 31, 1991, 1992 and 1993
Schedule III - Condensed Financial Information of
Registrant
Schedule VIII - Valuation and qualifying accounts
Schedule X - Supplementary income statement
information
All other schedules are omitted because they are not
applicable or required information is shown in the
consolidated financial statements or notes thereto.
3. Exhibits
Exhibit No. Name
3.1 Certificate of Incorporation of Hart Holding Company
Incorporated, filed as Exhibit 3.1 to Form 10-K for the
year ended December 31, 1988, and incorporated herein by
reference.
3.2 Bylaws of Hart Holding Company Incorporated, filed as
Exhibit 3.2 to Form 10-K for the year ended December 31,
1992, and incorporated herein by reference.
10.1 Tax Allocation Agreement, dated as of May 1, 1986, among
Hart Holding Company Incorporated, Reeves Industries, Inc.,
Reeves Brothers, Inc., Reeves Penna, Inc., Fenchurch, Inc.,
Turner Trucking Company, A.R.A. Manufacturing Company, Hart
Investment Properties Corporation and Hart Capital Corporation,
filed as Exhibit 3.2 to Form 8-K on May 21, 1986, and incorporated
herein by reference.
10.2 Reeves Corporate Management Incentive Bonus Plan, filed as
Exhibit 10.6 to Form 10-K for the year ended December 31,
1990 and incorporated herein by reference.
10.3 Purchase Agreement, dated as of May 1, 1986, among Schick
Acquisition Corp., A.R.A Manufacturing Company of Delaware,
Inc. and each of the Purchasers named in the Schedule of
Purchasers attached thereto, filed as Exhibit 3.6 to Form
8-K on May 21, 1986, and incorporated herein by reference.
10.4 Indenture, dated as of May 1, 1986, between Schick Acquisition
Corp. and Fleet National Bank, as Trustee, filed as Exhibit
3.11 to Form 8-K on May 21, 1986, and incorporated herein by
reference.
10.5 First Supplemental Indenture, dated as of May 6, 1986,
between Newreeveco, Inc. and Fleet National Bank, as
Trustee (the "Subordinated Debenture Trustee"), filed as
Exhibit 3.12 to Form 8-K on May 21, 1986, and incorporated
herein by reference.
10.6 Second Supplemental Indenture, dated as of October 15, 1986,
between Newreeveco, Inc. and the Subordinated Debenture
Trustee, filed as Exhibit 4.11 to Newreeveco Inc.'s Form S-1
Registration Statement (File No. 33-8192) dated August 21,
1986, as amended and incorporated herein by reference.
10.7 Third Supplemental Indenture, dated as of March 24, 1988,
between Newreeveco, Inc. and the Subordinated Debenture
Trustee, filed as Exhibit 10.18 to Form 10-K for the year
ended December 31, 1988, and incorporated herein by
reference.
10.8 Fourth Supplemental Indenture, dated as of May 7, 1991,
between Reeves Industries, Inc. and the Subordinated
Debenture Trustee, filed as Exhibit 10.24 to Form 10-K for
the year ended December 31, 1991, and incorporated herein
by reference.
10.9 Fifth Supplemental Indenture, dated as of June 30, 1992,
between Reeves Industries, Inc. and the Subordinated
Debenture Trustee, filed as Exhibit 10.9 to Form 10-K for
the year ended December 31, 1992, and incorporated herein
by reference.
10.10 Registration Rights Agreement, dated as of May 1, 1986,
among Schick Acquisition Corp. and the purchasers listed
on Schedule A thereto, filed as Exhibit 3.13 to Form 8-K
on May 21, 1986, and incorporated herein by reference.
10.11 Senior Note Indenture dated as of June 1, 1992, between
Reeves Industries, Inc. and Chemical Bank, as Trustee,
filed as Exhibit 4 to Form 10-Q for the quarter ended June
28, 1992, and incorporated herein by reference.
10.12 Credit Agreement, dated as of August 6, 1992 (the "Credit Agreement")
among Reeves Brothers, Inc., Reeves Industries, Inc., the Banks
signatory thereto and Chemical Bank, as Agent, filed as Exhibit
10.12 to Form 10-K for the year ended December 31, 1992, and
incorporated herein by reference.
10.13 First Amendment, Waiver and Consent, dated as of October
25, 1993, to the Credit Agreement, filed as Exhibit 10.01
to Form 10-Q for the quarter ended September 26, 1993, and
incorporated herein by reference.
10.14 @ Second Amendment, dated as of December 28, 1993, to the
Credit Agreement.
10.15 @ 1975 Non-Qualified Stock Option Plan, as amended.
10.16 * Employment Agreement dated July 1, 1991 between Reeves Brothers,
Inc. and Anthony L. Cartagine, filed as Exhibit 10.28 to Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
10.17 @* Employment Agreement dated November 1, 1991, and amended
May 18, 1993, between Reeves Brothers, Inc. and Vito W. Lenoci.
10.18 @* Reeves Brothers, Inc. 401(a)(17) Plan, effective January 1, 1989.
10.19 @ Non-Qualified Stock Option Agreement, dated as of January 26, 1994,
between Reeves Industries, Inc. and James W. Hart.
10.20 Agreement and Plan of Merger, dated as of October 22, 1993, between
Reeves Industries, Inc. and HHCI, Inc., filed as Exhibit 10.02 to
Form 10-Q for the quarter ended September 26, 1993, and incorporated
herein by reference.
10.21 Lease Agreement, dated March 28, 1991, between Springs Industries,
Inc., Lessor, and Reeves Brothers, Inc., filed as Exhibit 10.30 to
Form 10-K for the year ended December 31, 1991, and incorporated
herein by reference.
11 Calculation of primary and fully diluted earnings per common share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Hart Holding Company Incorporated.
@ Available from the Company.
* Management contract or compensatory plan filed pursuant to
Item 14(c) of this report.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the fourth
quarter of 1993.
<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.
HART HOLDING COMPANY INCORPORATED
---------------------------------
Registrant
Date: March 31, 1994 By: /s/ James W. Hart
-----------------
James W. Hart
Chairman of the Board,
President, Chief Executive
Officer, Chief Operating
Officer, and Chief
Financial Officer
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.
