-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DLWuQRRgikJhV0HnuI5S7XVPKltPEAsd9RYQM+zbeQM/07Z53Vg+HdNg/Bs0X1Z7 jEEw3fpBpYuoMcoLSjobzA== 0000889812-99-003752.txt : 19991229 0000889812-99-003752.hdr.sgml : 19991229 ACCESSION NUMBER: 0000889812-99-003752 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARVARD INDUSTRIES INC CENTRAL INDEX KEY: 0000046012 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 210715310 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-01044 FILM NUMBER: 99781806 BUSINESS ADDRESS: STREET 1: 3 WERNER WAY #210 STREET 2: C/O HARVARD INDUSTRIES INC CITY: LEBANON STATE: NJ ZIP: 08833 BUSINESS PHONE: 9084374100 MAIL ADDRESS: STREET 1: 3 WERNER WAY #210 STREET 2: C/O HARVARD INDUSTRIES INC CITY: LEBANON STATE: NJ ZIP: 08833 FORMER COMPANY: FORMER CONFORMED NAME: HARVARD BREWING CO DATE OF NAME CHANGE: 19710315 10-K405 1 ANNUAL REPORT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMMISSION FILE NUMBER: 0-21362 ------------------------ HARVARD INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 21-0715310 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3 WERNER WAY LEBANON, NEW JERSEY 08833 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
908-437-4100 (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: ------------------------
TITLE OF SECURITIES EXCHANGES ON WHICH REGISTERED - -------------------------------------------------------- -------------------------------------------------------- COMMON STOCK ($0.01 PAR VALUE) NASDAQ NATIONAL MARKET
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes /x/ No / / Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes /x/ No / / Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
TITLE OUTSTANDING - -------------------------------------------------------- -------------------------------------------------------- COMMON STOCK AS OF SEPTEMBER 30, 1999 THERE WERE 10,234,222 SHARES OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive proxy statement for the annual meeting of stockholders scheduled for March 15, 2000 ("Proxy Statement") to be filed with the Securities and Exchange Commission no later than 120 days following its fiscal year ending September 30, 1999, are incorporated by reference in Part III of this Annual Report on Form 10-K. With the exception of those portions which are specifically incorporated by reference, such Proxy Statement shall not be deemed filed as part of this report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I. This Annual Report on Form 10-K contains forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time, in filings with the Securities and Exchange Commission or otherwise. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements may include, but not be limited to, projections of revenues, income or losses, covenants provided for in the financing agreements, capital expenditures, plans for future operations, financing needs or plans, plans relating to products or services of the Company, as well as assumptions relating to the foregoing. In addition, when used in this discussion, the words "anticipates," "believes," "estimates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, including, but not limited to, product demand, pricing, market acceptance, risk of dependence on third party suppliers, intellectual property rights and litigation, risks in product and technology development and other risk factors detailed in the Company's Securities and Exchange Commission filings, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this Annual Report, particularly in the Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations," describe factors, among others, that could contribute to or cause such differences. Other factors that could contribute to or cause such differences include unanticipated increases in launch and other operating costs, a reduction and inconsistent demand for passenger cars and light trucks, labor disputes, capital requirements, adverse weather conditions, and increases in borrowing costs. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. ITEM 1. BUSINESS COMPANY OVERVIEW Harvard Industries, Inc. ("Harvard" or the "Company" or the "Corporation"), headquartered at 3 Werner Way in Lebanon, New Jersey, is a direct supplier of components for Original Equipment Manufacturers ("OEMs") producing cars and light trucks in North America, principally General Motors Corporation ("General Motors"), Ford Motor Company ("Ford") and Daimler-Chrysler ("Chrysler"). During the past year the Company conducted its operations primarily through three wholly owned subsidiaries, Hayes-Albion Corporation ("Hayes-Albion"); Pottstown Precision Casting, Inc. ("Pottstown"), formerly known as Doehler-Jarvis Pottstown, Inc.; and The Kingston-Warren Corporation ("Kingston-Warren"). The Company's subsidiaries produce a wide range of products including: rubber glass-run channels; rubber seals for doors and trunk lids; complex, high volume aluminum castings and other cast, fabricated, machined and decorated metal products; and metal stamped and roll form products. On September 30, 1999 substantially all the assets of Kingston-Warren were sold to a subsidiary of Hutchinson S.A. Accordingly, the remaining business discussion excludes Kingston-Warren unless otherwise indicated. COMPANY HISTORY On May 8, 1997 ("Petition Date"), Harvard filed a petition for relief under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On November 24, 1998 (the "Effective Date"), the Company substantially consummated its First Amended Modified Consolidated Plan Under Chapter 11 of The Bankruptcy Code ("Chapter 11") dated August 19, 1998 (the "Reorganization Plan" or "Plan of Reorganization") and emerged from bankruptcy. Following the Petition Date, the Company and its subsidiaries continued to operate as debtors-in-possession subject to the supervision of the Bankruptcy Court. Under the Bankruptcy Code the Company and its subsidiaries were authorized to operate their businesses in the ordinary course but transactions that were out of the ordinary 2 course, including the employment of attorneys, accountants and other professionals, required approval of the Bankruptcy Court. In May 1997, the Bankruptcy Court approved the appointment of an Official Committee of Unsecured Creditors' in the Chapter 11 case (the "Creditors' Committee"). The Creditors' Committee was disbanded on the Effective Date. The Creditors' Committee retained Roger Pollazzi as an automotive industry consultant. Mr. Pollazzi acted in this capacity until November 1997, when, with the support of the Creditors' Committee, the Board of Directors appointed Mr. Pollazzi Chief Operating Officer. Prior to such appointment, Mr. Pollazzi had served as Chairman of the Board and Chief Executive Officer of The Pullman Company ("Pullman") from 1992 to 1996. Shortly after his appointment, Mr. Pollazzi hired approximately fifteen professionals as employees of Harvard to assist him in analyzing company operations, eliminating on-going negative cash flows associated with cash drains at several operations and coordinating and implementing the restructuring efforts. The Company's new management developed the Plan of Reorganization with respect to its financial affairs (including the Turnaround Business Strategy). In order to be confirmed, the Plan of Reorganization was required to satisfy certain requirements of the Bankruptcy Court, including that each claim in a particular class receive the same treatment as each other claim in that class and that the Company be adequately capitalized (upon emergence from Chapter 11) so that confirmation of the Plan of Reorganization would not be followed by a liquidation or the need for further reorganization. The Company was also required to demonstrate to the satisfaction of the Bankruptcy Court that the Plan satisfied the "best interests of creditors" test. This means that holders of claims and interests in each impaired class must have either unanimously accepted the Plan of Reorganization or that such holders would not receive more in a liquidation of the Company than through the implementation of the Plan of Reorganization. The results of the voting confirmed that, in fact, each class approved the plan. Pursuant to the Plan of Reorganization, on the effective date substantially all pre-petition unsecured debt at pre-reorganization Harvard was converted into equity of post-reorganization Harvard in the form of common stock (the "New Common Stock"). Under the terms of the Plan of Reorganization, holders of Harvard's Pay-In-Kind Exchangeable Preferred Stock ("PIK Preferred Stock") and holders of Harvard's existing common stock (the "Old Common Stock") each received warrants ("Warrants") to acquire, in the aggregate, approximately 5% of the New Common Stock, with holders of PIK Preferred Stock each receiving their pro rata share of 66.67% of the Warrants and holders of the Old Common Stock each receiving their pro rata share of 33.33% of the Warrants. On the Effective Date, the Old Common Stock and PIK Preferred Stock were canceled. On September 30, 1999, Kingston-Warren, a wholly-owned subsidiary of Harvard, completed its sale of substantially all of its assets and the assignment of certain liabilities to KWC Acquisition Corp., a subsidiary of Hutchinson, S.A., a French corporation, for $115 million in cash, less certain adjustments. Prior to the sale, Kingston-Warren was principally engaged in the business of manufacturing, selling and distributing products for automotive window and body sealing systems, including glass run channels, belt strips and body seals. The assets purchased include all real property, capital assets, inventory, supplies, trademarks and patents, accounts receivable, contracts and leases, and all other rights and assets owned by Kingston-Warren, except real property located at Lebanon, New Jersey and Farmington Hills, Michigan, certain computer systems and software, and cash on hand as of the day of the closing. The purchaser was assigned substantially all liabilities of Kingston-Warren, except guarantees of the outstanding debt of Kingston-Warren's parent, Harvard Industries, Inc. The Company used part of the proceeds of the sale of the assets of Kingston-Warren on September 30, 1999, to repurchase all of its 14 1/2% Senior Secured Notes due 2003 for $30,585,361, a formula price which includes interest and prepayment premiums, as well as other adjustments. The Company deposited such amount with the Trustee of the Senior Secured Notes on September 30, 1999 and, pursuant to Section 8.1 of the related Indenture, the Trustee discharged and released the Indenture and the Collateral Agreement securing the notes. The Company also used part of the proceeds of the sale of the assets of its Kingston-Warren subsidiary to satisfy all obligations under its $115 million senior secured revolving credit facility with General Electric Capital Corporation ("GECC"). The Company paid $69,020,272 in satisfaction of outstanding principal balance, interest accrued through September 30, 1999 and other charges. GECC terminated the credit facility and issued a Pay-Off Confirmation Letter dated as of September 30, 1999. 3 On September 30, 1999, the Company put in place a new $50 million credit facility with GECC, secured by substantially all of the assets of the Company and its domestic subsidiaries. The credit facility provides for up to $50 million of revolving credit borrowings with a $15 million sub-limit letter of credit facility. The proceeds will be used to finance working capital and other general corporate purposes and for acquisitions. On October 5, 1999, the Company used part of the proceeds of the sale of the assets of its Kingston-Warren subsidiary to purchase 762,000 shares of its common stock in a private transaction at an aggregate cost of approximately $4.95 million. As of September 30, 1999, the Company had 10,234,222 shares of common stock outstanding. INDUSTRY OVERVIEW The North American automotive parts supply business is composed of sales to OEMs and the automotive aftermarket. The Company primarily sells products to be installed as original equipment in new cars and trucks predominantly to OEMs and to other OEM suppliers. New Business Development. Historically, the U.S. automakers furnished their suppliers with blueprints and specifications for their required products and chose vendors based on price and reputation. However, in today's automotive supplier market, it is typical for the U.S. automakers to electronically furnish their suppliers with mathematical data describing the surfaces of the part or system in question, along with the technical description of its functional requirements. At this point, the supplier is expected to assume responsibility for all of the activities necessary to bring the part to production. The development cycle includes the design and engineering function and the production of prototypes for design validation. After validation of the prototype parts or system, tooling is designed and built to manufacture the finished product. The entire cycle usually requires between two and four years to complete, during which the supplier assumes most of the responsibility for managing the interface of the various groups within its own and the customer's organization. These groups include the supplier's and OEMs' respective purchasing/sales, design, engineering, quality assurance and manufacturing areas. In today's marketplace, it is necessary for the Company's engineers and technicians to interface constantly with their counterparts at the U.S. automakers to secure design contracts. Automotive Supplier Consolidation. The automotive supply industry is experiencing a period of significant consolidation. To lower costs and improve quality, OEMs are reducing their supplier base by awarding sole-source contracts to full-service suppliers who are able to provide design, engineering and program management capabilities and can meet cost, quality and delivery requirements. For suppliers such as the Company, this new environment provides an opportunity to grow by obtaining business previously provided by other non-full service suppliers and by acquiring suppliers that enhance product, manufacturing and service capabilities. OEMs rigorously evaluate suppliers on the basis of product quality, cost control, reliability of delivery, product design capability, financial strength, new technology implementation, quality and condition of facilities and overall management. Suppliers that obtain superior ratings are considered for sourcing new business. Although these new supplier policies have already resulted in significant consolidation of component suppliers in certain groups, the Company believes that consolidation will continue to provide attractive opportunities to acquire high-quality companies that complement its existing business. OEM Purchasing, Practices and Trends. In the late 1980's and early 1990's, the U.S. automakers instituted a number of fundamental changes in their sourcing procedures. Principal among these changes has been an increased focus on suppliers' cost and improving quality performance, a significant consolidation in the number of suppliers with which they have relations and, most recently, a move toward purchasing integrated systems or modules rather than component parts. OEMs are increasingly seeking suppliers capable of providing complete systems or modules rather than suppliers who only provide separate component parts. A system is a group of component parts that operate together to provide a specific engineering driven functionality. A module is a group of systems and/or component parts representing a particular area within the vehicle, which are assembled and shipped to the OEM for installation in a vehicle as a unit. By outsourcing complete systems or modules, OEMs are able to reduce their costs associated with the design and integration of different components and improve quality by enabling their suppliers to assemble and test major portions of the vehicle prior to their beginning production. In addition, by purchasing integrated systems, OEMs are able to shift engineering, design, program management, and product 4 investment costs to fewer and more capable suppliers. By designing and supplying integrated systems, a supplier is able to reduce costs and improve quality by identifying system-wide solutions. The Company believes that this shift creates an opportunity for suppliers, such as the Company, to provide integrated systems. In general, there has been substantial and continuing pressure from OEMs to reduce costs, including the cost of products purchased from outside suppliers. Certain of the Company's products are sold under agreements that require the Company to provide annual cost reductions to such purchasers (directly through price reductions or indirectly through suggestions regarding manufacturing efficiencies or other cost savings) by certain percentages each year. These agreements often require that suppliers pass on a portion of the benefit of productivity improvement in the form of lower prices in exchange for multi-year supply agreements. These initiatives have required suppliers to implement programs to lower their costs and reduce component and system prices to the OEMs. New North American OEMs (Transplants). Over the last decade, foreign automotive manufacturers have gained a significant share of the U.S. market, first through exports and more recently through U.S.-based manufacturing facilities ("Transplants"). To the extent that the growth of such "transplant" sales has resulted, and will likely continue to result in, a loss of market share for U.S. automakers, component suppliers, including the Company, could experience an adverse effect as most of its current customers are U.S. automakers. Although the Company plans to solicit additional business from foreign automakers, there can be no assurance that it will be successful in doing so or that such additional business will compensate for lost business that the Company has already experienced. Demand. As an OEM supplier, the Company is significantly affected by consumer demand for new vehicles in North America. Demand in North American car and light truck markets is tied closely to the overall strength of the North American economies. After attaining a production level of approximately 13.6 million units in 1985, North American car and light truck production fell to 10.4 million units in 1991. Since this low, production rose to 15.6 million units for the 1998 calendar year. OPERATIONS DESCRIPTION Overview. In general, automotive component manufacturers, like the Company, are invited to bid for specific products and component systems which are incorporated in both new and existing automotive platforms. If the platform already exists, the current supplier may be favored by the OEM because of the supplier's familiarity with the existing product as well as its existing investment in the manufacturing process and tooling. With respect to new platforms, there has been an increasing trend toward involving potential suppliers much earlier in the design and development process in order to encourage the supplier to share some of the design and development burden. Achieving this cooperative supplier status is a significant step towards winning a long-term supply order and gives the supplier a decided advantage over the competition. However, even if awarded an order, in almost all instances it will be at least two to four years before these cooperative suppliers see their products incorporated into new platforms. There is also an increasing trend towards potential suppliers committing to target prices on parts or systems as a condition of being awarded a design and supply order. Under target price arrangements, the burden of cost overruns is generally borne by the supplier. In addition, in order to secure long-term supply arrangements, annual price concessions through productivity improvements are expected by OEMs. As automotive parts suppliers continue to face downward pricing pressures on the components supplied to the OEMs, automotive production volumes become critical in maintaining and increasing operating profitability. Design, Production and Delivery. The Company believes that it has strong design and engineering capabilities which enable it to serve its customers better in the initial phases of product development. The Company has a research and development facility in Farmington Hills, Michigan where Company personnel meet with customers to incorporate the customers' structural and thermal requirements into the product design process. In addition, the Company maintains an engineering facility at Jackson, Michigan. Part of the Company's design philosophy is the early involvement of its manufacturing engineers in the initial stages of a product's design. This "Design-for-Manufacture" approach helps create a product that not only meets its required design and performance characteristics, but also results in a product that is easier and less expensive to manufacture. By 5 adopting this approach the Company is able to save costs typically related to engineering changes which can hamper the production of new products, as well as reduce the amount of time it takes to get new products to market. Consistent with the Company's design approach is its increasing involvement in cooperative supplier programs. As a cooperative supplier, the Company receives the initial design responsibilities for a specific product or component for a particular vehicle in the early stages of its design. These programs, which effectively move the burden of design and development of new products from OEMs to their suppliers, resulting in corresponding increased costs, have represented an increasing trend in the automotive industry MARKETING AND SALES The Company markets and distributes its products to non-governmental entities through sales persons and independent manufacturers' representatives, the loss of any one of whom would not have a materially adverse impact on the Company. The Company and its subsidiaries compete for OEM business at the beginning of the development of new products, upon customer redesign of existing components and customer decisions to outsource captive component production. Such sales to automotive OEMs are made directly by the Company's sales, customer service and engineering force. The Company's sales and engineering personnel service its automotive OEM customers and manage its continuing programs of product development and design improvement. In keeping with industry practice, OEMs generally award blanket purchase orders and contract through the life cycle of the product for specific parts and components for a given model for a particular powertrain or other mechanical component. These components are generally used across several platforms or models. Purchase orders do not commit customers to purchase any minimum number of components and are not necessarily dependent upon model changes. Substantially all of the Company's sales are derived from United States and Canadian sources. BUSINESS STRATEGY Management's business strategy focuses on leveraging Harvard's core competencies in the design and production of OEM automotive components in order to target new business opportunities with existing automotive OEM customers, as well as in the automotive aftermarket and non-automotive industrial market. In an effort to improve operating margins, Harvard has made significant progress in closing or divesting itself of underperforming facilities and exiting unprofitable OEM business. Over the past two years, the company has announced the closing or sale of numerous divisions/manufacturing plants and is in the process of re-allocating underutilized production capacity to higher margin industrial applications (See below). In addition to closing unprofitable facilities, Harvard is working with customers in evaluating product design and production processes to increase margins to targeted levels. Management intends to focus on accessing the non-automotive industrial market and the automotive aftermarket to leverage its existing product portfolio and manufacturing expertise. Harvard believes that a number of its existing automotive processes such as spin forming, tube rolling, and high-strength steel forming will be marketable in the industrial and aftermarket arenas because these processes are commonly used for products offered in those markets. In addition to the non-automotive opportunities discussed above, the Company believes that it can effectively cross-market products from its different divisions to leverage its relationships at General Motors, Ford and Chrysler. The Company is focused on the design and production of integrated systems for OEMs as opposed to individually supplying parts on a contract basis. Harvard may also make selected acquisitions to broaden its product offerings, technological capabilities and customer base, or to increase its distribution channels. ASSET SALES In November 1997, the Company sold the Materials Handling division of Kingston-Warren for approximately $18 million in cash. Between January 1998 and March 1998, Harvard sold the land, building and certain other fixed assets of its Harvard Interiors division in St. Louis, Missouri for approximately $4.1 million. In April 1998 Harvard divested certain tooling assets associated with the underperforming mirrors business of its 6 Harman Automotive, Inc. subsidiary ("Harman") for approximately $0.8 million. In June 1998, Harvard sold its Elastic Stop Nut Division ("ESNA") facility in New Jersey, for approximately $1.9 million. In September 1998, the Company sold, at auction, certain assets of Harman for approximately $2 million and sold substantially all of the assets and assigned certain liabilities of its wholly owned subsidiary, Doehler-Jarvis Greeneville, Inc., for $10.9 million. In January 1999 the Company sold its Tiffin plant of the Hayes-Albion subsidiary for approximately $1.5 million, and between March 1999 and July 1999 sold the land and building and certain machinery and equipment of its wholly owned subsidiary, Doehler-Jarvis Toledo, Inc., for approximately $3.0 million. The operations formerly of the Company's Hayes-Albion Corporation subsidiary at the Snover, Michigan facility were moved to other locations and the Snover facility is currently for sale. In August 1999 the Company ceased production at the Ripley, Tennessee facility of Hayes-Albion Corporation, and is pursuing a sale as a result of its changed market outlook for magnesium products. On September 30, 1999, Kingston-Warren, a wholly-owned subsidiary of Harvard, completed its sale of substantially all of its assets and the assignment of certain liabilities to KWC Acquisition Corp., a subsidiary of Hutchinson, S.A., a French corporation, for $115 million, less certain adjustments. The table below lists those assets that have been or will be sold as part of the Company's asset disposition plan:
ASSETS SOLD OR TO BE SOLD MONTH/YEAR - ------------------------------------------------------------------------------------------- ---------- Sevierville, TN facility (Harman Automotive)............................................... Aug-97 King-Way Assets (Material Handling Division of Kingston-Warren)............................ Nov-97 St. Louis Facility (Harvard Interiors)..................................................... Jan-98 Certain assets of Furniture Business (Harvard Interiors)................................... Mar-98 Tooling for Automotive Component Parts (Harman Automotive)................................. Apr-98 Union, NJ, Facility (Speciality Fastener Division ("ESNA"))................................ Jun-98 Remaining assets of Furniture Business (Harvard Interiors)................................. Jun-98 Tooling and Equipment for Automotive Component Parts (Toledo).............................. Aug-98 Greeneville, TN Plant (Doehler-Jarvis)..................................................... Sep-98 Bolivar, TN fixed assets (Harman Automotive)............................................... Sep-98 Tiffin, OH--land, building and equipment (Hayes-Albion).................................... Jan-99 Toledo, OH--equipment (Doehler-Jarvis)..................................................... Mar-99 Toledo, OH--land and building (Doehler-Jarvis)............................................. Jul-99 Kingston-Warren Corporation (substantially all assets)..................................... Sep-99 Snover, MI (land, building)................................................................ Pending Ripley, TN (building and equipment)........................................................ Pending Salem, SC (building)....................................................................... Pending Farmington Hills, MI (building)............................................................ Pending
SUBSIDIARIES POTTSTOWN PRECISION CASTING ("Pottstown") (formerly Doehler-Jarvis Pottstown, Inc.) Acquired by Harvard in July 1995 for $218 million, Doehler-Jarvis has been in operation since 1907. Doehler-Jarvis specialized in complex, high volume aluminum castings primarily for use in the automotive industry. Although Doehler-Jarvis through its subsidiaries historically operated three plants (Toledo, Ohio; Pottstown, Pennsylvania; and Greeneville, Tennessee), only the Pottstown plant remains in operation following Harvard's emergence from Chapter 11, and the subsidiary has been renamed Pottstown Precision Casting, Inc. Pottstown's primary customers are Ford and General Motors. At September 30, 1999, the Pottstown plant employed approximately 400 persons. 7 The Pottstown plant specializes in medium size aluminum die castings and complements its casting capabilities with precision machining. It is an independent supplier of parts cast with 390 aluminum alloy (a heat-resistant and durable alloy) in North America, supplying heavy duty internal transmission and air compressor castings. Pottstown smelts an average of 165,000 pounds of 390 aluminum alloy per day (60% capacity), and approximately 110,000 pounds of other alloys per day. Pottstown has over 40 casting machines to focus on small to medium sized parts. Pottstown makes products which are supplied to General Motors, Ford, and Simpson Industries, among others. The following table represents a product summary.
CUSTOMER PRODUCT PLATFORM - ------------------------ ------------------------ ------------------- General Motors Engine Bed Plate Passenger Cars General Motors Input Housing Light Trucks Simpson Industries V6 Cylinder Head Various Vehicles General Motors Pump Cover 4-L60 All Vehicles Ford Oil Pump Body Various Vehicles Ford Stator (Transmission) Passenger Cars
The Pottstown facility is QS9000 certified, a quality assurance program conducted by General Motors, and has a wide range of die casting capabilities. The 470,000 square foot facility has advanced robotics for painting, casting, die servicing, controlling metal pouring and casting extraction. Pottstown competes primarily with Gibbs Die Casting Corp., Spartan, Ryobi Die Casting (USA), Inc., ITT Lester Industries, Inc., Fort Wayne Foundry Corp., CMI International Inc. and Teksid SPA, as well as the captive aluminum casting operations of the U.S. automakers. HAYES-ALBION CORPORATION ("Hayes-Albion") Hayes-Albion Corporation was purchased by Harvard in 1986 and has conducted business since 1888 as a supplier of cast and machined parts to the automotive, farm equipment and general industrial markets. Historically, Hayes-Albion has operated six plants, but has sold its Tiffin Ohio plant and has closed its Ripley, Tennessee plant. Hayes-Abion's four remaining manufacturing facilities located in Albion, and Jackson, Michigan; Bridgeton, Missouri; and Rock Valley, Iowa occupy approximately 890,000 square feet and at September 30, 1999, employed approximately 1,200 persons. Hayes-Albion's primary customers are Ford, General Motors and Caterpillar. Hayes-Albion's products consist of ferrous and non-ferrous castings, fans and machined shafts. Ferrous castings are made from iron or steel, while non-ferrous castings are made from other components such as aluminum or zinc. Products made from ferrous castings include transmission parts, universal joint yokes, rear axle housings and suspension parts. Products made from aluminum and zinc castings include valve train covers, engine covers, suspension parts and steering columns supports, and are manufactured for the automotive, transportation, construction and machinery industries. Machined shafts are used in transmissions, generators, starters, alternators and are manufactured for the automotive, transportation, construction and machinery industries. 8 The following table represents a product summary of Hayes-Albion.
CUSTOMER PRODUCT PLATFORM - ------------------------ ----------------------- ------------------------ Caterpillar Various Die Castings N/A Caterpillar Machine Shafts N/A Chrysler Plastic Fans All Trucks Ford Gear Cases Medium Trucks Ford Differential Carriers Lincoln Ford Differential Carriers All Trucks Ford Yokes All Rear Wheel Drive Vehicles General Motors Fans Medium Trucks General Motors Delphi Machined Shafts All Trucks General Motors Front Engine Covers Passenger Cars Isuzu Valve Covers Light Trucks Toyota Valve Covers Lexus Ford(1) Differential Carriers Lincoln & Jaguar Ford(1) Gear Cases F250 and F350 Trucks General Motors(1) Engine Fans Blazer and Jimmy Trucks GM-Delco(1) Shafts Various Cars & Trucks Caterpillar(1) Various Components Engine Applications
- ------------------ (1) Future Booked Business. Hayes-Albion utilizes a technology driven approach to manufacturing which employs computer modeling. Their manufacturing processes include centerless grinding, CNC machining, heat treating, broaching, vibratory deburring and parts washing and testing. Hayes-Albion's arc and coreless induction furnaces melt over 800 tons of iron daily. Heat treating capacity exceeds 100 tons per day and Hayes-Albion can produce a broad range of castings from under two pounds to 150 pounds. Hayes-Albion's primary competitors include Intermet, Grede, Schwitzer, Lunt and Racine. TRIM TRENDS, DIVISION OF HAYES-ALBION CORPORATION ("Trim Trends") Trim Trends, acquired as a wholly owned subsidiary by the Company in February of 1986 and merged into Hayes-Albion Corporation in 1994, has conducted business since 1948 primarily in functional and decorative metal stampings for automotive applications. Trim Trends operates from four plants covering 467,000 square feet: Deckerville, Michigan; Bryan and Spencerville, Ohio; and Dundalk, Ontario. In September 1998, the Company announced the consolidation of its Snover, Michigan operation into the Deckerville, Michigan facility with certain production equipment moved to Spencerville, Ohio, and Dundalk, Ontario. At September 30, 1999, Trim Trends employed approximately 700 persons. Trim Trends manufactures specialty metal products from roll formed and stamped fabrication for the North American OEM market. In addition to the U.S. automakers, Trim Trends sells its products to Navistar, Lear Corporation, Mitsubishi and Honda. Trim Trends has capabilities in roll forming, stretch bending, general metal assembly technology and design and engineering. Trim Trends received an award from General Motors to supply a door component for its GM 200 platform. Trim Trends products are primarily sold to automotive OEMs and 9 automotive seating manufacturers. Primary customers include Ford, Chrysler, General Motors, Lear Corporation and Navistar. The following table represents a product summary:
CUSTOMER PRODUCT PLATFORM - ------------------------ ----------------------- ----------------- Chrysler Door Frames Mini Vans Chrysler Various Stampings Intrepid & LHS Chrysler Roll Formed H.S.S. Intrepid & LHS General Motors Door Beams All Light Trucks General Motors Door Beams Cadillac DeVille General Motors Door Tracks Mini Van General Motors(1) Door Beams Mini Van General Motors(1) Cross Member Cadillac DeVille Mitsubishi(1) Delta Sash Galant Mitsubishi(1) Division Post Assembly Galant Magna(1) Cross Member Chrysler Van Magna(1) Drip Rail Chrysler Van Lear Corporation Seat Reinforcement Ford Van
- ------------------ (1) Future Booked Business. Trim Trends' four plants form a single source for specialized and compatible metal fabricating. The processes include: roll forming, stretch bending, stamping, various assembly functions, machining, welding, and fabrication. On-site equipment consists of over 200 presses, ranging in size up to 1,600 tons. Trim Trends utilizes statistical process controls to ensure consistently high quality, reduce failure costs and maintain the dynamics for constant product and process improvement. RELIANCE ON MAJOR CUSTOMERS Of the Company's consolidated net sales for fiscal year 1999, approximately 48%, 25%, and 9% were attributable to General Motors, Ford and Chrysler respectively (27%, 34% and 12%, respectively, excluding Kingston-Warren). Although the Company has purchase orders from many of its customers, such purchase orders generally provide for supplying the customer's annual requirements for a particular model or assembly plant, renewable on a year-to-year basis, rather than for manufacturing a specific quantity of products. The loss of any one of its major customers or a significant decrease in demand for certain key models or a group of related models sold by any of its major customers could have a material adverse effect on the Company. DEPENDENCE ON KEY PERSONNEL The success of the Company depends in large part upon the abilities and continued service of its executive officers and other key employees and, in particular, of Roger Pollazzi, who currently serves as Chairman and Chief Executive Officer. There can be no assurance that the Company will be able to retain the services of such officers and employees. The failure by the Company to retain the services of Mr. Pollazzi and other key personnel could have a material adverse effect on the Company's results of operations and financial condition. COMPETITION Overview The Company is subject to competition from many companies larger in size and with greater financial resources and a number of companies of equal or similar size which specialize in certain of the Company's activities. The Company considers major competitors with respect to each unit in its business to include: Hayes-Albion: Intermet, Grede, Schwitzer, Lunt and Racine; Trim Trends: Excel Industries, Inland Fisher Guide, Magna International, Visteon and Benteler Werke AG; Pottstown: Ryobi Die Casting (USA), Inc., Gibbs Die Casting Corp., ITT Lester Industries, Inc., Fort Wayne Foundry Corp., CMI International Inc., Spartan and Teksid SPA, as well as the captive aluminum casting operations of the U.S. automakers. Companies in these sectors compete based on several factors, including product quality, customer service, product mix, new product design capabilities, cost, reliability of supply and supplier ratings. 10 Capital Intensive Industry; Capital Expenditure Program The Company operates in an industry which requires substantial capital investment, and additional capital expenditures are required by the Company to upgrade its facilities. The Company believes that its competition will continue to invest heavily to achieve increased production efficiencies and improve product quality. During the past few years, the Company has deferred certain discretionary capital expenditures due to financial constraints. The Company's ability to compete in such a competitive environment will be dependent upon, among other things, its ability to make major capital expenditures over the next several years in order to service existing business, enter new markets and remain competitive in certain markets. The Company had capital expenditures of approximately $15.9 million in 1999 and forecasts capital spending to be approximately $16.5 million in 2000. Through 2003 (inclusive of 1999), the Company expects to spend approximately $77 million in capital expenditures. There can be no assurance that there will be sufficient internally generated cash or available acceptable external financing available to make the necessary capital expenditures for a sufficient period of time. Risks Inherent in the Automotive Industry A significant portion of the Company's sales are made to customers in the automobile and light truck manufacturing industry. Demand for certain of its products is affected by, among other things, the relative strength or weakness of the North American automobile and light truck manufacturing industry and events, such as regulatory requirements, trade agreements and labor disputes. In addition, automotive sales and production are cyclical and somewhat seasonal and can be affected by the strength of a country's general economy. A decline in automotive production and sales would likely affect not only the sales of components, tools and services to vehicle manufacturers and their dealerships, but also the sales of component, tools, and services to aftermarket customers. Such a decline in sales and production could result in a decline in the Company's results of operations or a deterioration in the Company's financial condition. If demand changes and the Company fails to respond accordingly, its results of operations could be adversely affected in any given quarter. (See "Business--Industry Overview.") Risks Associated with Obtaining Business for New and Redesigned Model Introductions The Company principally competes for new business both at the beginning of the development of new models and upon the redesign of existing models by its major customers. New model development generally begins two to five years prior to the marketing of such models to the public, and existing business generally lasts for the model life cycle. In order to meet the needs of customers with changing products, the Company needs to implement new technologies and manufacturing processes when launching its new products. Moreover, in order to meet its customers' requirements, the Company may be required to supply its customers regardless of cost and consequently suffer an adverse impact to operating profit margins. Although management believes it has implemented manufacturing processes that adapt to the changing needs of its customers, no assurance can be made that the Company will not encounter difficulties when implementing new technologies in future product launches, any of which could adversely affect the Company. INTELLECTUAL PROPERTY The Company from time to time applies for patents with respect to patentable developments. However, no patent or group of patents held by the Company is, in the opinion of management, of material importance to the Company's business as a whole. EMPLOYEES At September 30, 1999, Harvard had approximately 2,500 employees, a decrease of approximately 1,900 employees from September 30, 1998 resulting from the wind-down and/or divestiture of several operating facilities as discussed elsewhere herein. Approximately 62% of Harvard's employees as of September 30, 1999 were covered by collective bargaining agreements negotiated with 9 locals of 6 unions (collectively, the "Unions"). These contracts expire at various times through the year 2003. Discussions with various Unions 11 regarding new labor agreements or extensions of existing contracts are presently under way. The following table outlines the labor agreement expiration dates at each of Harvard's plants.