Signature Title Date
(i) Principal Executive Officer, Financial and Accounting Officer:
/s/ James W. Hart. Chairman of the Board, March 31, 1994
President, Chief Executive
James W. Hart Officer, Chief Operating
Officer and Chief Financial
Officer
(ii) Majority of the Board of Directors:
/s/ James W. Hart Director March 31, 1994
James W. Hart
/s/ Richard A. Vollmer Director March 31, 1994
Richard A. Vollmer
<PAGE>
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(In thousands, except per share data)
HART HOLDING COMPANY INCORPORATED
CONDENSED BALANCE SHEET
December 31,
-----------------
1992 1993
------- -------
ASSETS:
Current Assets $ 670 $ 321
Furniture and fixtures, net 22
Investment in and advances to subsidiary 15,565 21,411
Other 2,383 3,029
------- -------
$18,640 $24,761
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities $ 4,009 $ 4,464
Deferred income taxes (112) (112)
Long term debt 345
Minority Interest 214
Stockholders' Equity 14,184 20,409
------- -------
$18,640 $24,761
======= =======
CONDENSED STATEMENT OF INCOME
Year Ended December 31,
---------------------------
1991 1992 1993
------- ------- -------
Costs and expenses $ (380) $ (807) $ (917)
------- ------- -------
Income before taxes, earnings of
unconsolidated affiliates,
extraordinary item and cumulative
effect of a change in accounting
principle 380 807 917
Provision for income taxes 147 278 454
------- ------- -------
Income before earnings of
unconsolidated affiliates,
extraordinary item and
cumulative effect of a change
in accounting principle 233 529 463
Earnings of unconsolidated
affiliates 6,434 5,616 7,775
------- ------- -------
Income before extraordinary item
and cumulative effect of a change
in accounting priniciple 6,667 6,145 8,238
Extraordinary item (5,715)
Cumulative effect of a change in
accounting principle 3,012
------- ------- -------
Net income $ 6,667 $ 3,442 $ 8,238
======= ======= =======
Income per common share
Primary
Income from continuing
operations $ .28 $ .41 $ .56
======= ======= =======
Income before extraordinary item and
cumulative effect of a change in
accounting principle $ .44 $ .41 $ .56
======= ======= =======
Cumulative effect of a change in
accounting principle $ .20
=======
Net income $ .44 $ .23 $ .56
======= ======= =======
Fully diluted
Income from continuing
operations $ .27 $ .41 $ .56
======= ======= =======
Income before extraordinary
item and cumulative effect
of a change in accounting
principle $ .43 $ .41 $ .56
======= ======= =======
Cumulative effect of a change in
accounting principle $ .20
=======
Net income $ .43 $ .23 $ .56
======= ======= =======
Weighted average common and common
equivalent shares outstanding
Primary 15,228 15,130 14,686
====== ====== ======
Fully diluted 15,339 15,130 14,686
====== ====== ======
CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31,
---------------------------
1991 1992 1993
------- ------- -------
Resources Provided:
Net income $ 6,667 $ 3,442 $ 8,238
Earnings of unconsolidated affiliates
excluding minority interest (6,434) (5,616) (7,775)
Depreciation 7 7 5
Changes in operating assets and
liabilities 534 2,560 (488)
------- ------- -------
774 393 (20)
Purchase and cancellation of
preferred and common stock (817) (243)
------- ------- -------
Net (decrease) increase in cash (43) 150 (20)
Cash balance, beginning of period 46 3 153
------- ------- -------
Cash balance, end of period $ 3 $ 153 $ 133
======= ======= =======
<PAGE>
<TABLE>
SCHEDULE VIII - ANALYSIS OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
(In thousands)
<CAPTION>
Column A Column B Column C Column D Column E
Description Balance at Additions Deductions Balance at
beginning of describe end of
period charged (credited) charged to other period
to costs and accounts - describe
expenses
<S> <C> <C> <C> <C> <C>
December 31, 1990 Balance $ 2,477
Provision $ (49)
Recoveries $ 110
Write-offs $ (457)
------- --------- ------- ------- -------
December 31, 1991 Balance $ 2,477 $ (49) $ 110 $ (457) $ 2,081
======= ========= ======= ======= =======
Provision $ (148)
Recoveries $ 23
Write-offs $ (386)
------- --------- ------- ------- -------
December 31, 1992 Balance $ 2,081 $ (148) $ 23 $ (386) $ 1,570
======= ========= ======= ======= =======
Provision $ 427
Recoveries $ 108
Write-offs $ (638)
------- --------- ------- ------- -------
December 31, 1993 Balance $ 1,570 $ 427 $ 108 $ (638) $ 1,467
======= ========= ======= ======= =======
</TABLE>
<PAGE>
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
Column A Column B
Charged to
Item (1) Costs and Expenses
------------------
(In thousands)
Maintenance and repairs
Year ended December 31, 1991 $ 7,922
========
Year ended December 31, 1992 $ 7,745
========
Year ended December 31, 1993 $ 6,328
========
(1) Other items are less than 1% of revenues or not applicable.
INDEX TO EXHIBITS
Exhibit No. Name
10.14 Second Amendment, dated as of December 28, 1993, to the
Credit Agreement.
10.15 1975 Non-Qualified Stock Option Plan, as amended.
10.17 Employment Agreement dated November 1, 1991, and amended
May 18, 1993, between Reeves Brothers, Inc. and Vito W. Lenoci.
10.18 Reeves Brothers, Inc. 401(a)(17) Plan, effective January 1, 1989.
10.19 Non-Qualified Stock Option Agreement, dated as of January 26, 1994,
between Reeves Industries, Inc. and James W. Hart.
11 Calculation of primary and fully diluted earnings per common share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Hart Holding Company Incorporated
SECOND AMENDMENT, dated as of December 28, 1993 (this
"Amendment"), to the Credit Agreement referred to below, among
REEVES BROTHERS, INC., a Delaware corporation (the "Company"),
REEVES INDUSTRIES, INC., a Delaware corporation (the "Parent"),
the several banks and other financial institutions from time to
time parties to the Credit Agreement referred to below (the
"Banks") and CHEMICAL BANK as agent for the Banks (in such
capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Company, the Parent, the Agent and the
Banks are parties to the Credit Agreement, dated as of August 6,
1992 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"; terms defined in the Credit
Agreement shall have their defined meanings when used herein,
unless otherwise defined herein);
WHEREAS, the Company and the Parent have requested, and
the Banks have agreed, subject to the terms and conditions of
this Amendment, to amend subsection 7.1(a) (Maintenance of
Current Ratio) of the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and
mutual agreements herein contained and for other good and
valuable consideration, the undersigned agree as follows:
1. Amendment to Subsection 7.l(a) (Maintenance of
Current Ratio). Subsection 7.1(a) of the Credit Agreement is
hereby amended by deleting clause (ii) thereof in its entirety
and substituting in lieu thereof the following new clause (ii):
"(ii) 2.00 to 1.0 at any time thereafter."
2. Representations; No Default. On and as of the date
hereof and after giving effect to this Amendment and the
transactions contemplated hereby, each of the Company and the
Parent hereby (i) confirms, reaffirms and restates the
representations and warranties set forth in Section 4 of the
Credit Agreement, except to the extent that such representations
and warranties relate solely to an earlier date in which case
each of the Company and the Parent hereby confirms, reaffirms and
restates such representations and warranties for such earlier
date, provided that the references to the Credit Agreement
therein shall be deemed to be to the Credit Agreement as amended
by this Amendment and (ii) represents that no Default or Event of
Default has occurred and is continuing.
3. Conditions Precedent to Effectiveness. This
Amendment shall become effective on the date (the "Amendment
Effective Date") on which all of the following conditions
precedent have been satisfied or waived:
(a) the Agent shall have received counterparts of this
Amendment executed by the Company, the Parent and the Banks;
(b) each of the representations and warranties made by
the Parent and its Subsidiaries in or pursuant to this
Amendment, the Credit Agreement as amended by this Amendment
and any other Loan Document to which it is a party and the
representations of the Parent and its Subsidiaries which are
contained in any certificate, document or financial or other
statement furnished under or in connection herewith or
therewith on or before the Amendment Effective Date shall be
true and correct in all material respects on and as of the
Amendment Effective Date as if made on and as of such date
both before and after giving effect hereto;
(c) no Default or Event of Default shall have occurred
and be continuing after giving effect to this Amendment and
the transactions contemplated hereby; and
(d) all corporate and other proceedings and all other
documents and legal matters in connection with the
transactions contemplated by this Amendment shall be
reasonably satisfactory in form and substance to the Agent
and its counsel.
4. Limited Effect. Except as expressly amended,
modified, waived or supplemented hereby, the provisions of the
Credit Agreement and other Loan Documents are and shall remain in
full force and effect and any amendment, modification, waiver or
supplement contained herein shall be limited precisely as drafted
and shall not constitute an amendment, modification, waiver or
supplement of any other terms or provisions of the Credit
Agreement or any other Loan Document.
5. Counterparts. This Amendment may be signed in any
number of counterparts, each of which shall constitute an
original, and all of which taken together shall constitute a
single agreement with the same effect as if the signature thereto
and hereto were upon the same instrument.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their respective duly
authorized officers as of the date first above written.
REEVES BROTHERS, INC.
By: /s/Richard W. Ball
Title: TREASURER
REEVES INDUSTRIES, INC.
By: /s/Richard W. Ball
Title: TREASURER
CHEMICAL BANK,
as Agent and as a Bank
By: /s/William Ewing, III
Title: MANAGING DIRECTOR
BANK OF BOSTON CONNECTICUT
By: /s/W. Lincoln Schoff
Title: VICE PRESIDENT
11/15/93
HART HOLDING COMPANY INCORPORATED
1975 NON-QUALIFIED STOCK OPTION PLAN, AS AMENDED
1. Purpose of the Plan: The Corporation is of the
opinion that its interest will be advanced by encouraging
and enabling eligible employees and other eligible persons
(as defined in Paragraph 4 hereof) in the service of the
Corporation and its Subsidiaries, as that term is defined in
Section 425 of the Internal Revenue Code of 1954, as
amended, now existing or hereafter acquired (the
"Subsidiaries") to acquire stock in the Corporation and
believes that the granting of options will stimulate the
efforts of such persons, strengthen their desire to remain
with the Corporation and its Subsidiaries, provide them with
a more direct interest in its welfare and assure a closer
identification between them and the Corporation. The
Corporation further believes that, in the event of business
acquisitions or combinations, the availability of stock
options will help the Corporation attract and retain key
management and staff of such businesses. Therefore, the
Corporation has adopted this 1975 Stock Option Plan, as
Amended (the "Plan") in furtherance of its objectives with
respect to such persons.