PLANT UNION DATE OF EXPIRATION - ------------------------ ------------------- ------------------ Albion UAW 3/22/02 Jackson UAW 7/17/02 St. Louis IAM 5/01/00 Spencerville UAW 4/30/02 Bryan Paper-Workers 6/01/03 Dundalk/Canada USWA 6/27/02 Arnold Painters 3/13/01 Transportation Teamsters 3/31/00 Pottstown Master + Local UAW 1/31/00
The Company expects that all of the collective bargaining agreements will be extended or renegotiated in the ordinary course of business. As a result of such renegotiations, the Company expects that its labor and fringe benefit costs will increase in the future. The Company does not believe that the impact of these increases will materially adversely affect the financial position or results of operations of the Company. The Company has never experienced any work stoppages at its facilities and has been able to extend or renegotiate its various collective bargaining agreements without disrupting production. SOURCES AND AVAILABILITY OF RAW MATERIALS The raw materials required by the Company are obtained from regular commercial sources of supply and, in most cases, from multiple sources. Under normal conditions, there is no difficulty in obtaining adequate raw material requirements at competitive prices, and no shortages have been experienced by the Company. Major raw materials purchased by Harvard include aluminum, energy, steel, and paint. The Company considers its major raw material suppliers to include: Hayes-Albion: Consumer's Power, Jackson Iron and Metal and Superior Aluminum; and Trim Trends: Chrysler. These suppliers furnish energy and steel to such subsidiaries. Pottstown is not dependent on any individual supplier. Its principal raw material is aluminum, which is purchased from multiple suppliers. Captive aluminum processing operations enable Pottstown to purchase less costly scrap aluminum and non-certified aluminum ingot and to refine the metal to the required certified specifications. Harvard's purchase orders with its OEM customers provide for price adjustments related to changes in the cost of certain materials. The Company's top ten suppliers in 1999 for continuing businesses were:
DOLLARS/YEAR (APPROXIMATE) HARVARD SUPPLIER (IN THOUSANDS) PRODUCT DIVISION - --------------------- -------------- ------------- --------------------------- Chrysler $ 10,000 Steel Coil Trim Trends Div. Consumer Energy 8,150 Gas/Electric Hayes-Albion Jackson Iron & Metal 6,700 Steel Scrap Hayes-Albion Service Aluminum 5,500 Aluminum Hayes-Albion and Pottstown Precision Castings Superior Aluminum 4,900 Aluminum Hayes-Albion Allied Chucker 4,800 Machining Hayes-Albion Asian Metals 4,600 Magnesium Hayes-Albion Steel Technologies 4,500 Steel Coil Trim Trends Kenwal Steel 2,700 Aluminum Trim Trends Stanton Moss, Inc. 2,600 Aluminum Hayes-Albion
12 BUSINESS CYCLE AND SEASONALITY The Company's customers are predominantly automotive OEMs. As such, sales of the Company's products directly correlate with the overall level of passenger car and light truck production in North America. Although most of the Company's products are generally not affected by year-to-year automotive style changes, model changes may have a significant impact on sales. In addition, the Company experiences seasonal fluctuations to the extent that the operations of the domestic automotive industry slow down during the summer months, when plants close for vacation period and model year changeovers, and during the month of December for plant holiday closings. As a result, the Company's third and fourth quarter sales are usually somewhat lower than first and second quarter sales. ITEM 2. PROPERTIES FACILITIES The Company maintains its principal executive offices in leased space in Lebanon, New Jersey. The principal properties of the Company include its production facilities, all of which are owned by the Company and its subsidiaries, except for the real property in Ripley, Tennessee. The Company also leases certain warehouse and distribution facilities and regional sales offices that are not included among the Company's principal properties. None of the leases is material to the Company's business as a whole, or provides any unique advantage. Capacity at any plant depends, among other things, on the product mix, the processes and equipment used and tooling. While capacity varies periodically as a result of customer demand, the Company currently estimates that its automotive business plants generally operate between 60% and 100% of capacity on a five-day per week basis. The following table sets forth certain information with respect to the Company's principal properties:
SUBSIDIARY OR DIVISION LOCATION TYPE OF FACILITY SQUARE FEET - -------------------- --------------------- --------------------------------------- ----------- Harvard Industries Farmington Hills, MI Administrative offices(1) 70,000 Harman Bolivar, TN Mfg. plant, office 294,400 and warehouse(1)(2) Hayes-Albion Albion, MI Mfg. plant 458,300 Hayes-Albion Bridgeton, MO Mfg. plant 128,300 Hayes-Albion Jackson, MI Mfg. plant 218,600 Hayes-Albion Rock Valley, IA Mfg. plant 86,000 Hayes-Albion Ripley, TN Mfg. plant(1)(3) 100,000 Trim Trends Div. Deckerville, MI Mfg. plant 74,900 Trim Trends Div. Snover, MI Mfg. plant(1)(2) 75,500 Trim Trends, Canada Dundalk, ON, Canada Mfg. plant 80,000 Trim Trends Div. Bryan, OH Mfg. plant 141,500 Trim Trends Div. Spencerville, OH Mfg. plant 159,000 Pottstown Pottstown, PA Mfg. Plant 470,000 Precision Casting Harvard Industries Arnold, MO Mfg. plant 31,400 Harvard Industries Salem, SC Mfg. plant(1)(2) 51,000
- ------------------ (1) Facility is currently for sale. (2) Idle. (3) Facility shut down in August, 1999. 13 ITEM 3. LEGAL PROCEEDINGS On three separate occasions in fiscal 1994, the Company became aware that certain products of its ESNA division were not manufactured and/or tested in accordance with required specifications at its Union, New Jersey and/or Pocahontas, Arkansas facility. These fastener products were sold to the United States Government and other customers for application in the construction of aircraft engines and airframes. In connection therewith, the Company notified the Department of Defense Office of Inspector General ("DOD/OIG") and, upon request, was admitted into the Voluntary Disclosure Program of the Department of Defense (the "ESNA matter"). The Company settled this matter for $475,000 in May of 1999. In June 1995, a group of former employees of the Company's subsidiary, Harman Automotive-Puerto Rico, Inc., commenced an action against the Company and individual members of management in the Superior Court of the Commonwealth of Puerto Rico seeking approximately $48 million in monetary damages and unearned wages relating to the closure by the Company of the Vega Alta, Puerto Rico plant previously operated by such subsidiary. Claims made by the plaintiffs in such action include the following allegations: (i) such employees were discriminated against on the basis of national origin in violation of the laws of Puerto Rico in connection with the plant closure and that, as a result thereof, the Company is alleged to be obligated to pay unearned wages until reinstatement occurs, or in lieu thereof, damages, including damages for mental pain and anguish; (ii) during the years of service, plaintiffs were provided with a one-half hour unpaid meal break, which is alleged to violate the laws of Puerto Rico, providing for a one-hour unpaid meal break and demand to be paid damages and penalties and request seniority which they claim was suspended without jurisdiction; and (iii) plaintiffs were paid pursuant to a severance formula that was not in accordance with the laws of Puerto Rico, which payments were conditioned upon the plaintiffs executing releases in favor of the Company, and that, as a result thereof, they allege that they were discharged without just cause and are entitled to a statutory severance formula. Any recovery is payable in common stock of the Company. On June 11, 1999, Doehler-Jarvis, Inc. and Harvard Industries, Inc. (the "Companies") filed a declaratory judgment action in the United States District Court for the Eastern District of Pennsylvania seeking a declaration that the termination of certain insurance benefits, including health insurance benefits, to individuals on the seniority list when they retired from active or inactive employee status at Doehler-Jarvis facilities in Pottstown, Pennsylvania or Toledo, Ohio after July 16, 1999, and/or their eligible surviving spouses and/or eligible dependents does not violate the Employee Retirement Income Security Act ("ERISA") or any other law, applicable collective bargaining agreement, or contract. Thomas E. Kopystecki was named as the representative of the proposed class of defendants. On June 23, 1999, John C. Gilbert, Eugene Appling, Robert A. LaClair, John E. Malkulan, Christiane J. Myers, Kenneth McKnight, Thomas F. Klejta, and Fern M. Yerger, on behalf of themselves and a class of persons similarly situated filed an action against the Companies in the United States District Court for the Northern District of Ohio seeking a declaration that the termination of insurance benefits violates ERISA and the Labor Management Relations Act ("LMRA") and seeking unspecified damages resulting from the anticipated termination of benefits. The Companies filed a motion to transfer the Ohio action to Pennsylvania because the Pennsylvania action was the first filed action and is the more convenient forum for the resolution of the issues. The United States District Court for the Eastern District of Pennsylvania dismissed the Pennsylvania action finding that the United States District Court for the Northern District of Ohio was a more appropriate venue. The motion by the Companies to dismiss the Ohio action was denied and the Companies are vigorously defending the action in Ohio. Based on information currently available, management of the Company believes, after consultation with legal counsel, that the result of such claims and litigation will not have a material adverse effect on the financial position or results of operations of the Company. The Company is a party to various claims and routine litigation arising in the normal course of its business. Obligations of the Company in respect of litigation arising out of activities prior to the Petition Date, if allowed by the Court, are payable in common stock of the Company, and will be discharged in accordance with the Plan of Reorganization. Based on information currently available, management of the Company believes, after consultation with legal counsel, that the result of such claims and litigation, will not have a material adverse effect on the financial position or results of operations of the Company. 14 ENVIRONMENTAL MATTERS The Company is subject to various foreign, federal, state and local environmental laws and regulations, including those relating to air emissions, wastewater discharges, the handling and disposal of solid and hazardous wastes and the remediation of contamination associated with the use and disposal of hazardous substances. Certain subsidiaries of the Company have received information requests or have been named potentially responsible parties ("PRPs") by the United States Environmental Protection Agency ("EPA"), state environmental agencies, or PRP groups under the Comprehensive Environmental Response, CERCLA or analogous state laws with respect to approximately 25 sites. As discussed below, any potential claims related to sites which are not owned properties are payable in common stock of the Company and will be discharged as a result of Harvard's Chapter 11 case. Given the Company's historic operations involving the use and disposal of hazardous substances, additional environmental issues may arise in the future the precise nature and magnitude of which the Company cannot predict. A number of governmental agencies, PRP groups, and individual claimants have filed proofs of claim against certain of the Company's subsidiaries with respect to liabilities relating to environmental matters, including liabilities arising under the Federal Water Pollution Control Act, 33 U.S.C. Section Section 1251 et seq., ("Clean Water Act"), and the Clear Air Act, ("CERCLA") and analogous state laws (collectively, the "Environmental Claims"). The Company believes that the aggregate costs of resolving such Environmental Claims will in all likelihood not exceed $7 million. This estimate reflects a number of factors which may influence the ultimate outcome of the claims resolution process, such as the amount of such claims paid in cash, the assertion of factual or legal defenses to certain claims and the willingness of certain claimants to compromise their claims. The potentially significant Environmental Claims presently asserted against the Company and its subsidiaries and the proposed treatment of all Environmental Claims are as follows: CONSENT DECREES AND SETTLEMENT AGREEMENTS The Company and its subsidiaries are parties to several consent decrees and settlement agreements relating to environmental matters executed prior to the Chapter 11 filing (collectively, the "Consent Decrees and Settlement Agreements"). The potentially significant Environmental Claims relating to the Consent Decrees and Settlement Agreements include the following: Vega Alta Superfund Site. A Record of Decision ("ROD") was issued on November 10, 1987 naming Harman Automotive-Puerto Rico, Inc., a wholly owned subsidiary of Harman, as one of several PRPs by the EPA pursuant to CERCLA concerning environmental contamination at the Vega Alta, Puerto Rico Superfund site (the "Vega Alta Site"). Other named PRPs include subsidiaries of General Electric Company ("General Electric"), Motorola, Inc. ("Motorola"), The West Company, Inc. ("West Company") and the Puerto Rico Industrial Development Corporation ("PRIDCO"). PRIDCO owns the industrial park where the PRPs were operating facilities at the time of alleged discharges. Another party, Unisys Corporation ("Unisys"), was identified by General Electric as an additional PRP at the Vega Alta Site. There were two phases of administrative proceedings in the case. The first phase, known as Operable Unit I ("OUI"), involves a unilateral order requiring the named PRPs to implement the remedy chosen by the EPA, consisting of the replacement of the drinking water supply to local residents and installation and operation of a groundwater treatment system to remediate groundwater contamination. In addition, the EPA filed a complaint in the United States District Court for the District of Puerto Rico seeking damages and recovery of costs from the PRPs, as well as a declaratory judgment that the PRPs were liable for future response costs. Motorola, West Company and Harman completed construction of the OUI remedy pursuant to a cost-sharing arrangement. In June 1995, the parties agreed that the total amount due from Harman to West Company and Motorola was $557,297 payable in twenty equal quarterly installments. Payments were suspended due to the Chapter 11 Case. West Company and Motorola have each made claims for $139,324 for the remaining costs due pursuant to the cost-sharing arrangement for construction of the OUI. Such claims have been allowed under the Plan of Reorganization and will be discharged upon the receipt by West Company and Motorola of the Company's common stock in respect of such allowed claims. 15 As to Harman's share of all other costs, pursuant to a Settlement Agreement, dated June 30, 1993, Harman, Motorola and West Company each agreed to pay General Electric the sum of $800,000 in return for General Electric's and Unisys' agreement to assume liability for, and indemnify and hold Harman and the others harmless against, the EPA's cost recovery claim, to undertake operation and maintenance of the OUI cleanup system and to construct, operate and maintain any other proposed system that may be required by the EPA under OUI, and to conduct any further work concerning further phases of work at the Vega Alta Site. Harman, West Company and Motorola retained liability for any cleanup activities that may in the future be required by EPA at their respective facilities due to their own actions, for toxic tort claims and for natural resource damage claims. Harman's settlement payment to General Electric was being made in 20 equal quarterly installments that commenced in January 1995 with 9% interest per annum. As a result of Harman's bankruptcy filing in May 1997, such payments were suspended. General Electric made a claim in the Chapter 11 Cases for the remaining amount which General Electric believes is owed pursuant to the Settlement Agreement. On December 29, 1998, the Bankruptcy Court approved the Company's Assumption and Modification of the Settlement Agreement whereby the Company is to pay General Electric a total of $300,000 in cash in settlement of its claims in installments of $100,000. As of December 23, 1999 two installments totaling $200,000 have been made and the final installment is to be made in July 2000. In light of the settlement agreement described above, the PRPs (including Harman) have stipulated with the EPA as to liability in order to avoid further litigation. A consent decree among all of the PRPs and the United States, on behalf of the EPA, was fully executed by all parties, and was entered by the Federal District Court for the District of Puerto Rico, finally resolving the cost recovery litigation. On December 8, 1997, the EPA issued an amendment to its cleanup requirements, together with a supplemental statement of work required at the Vega Alta Site. In addition, on March 27, 1998 and April 8, 1998, the EPA requested all of the PRPs (including Harman) to reimburse the EPA for approximately $940,000 in past costs related to the Vega Alta Site. Harman has notified both General Electric and the EPA that pursuant to the Settlement Agreement described above, Harman expects General Electric and Unisys to comply with all of EPA's further requirements. Alsco-Anaconda Superfund Site. Alsco Inc. ("Alsco"), a predecessor of Harvard, was the former owner and operator of a manufacturing facility located in Gnadenhutten, Ohio. The Alsco division of Harvard was sold in August 1971 to Anaconda Inc. Subsequently, Alsco became Alsco-Anaconda, Inc., a predecessor to an entity now merged with and survived by the Atlantic Richfield Company ("ARCO"). The facility, when acquired by ARCO's predecessor, consisted of an architectural manufacturing plant, office buildings, a wastewater treatment plant, two sludge settling basins and a sludge pit. The basins and pit were used for treatment and disposal of substances generated from its manufacturing processes. The basins, pit and adjacent wooded marsh were proposed for inclusion on EPA's National Priorities List in October 1984. Those areas were formally listed by the EPA as the "Alsco-Anaconda Superfund Site" in June 1986. On December 28, 1989, EPA issued a unilateral administrative order pursuant to Section 106 of CERCLA, to Harvard and ARCO for implementation of the remedy at the Alsco-Anaconda Superfund Site. Litigation between Harvard and ARCO subsequently commenced in the United States District Court for the Northern District of Ohio regarding allocation of response costs. Pursuant to a Settlement Agreement, dated January 16, 1995, Harvard agreed to pay ARCO $6.25 million (as its share of up to $25 million of the cleanup and environmental costs at the Alsco-Anaconda Superfund Site) in twenty equal quarterly installments with accrued interest at the rate of 9% per annum, of which nine installments were paid through May 7, 1997. In return, ARCO assumed responsibility for cleanup activities at the site and agreed to indemnify Harvard against any environmental claims below the cap. If cleanup costs should exceed $25 million the parties will be in the same position as if the litigation was not settled. Based on information provided by ARCO, Harvard believes that ARCO has completed 100% of the cleanup of the 4.8-acre National Priorities List site and 80% of the cleanup of the property adjacent to the National Priorities List site. Total costs are expected to be in the range of $19 million. Due to the Chapter 11 Cases, payments to ARCO, pursuant to the Settlement Agreement, have been suspended. ARCO Environmental Remediation, LLC, ARCO's successor, made a claim in the Chapter 11 Cases for all amounts that ARCO is owed under the Settlement Agreement or, in the alternative, for all amounts that ARCO has expended or may expend for cleanup of the site. The Company agreed to assume the Settlement Agreement 16 with the modification that the Company will pay ARCO $575,000 in cash in full satisfaction of its claim. This payment was made in December, 1998. Town of Newmarket, New Hampshire. Kingston-Warren allegedly disposed of waste at the Newmarket Landfill in New Hampshire from 1952-1975. After the State of New Hampshire ordered the Town of Newmarket (the "Town") to close the landfill, the Town sought contribution for cleanup costs from Kingston-Warren and other local manufacturers. The Town completed closure of the landfill in 1996. Pursuant to a Settlement Agreement between Harvard, Kingston-Warren, and the Town as subsequently amended, Harvard made a lump sum payment of $480,000 cash to the Town to satisfy its outstanding cleanup liability. No further sums are due from Harvard and Kingston-Warren unless there is a catastrophic failure of the geomembrane landfill covering. In the event of a catastrophic failure, Harvard and Kingston-Warren may be called upon to contribute further, based on a task-by-task maximum allocation. Based on the recent accounting provided by the Town, Kingston-Warren's future potential liability is presently capped at a maximum amount of approximately $655,000. The Town is required to pursue all other PRPs before seeking further payments from Harvard and Kingston-Warren. In addition, the Town is required to indemnify Harvard and Kingston-Warren from all claims and costs relating to the landfill. The Town made a contingent claim in the Chapter 11 Cases in the event there is a catastrophic failure of the landfill's geomembrane cap. The Company has assumed the Settlement Agreement but does not expect to pay any further costs because a catastrophic failure of the landfill covering is highly unlikely. STATE AGENCY CLAIMS A number of state environmental agencies have asserted environmental claims against the Company and its subsidiaries. The potentially significant environmental claims are described below: Groundwater at West Jackson, Michigan Facility. The Hayes-Albion facility in Jackson, Michigan is located within a regional area of groundwater contamination designated as West Jackson Groundwater Contamination Site ("the Site"). Hayes-Albion has completed several investigations on its property since 1989 to assist in defining the nature and source of the chlorinated solvent contamination at the Site. Hayes-Albion believes that the results, which have been submitted to the Michigan Department of Environmental Quality ("MDEQ") establish that the Hayes-Albion facility is not the source of the contamination and that the contaminants are migrating onto the Hayes-Albion property from another source. The MDEQ made a claim in the Chapter 11 Cases that Hayes-Albion is responsible for groundwater contamination at the Site seeking recovery of past and future response costs of at least $2 million. On July 21, 1998, MDEQ issued a request for voluntary access to the Hayes-Albion facility for the purpose of conducting an investigation of the nature and extent of releases at the facility. Hayes-Albion denied access because it vigorously denies that it is a source of contamination. On August 10, 1998, MDEQ issued an administrative inspection warrant for access and Hayes-Albion recently granted access. On October 15, 1998, the Bankruptcy Court issued an order expunging MDEQ's claim because it was filed after the bar date. MDEQ may bring an action for injunctive relief in the future. Air Emissions at Tiffin, Ohio Facility. On July 2, 1998, the State of Ohio filed a two count complaint against Harvard and Hayes-Albion in state court (the "Complaint") seeking civil penalties and injunctive relief for alleged violations of air emissions regulations at Hayes-Albion's Tiffin, Ohio facility from March 1990 to the present. The Complaint seeks civil penalties in the amount of $25,000 per day per violation from March 1990 to the present. Hayes-Albion disputes Ohio's method of calculating the allowable emission rate for the four induction furnaces upon which the State of Ohio bases its allegations in the Complaint, and believes that, using the proper method of calculation, the facility should have no liability. The State of Ohio filed a claim against Harvard and against Hayes-Albion in the Chapter 11 Cases for penalties related to the alleged air violations in the amount of $1,315,000. The Bankruptcy Court approved the Harvard and Hayes-Albion settlement with the State of Ohio by the entry of a consent decree dated December 23, 1998. Under the settlement the Company paid Ohio a civil penalty of $205,857. PJP Landfill Site. Pursuant to a 1985 Asset Purchase Agreement, Harvard acquired certain assets of the Elastic Stop Nut Division ("ESNA") from the Amerace Corporation ("Amerace") and agreed to indemnify Amerace for certain environmental liabilities related to the purchased assets. Although ESNA had facilities in several locations, including Union and Elizabeth, New Jersey, Harvard purchased only the Union Facility. In 17 1992, the New Jersey Department of Environmental Protection ("NJDEP") filed a complaint in the Superior Court of New Jersey seeking cleanup costs against a number of PRPs, including Amerace, which allegedly sent waste to the PJP Landfill in New Jersey. Amerace is one of 57 defendants who signed an Administrative Consent Order, dated June 2, 1997, with NJEDP agreeing to perform and fund the future remedy at the PJP Landfill. The NJDEP made a claim in the Chapter 11 Cases for past and future response costs relating to the PJP Landfill. Amerace also asserted a claim in the Chapter 11 Cases that it is entitled to indemnification from Harvard pursuant to the 1985 Asset Purchase Agreement for response costs it incurs in connection with the PJP Landfill. The NJDEP has provided notice to Harvard that it has withdrawn its claim. Harvard objected to Amerace's claim. Any recovery by Amerace will be paid in common stock of the Company and the liability will be discharged. Stratford Industrial Park Facility. Hayes-Albion operated a facility at the Stratford Industrial Park in Forsyth County, North Carolina from 1968 until 1982, when the facility and assets were sold to Sonoco Products Company ("Sonoco Products"). The North Carolina Department of Environment and Natural Resources ("NCDENR") made a claim in the Chapter 11 Cases that Hayes-Albion may be responsible for possible soil contamination in connection with the removal of a 20,000-gallon underground storage tank in 1984 at the facility. According to the NCDENR, there is no evidence of confirmation sampling to ensure that all contamination was removed at the time of the removal of the underground storage tank and therefore the site may be contaminated. Believing that Sonoco Products is solely responsible for all matters related to the operation and closure of the tank, Hayes-Albion objected to the claim. The parties agreed to settle the matter for $29,000 payable in common stock of the Company. Pottstown Precision Casting, Inc. The Pennsylvania Department of Environmental Protection ("PADEP") has filed a claim in the Chapter 11 Cases for $125,000 which is a payment owed under a consent decree between Doehler-Jarvis and PADEP entered April 17, 1997. The payment, a civil penalty for Clean Water Act violations at the Pottstown Precision Casting, Inc., Pennsylvania facility, was allowed by order of the Bankruptcy Court, as an unsecured claim under the Plan of Reorganization, payable in common stock of the Company. OTHER Vega Alta Toxic Tort. In October 1997, several property owners in Puerto Rico filed an action against Harvard, Harman, General Electric, West Company, Motorola, Unisys, and the EPA in the U.S. District Court for the District of Puerto Rico seeking to recover costs and property damage arising from contamination of the groundwater in Vega Alta, Puerto Rico. The complaint alleges that damages exceed $50 million. Although Harvard and Harman were named defendants in this action, neither entity was served. A claim, however, was filed in the Chapter 11 Cases by the property owner plaintiffs for environmental and property damage associated with the Vega Alta groundwater contamination. That claim has been resolved and the settlement for $150,000 in cash has been approved by the Bankruptcy Court. The final payment was made in December 1999. In addition, Unisys, on its own behalf and on behalf of Owens-Illinois de Puerto Rico, has asserted several claims in the Chapter 11 Cases against Harman and Harvard for contribution in the event Unisys is held liable to (i) the property owner plaintiffs in the Vega Alta toxic tort, (ii) Owens-Illinois de Puerto Rico in its threatened claim related to groundwater contamination in Vega Alta, and (iii) any other third party to whom Unisys may be held liable in connection with groundwater contamination at the Vega Alta Superfund Site. All such claims were disallowed by order of the Bankruptcy Court. TREATMENT OF ENVIRONMENTAL MATTERS UNDER PLAN Other than the executory contracts listed below, the Company believes that, except as provided below, none of the outstanding Consent Decrees and Settlement Agreements which were entered into prior to the Petition Date of the Chapter 11 Cases by the Company or any of its subsidiaries relating to environmental matters constitutes executory contracts subject to assumption or rejection. The Company and its subsidiaries assumed the Settlement Agreement with the Town of Newmarket (dated July 8, 1992, as amended March 11, 1997) and certain modifications the following contracts: (1) the GE Vega Alta Settlement Agreement, and (2) the ARCO Alsco-Anaconda Settlement Agreement. All monetary obligations arising out of the Consent Decrees and 18 Settlement Agreements (other than those listed above as being assumed) are payable in common stock of the Company and discharged under the Plan. The Company believes that the claims relating to disposal of hazardous substances or contamination at formerly owned properties or off-site properties (as opposed to currently owned properties) ("Off-Site Claims") will be discharged under the Plan of Reorganization. Such Off-Site Claims include any claim by any governmental unit, person, or other entity, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, rule or regulation, ordinance, permit, authorization, license, order, or judicial or administrative decision, arising out of, relating to, or resulting from pollution, contamination, protection of the environment, human health or safety, or health or safety of employees, including without limitation (i) the presence, release, or threatened release of any hazardous substance that is regulated by or forms the basis of liability under any environmental law (including, without limitation, CERCLA, the Resource Conservation and Recovery Act, 42 U.S.C. Section Section 6901 et seq., the Clean Air Act, 42 U.S.C. Section Section 7401 et. seq., and any analogous state or local law) ("Hazardous Substance") on, in, under, within, or migrating to or from any real property formerly owned, leased, operated, or controlled by the Company or any of its subsidiaries or any predecessor of the Company or any of its subsidiaries, (ii) the transportation, disposal or arranging for the disposal of any Hazardous Substances by the Company or any of its subsidiaries or any predecessor of the Company or any of its subsidiaries at or to any offsite location, and (iii) any harm, injury or damage to any real or personal property, natural resources, the environment or any person or other entity alleged to have resulted from any of the foregoing. The Company and its subsidiaries believe that any claims and obligations relating to Hazardous Substance contamination on, in, under, within, or migrating to or from any real property formerly owned, leased, operated, or controlled by the Company or any of its subsidiaries or any predecessor of the Company or any of its subsidiaries or any other offsite location constitute "claims" within the meaning of section 101(5) of the Bankruptcy Code, 11 U.S.C. Section 101(5), and, therefore, all such claims are dischargeable within the meaning of section 1141 of the Bankruptcy Code, 11 U.S.C. Section 1141. It is possible that under current case law in the Third Circuit Court of Appeals, claims for injunctive relief related to currently owned property such as the Hayes-Albion facilities in Jackson, may not be discharged. The Company may be required to comply with injunctive orders issued by the state environmental agency with respect to this property. Various other legal actions, governmental investigations and proceedings and claims are pending or may be instituted or asserted in the future against the Company and its subsidiaries, none of which are expected to be material. The Company is subject to extensive and changing environmental laws and regulations. Expenditures to date in connection with the Company's compliance with such laws and regulations did not have a material adverse effect on the results of its operations, financial position, capital expenditures or competitive position. Although it is possible that new information or future developments could require the Company to reassess its potential exposure to all pending environmental matters, including those described in the footnotes to the Company's consolidated financial statements, management believes that, based upon all currently available information, the resolution of all such pending environmental matters will not have a material adverse effect on the Company's operating results, financial position, capital expenditures or competitive position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. 19 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Harvard's Pre-reorganization Common Stock (the "Old Common Stock") was traded on the Over The Counter Bulletin Board of NASDAQ since March 17, 1997 under the symbol "HAVAQ." Prior to that time, the Old Common Stock was traded on the NASDAQ National Market. Upon consummation of the Plan of Reorganization on November 24, 1998, the Old Common Stock was canceled and Harvard was authorized to issue its new Common Stock to certain creditors of pre-reorganized Harvard. The Company's Common Stock is traded on the NASDAQ National Market under the symbol "HAVA." The table below sets forth the high and low bid quotations for the Company's Old Common Stock from October 1, 1997 through November 24, 1998 and the high and low market prices for the Company's new stock from November 25, 1998 through September 30, 1999. The bid prices, which were obtained from NASDAQ Trading and Market Services, represent prices between dealers without adjustment for retail mark-ups, mark-downs or commissions and may not represent actual transactions. The New Common Stock prices are market quotations. COMMON STOCK PRICE RANGE(1)
FISCAL YEAR END HIGH LOW - -------------------------------------------------------------------------------------------- ------- ------- September 30, 1999: First Quarter: October 1--November 24, 1998 ("Old Stock")................................................ $ 0.75 $ 0.00 November 25--December 31, 1998 ("New Stock").............................................. $ 8.00 $ 7.25 Second Quarter ("New Stock")................................................................ $ 8.00 $ 6.875 Third Quarter ("New Stock")................................................................. $ 9.375 $ 7.00 Fourth Quarter ("New Stock")................................................................ $ 9.312 $ 6.00 September 30, 1998: ("Old Stock"): First Quarter............................................................................. $ 1.375 $ 0.375 Second Quarter............................................................................ $1.0625 $ 0.5 Third Quarter............................................................................. $ 0.75 $ 0.5 Fourth Quarter............................................................................ $ 0.75 $ 0.25
- ------------------ (1) Reflects prices on the NASDAQ National Market after November 24, 1998, and on the Over the Counter Bulletin Board of NASDAQ before November 24, 1998. On December 23, 1999, the closing price for the Company's New Common Stock was $7.00. There were approximately 1,660 holders of record. The Company has paid no cash dividends in its last two fiscal years. The Company was restricted under the terms of its borrowings, including its debt instruments from paying cash dividends on its Old Common Stock. The Company has paid no cash dividends on its New Common Stock since issuing the first shares November 24, 1998 and does not expect to pay cash dividends on its New Common Stock for the foreseeable future. Moreover, the Company is restricted under the terms of the new $50,000,000 revolving credit facility, from paying cash dividends on its New Common Stock. ITEM 6. SELECTED FINANCIAL DATA The following table presents selected consolidated historical financial data for the Company as of the dates and for the fiscal periods indicated. The selected financial data for each of the periods ended September 30, 1995 through September 30, 1999, has been derived from the Consolidated Financial Statements of the Company for the applicable periods. From May 8, 1997 through November 23, 1998, the Company was operating under Chapter 11, which afforded the Company protection from the claims of its creditors and caused the Company to incur certain bankruptcy-related expenses including legal fees, financial advisory fees, investment banking fees and independent auditor fees. As a result of the fact that the Company has emerged from Chapter 11 and the 20 prospective effect of Fresh Start Reporting, the Company does not believe that its historical results of operations are necessarily indicative of its results of operations as an ongoing entity following its emergence on November 24, 1998 from Bankruptcy Reorganization. Accordingly, the results of operations for the ten months ended September 30, 1999 have been segregated by a black line from pre-confirmation periods. The following information should be read in conjunction with and is qualified by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations," contained in this Form 10-K.
YEAR ENDED SEPTEMBER 30, TEN MONTHS ENDED TWO MONTHS ENDED ------------------------------------------------- ($ IN THOUSANDS) SEPTEMBER 30, 1999 NOVEMBER 29, 1998 1998 1997 1996 1995(1) - ------------------------------- ------------------ ----------------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Sales........................ $ 406,081 $ 89,050 $ 690,076 $ 810,769 $ 824,837 $ 631,832 Cost of sales................ 364,747 79,628 656,243 797,774 776,141 557,340 ---------- ----------- ---------- ---------- ---------- ---------- Gross profit................. 41,334 9,422 33,833 12,995 48,696 74,492 Selling, general and administrative expenses.... 34,189 5,151 66,546 45,822 42,858 33,037 Impairment and restructuring charges(3)................. (2,405) -- 10,842 288,545 -- -- (Gain) loss on sale of operations(4).............. 25,654 -- (28,673) -- -- -- Amortization of intangibles.. 52,320 264 1,584 8,448 15,312 2,986 Interest expense(2).......... 9,878 1,636 14,231 36,659 47,004 19,579 Other (income) expense, net(5)..................... 1,905 (34) 3,980 5,530 1,538 (1,789) ---------- ----------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before reorganization items, income taxes and extraordinary item......... (80,207) 2,405 (34,677) (372,009) (58,016) 20,679 Reorganization items......... -- 50,384 14,920 16,216 -- -- ---------- ----------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before income taxes and extraordinary item....................... (80,207) (47,979) (49,597) (388,225) (58,016) 20,679 ---------- ----------- ---------- ---------- ---------- ---------- Provision for income taxes... 542 584 6,207 1,204 3,196 11,566 ---------- ----------- ---------- ---------- ---------- ---------- Loss from discontinued operations, net of tax(6)..................... -- -- -- -- (7,500) -- ---------- ----------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary item......... (80,749) (48,563) (55,804) (389,429) (68,712) 9,113 ---------- ----------- ---------- ---------- ---------- ---------- Extraordinary item(8)........ 9,701 (206,363) -- -- -- 2,192 ---------- ----------- ---------- ---------- ---------- ---------- Net income (loss)............ $ (90,450) $ 157,800 $ (55,804) $ (389,429) $ (68,712) $ 6,921 ---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- PIK preferred dividends and accretion(7)............... $ -- $ -- $ -- $ 10,142 $ 14,844 $ 14,809 ---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- Net loss attributable to common stockholders........ $ (90,450) $ 157,800 $ (55,804) $ (399,571) $ (83,556) $ (7,888) ---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
21
YEAR ENDED SEPTEMBER 30, TEN MONTHS ENDED TWO MONTHS ENDED ------------------------------------------------- ($ IN THOUSANDS) SEPTEMBER 30, 1999 NOVEMBER 29, 1998 1998 1997 1996 1995(1) - ------------------------------- ------------------ ----------------- ---------- ---------- ---------- ---------- SHARE DATA: Basic and diluted earnings per share: Income (loss) from continuing operations................. $ (8.98) $ (6.91) $ (7.94) $ (56.91) $ (10.87) $ (0.82) Loss from discontinued operations................. -- -- -- -- (1.07) -- ---------- ----------- ---------- ---------- ---------- ---------- Extraordinary item........... (1.08) 29.37 -- -- -- (0.32) ---------- ----------- ---------- ---------- ---------- ---------- Net income (loss) per share ..................... $ (10.06) $ 22.46 $ (7.94) $ (56.91) $ (11.94) $ (1.14) ---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- Weighted average number of shares and equivalents..... 8,994,900 7,026,437 7,026,437 7,020,692 6,999,279 6,894,093 FINANCIAL RATIOS AND OTHER DATA: Depreciation and amortization............... $ 65,808 $ 3,979 $ 27,904 $ 60,186 $ 65,658 $ 34,856 Cash flows (used in) provided by continuing operations... 4,327 (17,543) 23,526 11,045 (3,133) 24,305 Capital expenditures......... 13,074 2,856 24,887 36,572 40,578 22,080 Cash flows (used in) provided by investing activities.... 100,787 (2,856) 3,564 (34,156) (43,001) (226,023) Cash flows (used in) provided by financing activities.... (88,288) 13,789 (24,678) 31,216 27,316 161,283 BALANCE SHEET DATA: Working capital (deficiency)............... (10,304) (90,024) 2,096 (7,158) 19,417 Total assets................. 337,153 250,981 307,494 617,705 662,262 Liabilities subject to compromise................. -- 385,665 397,319 -- -- DIP credit facilities, including current portion.................... -- 39,161 87,471 -- -- Long-term debt, including current portion............ -- 25,000 14,087 360,603 324,801 PIK preferred stock.......... -- 124,637 124,637 114,495 99,651 Shareholder's equity (deficiency)............... 85,075 (609,230) (547,128) (145,724) (62,206)
- ------------------ (1) Includes the results of operations of the Doehler-Jarvis Entities from July 28, 1995, the effective date of that acquisition. (2) Interest expense does not include interest after May 7, 1997 amounting to $13,605 and $35,618 for the years ended September 30, 1997 and 1998 respectively of the Old Senior Notes as all such interest was included as a liability subject to compromise. See Note 1 to the Consolidated Financial Statements. (3) During 1997, the Company recorded charges for impairment of long-lived assets of the Doehler-Jarvis Entities and at two other plants. During 1998, the Company recorded charges for impairment of long-lived assets of restructuring its Tiffin, Ohio facility and for certain assets relating to a platform that ended earlier than anticipated, and a restructuring charge. During the ten-month period ended September 30, 1999, the Company recorded restructuring charges related to the shut-down of the Ripley, Tennessee facility and reversed previously recorded restructuring charges related to Harman Automotive, Harvard Interiors (Footnotes continued on next page) 22 (Footnotes continued from previous page) Furniture Division, the Tampa corporate office and the Toledo, Ohio facility. See Note 3 to the Consolidated Financial Statements. No tax benefit is currently available for any of these charges. (4) In November of 1997, the Company sold Kingston-Warren's Material Handling division resulting in a gain on sale of $11,354. During 1998, there was a gain on sale of $17,319 as a result of the sale of the land, building and certain other assets of the Harvard Interiors' St. Louis, Missouri facility and the transfer of certain assets at the Doehler-Jarvis Toledo, Ohio facility and related lease obligations to a third party and the sale of substantially all of the assets and the assignment of certain liabilities of the Doehler-Jarvis Greeneville Facility. During the ten month period ended September 30, 1999 the Company recorded a loss of $25,654 as a result of the sale of the land, building, and certain other assets of the Toledo, Ohio and Tiffin, Ohio facilities and substantially all of the assets and the assignment of certain liabilities of the Kingston-Warren Subsidiary. (5) For 1997, other (income) expense, net includes approximately $2,200 related to joint venture losses. (6) The Company, in the first quarter of fiscal 1994, decided to discontinue its then specialty fastener segment ("ESNA") and therefore applied the accounting guidelines for discontinued operations. In 1996, the Company recorded a $7,500 charge to discontinued operations representing the write-down of the ESNA facility and continuing carrying costs. (7) PIK Preferred dividends after May 7, 1997 do not include $6,749 and $19,010 of accrued dividends for the years ended September 30, 1997 and 1998, respectively. (8) The two-month period ended November 29, 1998 includes an extraordinary gain of $206,363 from the forgiveness of debt upon emergence from Chapter 11. The ten-month period ended September 30, 1999 includes an extraordinary loss of $9,701 resulting from the early extinguishment of debt. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS OF DOLLARS) FINANCIAL CONDITION AND RESULTS OF OPERATIONS Effective November 24, 1998, the Company emerged from Chapter 11 bankruptcy proceedings and implemented "Fresh Start Reporting" as of November 29, 1998 (its normal interim closing date). Accordingly, all assets and liabilities were restated to reflect their respective fair values. The consolidated financial statements after that date are those of a new reporting entity and are not comparable to the Pre-Confirmation periods. However, for purposes of this discussion, the ten months ended September 30, 1999 (Post-Confirmation) were combined with the two months ended November 29, 1998 (Pre-Confirmation) and then compared to the twelve months ended September 30, 1998. Differences between periods due to "Fresh Start Reporting" adjustments are explained when necessary. 23 1999 COMPARED TO 1998 The following table is included solely for use in comparative analysis of the results of operations, and to complement management's discussion and analysis.