2. Amount of Stock Subject to the Plan: The total
number of shares of Common Stock of the Corporation which
may be sold pursuant to options granted under the Plan shall
be 13,000,000. The shares sold under the Plan may be either
authorized and unissued shares or issued shares reacquired
by the Corporation. In the event that any options granted
under the Plan shall terminate or expire for any reason
without having been exercised in full, the shares not
purchased under such options shall be again available for
options which may be granted pursuant to the Plan.
3. Administration: Except as herein otherwise
provided, the Plan shall be administered by a Committee
composed of at least two and not more than five Directors
who shall be appointed by the Board of Directors. The
Committee shall have the sole power to grant options
pursuant to the Plan except that any options granted to a
member of the Committee shall be granted subject to the
approval of the Board of Directors. All options shall be
evidenced by written instruments (which need not be
uniform). Subject to the express provisions and limitations
of the Plan, the Committee shall have authority in its
discretion to determine the individuals to whom options
shall be granted, the times when they shall receive them,
the option price of each option, the amount of bonus, if
any, to be granted in connection with the exercise of any
option, the period during which and terms on and conditions
under which each option may be exercised, and the number of
shares to be subject to each option.
Subject to the express provisions and limitations of
the Plan, the Committee shall also have authority to
construe the respective options and the Plan, to prescribe,
and amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions not specified in
or incorporated with the Plan to be included in the
respective options (which need not be uniform) and to make
all other determinations necessary or advisable for
administering the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency
in the Plan or in any option granted under the Plan in the
manner and to the extent that it shall deem expedient to
carry into effect, and it shall be the sole and final judge
of such expediency. All actions or determinations of the
Committee shall be by majority vote of its members and the
determination of the Committee on the matters referred to in
this Paragraph shall be conclusive. The Committee shall
report any action taken by it to the meeting of the Board of
Directors next following such action.
4. Eligibility: Key employees of the Corporation and
its Subsidiaries, independent contractors and consultants in
the service of the Corporation and its Subsidiaries, and
directors (regardless of whether they are also employees) of
the Corporation and its Subsidiaries, shall be eligible to
receive options hereunder.
5. Option Prices and Payment: The purchase price of
Common Stock provided under each option granted pursuant to
the Plan shall be set by the Committee and may not be less
than the par value of the Common Stock on the date of the
granting of the option. The purchase price shall be paid in
full in cash upon each exercise of an option or part thereof
and the optionee will make arrangements with the Corporation
for the withholding of all federal and state taxes required
by law to be withheld with respect to such exercise.
The proceeds of the sale of stock subject to the
options are to be added to the general funds of the
Corporation and used for its corporate purposes.
6. Period of Options and Certain Limitations on
Rights to Exercise: Each option shall expire in accordance
with the terms as set forth by the Committee in the Option
Agreement, provided, however, that except as provided in
Paragraph 8 hereof, with respect to options granted to
employees or directors of the Corporation, no holder of an
option may exercise his option unless at the time of
exercise he has been continuously (except for approved
leaves of absence) in the employ or the service of the
Corporation or a Subsidiary since the granting of his
option.
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Options may also include provisions (which need not be
uniform) designed to prevent violations of the Securities
Act of 1933 and the rules and regulations thereunder upon
the exercise of an option or the sale or other disposition
of the shares of Common Stock purchased on exercise of an
option.
No holder of any option or his legal representatives,
legatees or distributees, as the case may be, will be or
will be deemed to be a holder of any shares covered by the
option unless and until he has exercised the option as to
such shares, paid for such shares in full and made adequate
provision for withholding state and federal taxes and
received certificates representing such shares.
Each option granted pursuant to the Plan shall be
evidenced by a written Option Agreement, duly executed by an
officer of the Corporation or a member of the Committee and
the optionee, in such form and containing such provisions as
the Committee or Board of Directors may from time to time
authorize or approve.
7. Non-Transferability of options: No option granted
under the Plan shall be transferable otherwise than by will
or by the laws of descent and distribution, and an option
may be exercised during the lifetime of the employee to whom
it is granted only by him.
8. Termination of Employment or Service: If the
employment with the Corporation or a Subsidiary or service
of an employee, director or other person engaged by the
Corporation or a Subsidiary to whom an option has been
granted terminates for any reason other than by death, his
option shall terminate one year after the date of such
cessation of employment, directorship or service unless it
is expressly provided in his option agreement that said
option shall survive such termination of employment,
directorship or service for a stated period subsequent to
such cessation. If the optionee shall die during such
period following such cessation of employment, the person or
persons to whom his rights under the options shall pass by
will or the laws of descent and distribution shall have the
right, prior to the expiration of such period, to exercise
the option to the extent otherwise provided in the option
agreement. In the event of the death of the optionee while
in the employ or the service of the Corporation or a
Subsidiary and prior to the termination of an option
theretofore granted to him, such option or options may be
exercised by the person or persons to whom his rights under
the option shall pass by will or the laws of descent and
distribution at any time within a period of twelve months
after his death, or within such other period as expressly
provided in his option agreement, but only during the
original option term and only if and to the extent otherwise
3
provided in the option agreement. However, in no event
shall any option extend beyond the period for its expiration
or termination as described in Paragraph 6 hereof.
Options granted under the Plan shall not be affected by
any change of employment or service so long as the holder
continues in the employ or service of the Corporation or of
a Subsidiary. Nothing in the Plan or in any option granted
under it shall confer any right to continue in the employ or
service of the Corporation or any of its Subsidiaries or
interfere in any way with the right of the Corporation and
its Subsidiaries to terminate any employment or service at
any time.
9. Adjustments Upon Changes in Capitalization:
Notwithstanding any other provision of the Plan, in the
event of any changes in the outstanding Common Stock of the
Corporation by reason of stock dividends, stock splits,
recapitalizations, reclassifications, combination or
exchange of shares, reorganizations, mergers,
consolidations, offerings of subscription rights,
extraordinary dividends payable in stock of a corporation
other than the Corporation, or otherwise than in cash, and
the like, the aggregate number of shares available for
options under the Plan shall be appropriately adjusted by
the Committee or the Board of Directors whose determination
shall be conclusive. Furthermore, in the event of any such
change, except as set forth above, option agreements may,
but need not, contain such provisions as the Board of
Directors or the Committee shall, in its discretion,
determine to be appropriate for the adjustment of the number
of shares subject to each outstanding option, or the option
price, or both.
Anything herein to the contrary notwithstanding, in the
event that the Board of Directors shall at any time declare
it advisable to do so in connection with any proposed sale
or conveyance of all or substantially all of the property
and assets of the Corporation or of any proposed
consolidation or merger of the Corporation (unless the
Corporation shall be (i) the surviving corporation in such
merger, and (ii) stockholders of the Corporation immediately
prior to the merger remain stockholders of the surviving
corporation), the Corporation may give written notice to the
holder of any option that his option may be exercised only
within thirty (30) days after the date of such notice but
not thereafter, and all rights under said option which shall
not have been so exercised, shall terminate at the
expiration of such thirty (30) days, provided that the
proposed sale, conveyance, consolidation or merger to which
such notice shall relate shall be consummated within six (6)
months after the date of such notice. In the event such
notice shall have been given, any such option may be
exercised either in whole or in part notwithstanding the
4
fact that the optionee's continuous employment by the
Corporation may not at such time have equaled the period
required under the terms of the option for the exercise
thereof or any part thereof. If such proposed sale,
conveyance, consolidation or merger shall not be consummated
within the time above limited, no unexercised rights under
any option shall be affected by such notice except that such
option may not be exercised between the date of expiration
of such thirty (30) days and the date of the expiration of
such six (6) months. Notwithstanding the foregoing, the
Committee or the Board of Directors may in their discretion
provide in any option agreement in conjunction with or in
lieu of the foregoing, additional or other rights with
respect to any such sale, conveyance, consolidation or
merger.