SEPTEMBER 30, SEPTEMBER 30, 1999 1998 ------------- ------------- Sales..................................................................... $ 495,131 $ 690,076 Cost of sales............................................................. 444,375 656,243 --------- --------- Gross profit............................................................ 50,756 33,833 Selling, general & administrative......................................... 39,340 66,546 --------- --------- Operating income (loss)(a)................................................ 11,416 (32,713) Amortization of intangibles............................................... 52,584 1,584 Impairment/restructuring charges.......................................... (2,405) 10,842 Interest expense.......................................................... 11,514 14,231 (Gain) loss on sale of operations......................................... 25,654 (28,673) Other (income) expense.................................................... 1,871 3,980 --------- --------- Income (loss) before income taxes, reorganization items and extraordinary items................................................................... (77,802) (34,677) Reorganization items...................................................... 50,384 14,920 Provision for taxes....................................................... 1,126 6,207 Extraordinary (gain)...................................................... (196,662) -- --------- --------- Net income (loss)......................................................... $ 67,350 $ (55,804) --------- --------- --------- ---------
- ------------------ (a) Includes depreciation expense of $16,153 and $24,209 for 1999 and 1998 respectively. Sales. Consolidated sales decreased $194,945 from $690,076 to $495,131, or 28.2%. Aggregate sales for the Operations designated for sale or wind down decreased approximately $206,637 from $371,654 to $165,017 as the Company's divestiture program as contemplated under the Company's Plan of Reorganization nears completion and lower sales at Kingston-Warren due to the transition from old to new platforms. The remaining operations sales increased $11,692 from $318,422 to $330,114 as auto and light truck demand remains strong. Gross Profit. The consolidated gross profit expressed as a percentage of sales increased from 4.9% to 10.3%, or $16,923. The gross profit for Operations designated for sale or wind-down decreased from $20,481 to $12,181. After adjusting 1999 results for $4,513 of operating losses charged to loss contract reserves established in the fourth quarter of fiscal 1998, reported gross profit in 1999 for operations designated for sale or wind-down would have been $7,668. Gross profit decreased approximately $12,813 primarily due to one-time tooling profits of approximately $1,900 in 1998 that did not recur in 1999, significantly lower volume in 1999 as a result of the Company's divestiture program, accelerated depreciation on long-lived assets at its Ripley, Tennessee facility and higher launch costs during the transition from old to new platforms at Kingston-Warren. The gross profits from the remaining operations increased $25,223 due to lower depreciation expense as a result of the reorganization ($9,100), improved operating efficiencies, strong auto and light truck demand and management's focus on higher margin business. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased from $66,546 to $39,340 due to reduced staffing and spending levels as a result of the reorganization program implemented by current management, and $16,000 of emergence related payments and deferred compensation arrangements made in 1998. Interest Expense. Interest expense decreased from $14,231 to $11,514 due to a lower effective interest rate on post-emergence financing and improved working capital management. Amortization of Intangibles. Amortization of intangibles increased from $1,584 to $52,584 as a result of the amortization on the $314,901 reorganization asset, established as part of "Fresh Start Reporting," which is being amortized over five years. Restructuring Charges. During 1999, the Company recorded restructuring charges of $1,200 for the shutdown of its Ripley, Tennessee facility. In addition, the Company has reversed to income previously provided restructuring reserves of $3,605 relating to the divestiture program as contemplated under the Company's Plan of 24 Reorganization, primarily as a result of lower severance and related costs for the Tampa office, Harman Automotive and the Harvard Interiors Furniture Division ($2,300) and lower facility shut-down costs at Toledo ($1,200) due to the sale of that facility. During 1998 the company recorded $5,000 in restructuring charges for shutdown and relocation costs relating to the move of the corporate headquarters from Tampa, Florida to Lebanon, New Jersey and a $5,842 charge for the impairment write-off of certain property, plant and equipment. (Gain) loss on Sale of Operation. In 1999 the Company sold substantially all the assets and assigned certain liabilities of it's Kingston-Warren subsidiary resulting in a loss on sale of approximately $27,938 and sold the land building and certain other assets of the Toledo facility for a gain of approximately $2,284. In 1998 the Company recorded a gain on the sale of the Material Handling division of Kingston-Warren of $11,354, a gain on the sale of the land, building and certain other assets of the Harvard Interiors' St. Louis facility of $1,217, a gain of $13,999 on the transfer of certain assets at the Toledo facility and their related lease obligations to a third party and a gain on the sale of certain assets and the assignment of certain liabilities of the Doehler-Jarvis Greeneville subsidiary of $2,103. Other Expense, Net. Other expense decreased from $3,980 to $1,871 due to rental and interest income and a favorable legal settlement in 1999 and lower losses on disposal of equipment in 1999 compared to 1998. Reorganization Items. During 1999, the Company recognized, as part of "Fresh Start Reporting," charges that aggregated $50,431 for adjustments to reflect all assets and liabilities at their respective fair values. Reorganization charges during 1998 represent mainly professional fees incurred in connection with the bankruptcy proceedings. Provision for Income Taxes. The foreign tax provision increased from $485 to $1,126 as a result of increased profitability of the Canadian subsidiary. The domestic tax provision decreased $5,722 as a result of the reorganization of the Company in 1998. Extraordinary Items. In November 1998 the Company recorded an extraordinary gain of $206,363 as a result of the forgiveness of debt that resulted from the reorganization of the Company in accordance with "Fresh Start Reporting." In September 1999 the Company recorded an extraordinary loss of $9,701 as a result of the early extinguishment of the $25,000 14 1/2% Senior Secured Notes and the $115,000 Senior Credit Facility. Net Income (Loss). The net income increased from $(55,804) to $67,350 for the reasons described above. 1998 COMPARED TO 1997 Sales. Consolidated sales decreased $120,693 from $810,769 to $690,076, or 14.9%. Aggregate sales for the operations designated for sale or wind down decreased approximately $110,462 from $315,078 to $204,616. The remaining operations sales decreased $10,231 from $495,691 to $485,460 as lower volume due to the GM strike was partially offset by new business. Gross Profit. The consolidated gross margin, expressed as a percentage of sales, increased from 1.6% to 4.9%, or by $20,838. The gross profit (loss) for operations designated for sale or wind-down increased approximately $20,379 from $(15,502) to $4,877 due mainly to a decrease of approximately $17,000 in depreciation resulting from the write-down of certain property, plant and equipment in the fourth quarter of 1997 and the compensatory payments from Ford and GM relating to the Toledo Shutdown. The increase of $459 in gross profit for the remaining operations was mainly due to improved operating efficiencies and approximately $4,600 of decreases in depreciation resulting from the write-down of certain property, plant and equipment, at the continuing operations of Doehler-Jarvis offset by lost volume due to the GM strike. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased from $45,822 to $66,546. The increase reflects a $7,700 charge for costs to make the company's systems year 2000 compliant, a $16,000 charge for emergence related payments and deferred compensation arrangements, offset by the prior period's charge of $4,000 relating to the termination and consulting and release agreement of a former executive. Interest Expense. Interest expense decreased from $36,659 to $14,231. However, but for giving effect to the discontinuance of accruing interest on the senior notes of $35,618 in 1998 and $13,605 in 1997 from the date of filing bankruptcy, interest expense would have decreased by $415 as financing fees of $2,500 relating to the post-petition term loan facility were offset by lower borrowing levels. 25 Amortization of Goodwill. Amortization of goodwill decreased from $8,448 to $1,584 as amortization of goodwill related to the acquisition of Doehler-Jarvis ceased March 31, 1997, when such goodwill was written-off as impaired. Impairment of Long-Lived Assets and Restructuring Costs. During 1998 the Company recorded $5,000 in restructuring charges representing shutdown and relocation costs of $2,500, relating primarily to severance and moving costs associated with the move of the corporate headquarters from Tampa, Florida to Lebanon, New Jersey, and approximately $2,500 for two senior executive officers. Additionally, the Company wrote-off as impaired substantially all the property, plant and equipment at Hayes Albion's Tiffin, Ohio facility and the equipment and tooling for a platform that is being discontinued earlier than planned. During 1997, a charge of $288,545 was recorded for the impairment of long-lived assets at several subsidiaries. Gain on Sale of Operations. This includes the gain on the sale of the Material Handling division of Kingston-Warren of $11,354, the gain on the sale of the land, building and certain other assets of the Harvard Interiors' St. Louis facility of $1,217 , the gain of $13,999 on the transfer of certain assets at the Toledo facility and their related lease obligations to a third party and the gain on the sale of certain assets and assumption of liabilities of the Doehler-Jarvis Greeneville subsidiary of $2,103. Other Expense, Net. Other expense decreased from $5,530 to $3,980 due to a decrease in loss on disposal of machinery and equipment. Reorganization Items. Represents mainly professional fees incurred in connection with the bankruptcy proceedings. Provision for Income Taxes. The increase from $1,204 to $6,207 was principally due to the reorganization of the Company. Several items that materially contributed to the increase were the federal minimum tax and state income taxes. Net Loss. The net loss decreased from $389,429 to $55,804 for the reasons described above. LIQUIDITY AND CAPITAL RESOURCES On a pro-forma basis, the cash flow (usage) for the two months ended November 29, 1998 (pre-confirmation) and the ten months ended September 30, 1999 (post-confirmation) have been combined for purposes of comparison to the year ended September 30, 1998. For the year ended September 30, 1999, the Company had net cash usage from operations of $13,216 as compared with cash flow from operations of $23,526 for the year ended September 30, 1998. The 1999 cash flows decreased due to an increase in financing, legal and professional fees and other payments related to the Company's emergence from Chapter 11 proceedings on November 24, 1998. The prior year's results included substantial payments from two major customers to partially defray the cost of shutting down the Toledo, Ohio facility and also working capital reductions at facilities being shutdown. Cash flows generated from the sale of operations of $113,837 and credit facility borrowings were used to pay reorganization items, capital expenditures of $15,930, and ultimately on September 30, 1999, to retire all outstanding borrowings. The Company emerged from Chapter 11 on November 24, 1998, repaid the DIP Facility, the Post-Petition Term Loan, and issued $25,000 of Senior Secured Notes and entered into a $115,000 Senior Secured Credit facility. On September 30, 1999 the Company used part of the proceeds of the sale of the assets of Kingston-Warren to prepay the 14 1/2% Senior Secured Notes and all obligations under the $115 million Senior Secured Credit Facility. The Company then put in place a new $50 million revolving credit facility with GECC. No amounts were drawn down on this facility as of September 30, 1999, except for $9,720 of Letters of Credit. Management anticipates having sufficient liquidity to conduct its activities in fiscal 2000 as a result of the borrowing availability provided by this facility. Capital Expenditures. Capital expenditures for property, plant and equipment during 1999 and 1998 were $15,930 and $24,887, respectively, (including capital spending for Kingston-Warren of $5,755 and $14,174 for 1999 and 1998 respectively) principally for machinery and equipment required in the ordinary course of operating the Company's business. The Company is currently projecting to spend approximately $16,500 principally for machinery and equipment in 2000. The projected capital expenditures are required for new business and on-going cost saving programs necessary to maintain competitive position, and the balance for normal replacement. The actual timing of capital expenditures for new business may be impacted by customer 26 delays and acceleration of program launches and the Company's continual review of priority of the timing of capital expenditures. YEAR 2000 COMPLIANCE The Year 2000 issue is the result of many computer programs and imbedded chips being written using two digits rather than four to define the applicable year. Many of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. The Company is subject to various risks associated with the year 2000 impact on information systems and hardware. If not addressed and completed on a timely basis, failure of the Company's computer systems to process Year 2000 related data correctly could have a material adverse effect on the Company's financial condition and results of operations. Failures of this kind could, for example, lead to incomplete or inaccurate accounting, supplier and customer order processing or recording errors in inventories or other assets and the disruption of its manufacturing process as well as transactions with third parties. If not addressed, the potential risks to the Company include financial loss, legal liability and interruption to business. The Company has completed its assessment of year 2000 impact on internal information and facilities systems and has successfully installed a new management information system that will allow its critical information systems and technology infrastructure to be Year 2000 compliant before transactions for the year 2000 are expected. Many of the Company's systems include new hardware and packaged software recently purchased from large vendors who have represented that these systems are already Year 2000 compliant. The Company has obtained assurances from vendors that timely updates will be made available to make all remaining purchased software Year 2000 compliant. The Company utilized both internal and external resources to reprogram or replace and test all of its software for Year 2000 compliance. The cost for this project was $14.5 million. The Company spent approximately $7.7 million for Year 2000 compliance in fiscal 1998 and approximately $6.8 million in fiscal 1999. However, even if these changes are successful, the Company remains at risk from Year 2000 failures caused by third parties. The Company has surveyed key utilities and suppliers and has resourced most suppliers that had not made commitments to become Year 2000 compliant. Failure by such key utilities or suppliers to complete Year 2000 compliance work in a timely manner could have a material adverse effect on certain of the Company's operations. Examples of problems that could result from the failure by third parties with whom the Company interacts to remediate Year 2000 problems include, in the case of utilities, service failures such as power, telecommunications, elevator operations and loss of security access control and, in the case of suppliers, failures to satisfy orders on a timely basis and to process orders correctly. Additionally, general uncertainty regarding the success of remediation may cause many suppliers to reduce their activities temporarily as they assess and address their Year 2000 efforts in 1999. This could result in a general reduction in available supplies in late 1999 and early 2000. Management cannot predict the magnitude of any such reduction or its impact on the Company's financial results. There can be no assurance that the systems of other companies on which the Company's systems rely will be converted in a timely fashion, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company's consolidated financial statements. INFLATION AND OTHER MATTERS There was no significant impact on the Company's operations as a result of inflation during the prior three year period. In some circumstances, market conditions or customer expectations may prevent the Company from increasing the price of its products to offset the inflationary pressures that may increase its costs in the future. SEASONALITY Although most of the Company's products are generally not affected by year-to-year automotive style changes, model changes may have a significant impact on sales. In addition, the Company experiences seasonal fluctuations to the extent that the operations of the domestic automotive industry slows down during the summer months, when plants close for vacation period and model year changeovers, and during the month of December for plant holiday closings. As a result, the Company's third and fourth quarter sales are usually somewhat lower than first and second quarter sales. 27 RECENT ACCOUNTING PRONOUNCEMENTS Derivative Transactions. In June 1999, the Financial Accounting Standards Board agreed to defer for one year the effective date for Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS No. 133) which is now required to be adopted in years beginning after June 15, 2000. The SFAS No. 133 permits early adoption as of the beginning of any fiscal quarter after its issuance. SFAS No. 