10. Amendment and Termination: Unless the Plan
theretofore shall have been terminated as hereinafter
provided, the Plan shall terminate on July 31, 1997 and no
option under it shall be granted thereafter. The Committee
at any time prior to the date may terminate the Plan, or
make such changes in it and additions or amendments to it as
the Committee shall deem advisable; provided, however, that
except as provided in Paragraph 9 hereof, any change in or
addition or amendment to the Plan which shall
(a) increase the aggregate number of shares of Common
Stock of the Corporation which may be issued and
sold upon the exercise of options granted pursuant
to the Plan, or
(b) reduce the minimum purchase price per share of
Common Stock purchasable under any option granted
pursuant to the Plan,
shall be subject to approval by the stockholders of the
Corporation within twelve (12) months after its adoption or
the same shall become null and void.
No termination or amendment of the Plan may, without
the consent of the holder of any option then outstanding,
adversely affect the rights of such holder under the option.
11. Effectiveness of the Plan: The Plan shall become
effective upon adoption thereof by the vote in person or by
proxy of the holders of a majority of the outstanding shares
of Common Stock of the Corporation and shall remain
effective until terminated as provided in Paragraph 10
hereof.
Any option granted pursuant to the Plan after the
adoption by the Committee of any amendment to the Plan which
is required by the provisions of Paragraph 10 above to be
approved by the stockholders of the Corporation and which
5
could not have been granted but for such amendment shall, if
granted before such approval is obtained, be granted subject
to the obtaining of such approval, and if such approval is
not obtained within twelve (12) months after the adoption of
such amendment by the Committee, such option shall become
null and void.
12. Bonus: The Committee of the Board of Directors
may, in its discretion, provide in an option agreement that
a cash bonus shall be paid on the terms and subject to the
conditions of the option agreement to an optionee, or to any
person or persons entitled to exercise the option pursuant
to Paragraph 8 hereof, in connection with the exercise of
the option, or a portion thereof, provided, however, that
such cash bonus shall not exceed an amount equal to the
excess, if any, of the "fair market value," as hereinafter
defined, per share of the Common Stock on the date of
exercise over the option price per share multiplied by the
number of shares if Common Stock acquired pursuant to such
exercise. The Corporation shall have the right to deduct
from such cash bonus all applicable federal and state taxes
required by law to be withheld from all payments made
hereunder with respect to such bonus.
The "fair market value" of the Common Stock on the date
of exercise shall be deemed to be the average of the high
and low trade prices of the Common Stock on such day, or the
last trading day the Common Stock traded prior to the date
of exercise, on the principal stock exchange on which the
Common Stock is listed, or if not listed on an exchange then
the average between the closing bid and asked prices as
reported on NASDAQ or other inter-dealer quotation system.
In the event the Common Stock ceases to be publicly traded,
the "fair market value" shall be deemed to be the value set
by the Committee or the Board of Directors.
13. Indemnification of Directors: Any member of the
Committee and of the Board of Directors who is made, or
threatened to be made, a party to any action or proceeding,
whether civil or criminal, by reason of the fact that he is
or was a member of the Committee or of the Board of
Directors, in connection with the exercise of his duties
with respect to the Plan or any options granted hereunder,
shall be indemnified by the Corporation, and the Corporation
may advance his related expenses, to the full extent
permitted by law.
REEVES
REEVES INDUSTRIES, INC.
JAMES W. HART, JR. 1120 POST ROAD
PRESIDENT AND DARIEN, CT. 06820
CHIEF EXECUTIVE OFFICER (203) 655-6855
January 27, 1993
V. W. Lenoci
99 Stratford Road
Asheville, North Carolina 28804
Re: Employment Agreement
Dear Bill:
This will confirm that the Employment Agreement,
dated as of November 1, 1991, between Reeves Brothers, Inc.
and you, is amended in that Number 5, Additional Fringe
Benefits, will read as follows:
5. Financial and Tax Planning Costs up to
$10,000, including taxes.
All other terms of the Employment Agreement will remain the
same.
Please indicate your agreement to the foregoing by
executing the attached copy of this letter and returning it
to me.
Sincerely,
/s/ James W. Hart, Jr.
Agreed to:
/s/ V. W. Lenoci
V. W. Lenoci
May 18, 1993
EMPLOYMENT AGREEMENT
Vito W. Lenoci
EMPLOYMENT AGREEMENT dated as of November 1, 1991,
between REEVES BROTHERS, INC., a Delaware corporation having its
principal place of business at Highway 29 South, Post Office Box
1898, Spartanburg, S.C. 29304 (the "Employer") and Vito W. Lenoci
residing at 99 Stratford Road, Asheville, N.C. 28804 (the
"Employee").
WHEREAS, the Employer desires to obtain the services of
the Employee on the terms and conditions hereinafter stated, and
the Employee is willing to furnish his services on such terms and
conditions;
NOW, THEREFORE, the parties agree as follows:
1. Employment. The Employer hereby employs the
Employee in the position designated in Paragraph 6, and the
Employee hereby accepts such employment on the terms and
conditions hereinafter set forth.
2. Term. Subject to the provisions for earlier
termination as hereinafter provided in Paragraph 7 of this
Agreement, the term of this Agreement shall be five (5) years,
unless extended as set forth below, commencing on November 1,
1991 and ending October 31, 1996. The Term of this Agreement
shall be automatically extended for two one-year periods unless
on or before a date 120 days prior to the end of the original
termination date, or any subsequent termination date, the
Employer or Employee provides written notice to the other party
that they do not intend to extend the Agreement.
3. Compensation. For all services rendered by the
Employee under this Agreement and for the agreements of the
Employee contained in Paragraphs 8 and 9, the Employer shall
during the Employment Term compensate the Employee as follows:
(a) Base Salary. The Employer shall during the
Employment Term pay the Employee a base salary of $229,000 per
year, payable in equal semi-monthly installments on the fifteenth
and last days of each month. Such Base Salary shall be subject
to adjustments pursuant to the Employer's salary administration
program.
(b) Incentive Compensation. In addition to the
foregoing base salary, the Employee shall receive additional
compensation as provided under the Employer's Management
Incentive Bonus Plan of the Employer for its Corporate and
Divisional Officers, as in effect from time to time pursuant to
resolutions adopted by the Board of Directors of the Employer, or
any successor thereto.
4. Expenses. The Employee shall be entitled to
receive reimbursement for reasonable out-of-pocket expenses
incurred in connection with the performance of the Employee's
duties hereunder upon presentation from time to time of itemized
accounts of, and customary receipts for, such expenses.
5. Benefits. During the Employment Term, the
Employee shall receive benefits as described in Exhibit A hereto
and such other general and specific benefits which shall not be
less than those generally provided to Employees in the position
and status of Employee by the Employer on November 1, 1991. The
Employee shall be furnished office space, working facilities,
secretarial and other services and facilities suitable to his
position and adequate for the performance of his duties. The
Employee shall be entitled each year during the Employment Term
to a vacation of four weeks, during which time his compensation
will be paid in full.
6. Duties. The Employee shall be employed as
President and Chief Executive Officer of the Industrial Coated
Fabrics Division of the Employer and in such capacity as may be
determined by the Board of Directors of Employer, and shall have
the authority and powers to perform all duties as are customary
to such offices, subject to the control and direction of the
Board of Directors of the Employer. The Employee shall also
serve as a director of the Employer, Reeves Industries, Inc.
("Reeves Industries") and any of their respective subsidiaries,
if elected by the shareholders or appointed by the Board of
Directors of the particular corporation. The Employee agrees to
use his best efforts, skill and experience in connection with his
employment, shall devote faithful service, including
substantially all of his business time and attention, to such
employment and shall not engage in any activity of any nature
whatsoever which would in any way materially interfere with his
so devoting his service, business time and attention to his
duties hereunder.
7. Termination of Employment Prior to Expiration of
the Employment Term. This Agreement may be terminated prior to
the end of the Employment Term, as set forth below.
(a) Death. In the event of the Employee's death
during the Employment Term, all of the obligations of the
Employer hereunder shall be terminated as of the last day of the
month in which death occurs, except that Employer shall pay to
the Employee's estate for one year from the date of death, the
Base Salary payable to the Employee pursuant to Paragraph
3 (a) hereof (as the same may have been adjusted from time to
time).
(b) Disability. In the event that the Employee shall
be unable to perform his duties during the Employment Term by
reason of any adjudicated incompetency or permanent disability,
-2-
the Employer may, on thirty (30) days' written notice, terminate
this Agreement. Permanent disability shall have the meaning set
forth in the definition of total permanent disability (or such
term having similar import) contained in any disability insurance
policy purchased by the Employer to cover the Employee and an
Employee shall be considered permanently disabled for purposes of
this Agreement when so considered by the insurance company
obligated under such policy. In addition, regardless of whether
any such policy is in force at the applicable time, permanent
disability shall mean the inability of an Employee due to
accident or illness to perform full time active services on
behalf of the Employer (x) for a continuous one-year period or
(y) if a medical doctor shall certify to the satisfaction of the
Board of Directors of the Employer that such inability shall
continue for at least one year after the date of such accident or
illness. In the event of such termination by reason of the
Employee's illness or incapacity, the Employer shall pay to the
Employee or the Employee's estate for the shorter of (i) 215 days
from the date of termination or (ii) the remainder of the
Employment Term, the Base Salary payable to the Employee pursuant
to Paragraph 3(a) hereof (as the same may have been adjusted from
time to time). Any payment hereunder may be funded by the
Employer through disability insurance paid for by the Employer.
(c) Acts Not in the Best Interests of the Employer.
The Employer shall have the right to terminate this Agreement
upon a finding by the Employer's Board of Directors that the
Employee has acted in a manner which is not in the best interests
of the Employer. In the event of such termination by reason of
the Employee's acting in a manner which is not in the best
interests of the Employer, the Employee shall receive no
compensation or benefits (except as required by law) after the
date of termination.
(d) Right of the Employer to Terminate for Other
Reasons. The Employer shall have the right to terminate this
Agreement for any other reason in addition to those specified in
subparagraphs (a) , (b) and (c) of this Paragraph 7 upon the
giving of sixty (60) days' written notice to the Employee. In
the event of such termination by the Employer other than pursuant
to subparagraphs (a), (b) and (c) of this Paragraph 7, the
Employer shall pay to the Employee or the Employee's estate for
the remainder of the Employment Term, the Base Salary payable to
the Employee pursuant to Paragraph 3(a) hereof (as the same may
have been adjusted from time to time), reduced by an amount equal
to any compensation received during such remainder of the
Employment Term, as the case may be, by the Employee in
connection with any new employment.
(e) Right of the Employee to Terminate this Agreement.
Subject to the provisions of paragraph 8 hereof, the Employee
shall have the right to terminate this Agreement for any reason
upon the giving of sixty (60) days' written notice to the
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Employer. In the event of such termination by the Employee, the
Employee shall be entitled to no further compensation or benefits
(except as required by law) under this Agreement after the date
of termination.
8. Restrictive Covenants. During the Employment Term
the Employee shall not directly or indirectly own, manage,
operate, control, be employed by, participate in, or be connected
in any manner with the ownership, management, operation or
control of any business other than the Employer or Reeves
Industries and their respective subsidiaries. The Employee may,
without being deemed to violate any provision hereof, serve
during the Employment Term on the boards of banks, charitable,
civic or social organizations and acquire not more than five
percent (5%) of the outstanding shares of publicly-held
corporations. Notwithstanding anything to the contrary herein
contained, the ownership, management, control or operation of,
employment by, participation in, or any other connection with the
ownership, management, operation or control of any business by
any member of the Employee's family shall not be deemed to cause
Employee to be in violation of any provision hereof. During a
period of one year following termination of Employee's employment
under this Agreement, the Employee shall not (i) directly or
indirectly, as employee, officer, director, stockholder, partner
or otherwise, own, manage, operate, control, be employed by,
participate in, or be connected in any manner with, the
ownership, management, operation or control of any business or
enterprise which is in competition with any business carried on,
or in active contemplation of being carried on, by the Employer,
Reeves Industries or any of their subsidiaries or affiliates at
such time; provided, however, that ownership of not more than
five percent (5%) of the outstanding shares of a publicly-held
corporation shall not be deemed to violate any provision hereof;
(ii) directly or indirectly employ, retain or negotiate with
respect to employment or retention of any person whom the
Employer, Reeves Industries, or any of their subsidiaries or
affiliates has employed or retained; or (iii) directly or
indirectly sell, offer to sell, or negotiate with respect to
orders or contracts for, any product or service similar to a
product or service now sold or offered by the Employer, Reeves
Industries, or any of their subsidiaries or affiliates to or with
anyone with whom the Employer, Reeves Industries, or any of their
subsidiaries or affiliates has so dealt. In connection with the
foregoing restrictive covenant, Employer shall continue to pay
Employee the Base Salary payable to Employee pursuant to
paragraph 3 (a) (as the same may have been adjusted from time to
time). Notwithstanding anything in the foregoing to the
contrary, the aforesaid restrictions on the Employee shall not
apply for periods after termination of employment if the
Employee's termination resulted from wrongful discharge by the
Employer or from the Employee's resignation by reason of the
Employer' s material wrongful act or material violation of this
Agreement, provided that the Employer has not cured such wrongful
-4-
discharge, wrongful act or wrongful violation within thirty (30)
days after notice thereof by the Employee. The restrictive
covenants of this paragraph shall apply for one year after
termination of employment without payment of any compensation if
Employee terminates his employment pursuant to paragraph 7(e) or
if Employee is terminated pursuant to paragraph 7 (c) . In the
event of an actual or threatened breach by the Employee of the
provisions of this paragraph, the Employer shall be entitled to
an injunction restraining the Employee from owning, managing,
operating, controlling, being employed by, participating in, or
being in any way so connected with any such business or from
soliciting employees or customers of the Employer as herein
provided. Nothing herein stated shall be construed as prohibiting
the Employer from pursuing any other remedies available to the
Employer for such breach or threatened breach, including the
recovery of damages from the Employee.
9. Disclosure of Information. The Employee
recognizes and acknowledges that the lists of the Employer's
customers, suppliers, formulas, processes and other confidential
information (collectively "Confidential Information") as they may
exist from time to time, are valuable, special, and unique assets
of the Employer's business. The Employee agrees that he will
not, during or at any time after the Employment Term,
intentionally disclose any Confidential Information, to any
person, firm, corporation, association or other entity for any
reason or purpose whatsoever, except as may be authorized by the
Employer's Board of Directors. In the event of a breach or
threatened breach by the Employee of the provisions of this
paragraph, the Employer shall be entitled to an injunction
restraining the Employee from disclosing, in whole or in part,
any Confidential Information, or from rendering any services to
any person, firm, corporation, association or other entity to
whom such Confidential Information, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein shall
be construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Employee.
10. Notices. Any notice required or permitted to be
given under this Agreement shall be sufficient if in writing and
if sent by registered mail to the addresses of the parties set
forth above or to such other addresses as may subsequently be
furnished in writing by one party to the other.
11. Waivers. The waiver by either party hereto of any
breach or requirement of any provision of this Agreement by the
other party shall not operate or be construed as a waiver of any
subsequent breach or requirement by such party, whether similar
or different.
12. Assignment. The rights and obligations of the
Employer under this Agreement shall inure to the benefit of and
-5-
shall be binding upon the successors and assigns of the Employer.
In the event of merger, consolidation or liquidation of the
Employer, or in the event of a sale or transfer of substantially
all the operating assets of the Employer to any other person,
firm, corporation, association or other entity, the provisions
hereof shall inure to the benefit of, and be binding upon, the
surviving corporation or such purchaser or transferee, as the
case may be. Any assignment of this Agreement by the Employer
shall not relieve or release the Employer from any of its
obligations set forth herein.
13. Entire Agreement. This Agreement contains the
entire agreement of the parties with respect to the subject
matter hereof, and all prior and other agreements between them,
oral or written, concerning the same subject matter are merged
into this Agreement. Any prior agreement relating to the
employment of Employee by Employer is terminated as of the
effective date hereof.
14. Amendments. This Agreement may not be amended or
modified except by a writing executed by the Employer and the
Employee.
15. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written.
REEVES BROTHERS, INC.
By /s/ James W. Hart, Jr.
Executive Vice President
/s/ Vito W. Lenoci
Employee: Vito W. Lenoci
-6-
Exhibit A to
Employment Agreement
of Vito W. Lenoci
Additional Fringe Benefits
1. Supplemental Executive Retirement Plan (SERP for 401(A)(17))
2. Annual Physical
3. Medical Reimbursements
4. Spouse Travel on Selected Business Trips
5. Financial and Tax Planning Costs up to $5000, including
taxes
THE REEVES BROTHERS, INC.