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of SFAS No. 133 will have no impact on the Company's consolidated results of operations, financial position or cash flows. ITEM 7A. MARKET RISK DISCLOSURE Harvard Industries, Inc. may be subject to market risk with respect to its credit facility and foreign currency earnings. At the present time the Company has no debt outstanding. However in the event that the Company draws on its credit facility it would be subject to interest rate risk. The Company's revolving credit agreement carries interest rates at prime rate plus 1.25% or LIBOR plus 2.50%. As the prime rate or LIBOR increases, the Company would incur higher relative interest and expense on any outstanding debt and similarly a decrease in the prime rate would reduce relative interest expense. In recent years there have not been significant fluctuations in the prime rate. Trim Trends Canada, Ltd., Company's Canadian subsidiary, conducts its transactions in Canadian currency. During 1999 and 1998 Trim Trends Canada, Ltd.'s sales represented 5% and 3% respectively of the Company's net sales and as a result the impact of market risk on foreign currency transactions is not considered material. These market risks are not considered significant and therefore the Company does not intend to engage in hedging transactions. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Item 14. 28 PART III The Company has incorporated by reference certain responses to the items of this Part III pursuant to Rule 12b-23 under the Exchange Act and General Instructions G(3) to Form 10-K. The Company's definitive proxy statement for the annual meeting of stockholders scheduled for March 15, 2000 ("Proxy Statement") will be filed no later than 120 days after September 30, 1999. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS OF REGISTRANT ROGER G. POLLAZZI. Chairman of the Board and Chief Executive Officer since November 24, 1998 Roger G. Pollazzi was elected Chief Operating Officer of the Company in November 1997 and, has been Chairman of the Board and Chief Executive Officer since the effective date. He was associated with Concord Investment Partners, an investment firm headquartered in Concord, Massachusetts, from 1996 to October 1997. From 1992 to 1996, Mr. Pollazzi was Chief Executive Officer and Chairman of Pullman, an automotive parts manufacturer. Term of Office: 1 year Age: 62 JON R. BAUER. Director Since December 1998 Jon R. Bauer is a Managing Partner of Contrarian Capital Management, L.L.C., an investment management firm founded in May 1995 and located in Greenwich, Connecticut. He was a Managing Director of the Horizon series of Partnerships from 1986 to 1995. Term of Office: 2 years Age: 43 THOMAS R. COCHILL. Director since November 24, 1998 Thomas R. Cochill is a founding partner and serves as CEO of Ingenium, LLC, a crisis and transition management consulting firm. He served as the President, Chief Executive Officer and Chairman of the Board of Webcraft Technologies, Inc. ("Webcraft") from 1992 to 1997. Webcraft specializes in printing of direct mail products, specialized government forms, complex commercial print formats and fragrance samplers. Webcraft emerged from Chapter 11 in 1994. He serves as a member of the Board of Directors of Grand Union Company, a grocery chain in the Northeast United States, U.S. Leather, Inc., a producer of leather and leather products, Golden Books Family Entertainment, Inc., a marketer of children's and family-related media and entertainment products and Goss Graphic Systems, Inc., a manufacturer of printing presses and related equipment worldwide. From 1981 to 1992, Mr. Cochill was the President, member of the Board of Directors, and member of the Executive Committee as well as a minority partner of The Lehigh Press, Inc., a private printing company. Mr. Cochill also served as a Group Business Manager for the Dow Chemical Company from 1969 to 1972. Term of Office: 2 years Age: 60 RAYMOND GARFIELD, JR. Director since November 24, 1998 Raymond Garfield, Jr. has been the President of Garfield Corporation, a national real estate finance and development firm, specializing in design-build/finance projects. In 1992, Mr. Garfield became Chairman and Chief Executive Officer of Vista Properties, Inc., a public national development firm formerly known as Lomas Realty USA. Mr. Garfield guided a restructuring which resulted in Vista's merger with Centex Corporation in 1996. From 1988 to 1992, Mr. Garfield served as a Senior Managing Director of Cushman & Wakefield, responsible for all financial services for the Western U.S. Mr. Garfield has also served as a Vice President of Salomon Brothers from 1984 to 1988 and Senior Vice President and National Sales Manager for Merrill Lynch Commercial Real Estate from 1980 to 1984. He is a graduate of the U.S. Naval Academy and is a former naval aviator. Term of Office: 2 years Age: 55 DONALD P. HILTY. Director since November 24, 1998 Donald P. Hilty is a business consultant. From 1980 to 1994, Mr. Hilty served as the Chief Economist of the Chrysler Corporation. Also at Chrysler, he held marketing, finance and research positions during twelve years in Geneva, London and Paris. He was a Senior Fellow at the Economic Strategic Institute from 1994 to 1996. Mr. Hilty holds a BA degree from Wheaton 29 College, an MBA from the University of Colorado and a Doctor of Business Administration from the Indiana University Graduate School of Business. Term of Office: 2 years Age: 70 ANDREW P. HINES. Director effective January 2000 Andrew P. Hines was appointed to the Board in December 1999 to become effective January 25, 2000. Mr. Hines has been the Executive Vice President and Chief Financial Officer of Outboard Marine Corporation since October 6, 1997, and a director since October 7, 1997. Prior to joining the Outboard Marine Corporation, Mr. Hines held the position of Senior Vice President and Chief Financial Officer for Woolworth Corporation since 1994. During 1993, Mr. Hines was a consultant to Pentland PLC, England. From 1989 to 1992, Mr. Hines held the position of Executive Vice President and Chief Financial Officer with Adidas USA. Prior to that, Mr. Hines held various senior financial positions with RJR Nabisco, Inc. from 1976 to 1989. Term of Office: 1 year Age: 60 GEORGE A. POOLE, JR. Director Since November 24, 1998 George A. Poole, Jr. has been a private investor for more than five (5) years and is currently a member of the Board of Directors of Anacomp, Inc., a provider of multiple media data management solutions which emerged from Chapter 11 in 1996. In addition to serving on the Board of Anacomp, Inc. since June 1996, Mr. Poole has served on the Board of Directors of U.S. Home Corp., a home building company since it emerged from Chapter 11 in June 1993. Mr. Poole also served on the Board of Directors of Bibb Company until it was sold in October 1998 and has served on the Board of Directors of Bucyrus International, Inc. and Spreckles Industries. Term of Office: 2 years Age: 68 JAMES P. SHANAHAN, JR. Director Since November 24, 1998 James P. Shanahan, Jr. has been the Executive Vice President, General Counsel and a member of the Board of Directors of Pacholder Associates, Inc. since 1986. He also serves on the Board of Directors of LaBarge, Inc., a manufacturer of electronic components headquartered in St. Louis, MO. In addition, Mr. Shanahan served as Chief Executive Officer of ICO, Inc. from 1990 to 1995. Term of Office: 2 years Age: 38 RICHARD W. VIESER. Director since December 1998 Richard W. Vieser retired from active employment in 1989. He was Chairman, Chief Executive Officer and President of Lear Siegler, Inc. (a diversified manufacturing company) from 1987 to 1989. He was Chairman of the Board and Chief Executive Officer of FL Industries, Inc. and FL Aerospace (Formerly Midland-Ross Corporation) (also a diversified manufacturing company) from 1985 and 1986 to 1989 respectively. He is a former President and Chief Operating Officer of McGraw-Edison Co. Currently Mr. Vieser serves as a director of Ceridian Corporation (formerly Control Data), Global Industrial Technologies (formerly INDRESCO, Inc.) International Wire, Sybron International Corporation, Varian Associates and Viasystems Group, Inc. Term of Office: 2 years Age: 72 EXECUTIVE OFFICERS OF REGISTRANT ROGER G. POLLAZZI. See Directors of Registrant. JAMES B. GRAY. President since July 8, 1998. James B. Gray joined the Company on July 8, 1998 as its President and currently remains President. Prior to joining the Company, he was the Managing Director of Tenneco Europe since 1996. From 1989 to 1996, Mr. Gray was President of the Elastomers division of Pullman. Term of Office: 1 year Age: 57 30 JOSEPH J. GAGLIARDI. Executive Vice President, Administration and Information Technology since July 1998. Joseph J. Gagliardi is currently the Executive Vice President, Administration and Information Technology, a position he has held since July 1998. From March 1997 to July 1998, he was the Senior Vice President, Finance and Chief Financial Officer of the Company, and from 1980 to March 1997 he served as Vice President, Finance and Chief Financial Officer of the Company. Term of Office: 1 year Age: 60 J. VINCENT TOSCANO. Executive Vice President of Strategic Planning/Acquisition and Divestitures since November 17, 1997. Prior to joining the Company, he was associated with Concord Investment Partners, an investment firm headquartered in Concord, Massachusetts, from 1996 to October 1997. From 1993 to 1996, he was Vice President Operations, at Pullman. From 1992 until 1993, Mr. Toscano was Chief Financial Officer of Pullman. Term of Office: 1 year Age: 51 THEODORE W. VOGTMAN. Executive Vice President and Chief Financial Officer since November 17, 1997. Prior to joining the Company, he was associated with Concord Investment Partners, an investment firm headquartered in Concord, Massachusetts, from 1996 to October 1997. From 1994 to 1996, he was Chief Financial Officer of Pullman. From 1992 to 1994, he was Chief Financial Officer for Safelite Glass. Term of Office: 1 year Age: 59 DAVID C. STEGEMOLLER. Senior Vice President, Powertrain since August 1995. He has been a Senior Vice President of the Company since August 1995. For the past five years, Mr. Stegemoller served as Vice President with Hayes-Albion and its Trim Trends division (which was then a subsidiary of the Company). Prior to joining the Company in 1990, Mr. Stegemoller was employed by Navistar International for 23 years. Term of Office: 1 year Age: 58 GERALD G. TIGHE. Senior Vice President, General Counsel since November 17, 1997. Gerald G. Tighe joined the Company on November 17, 1997 and currently serves as Senior Vice President, General Counsel. Prior to joining the Company, he was a consultant to Pullman from 1994 until 1997. Previously, he was General Counsel of Lear Siegler Inc. Term of Office: 1 year Age: 64 KEVIN L. B. PRICE. Vice President, Controller and Treasurer since November 17, 1997. Kevin L. B. Price joined the Company on November 17, 1997 and is currently Vice President, Controller and Treasurer. Prior to joining the Company, he was Vice President--Controller of Pullman, from 1994 until 1997. Prior to that time, Mr. Price was the Assistant Controller of Pullman. Term of Office: 1 year Age: 44 D. CRAIG BOWMAN. Vice President, Law and Secretary since December 1, 1997. D. Craig Bowman joined the Company on December 1, 1997 and is currently Vice President, Law and Secretary. Before joining the Company, he was a principal in the management consulting firm of The Tappan Group, located in New York, New York, from June 1994 until November 1997. From 1991 to 1994, Mr. Bowman was Vice President and General Counsel of Pullman. Term of Office: 1 year Age: 53 31 JOHN J. BROCK. Vice President, Tax since November 17, 1997. John J. Brock joined the Company on November 17, 1997 and is currently Vice President, Tax. Prior to joining the Company, he was Vice President--Tax at Pullman from 1994 through 1997. From 1990 to 1994, Mr. Brock was Vice President--Taxation with Fiat Automotive (USA). Term of Office: 1 year Age: 54 ROBERT J. CLARK. Vice President, Human Resources since January 15, 1998. Robert J. Clark joined the Company on January 15, 1998 and is currently Vice President, Human Resources. Prior to joining the Company, he was Vice President Benefits and Compensation with Polygram Holding, Inc. from August 1992 until January 1998. Term of Office: 1 year Age: 45 DOUGLAS D. ROSSMAN. Vice President, Purchasing since December 1996. Douglas D. Rossman has been a Vice President of the Company since December 1996. Previously, he was Purchasing Manager of Federal Mogul Corp., an automobile parts manufacturer, for more than eight years. Term of Office: 1 year Age: 48 All other information required by this item 10 is incorporated by reference from the Company's definitive proxy statement for the annual meeting of stockholders scheduled for March 15, 2000 to be filed with the Securities and Exchange Commission pursuant to Reg. 14A no later than 120 days following its fiscal year ending September 30, 1999. The information set forth in response to item 405 of Regulation S-K under the heading "Section 16(a) of Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement is incorporated by reference in partial response to this item 10. ITEM 11. EXECUTIVE COMPENSATION The information set forth in response to item 402 of Regulation S-K in the Company's Proxy Statement is incorporated by reference in response to this item 11. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth in response to item 402 of Regulation S-K under "Principal Stockholders and Stock Owned Beneficially by Directors and Certain Executive Officers" in the Company's Proxy Statement is incorporated by reference in response to this item 12. The Company has no knowledge of any arrangement the operation of which may at a subsequent date result in a change of control of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None 32 PART IV. FINANCIAL INFORMATION HARVARD INDUSTRIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE ----- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K: (a) (1) Financial Statements and Auditors' Reports........................................................ 35 The following financial statements and schedules are filed as part of this Annual Report on Form 10-K. Consolidated Balance Sheets September 30, 1999 and 1998............................................................................. 37 Consolidated Statements of Operations Ten Months Ended September 30, 1999, Two Months Ended November 29, 1998 and Years Ended September 30, 1998 and 1997........................................................................................ 38 Consolidated Statements of Shareholders' Equity (Deficiency) Ten Months Ended September 30, 1999, Two Months Ended November 29, 1998 and Years Ended September 30, 1998 and 1997........................................................................................ 39 Consolidated Statements of Cash Flows Ten Months Ended September 30, 1999, Two Months Ended November 29, 1998 and Years Ended September 30, 1998 and 1997........................................................................................ 40 Notes to Consolidated Financial Statements................................................................ 41
All schedules are omitted because they are either not applicable or the required information is included in the Consolidated Financial Statements or Notes thereto. (B) LIST OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------------------------------------------- 4* -- Rights Agreement, dated as of March 24, 1999, between Harvard Industries, Inc. and State Street Bank and Trust Company as Rights Agent, which includes (i) as Exhibit A thereto the form of Certificate of Designation of the Series A Junior Participating Preferred Stock, (ii) as Exhibit B thereto the form of Right certificate (separate certificates for the Rights will not be issued until after the Distribution Date), (iii) as Exhibit C thereto the Summary of Stockholder Rights Agreement, and (iv) as Exhibit D thereof the form of Irrevocable Proxy. (Incorporated by reference from the Company's Registration Statement on Form 8-A dated March 24, 1999) 10.1* -- Asset Purchase Agreement among the Company, its Kingston-Warren Corporation subsidiary, KWC Acquisition Corporation, dated September 10, 1999. (Incorporated by reference from the Company's current report on Form 8-K filed on October 15, 1999) 10.2* -- Credit Agreement, dated as of September 30, 1999, between the Company, its subsidiaries, General Electric Capital Corporation, as Administrative Agent and lender. 10.3* -- Warrant Agreement, dated as of November 24, 1998, between the Company and State Street Bank and Trust Company, as Warrant Agent. 10.4* -- Harvard Industries, Inc. Nonqualified ERISA Excess Benefit Plan (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-1 (File No. 33-96376)).
33
EXHIBIT NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------------------------------------------- 10.5* -- Harvard Industries, Inc. Nonqualified Additional Credited Service Plan (incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1 (File No. 33-96376)). 10.6* -- Harvard Industries, Inc. 1998 Stock Incentive Plan 10.7* -- Stipulation and Order between Debtors and ARCO Environmental Remediation, LLC Regarding Assumption of Settlement Agreement and the Withdrawal of Claim No. 1701 (attaching Settlement Agreement, dated as of January 16, 1995, by and between Harvard Industries, Inc. and Atlantic Richfield Company). 10.8* -- Stipulation and Order among the Debtors, General Electric Company and Caribe General Electric Products, Inc. Regarding Assumption of Settlement Agreement and the Withdrawal of Claim Nos. 1741 and 1742 (attaching Settlement Agreement, dated as of June 30, 1993, by General Electric Company and Caribe General Electric Products, Inc., Unisys Corporation, Harvard Industries, Inc., Harman Automotive, Inc. and Harman Automotive of Puerto Rico, Inc., Motorola, Inc. and Motorola Telcarro de Puerto Rico, Inc. and The West Company Incorporated and The West Company of Puerto Rico, Inc.) 10.9* -- Stipulation and Order between the Debtors and the Fonalledas Claimants. 10.10 -- Equipment Purchase Agreement by Hayes-Albion Corporation and MacDonald's Industrial Products, Inc. dated December 21, 1999. Regarding certain assets of Hayes-Albion's facility in Ripley, TN. 10.11 -- Asset Purchase Agreement between Outboard Marine Corporation and Harvard Industries, Inc. dated November 29, 1999. 10.12 -- Services Agreement between Outboard Marine Corporation and Harvard Industries, Inc. dated December 3, 1999. 16 -- Letter re change in certifying accountant (incorporated by reference to Exhibit 16.1 to the Company's Current Report on Form 8-K/A filed with the Commission October 7, 1998 (Commission File No. 001-01044)). 21 -- List of subsidiaries of the Company. 24 -- Powers of Attorney (contained in the signature pages hereto).