401(a)(17) PLAN
Effective January 1, 1989
<PAGE>
Definitions............................................................1
Section 1.01. Beneficiary...............................1
Section 1.02. Board.....................................1
Section 1.03. Code......................................1
Section 1.04. Committee.................................1
Section 1.05. Company...................................1
Section 1.06. Employee..................................1
Section 1.07. ERISA.....................................1
Section 1.08. Participating Affiliated Companies........1
Section 1.09. Pension Plan..............................2
Section 1.10. Plan......................................2
Section 1.11. Plan Year...............................2
Purpose of Plan........................................................3
Section 2.01. Purpose..........................................3
Eligibility............................................................4
Section 3.01. Eligibility......................................4
Section 3.02. Limitation on Eligibility........................4
Benefits...............................................................5
Section 4.01. Amount of Benefits...............................5
Section 4.02. Pension Plan Benefits............................5
Section 4.03. Form and Time of Benefit Payments................6
Section 4.04. Beneficiary in the Event of Death................6
Section 4.05. Benefits Unfunded................................7
Administration.........................................................8
Section 5.01. Duties of Committee..............................8
Section 5.02. Finality of Decisions............................8
Amendment and Termination..............................................9
Section 6.01. Amendment and Termination........................9
Section 6.02. Contractual Obligation...........................9
Miscellaneous.........................................................10
Section 7.01. No Employment Rights............................10
Section 7.02. Assignment......................................10
Section 7.03. Law Applicable..................................10
<PAGE>
THE REEVES BROTHERS, INC.
401(a)(17) PLAN
ARTICLE I
Definitions
The words and phrases defined hereinafter shall have the following
meaning when capitalized unless the context otherwise requires:
Section 1.01. Beneficiary. The person or persons named under the
provisions of Section 4.04 of this Plan.
Section 1.02. Board. The Board of Directors of the Company.
Section 1.03. Code. The Internal Revenue Code of 1986, as amended,
or as it may be amended from time to time.
Section 1.04. Committee. The Pension Committee described in Article
7 of the Pension Plan.
Section 1.05. Company. Reeves Brothers, Inc., a Delaware
corporation, or any successor corporation which agrees to assume the duties
of the Company hereunder.
Section 1.06. Employee. A participant in the Pension Plan who is
employed by the Company or one or more Participating Affiliated
Companies.
Section 1.07. ERISA. The Employee Retirement Income Security Act
of 1974, as amended, or as it may be amended.
Section 1.08. Participating Affiliated Companies. Any affiliate of the
Company designated by the Board as a participating employer under the
Pension Plan.
Section 1.09. Pension Plan. The Reeves Brothers, Inc. Pension Plan
for Salaried Employees.
Section 1.10. Plan. The Reeves Brothers, Inc. 401(a)(17) Plan.
Section 1.11. Plan Year. The calendar year.
<PAGE>
ARTICLE 2
Purpose of Plan
Section 2.01. Purpose. The purpose of this Plan is simply to restore
to employees of the Company the benefits they lose under the Pension Plan as a
result of the compensation limit in section 401(a)(17) of the Code ("section
401(a)(17)") and shall be construed accordingly.
<PAGE>
ARTICLE 3
Eligibility
Section 3.01. Eligibility. Any Employee or Beneficiary eligible to
receive benefits from the Pension Plan shall be eligible to receive benefits
under this Plan if (a) his or her benefits cannot be fully provided by the
Pension Plan because of provisions thereof implementing section 401(a)(17)
and (b) they are designated in Appendix A.
Section 3.02. Limitation on Eligibility. Notwithstanding Section 3.01,
no benefits shall be paid an Employee or his or her Beneficiary unless the
Employee retires under the Normal Retirement, Early Retirement, Vested
Deferred or Disability Retirement Pension sections of the Pension Plan, or
dies while employed by the Company (or Participating Affiliated
Companies) under circumstances that entitle his Beneficiary to Death
Benefits under the Pension Plan.
<PAGE>
ARTICLE 4
Benefits
Section 4.01. Amount of Benefits. The benefit payable under this Plan
to an Employee (or his or her Beneficiary) will equal the benefit, if any,
which would have been payable to the Employee (or his or her Beneficiary
as the case may be) under the terms of the Pension Plan, but for the
restrictions of section 401(a)(17) and section 415 of the Code ("section
415"), less the amounts described in (b).
(a) Benefits under this Plan will only be paid to supplement benefit
payments actually made from the Pension Plan. If benefits are not payable
under a Pension Plan because the Employee has failed to vest, or because the
Pension Plan is terminated or for any other reason, no payments will be
made under this Plan with respect to such Pension Plan.
(b) The benefits payable under this Plan will be reduced by the
combined amounts of "Pension Plan Benefits" described in Section 4.02 and
the amount of benefits which would have been payable to the Employee (or
his or her Beneficiary as the case may be) under the terms of the Pension
Plan, but for the restrictions of section 415.
Section 4.02. Pension Plan Benefits. The term "Pension Plan
Benefits" generally means the benefits actually payable to an Employee or
Beneficiary under the Pension Plan. However, this Plan is only intended to
remedy benefit reductions caused by the operation of section 401 (a)(17)
and not reductions caused for any other reason. In those instances where
pension benefits are reduced for some other reason, the term "Pension Plan
Benefits" shall be deemed to mean the benefits that would have been
actually payable but for such other reason.
Examples of such other reasons include, but are not limited to, the
following:
(a) A reduction in pension benefits as a result of a distress
termination (as described in ERISA section 4041(c) or any comparable
successor provision of law) of the Pension Plan. In such a case, the
Pension Plan Benefits will be deemed to refer to the payments that
would have been made from the Pension Plan had it terminated on a
fully funded basis as a standard termination (as described in ERISA
section 4041(b) or any comparable successor provision of law).
(b) A reduction of accrued benefits as permitted under section
412(c)(8) of the Code, or any comparable successor provision of
law.
(c) A reduction of pension benefits as a result of payment of
all or a portion of an Employee's benefits to a third party on behalf
of or with respect to an Employee.
Section 4.03. Form and Time of Benefit Payments. Benefits due under
this Plan shall be paid at such time or times following the Employee's
retirement or death as may be selected by the Committee in its sole
discretion from among the options available under the Pension Plan. In no
event will benefits under this Plan be payable earlier than benefits under the
Pension Plan.
Section 4.04. Beneficiary in the Event of Death. Upon the death of an
Employee, any remaining benefits due under this Plan to an Employee shall
be distributed to (1) the Beneficiary designated by the Employee under the
Pension Plan, or if none, (2) the Beneficiary determined in accordance with
Section 5.01 of the Pension Plan.
Section 4.05. Benefits Unfunded. Benefits payable under this Plan
shall be paid by the Company each year out of its general assets and shall not
be funded in any manner. The Company may enter into separate written
agreements to provide for the funding of all or part of the benefits under
this Plan.
<PAGE>
ARTICLE 5
Administration
Section 5.01. Duties of Committee. This Plan shall be administered by
the Committee in accordance with its terms and purposes. The Committee
shall have full discretionary authority to determine eligibility, to construe
and interpret the terms of the Plan, including the power to remedy possible
ambiguities, inconsistencies or omissions, and to determine the amount and
manner of payment of the benefits due to or on behalf of each Employee
and/or his or her Beneficiary from this Plan.
Section 5.02. Finality of Decisions. The decisions made by and the
actions taken by the Committee in the administration of this Plan shall be
final and conclusive on all persons, and the members of the Committee shall
not be subject to individual liability with respect to this Plan. The Committee
shall provide for appeals of claim denials as required by ERISA section 503.
<PAGE>
ARTICLE 6
Amendment and Termination
Section 6.01. Amendment and Termination. While the Company
intends to maintain this Plan in conjunction with the Pension Plan for as long
as necessary, the Company reserves the right to amend and/or terminate the
Plan at any time for whatever reasons it may deem appropriate.
Section 6.02. Contractual Obligation. Notwithstanding Section 6.01,
the Company intends to assume a contractual commitment to pay the benefits
under this Plan, to the extent they have accrued prior to amendment or
termination under section 6.01, to the extent it is financially capable of
meeting such obligations.
<PAGE>
ARTICLE 7
Miscellaneous
Section 7.01. No Employment Rights. Nothing contained in this Plan
shall be construed as a contract of employment between the Company or any
Participating Affiliated Companies and any Employee, or as a right of any
Employee to be continued in employment or as a limitation of the right of
the Company or any Participating Affiliated Companies to discharge any
Employee with or without cause.
Section 7.02. Assignment. The benefits payable under this Plan may
not be assigned or alienated.
Section 7.03. Law Applicable. This Plan shall be governed by the laws
of the State of New York.
REEVES BROTHERS, INC.
By /s/Steve W. Hart
ATTEST:
/s/David L. Dephtereos
<PAGE>
APPENDIX A
Vito W. Lenoci
Anthony L. Cartagine
REEVES INDUSTRIES, INC.
Non-Qualified Stock Option Agreement
THIS AGREEMENT is entered into by and between REEVES
INDUSTRIES, INC., a Delaware Corporation (the "Company"), and
JAMES W. HART (the "Optionee").
W I T N E S S E T H
WHEREAS, Optionee has provided continuous and valuable
service to the Company as an officer and/or director since 1986;
WHEREAS, the Board of Directors of the Company has
determined that it is in the Company's best interest to issue to
the Optionee an option in consideration of his continued service
to the Company;
WHEREAS, to secure the continued loyal services of
Optionee into the future, the Board of Directors of the Company
has granted to Optionee, affective January 15, 1994 (the "Grant
Date"), a non-qualified stock option (the "Option") to purchase
shares of the Common Stock, par value One Cent ($.01) per share
(the "Common Stock"), of the Company upon the terms and
conditions hereinafter stated;
WHEREAS, Optionee has agreed to continue to provide
services to the Company as Chairman of the Board and in such
other capacity as requested by the Board of Directors on such
terms and conditions as are agreed to by Optionee and the Company
for three years following the Grant Date;
NOW, THEREFORE, in consideration of the covenants
herein set forth, the parties agree as follows:
I . Shares; Price. This Agreement hereby evidences
the Option granted to Optionee effective as of the Grant Date, to
purchase, upon and subject to the terms and conditions herein
stated all or any part of an aggregate of Three Million Eight
Hundred Thousand (3,800,000) shares of Common Stock of the
Company. This Option shall (i) be immediately exercisable (in
whole or in part) for 1,400,000 shares at the exercise price of
$.56; (ii) be exercisable (in whole or in part) for an additional
1,400,000 shares on or after the first anniversary of the Grant
Date at the exercise price of $.75 per share; and (iii) be
exercisable (in whole or in part) for an additional 1,000,000
shares on or after the second anniversary of the Grant Date at
the exercise price of $1.00 per share.
2. Term of Option. This option and all rights
hereunder shall expire on December 31, 2023.
3. Exercise. This Option may be exercised, as to any
or all shares covered by this Option, at any time after the
exercise dates set forth in Paragraph 1 above and prior to the
expiration or termination of this Option by delivery to the
Company at its principal office of (a) written notice of exercise
of this Option, stating the number of shares then being purchased
hereunder; (b) a check or cash in the amount of the full purchase
price of such shares; (c) the written statement provided for in
Section 7 hereof; and (d) such other documents or instruments as
-2-
may be required by any then applicable federal or state laws or
regulations, or regulatory agencies pertaining to this option,
any exercise thereof and/or any offer, issue, sale or purchase of
any shares covered by this option. At the time of the exercise
of this Option, Optionee shall make arrangements which are
acceptable to the Board of Directors of the Company, in its sole
discretion, for the withholding of federal and state taxes
required by law to be withheld with respect to such exercise.
Not less than 5,000 shares may be purchased at any one time.
After the Company has received all of the foregoing, the Company
shall proceed with reasonable promptness to issue the shares so
purchased upon such exercise of the Option.
4. Termination of Employment or Service. The Option
granted hereunder shall survive any termination of optionee's
employment or service with the Company or a subsidiary and may be
exercised by Optionee in accordance with Section 3 hereof,
notwithstanding such termination of employment or service, for a
period ending (i) ten years after such termination or until
December 31, 2023, whichever first occurs if such termination is
prior to Optionee's 65th birthday and (ii) December 31, 2023, if
such termination is on or after Optionee's 65th birthday;
provided however, if Optionee shall quit the employ of the
Company without cause prior to the second anniversary of the
Grant Date the total number of shares of Common Stock subject to
this Option shall be reduced to the number of shares that the
Option is exercisable for at the time of Optionee's resignation.
-3-
Notwithstanding any other provision contained herein, if
Optionee shall die or become unable to perform service for the
Company as a result of a physical or mental disability, this
option shall become immediately exercisable in its entirety, and
his personal representative or the person entitled to succeed to
his rights hereunder shall have the right, at any time prior to
December 31, 2023, to exercise this Option in full. However, in
no event shall this option extend beyond the period of its
expiration or termination as described in Section 2 hereof. No
provision of this Option shall confer any right to continue in
the employ or service of the Company or any of its subsidiaries
or interfere in any way with the right of the Company and its
subsidiaries to terminate any employment or service at any time.
5. No Assignment. This Option shall not be
assignable or transferable except by will or by the laws of
descent and distribution and shall be exercisable during his
lifetime only by Optionee.
6. No Rights as Stockholder. Optionee shall have no
right as a stockholder with respect to the Common Stock covered
by the Option until the date of the issuance of a stock
certificate or stock certificates to him. Except as provided in
Section 10 hereof, no adjustment will be made for dividends or
other rights for which the record date (or if there is no record
date established, then the date established for the distribution
of such dividend or right) is prior to the date such stock
certificates are issued.
-4-
7. Shares Purchased for Investment. Optionee
represents and agrees that if he exercises this Option in whole
or in part, he will acquire the shares upon such exercise for the
purpose of investment and not with a view to their resale or
distribution, and Optionee agrees that, if requested by the
Company so to do, upon each exercise of this Option, Optionee or
any person or persons entitled to exercise this option pursuant
to the provisions of Section 4 hereof shall furnish to the
Company a written statement that Optionee or such person or
persons are acquiring such shares upon exercise for purposes of
investment and not with a view to their resale or distribution.
No shares shall be purchased and the Company shall have no
obligation to issue any shares, upon any exercise of this option
unless and until: (a) any then applicable requirement of state
and federal laws and regulatory agencies pertaining to this
Option, and exercise thereof and/or the offer, issue, sale or
purchase of any shares covered by this option shall have been
fully complied with to the satisfaction of the Company and its
counsel; and (b) if requested by the Company so to do, upon each
exercise of this Option, Optionee or any person or persons
entitled to exercise this Option pursuant to the provisions of
Section 4 hereof, shall have furnished to the Company a written
statement to the affect that such shares are being acquired upon
such exercise for the purpose of investment and not with a view
to their resale or distribution, such written statement to be
satisfactory in form and substance to the Company. The Company
may, at its option, place a legend on each certificate
representing shares purchased upon exercise of this Option,
stating, in effect, that such shares have not been registered
under the Securities Act of 1933, as amended (the "Act"), and
that the transferability thereof is restricted. If the shares
represented by this option are registered under the Act, either
before or after any exercise of this option (in whole or in
part) , the Board of Directors shall relieve Optionee of the
foregoing investment representations and agreements.
8. Bonus. In connection with the exercise of all or
any part of this Option pursuant to Section 3, Optionee or any
person or persons entitled to exercise this option under Section
4 hereof may, in the discretion of the Board of Directors, be
paid a cash bonus equal to an amount up to the excess, if any, of
the fair market value per share of the Common Stock of the
Company on the date of exercise over the Option price per share
multiplied by the number of shares of Common Stock acquired
pursuant to such exercise. Such bonus shall be paid not later
than 90 days after the date of the exercise of the Option. The
Company shall have the right to deduct all applicable federal and
state taxes required by law to be withheld from all payments made
hereunder with respect to such bonus. A bonus in such amount
shall, in the discretion of the Board of Directors, be paid in
connection with each exercise of this option otherwise allowable
hereunder.
9. Modificaions and Termination. The rights of
Optionee are not subject to modification and termination except
with the written consent of the Optionee, or, after his death,
his successor or heir.
10. Anti-Dilution Rights. In the event of any change
in outstanding Common Stock of the Company by reason of a stock
dividend, recapitalization, merger, consolidation, split-up,
combination or exchange of shares, or the issuance on a pro rata
basis to stockholders of any rights, warrants or options to
acquire stock, or any other change in the capitalization of the
Company, the aggregate number of shares subject to this Option,
and the Option price, shall be appropriately adjusted by the
Board of Directors of the Company, whose determination shall be
conclusive.
11. Registration Rights. The holders of the shares
issuable under the Option shall have the registration rights set
forth in Appendix 1 hereto with respect to such shares.