(c) Reports on Form 8-K Form 8-K filed August 24, 1999 Form 8-K/A filed September 16, 1999 Form 8-K filed October 15, 1999 - ------------------ * Previously filed. 34 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Harvard Industries, Inc.: We have audited the accompanying consolidated balance sheets of Harvard Industries, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of September 30, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity (deficiency) and cash flows for the ten month period ended September 30, 1999 (post-confirmation), the two month period ended November 29, 1998, and the year ended September 30, 1998 (pre-confirmation). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Harvard Industries, Inc. and subsidiaries as of September 30, 1999 and 1998, and the results of their operations and their cash flows for the ten month period ended September 30, 1999 (post-confirmation), the two month period ended November 29, 1998, and the year ended September 30, 1998 (pre-confirmation) in conformity with generally accepted accounting principles. As discussed in Note 1 to the Consolidated Financial Statements, the Company emerged from bankruptcy on November 24, 1998. The effects from the adoption of fresh start reporting and the forgiveness of debt were reflected in the statement of operations for the two months ended November 29, 1998. Accordingly, the consolidated financial statements for periods subsequent to the Company's emergence from bankruptcy are not comparable to the consolidated financial statements presented for prior periods. ARTHUR ANDERSEN LLP Roseland, New Jersey December 23, 1999 35 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders Harvard Industries, Inc. In our opinion, the accompanying consolidated statements of operations, cash flows and shareholders deficiency present fairly, in all material respects, the results of operations and cash flows of Harvard Industries, Inc. and its subsidiaries (the "Company") for the year ended September 30, 1997 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Tampa, Florida November 14, 1997, except for Note 9 as to which the date is December 29, 1997 36 HARVARD INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1999 AND 1998 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(DEBTOR-IN-POSSESSION) SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------ ---------------------- ASSETS Current assets: Cash and cash equivalents............................................. $ 21,840 $ 11,624 Accounts receivable, net of allowance of $2,383 in 1999 and $1,675 in 1998............................................................... 35,324 57,046 Inventories........................................................... 18,107 26,646 Prepaid expenses and other current assets............................. 6,453 5,701 -------- ---------- Total current assets............................................. 81,724 101,017 Property, plant and equipment, net...................................... 72,358 122,579 Intangible assets, net.................................................. 177,581 2,833 Other assets, net....................................................... 5,490 24,552 -------- ---------- Total assets..................................................... $337,153 $ 250,981 -------- ---------- -------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Current portion of debtor-in-possession (DIP) loans................... $ -- $ 39,161 Creditors subordinated term loan...................................... -- 25,000 Accounts payable...................................................... 28,489 25,098 Accrued expenses...................................................... 57,654 93,337 Income taxes payable.................................................. 5,885 8,445 -------- ---------- Total current liabilities........................................ 92,028 191,041 Liabilities subject to compromise....................................... -- 385,665 Long-term debt.......................................................... -- -- Postretirement benefits other than pensions............................. 96,734 95,515 Other................................................................... 63,316 63,353 -------- ---------- Total liabilities................................................ 252,078 735,574 -------- ---------- Commitments and contingencies........................................... -- -- 14 1/4% Pay-in-kind exchangeable preferred stock (at September 30, 1998--includes $10,142 of undeclared accrued dividends)............... -- 124,637 -------- ---------- Shareholders' equity (deficiency): Common stock, $.01 par value; 50,000,000 shares authorized; 10,234,222 shares issued and outstanding at September 30, 1999 15,000,000 shares authorized; 7,026,437 shares issued and outstanding at September 30, 1998................................................. 102 70 Additional paid-in capital............................................ 174,898 32,134 Accumulated (deficit)................................................. (90,450) (629,541) Accumulated other comprehensive income (loss)......................... 525 (11,893) -------- ---------- Shareholders' equity (deficiency).................................. 85,075 (609,230) -------- ---------- Total liabilities and shareholders' equity (deficiency).......... $337,153 $ 250,981 -------- ---------- -------- ----------
The accompanying notes to Consolidated Financial Statements are an integral part of these Statements. 37 HARVARD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TEN MONTHS ENDED SEPTEMBER 30, 1999, TWO MONTHS ENDED NOVEMBER 29, 1998 AND YEARS ENDED SEPTEMBER 30, 1998 AND 1997 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
DEBTOR-IN-POSSESSION -------------------------------------------- TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 29, ---------------------------- 1999 1998 1998 1997 ------------- ------------ ------------ ------------ Net sales.............................................. $ 406,081 $ 89,050 $ 690,076 $ 810,769 ----------- ---------- ---------- ---------- Costs and expenses: Cost of sales........................................ 364,747 79,628 656,243 797,774 Selling, general and administrative.................. 34,189 5,151 66,546 45,822 Amortization of intangibles.......................... 52,320 264 1,584 8,448 Impairment of long-lived assets and restructuring costs............................................. (2,405) -- 10,842 288,545 Interest expense (contractual interest of $49,849 in 1998 and $50,264 in 1997)......................... 9,878 1,636 14,231 36,659 (Gain) loss on sale of operations.................... 25,654 -- (28,673) -- Other (income) expense, net.......................... 1,905 (34) 3,980 5,530 ----------- ---------- ---------- ---------- Total costs and expenses........................ 486,288 86,645 724,753 1,182,778 ----------- ---------- ---------- ---------- Income (loss) from operations before reorganization items and income taxes............................... (80,207) 2,405 (34,677) (372,009) Reorganization items................................... -- 50,384 14,920 16,216 ----------- ---------- ---------- ---------- Loss from operations before income taxes............... (80,207) (47,979) (49,597) (388,225) Provision for income taxes............................. 542 584 6,207 1,204 ----------- ---------- ---------- ---------- Loss from operations................................... (80,749) (48,563) (55,804) (389,429) Extraordinary (gain) loss.............................. 9,701 (206,363) -- -- ----------- ---------- ---------- ---------- Net income (loss)............................... $ (90,450) $ 157,800 $ (55,804) $ (389,429) ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- PIK preferred dividends and accretion (contractual amount of $3,219 for the two months ended November 29, 1998 and $19,010 and $16,891 for the years ended September 30, 1998 and 1997 respectively)........................................ $ -- $ -- $ -- $ 10,142 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- Net income (loss) attributable to common shareholders.......................... $ (90,450) $ 157,800 $ (55,804) $ (399,571) ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- Basic and diluted earnings (loss) per share: Loss from operations................................. $ (8.98) $ (6.91) $ (7.94) $ (56.91) Extraordinary gain (loss) per share.................. (1.08) 29.37 -- -- ----------- ---------- ---------- ---------- Net income (loss) per share.......................... $ (10.06) $ 22.46 $ (7.94) $ (56.91) ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- Weighted average number of common and common equivalent shares outstanding................................... 8,994,900 7,026,437 7,026,437 7,020,692 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
The accompanying Notes to Consolidated Financial Statements are an integral part of these Statements. 38 HARVARD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY) FOR THE TEN MONTHS ENDED SEPTEMBER 30, 1999, TWO MONTHS ENDED NOVEMBER 29, 1998 AND YEARS ENDED SEPTEMBER 30, 1998 AND 1997 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
ACCUMULATED ADDITIONAL OTHER COMMON STOCK PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE NO. OF SHARES AMOUNTS CAPITAL INCOME (LOSS) DEFICIT INCOME (LOSS) ------------- ------- ---------- -------------- ----------- -------------- Balance September 30, 1996.......... 7,014,357 $ 70 $ 42,245 $ (3,731) $(184,308) Comprehensive income (loss), year ended September 30, 1997: Net loss--1997...................... -- -- -- -- (389,429) $ (389,429) ---------- Minimum pension liability......... -- -- -- (1,898) -- (1,898) Foreign Currency Adjustment...................... -- -- -- 34 -- 34 ---------- Comprehensive Income (loss)......... $ (391,293) ---------- ---------- PIK preferred stock dividend........ -- -- (9,854) -- -- Accretion of discount on PIK preferred stock................... -- -- (288) -- -- Sale of stock....................... 12,080 -- 31 -- -- ----------- ----- -------- -------- --------- Balance September 30, 1997.......... 7,026,437 70 32,134 (5,595) (573,737) Comprehensive Income (loss), year ended September 30, 1998: Net loss--1998.................... -- -- -- -- (55,804) $ (55,804) ---------- Minimum pension liability......... -- -- -- (5,237) -- (5,237) Foreign Currency Adjustment...................... -- -- -- (1,061) -- (1,061) ---------- Comprehensive Income (loss)......... $ (62,102) ----------- ----- -------- -------- --------- ---------- ---------- Balance September 30, 1998.......... 7,026,437 70 32,134 (11,893) (629,541) ----------- ----- -------- -------- --------- ----------- ----- -------- -------- --------- Comprehensive Income (loss), two month period ended November 29, 1998: Income from operations before reorganization items for the two month period ended November 29, 1998....................... -- -- -- -- 1,868 $ 1,868 ---------- Foreign Currency Adjustment....... -- -- -- (172) -- (172) ---------- Comprehensive Income (loss)......... $ 1,696 ---------- ---------- Fresh-start adjustments............. (7,026,437) (70) (32,134) 12,065 421,310 Reorganization adjustments.......... 8,240,295 82 174,918 -- 206,363 ----------- ----- -------- -------- --------- Balance November 29, 1998........... 8,240,295 82 174,918 -- -- ----------- ----- -------- -------- --------- ----------- ----- -------- -------- --------- Comprehensive Income (loss), ten month period ended September 30, 1999: Net loss--ten month period ended September 30, 1999.............. -- -- -- -- (90,450) $ (90,450) ---------- Foreign Currency Adjustment...................... -- -- -- 525 -- 525 ---------- Comprehensive Income (loss)......... $ (89,925) ---------- ---------- Additional shares issued in connection with the Plan of Reorganization.................... 1,993,927 20 (20) -- -- ----------- ----- -------- -------- --------- Balance September 30, 1999.......... 10,234,222 $ 102 $174,898 $ 525 $ (90,450) ----------- ----- -------- -------- --------- ----------- ----- -------- -------- ---------
The accompanying Notes to Consolidated Financial Statements are an integral part of these Statements. 39 HARVARD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE TEN MONTHS ENDED SEPTEMBER 30, 1999, TWO MONTHS ENDED NOVEMBER 29, 1998 AND THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997 (IN THOUSANDS OF DOLLARS)
DEBTOR-IN-POSSESSION -------------------------------------------- TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 29, ---------------------------- 1999 1998 1998 1997 ------------- ------------ ------------ ------------ Cash flows related to operating activities: Income (Loss) from continuing operations before reorganization items......................................................... $ (80,749) $ 1,821 $(40,884) $ (373,213) Add back (deduct) items not affecting cash and cash equivalents: Depreciation.................................................. 12,650 3,503 24,209 46,377 Amortization.................................................. 53,158 476 3,695 13,809 Impairment of long-lived assets and restructuring charges..... (2,405) -- 10,842 288,545 (Gain) Loss on sale of operations............................. 28,472 -- (28,673) -- (Gain) Loss on disposition of property, plant and equipment and property held for sale.................................. 124 -- 1,030 1,931 Curtailment (gain) loss....................................... (2,818) -- 4,390 (8,249) Write-off of deferred debt expense............................ 0 -- -- 1,792 Senior notes interest accrued not paid........................ 0 -- -- 9,728 Changes in operating assets and liabilities of continuing operations, net of effects from acquisitions and reorganization items: Accounts receivable........................................... 22,532 (15,077) 10,673 22,798 Inventories................................................... 2,616 (1,168) 21,862 (7,225) Other current assets.......................................... 920 402 1,460 (5,965) Accounts payable.............................................. (9,656) 21,676 (6,658) (56,806) Accounts payable prepetition.................................. -- -- -- 81,429 Accrued expenses and income taxes payable..................... (5,056) (23,745) 18,567 (10,254) Postretirement benefits....................................... (701) -- 1,386 (4,138) Other noncurrent.............................................. (10,139) (1,413) 10,683 13,350 --------- -------- -------- ---------- Net cash provided by (used in) continuing operations before reorganization items.......................................... 8,948 (13,525) 32,582 13,909 Net cash used in reorganization items........................... (4,621) (4,018) (9,056) (2,864) --------- -------- -------- ---------- Net cash provided by (used in) continuing operations............ 4,327 (17,543) 23,526 11,045 --------- -------- -------- ---------- Cash flows related to investing activities: Acquisition of property, plant and equipment.................... (13,074) (2,856) (24,887) (36,572) Cash flows related to discontinued operations................... -- -- 557 713 Proceeds from sales of operations............................... 113,837 -- 27,822 -- Proceeds from disposition of property, plant and equipment...... 24 -- 72 1,703 --------- -------- -------- ---------- Net cash provided by (used in) investing activities............. 100,787 (2,856) 3,564 (34,156) --------- -------- -------- ---------- Cash flows related to financing activities: Issuance costs of Senior Notes and financing agreements......... -- -- -- (2,200) Net borrowings (and repayments) under credit agreement.......... 11,247 81,425 -- (38,834) Net borrowings (and repayments) under DIP financing agreement... -- 1,062 (45,810) 87,471 Net borrowings under Unsecured Creditors Term Loan.............. -- -- 25,000 -- Retirement of DIP Financing Agreement........................... -- (40,360) -- -- Retirement of Creditors Unsecured Term Loan..................... -- (25,000) -- -- Retirement of Financing/Credit Agreement........................ (92,672) -- -- -- Penalty Paid on Early Retirement of Debt........................ (6,386) -- -- -- Proceeds from sale of stock and exercise of stock options....... -- -- -- 31 Repayments of long-term debt.................................... -- -- (88) (7,682) Pension fund payments pursuant to PBGC settlement agreement..... -- -- -- (6,000) Deferred financing costs........................................ (477) (3,338) (3,725) -- Payment of EPA settlements...................................... -- -- (55) (1,570) --------- -------- -------- ---------- Net cash provided by financing activities....................... (88,288) 13,789 (24,678) 31,216 Net increase (decrease) in cash and cash equivalents.............. 16,826 (6,610) 2,412 8,105 Beginning of period............................................... 5,014 11,624 9,212 1,107 --------- -------- -------- ---------- End of period..................................................... $ 21,840 $ 5,014 $ 11,624 $ 9,212 --------- -------- -------- ---------- --------- -------- -------- ---------- Supplemental disclosure of cash flow information: Interest paid................................................... 9,225 1,870 $ 14,039 $ 37,328 Income taxes paid............................................... $ 2,199 $ 228 $ 776 $ 2,244 --------- -------- -------- ---------- --------- -------- -------- ----------
The accompanying Notes to Consolidated Financial Statements are an integral part of these Statements. 40 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 1. BASIS OF PRESENTATION AND EMERGENCE FROM BANKRUPTCY Harvard Industries, Inc., a Florida corporation at September 30, 1998, reorganized as a Delaware corporation on November 24, 1998, and its subsidiaries (the "Company") are primarily engaged in the business of designing, engineering and manufacturing components for OEMs producing cars and light trucks. The Company's principal customers are General Motors, Ford and Chrysler. The Company operates primarily in one business segment: the automotive accessories business. The Company produces a wide range of products, including: rubber glass-run channels; rubber seals for doors and trunk lids; aluminum castings; cast, fabricated, machined and decorated metal products; and metal stamped and roll form products. General Motors, Ford, and Chrysler accounted for 48%, 25%, and 9%, respectively, of the consolidated sales in 1999 (27%, 34% and 12%, respectively, excluding Kingston-Warren), 39%, 34%, and 10% respectively, in 1998 and 43%, 33%, and 7%, respectively, in 1997. On May 8, 1997, Harvard Industries, Inc. and its domestic subsidiaries (all of whom are hereinafter sometimes designated the "Debtors") filed voluntary petitions for relief under Chapter 11 of the Federal bankruptcy laws in the United States Bankruptcy Court (the "Court") for the District of Delaware. Under Chapter 11, certain claims against the Debtors arising prior to the filing of the petitions for relief under the Federal bankruptcy laws are stayed from collection while the Debtors continue business operations as debtors-in- possession ("DIP"). On November 24, 1998 (the "Effective Date") the Company emerged from Chapter 11 reorganization under the United States Bankruptcy Code. On the Effective Date, pursuant to the Company's First Amended Modified Consolidated Plan under Chapter 11 of the Bankruptcy Code ("Plan of Reorganization"), substantially all pre-petition unsecured debt of pre-reorganization Harvard was converted into equity of post-reorganization Harvard in the form of common stock (the "New Common Stock"). Each one hundred dollars ($100) of pre-petition debt allowed as a claim by the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") is entitled to receive 2.6667 shares of new Common Stock. Under the terms of the Plan of Reorganization, holders of Harvard's Pay-In-Kind Exchangeable Preferred ("PIK Preferred Stock") and holders of Harvard's then existing common stock (the "Old Common Stock") have each received warrants ("Warrants") to acquire, in the aggregate, approximately 5% of the New Common Stock, with holders of PIK Preferred Stock each receiving their pro rata share of 66.67% of the Warrants and holders of the Old Common Stock each receiving their pro rata share of 33.33% of the Warrants. On the Effective Date, the Old Common Stock and PIK Preferred Stock were canceled in their entirety. The Company also issued $25 million of 14 1/2% Senior Secured Notes and entered into a $115 million Senior Credit Facility to finance ongoing operations and repaid all obligations under its two year Post-Petition Loan and Security Agreement ("DIP financing") and the $25,000 term loan agreement dated as of January 16, 1998. (See Note 9). In connection with its emergence from Chapter 11 bankruptcy proceedings, the Company implemented "Fresh Start Reporting," as of November 29, 1998 (its normal interim closing date), as set forth in Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), issued by the American Institute of Certified Public Accountants. "Fresh Start Reporting" was required because there was more than a 50% change in the ownership of the Company. Accordingly, all assets and liabilities were restated to reflect their respective fair values. Consolidated financial statement amounts for post-confirmation periods will be segregated by a black line in order to signify that such consolidated statements of operations, stockholders' equity (deficiency) and cash flows are those of a new reporting entity and have been prepared on a basis not comparable to the pre-confirmation periods. The Company, in accordance with SOP 90-7, has followed the accounting and reporting guidelines for companies operating as debtor-in-possession since its filing for bankruptcy protection on May 8, 1997 and until its emergence from bankruptcy protection as described above. The reorganization value of the Company was determined by management, with assistance from Chanin Kirkland Messina LLC, independent financial professionals. The methodology employed involved estimation of 41 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 1. BASIS OF PRESENTATION AND EMERGENCE FROM BANKRUPTCY--(CONTINUED) enterprise value (i.e., the market value of the Company's debt and stockholders' equity which was determined to be $275,000), taking into account a discounted cash flow analysis (Enterprise Value). The discounted cash flow analysis was based on five-year cash flow projections prepared by management and average discount rates of 5.34 percent. The reorganization value of the Company was determined to be $552,428 as of November 29, 1998. The reorganization value of the Company has been allocated to specific asset categories as follows: Current assets.......................................................... $110,250 Property, plant and equipment........................................... 121,516 Other noncurrent assets................................................. 5,761 Reorganization value in excess of amounts allocable to identifiable assets................................................................ 314,901 -------- $552,428 -------- --------
Current assets have been recorded at their historical carrying values. Property, plant and equipment have been recorded at their appraised value as determined by an independent appraisal performed by Norman Levy Associates, Inc., independent appraiser, based on "orderly liquidation value," which assumes that the assets will be used for the purpose for which they were designed and constructed. Property held for sale is valued at net realizable value. Other noncurrent assets are stated at historical carrying values which approximate fair value. The portion of the reorganization value which cannot be attributed to specific tangible or identifiable intangible assets of the reorganized Company has been reported as "Reorganization value in excess of amounts allocable to identifiable assets (Reorganization Value). " This intangible asset is being amortized using the straight-line method over 5 years. The Company selected a useful life of 5 years based on the Company's previous experience, methodologies employed by independent financial experts and the Company's turnaround business strategy. 42 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 1. BASIS OF PRESENTATION AND EMERGENCE FROM BANKRUPTCY--(CONTINUED) The effect of the Plan on the Company's consolidated balance sheet as of November 29, 1998 was as follows:
ADJUSTMENTS TO RECORD EFFECTS OF THE PLAN --------------------------------------------------------------- PRE- POST- CONFIRMATION CONFIRMATION ------------- ------------- CONSOLIDATED REORGANIZATION FRESH START CONSOLIDATED BALANCE SHEET ADJUSTMENTS ADJUSTMENTS BALANCE SHEET ------------- -------------- ----------- ------------- Current Assets.............................. $ 103,518 $ -- $ 6,732 $ 110,250 Property, plant and equipment, net.......... 121,820 -- (304) 121,516 Intangible assets, net...................... 2,569 -- (2,569) -- Other assets, net........................... 24,121 -- (18,360) 5,761 Reorganization value in excess of amounts allocable to identifiable assets.......... -- -- 314,901 314,901 --------- ---------- --------- --------- $ 252,028 0 $ 300,400 $ 552,428 --------- ---------- --------- --------- --------- ---------- --------- --------- Current Liabilities......................... $ 193,216 $ -- $ (70,398) $ 122,818 Liabilities subject to compromise........... 385,665 (381,363) (4,302) -- Long-term debt.............................. -- -- 81,425 81,425 Postretirement benefits other than pension.. 95,515 -- (49) 95,466 Other....................................... 60,529 -- 17,190 77,719 14 1/4% PIK exchangeable preferred stock.... 124,637 -- (124,637) -- Common Stock................................ 70 82 (70) 82 Additional paid-in capital.................. 32,134 174,918 (32,134) 174,918 Additional minimum pension liability........ (8,902) -- 8,902 -- Foreign currency translation adjustments.... (3,163) -- 3,163 -- Accumulated deficit......................... (627,673) 206,363 421,310 -- --------- ---------- --------- --------- $ 252,028 0 $ 300,400 $ 552,428 --------- ---------- --------- --------- --------- ---------- --------- ---------
Reorganization adjustments reflect the conversion of both the 12% Notes and the 11 1/8% Notes and the related accrued interest as of May 7, 1997 and other prepetition trade payables into new common stock resulting in an extraordinary gain of $206,363. Fresh start adjustments reflect the adjustments to state assets and liabilities at their respective fair values which resulted in a net fair value adjustment of $50,431, which adjustment, net of interest income of $47, has been shown as a reorganization item. All of the reorganization and fresh start adjustments have been reflected in the consolidated statement of operations for the two months ended November 29, 1998. The following table summarizes unaudited pro forma financial information as if the Plan of reorganization had become effective on October 1, 1998. The unaudited pro forma financial information combines the Company's operations for the two months ended November 29, 1998 with the ten months ended September 30, 1999 and contains adjustments for depreciation expense, pension expense and the amortization of reorganization 43 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 1. BASIS OF PRESENTATION AND EMERGENCE FROM BANKRUPTCY--(CONTINUED) value. The unaudited pro forma financial information does not purport to be indicative of the results which would have been obtained had the Plan been effective as of October 1, 1998, or which may be obtained in the future.