12. Purpose of this Option. The Company is of the
opinion that the granting of the Option to Optionee will
stimulate the effort of Optionee, strengthen his desire to remain
in the active service of the Company and provide him with a more
direct interest in the Company and thereby further the objective
of the Company for the benefit of all the stockholders.
13. Miscellaneous. Section and other headings are
included herein for reference purposes only and shall not be
construed or interpreted as part of this Agreement. Wherever and
-7-
whenever the context of this Agreement shall so require, the
gender of any noun or pronoun shall include both the
masculine and feminine and the singular shall include the
plural and the plural shall include the singular.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the 26th day of January, 1994.
REEVES INDUSTRIES, INC
By:/s/James W. Hart
Title: Chairman
OPTIONEE
/s/James W. Hart
James W. Hart
APPENDIX 1
REGISTRATION RIGHTS
A. Obligations of Company. The Company shall use its
best efforts to cause a registration statement on Form S-8 (or
any successor form) to be filed with the Securities and Exchange
Commission (the "SEC") and declared effective under the
Securities Act of 1933, as amended (the "Act"), relating to the
shares underlying the Option to which these registration rights
are attached (the "Shares") prior to the expiration of the
Option. The foregoing obligation of the Company is not
contingent upon a request from the holder (the "Holder") of the
Option (or the Shares, in the event the option has been
exercised) and the Company shall give the Holder prompt notice of
the filing and effectiveness of the registration statement on
Form S-8. The Company's obligations under this provision are
subject to the other terms of this Appendix 1 including those
terms relating to expenses of registration.
B. Piggy-back Registration Rights. In the event that
the Company, following the exercise of the Option to which these
right apply, files a registration statement under the Act
relating to the offer of its common stock for cash, except for
offers in connection with an employee benefit plan of the
Company, an acquisition, merger or similar transaction, the
Company shall give the Holder of the Shares written notice of the
proposed filing at least 15 days in advance thereof and if,
within 10 days after the Holder receives such notice, the Company
is notified in writing from the Holder that he wishes to include
the Shares in such registration statement for sale thereunder,
the Company shall use its best efforts to cause the Shares to be
included in such registration statement; provided, however, the
Company shall have no such duty unless the shares sought to be
included in such registration statement equal not less than
50,000 shares. In connection with such underwriting, the Holder
agrees to enter into an appropriate underwriting agreement with
the Company and the principal underwriter.
C. Obligations of Optionee. The Holder shall furnish
to the Company in writing all information required by the Act and
the rules and regulations of the SEC thereunder relating to the
proposed distribution of the Holder's Shares or any other matters
required to be disclosed with respect to Holder in the
registration statement or prospectus.
D. Terms and Conditions of the Company's Obligations.
The obligations of the Company and Holder under this agreement
shall be subject to the following additional terms and
conditions. The Company shall: (i) except with respect to a
registration statement on Form S-8 under Section A, not be
obligated to register shares if counsel for the Company renders a
written opinion that registration of the shares is not required
under the provisions of the Act in connection with a public sale
thereof; (ii) not be obligated to keep any registration statement
in effect for more than a reasonable length of time following the
effective date of any such registration statement and in no event
longer than 120 days from its effective date and may deregister
all or a portion of the shares covered thereby after such time;
and (iii) be supplied by the Holder with any information
regarding the Holder required to be stated in the registration
statement and in connection with sales pursuant thereto. The
registration rights set forth herein expire with respect to
Shares which are transferred by the Optionee as set forth in the
Option Agreement or any subsequent Holder upon the transfer of
such Shares other than by a private placement.
E. Expenses of Registration. If shares are
registered under this agreement, the Holder shall, except with
respect to a registration statement on Form S-8 under Section A,
pay its pro rata share of the fees (including filing fees with
any governmental or regulatory body), underwriting discounts and
commissions attributable to the shares included under the
registration statement pursuant to this agreement; provided,
however, that if the registration statement is withdrawn without
the concurrence of the Holder, then such fees and expenses shall
be paid by the Company. To the extent permitted by state or
federal securities law, the Company shall pay all additional
costs in preparing and filing the registration statement,
including fees of the Company's counsel and auditors, the costs
of printing and distribution.
F. Change in SEC Procedures and Forms. In the event
the SEC shall adopt new procedures or forms which authorize or
allow other amounts of secondary distribution which may require
action by the Company other than registration under the Act, the
Company and the Holder agree that the foregoing provisions shall
apply, as nearly as may be practicable, to such new procedures or
forms.
EXHIBIT 11. CALCULATION OF PRIMARY EARNINGS PER COMMON SHARE
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
(In thousands, except per share data)
Year Ended December 31,
----------------------------
1991 1992 1993
-------- -------- --------
Income from continuing operations $ 4,214 $ 6,145 $ 8,238
-------- -------- --------
Income from continuing operations
attributable to common shares 4,214 6,145 8,238
Net gain on disposal of
discontinued operations 2,830
Minority interest (377)
-------- -------- --------
Income before extraordinary item and
cumulative effect of a change in
accounting principle attributable
to common shares 6,667 6,145 8,238
Extraordinary loss from early
extinguishment of debt (5,715)
Cumulative effect of a change
in accounting principle 3,012
-------- -------- --------
Net income attributable to
common shares $ 6,667 $ 3,442 $ 8,238
======== ======== ========
PRIMARY EARNINGS PER COMMON SHARE:
Income from continuing operations $ .28 $ .41 $ .56
======== ======== ========
Income before extraordinary item
and cumulative effect of a change
in accounting principle $ .44 $ .41 $ .56
======== ======== ========
Cumulative effect of a change
in accounting principle $ .20
========
Net income $ .44 $ .23 $ .56
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES 15,228 15,130 14,686
======== ======== ========
EXHIBIT 11. CALCULATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
(In thousands, except per share data)
Year Ended December 31,
----------------------------
1991 1992 1993
-------- -------- --------
Income from continuing operations $ 4,214 $ 6,145 $ 8,238
-------- -------- --------
Income from continuing operations
attributable to common shares 4,214 6,145 8,238
Net gain on disposal of
discontinued operations 2,830
Minority interest (377)
-------- -------- --------
Income before extraordinary item
and cumulative effect of a change
in accounting principle
attributable to common shares 6,667 6,145 8,238
Extraordinary loss from early
extinguishment of debt (5,715)
Cumulative effect of a change
in accounting principle 3,012
-------- -------- --------
Net income attributable to
common shares $ 6,667 $ 3,442 $ 8,238
======== ======== ========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations $ .27 $ .41 $ .56
======== ======== ========
Income before extraordinary item
and cumulative effect of a change
in accounting principle $ .43 $ .41 $ .56
======== ======== ========
Cumulative effect of a change
in accounting principle $ .20
========
Net income $ .43 $ .23 $ .56
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
INCLUDING ALL DILUTIVE SHARES 15,339 15,130 14,686
======== ======== ========
EXHIBIT 12. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
HART HOLDING COMPANY INCORPORATED AND SUBSIDIARIES
(In thousands, except ratios)
Fiscal Year Ended December 31,
-------------------------------------------
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
Income from continuing
operations before
income taxes $12,147 $ 6,253 $ 4,734 $ 9,016 $12,693
Plus fixed charges:
Interest expense and
amortization of financing
costs and debt discount 22,590 19,934 21,777 17,633 16,426
Interest portion of
rent expense 597 453 463 478 491
------- ------- ------- ------- -------
Total fixed charges 23,187 20,387 22,240 18,111 16,917
------- ------- ------- ------- -------
Earnings plus fixed
charges $35,334 $26,640 $27,974 $27,127 $29,610
======= ======= ======= ======= =======
Ratio of earnings to
fixed charges 1.5x 1.3x 1.2x 1.5x 1.8x
==== ==== ==== ==== ====
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARIES OF HART HOLDING COMPANY INCORPORATED
State or Country
of Incorporation
----------------
Subsidiaries of Hart Holding
Company Incorporated:
Reeves Industries, Inc. Delaware
Reeves Holdings, Inc. Delaware
Hart Investment Properties Corporation Delaware
Hart Capital Corporation Delaware
Fenchurch, Inc. Delaware
Subsidiaries of Reeves Industries, Inc.:
Reeves Brothers, Inc. Delaware
Subsidiaries of Reeves Brothers, Inc.:
Turner Freight Systems, Inc. South Carolina
Reeves S.p.A Italy