PRO FORMA ADJUSTMENTS ------------------------------------------- TWELVE MONTHS ENDED SEPTEMBER 30, PRO FORMA 1999 ADJUSTMENTS AS ADJUSTED ------------- ----------- ----------- (UNAUDITED) Net Sales.................................................. $ 495,131 $ -- $ 495,131 Cost of Sales.............................................. 444,375 (1,666) 442,709 --------- --------- ----------- Gross Profit............................................... 50,756 1,666 52,422 Selling, General and Administrative Expenses............... 39,340 -- 39,340 --------- --------- ----------- Operating Income........................................... 11,416 1,666 13,082 Other (Income) Expenses Interest expense......................................... 11,514 (160) 11,354 Other--net............................................... 25,120 -- 25,120 Amortization of reorganization asset..................... 52,584 10,200 62,784 --------- --------- ----------- Total other (income) expense.......................... 89,218 10,040 99,258 --------- --------- ----------- Income (loss) before income taxes.......................... (77,802) (8,374) (86,176) Reorganization Items....................................... 50,384 (50,384) -- Provision (benefit) for income taxes....................... 1,126 -- 1,126 Extraordinary Item......................................... (196,662) 206,363 9,701 --------- --------- ----------- Net income (loss).......................................... $ 67,350 $(164,353) $ (97,003) --------- --------- ----------- --------- --------- ----------- Basic and diluted earnings per share....................... $ (9.48) ----------- ----------- Weighted average number of common and common equivalent shares outstanding....................................... 10,234,222 ----------- -----------
Liabilities subject to compromise consisted of the following at September 30:
1998 -------- Accounts Payable........................................................ 71,635 Senior notes............................................................ 309,728(a) Other................................................................... 4,302 -------- Total.............................................................. $385,665 -------- --------
(a) Includes accrued interest to the date of bankruptcy of $9,728. 44 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 1. BASIS OF PRESENTATION AND EMERGENCE FROM BANKRUPTCY--(CONTINUED) Reorganization expenses included in the consolidated statements of operations are comprised of the following:
TWO MONTHS YEAR ENDED ENDED SEPTEMBER 30, NOVEMBER 29, ------------------ 1998 1998 1997 ------------ ------- ------- Adjustment to record senior notes to amount of allowed claims................ $ -- $ -- $10,408 Professional fees............................................................ -- 15,350 5,828 Fresh Start adjustments to state assets and liabilities at their respective fair values................................................................ 50,431 -- -- Interest income on cash resulting from Chapter 11 proceedings................ (47) (430) (20) -------- ------- ------- Total................................................................... $ 50,384 $14,920 $16,216 -------- ------- ------- -------- ------- -------
In a previous Chapter 11 case the Company had a Plan of Reorganization confirmed by the Court on August 10, 1992, and that Plan became effective on August 30, 1992. In connection with its emergence from the 1992 Chapter 11 bankruptcy proceedings, the Company implemented "Fresh Start Reporting" as of August 23, 1992. Accordingly, all assets and liabilities were restated to reflect respective fair values at that date. The portion of the reorganization value which could not be attributed to specific tangible or identifiable intangible assets of the reorganized Company has been reported under the caption "Intangible Assets" on the September 30, 1998 Balance Sheet. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Investments of 50% or less in companies and/or joint ventures are accounted for under the equity method. All material intercompany transactions and balances have been eliminated in consolidation. Cash and Cash Equivalents. The Company considers all investments in highly liquid bank certificates of deposit to be cash equivalents. Cash equivalents include only investments with purchased maturities of three months or less. Trade Receivables. A substantial portion of the Company's trade receivables is concentrated with the three largest U.S. automotive companies. The Company does not require collateral or other security to support credit sales. General Motors, Ford and Chrysler accounted for 26%, 19% and 18%, respectively, of consolidated trade receivables at September 30, 1999, and 46%, 11% and 17%, respectively, at September 30, 1998. Inventories. Inventories are stated at the lower of cost or aggregate market. Cost is determined using the first-in, first-out (FIFO) method. Property, Plant and Equipment. All property, plant and equipment owned at November 29, 1998 were restated to reflect fair value in accordance with "Fresh Start Reporting". Additions after November 29, 1998 are recorded at cost. Depreciation and amortization, which includes the amortization of machinery and equipment under capital leases, is calculated using the straight-line method at rates to depreciate assets over their estimated useful lives or remaining term of leases. The rates used are as follows: buildings and building improvements, 45 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) 2.5% to 20.0%; and machinery, equipment and furniture and fixtures, 5.0% to 33.3%. Replacements and betterments are capitalized. Major scheduled furnace maintenance and die replacement programs are accrued based on units of production; all other maintenance and repairs are expensed as incurred. Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any resultant gain or loss is recognized. See Note 13 for impairment of certain property, plant and equipment. Intangible Assets. Intangible assets consist of goodwill and reorganization value in excess of amounts allocable to identifiable assets. Reorganization value in excess of amounts allocated to identifiable assets established as of November 29, 1998 is being amortized using the straight-line method over 5 years. (see Note 13 for impairment of goodwill.) Reorganization value in excess of amounts allocated to identifiable assets for amounts established prior to November 29, 1998 were amortized using the straight-line method over ten years. Long-Lived Assets. The Company assesses the recoverability of its long-lived assets by determining whether the amortization of each such asset over its remaining life can be recovered through projected undiscounted future cash flows. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company's average cost of funds. (See Note 13.) The Company evaluates whether changes have occurred that would require revision of the remaining estimated useful life of the reorganization value or render such assets not recoverable. To determine if reorganization value is recoverable, the Company compares the net carrying amounts to undiscounted projected cash flows. If the reorganization value asset is not recoverable, the Company would record an impairment based on the differences between the net carrying amount and fair value. Debt Issuance Costs. The Company amortizes its deferred debt issuance costs over the term of the related debt. Revenue Recognition. Revenues are recognized as products are shipped to customers. Income Taxes. The Company accounts for income taxes in accordance with Financial Accounting Standards Board (FASB) Statement No. 109 "Accounting for Income Taxes." Such statement requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax basis and financial reporting basis of assets and liabilities. Environmental Liabilities. It is the Company's policy to accrue and charge against operations environmental remediation costs when it is probable that a liability has been incurred and an amount is reasonably estimable. As assessments and cleanups proceed, additional information becomes available and these accruals are reviewed periodically and adjusted, if necessary. These liabilities can change substantially due to such factors as additional information on the nature or extent of contamination, methods of remediation required, and other actions required by governmental agencies or private parties. Cash expenditures often lag behind the period in which an accrual is recorded by a number of years. Foreign Currency Translation Adjustment. Exchange adjustments resulting from foreign currency transactions are generally recognized in the results of operations, whereas adjustments resulting from the translation of balance sheet accounts are reflected as a separate component of shareholders' equity (deficiency), "Accumulated Other Comprehensive Income (Loss)". Net foreign currency transaction gains or losses are not material in any of the periods presented. Earnings per Common Share. Statement of Financial Accounting Standards No. 128, "Earnings per Share," which became effective for fiscal 1998, established new standards for computing and presenting earnings per share (EPS). The new standard requires the presentation of basic EPS and diluted EPS and the restatement of previously reported EPS amounts. 46 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Basic EPS is calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is calculated by dividing income available to common shareholders, adjusted to add back dividends or interest on convertible securities, by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with potentially dilutive securities. Income (loss) available to common shareholders used in determining both basic and diluted EPS was ($90,450) for the ten months ended September 30, 1999, $157,800 for the two months ended November 29, 1998, ($55,804) for the year ended September 30, 1998 and ($399,571) for the year ended September 30, 1997. The weighted average number of shares of common stock used in determining basic and diluted EPS was 8,994,900 for the ten months ended September 30, 1999, 7,026,437 for the two months ended November 29, 1998, 7,026,437 for the year ended September 30, 1998 and 7,020,692 for the year ended September 30, 1997. Although on December 15, 1999, 9,472,222 of the Company's 50,000,000 authorized shares were outstanding, the Company's Chapter 11 Plan of Reorganization requires it to issue additional shares to certain claimants in the Bankruptcy case. The exact number of shares to be issued is presently unknown, as certain claims are unliquidated and others are disputed as to amount or validity. However, management estimates that approximately 1,766,000 additional shares will be issued in the process of resolving claims. The issuance of additional shares will not involve additional consideration, and therefore no accounting recognition other than the impact on outstanding share and per share amounts is expected. Reclassifications. Certain amounts in the 1998 and 1997 Consolidated Financial Statements and Notes to Consolidated Financial Statements have been reclassified to conform to the 1999 presentation. RECENT ACCOUNTING PRONOUNCEMENTS Derivative Transactions. In June 1999, the Financial Accounting Standards Board agreed to defer for one year the effective date for Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS No. 133) which is now required to be adopted in years beginning after June 15, 2000. SFAS No. 133 permits early adoption as of the beginning of any fiscal quarter after its issuance. SFAS No. 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of SFAS No. 133 will have no impact on the Company's consolidated results of operations, financial position or cash flows. 3. DISPOSITION OF BUSINESSES In November 1997, the Company sold the Material Handling division of its Kingston-Warren subsidiary for approximately $18,000 of gross proceeds. The transaction resulted in a gain on sale of approximately $11,400 in the first quarter of fiscal 1998. In June 1998, the Company finalized the sale of its land, building and certain other assets related to the Harvard Interiors Furniture Division located in St. Louis, Missouri for approximately $4,100 of gross proceeds. The transaction resulted in a gain on sale of approximately $1,200, which was recorded in the second and third quarters of fiscal 1998. In June 1998, the Company sold its Elastic Stop Nut ("ESNA") land and building located in Union, New Jersey for $1,900 resulting in no material gain or loss. In September 1998, the Company sold substantially all of 47 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 3. DISPOSITION OF BUSINESSES--(CONTINUED) the assets of Doehler-Jarvis Greeneville, Inc. for $10,907 of gross proceeds which resulted in a gain on sale of approximately $2,100. Production ceased in 1998 at the Company's Doehler-Jarvis Toledo, Inc. subsidiary. During 1998, General Motors and Ford defrayed certain expenses of the shut down and in return obtained certain assets, which were written off when the Company recorded the impairment charge in 1997 (See Note 13), and assumed the related lease obligation. As a result of the lease assumption during 1998, the Company recorded a gain on sale of approximately $14,000. This gain is recorded within "Gain on sale of operations." The land, building and certain machinery and equipment was sold between March 1999 and July 1999 for gross proceeds of approximately $3,000. These transactions resulted in a gain on sale of approximately $2,200. In September 1998, the Company sold, at auction, certain assets of Harman for approximately $2,000 resulting in no material gain or loss. In January, 1999, the Company sold the land, building and certain other assets of its Tiffin, Ohio facility for gross proceeds of approximately $1,500. The Company recognized no material gain or loss on the sale. The Company attempted to sell its Ripley, Tennessee facility during fiscal 1999, as a result of its changed market outlook for magnesium products. Such efforts did not result in any acceptable offers and as a result, in April 1999, the Company announced its intention to shut down the facility in August 1999 after customer requirements were fulfilled and recorded a $1,200 charge which is included in Impairment of Long-Lived Assets and Restructuring Charges in the accompanying Statement of Operations for the ten-month period ended September 30, 1999. This charge relates to severance for approximately 230 hourly and salaried employees ($1,000) and facility shutdown costs ($200). As of September 30, 1999, the Company has made severance and related payments of approximately $626 and facility related payments of approximately $95. In order to depreciate the March 31, 1999 carrying value of the Ripley long-lived assets to their estimated net realizable value, the Company recorded an additional $2,317 of depreciation in the quarter ended June 30, 1999 and an additional $1,505 of depreciation through the August 1999 shutdown date. In September 1999, the Company sold substantially all the assets and certain assigned liabilities of its Kingston-Warren subsidiary to a subsidiary of Hutchinson S.A. for gross proceeds of $115,000. This transaction resulted in a loss on sale of approximately $27,900. (See Note 4 below) Condensed unaudited operating data of operations that have been or are designated for sale or wind-down (Harman Automotive, Harvard Interiors, Material Handling, Toledo, Greeneville, the Tiffin, Ohio and Ripley, Tennessee facilities of the Hayes-Albion subsidiary and Kingston-Warren) are as follows:
YEAR ENDED SEPTEMBER 30, TEN MONTHS ENDED TWO MONTHS ENDED ------------------------- SEPTEMBER 30, 1999 NOVEMBER 29, 1998 1998 1997 ------------------ ------------------ -------- -------- (UNAUDITED) Net Sales......................... $131,523 $ 33,494 $371,654 $487,155 Gross Profit...................... $ 9,281 $ 2,900 $ 20,481 $ 5,304
4. SALE OF KINGSTON-WARREN On September 30, 1999, the Company sold substantially all the assets and assigned certain liabilities of its Kingston-Warren subsidiary to a subsidiary of Hutchinson S.A. for gross proceeds of $115,000 subject to certain adjustments. The transaction resulted in loss of approximately $27,900, which included the write-off of $85,000 of reorganization value. The following table summarizes unaudited pro forma financial information as if the plan of reorganization and the sale of Kingston-Warren had become effective on October 1, 1998. The unaudited pro forma financial 48 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 4. SALE OF KINGSTON-WARREN--(CONTINUED) information combines the Company's operations for the two months ended November 29, 1998 and the ten months ended September 30, 1999 and contains adjustments for depreciation expense, pension, amortization of reorganization value and interest expense. The unaudited pro forma financial information does not purport to be indicative of the results which would have been obtained had the sale and the plan of reorganization been effective as of October 1, 1998, or which may be obtained in the future.
PRO FORMA ADJUSTMENTS TWELVE MONTHS ---------------------- ENDED SALE OF SEPTEMBER 30, KINGSTON- 1999 EMERGENCE WARREN AS ADJUSTED ------------- --------- --------- ----------- (UNAUDITED) Net Sales...................................... $ 495,131 $ $(136,676) $ 358,455 Cost of Sales.................................. 444,375 (1,666) (119,503) 323,206 --------- --------- --------- ----------- Gross Profit................................... 50,756 1,666 (17,173) 35,249 Selling, General and Administrative Expenses... 39,340 -- (8,327) 31,013 --------- --------- --------- ----------- Operating Income............................... 11,416 1,666 (8,846) 4,236 Other (Income) Expenses Interest expense............................. 11,514 (160) (11,354) -- Other--net................................... 25,120 -- (28,062) (2,942) Amortization of reorganization asset......... 52,584 10,200 (17,132) 45,652 --------- --------- --------- ----------- Total other (income) expense.............. 89,218 10,040 (56,548) 42,710 Income (loss) before income taxes.............. (77,802) (8,374) 47,702 (38,474) Reorganization Items........................... 50,384 (50,384) -- -- Provision (benefit) for income taxes........... 1,126 -- -- 1,126 Extraordinary Items............................ (196,662) 206,363 (9,701) -- --------- --------- --------- ----------- Net income (loss).............................. $ 67,350 $(164,353) $ 57,403 $ (39,600) --------- --------- --------- ----------- --------- --------- --------- ----------- Basic and diluted earnings per share........... $ (3.87) ----------- ----------- Weighted average number of common and common equivalent shares outstanding................ 10,234,222 ----------- -----------
5. INVENTORIES Inventories at September 30 consist of the following:
1999 1998 ------- ------- Finished goods................................................ $ 5,005 $ 6,476 Work-in-process............................................... 2,918 2,078 Tooling....................................................... 2,132 5,991 Raw materials................................................. 8,052 12,101 ------- ------- Total Inventories............................................. $18,107 $26,646 ------- ------- ------- -------
49 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at September 30 consist of the following:
1999 1998 ------- -------- Land......................................................... $ 1,504 $ 3,445 Buildings and improvements................................... 23,091 52,590 Machinery and equipment...................................... 52,698 161,875 Furniture and fixtures....................................... 149 1,768 Construction in progress..................................... 4,362 26,331 ------- -------- Total................................................... 81,804 246,009 Less accumulated depreciation................................ (9,446) (123,430) ------- -------- Property, Plant and Equipment, Net........................... $72,358 $122,579 ------- -------- ------- --------
Depreciation expense amounted to $12,650, $3,503, $24,209, and $46,377 for the ten-month period ended September 30, 1999, the two-month period ended November 29, 1998, and the years ended September 30, 1998 and 1997, respectively. (See Note 13 regarding the impairment of property, plant and equipment in 1997 and 1998.) 7. INTANGIBLE ASSETS Intangible assets at September 30 consist of the following:
1999 1998 -------- ------- Reorganization value......................................... $212,873 $12,339 Less accumulated amortization................................ (35,292) (9,506) -------- ------- Intangible assets, net.................................. $177,581 $ 2,833 -------- ------- -------- -------
Amortization expense related to reorganization value was $52,320, $264, $1,584, and $8,448 for the ten-month period ended September 30, 1999, the two-month period ended November 29, 1998, and the years ended September 30, 1998 and 1997, respectively. 8. OTHER ASSETS Other assets at September 30 consist of the following:
AMORTIZATION PERIOD 1999 1998 ------------- ------ ------- life of Deferred financing costs................................... agreement $ 477 $ 3,862 units Deferred tooling........................................... produced -- 10,297 Pension Asset.............................................. N/A 4,475 18,675 Other...................................................... N/A 538 3,321 ------ ------- Total................................................. 5,490 36,155 Less Accumulated Amoritzation.............................. -- (11,603) ------ ------- Other Assets, Net..................................... $5,490 $24,552 ------ ------- ------ -------
Amortization expense related to deferred financing costs was $838, $212, $1,262, and $1,627, for the ten months ended September 30, 1999, the two months ended November 29, 1998, and the years ended September 30, 1998 and 1997, respectively. Amortization expense related to deferred tooling amounted to $849 50 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 8. OTHER ASSETS--(CONTINUED) and $3,743, in 1998, and 1997, respectively. In addition, in 1997 the Company wrote-off deferred financing costs of $10,408 related to the senior notes as reorganization costs and $1,792 relating to the financing agreement as interest expense upon the refinancing of such debt with DIP financing as described in Note 9. In the two-month period ended November 29, 1998, the Company wrote-off deferred financing costs of $1,222 as part of Fresh Start reporting and in the ten-month period ended September 30, 1999 recorded an extraordinary loss of $3,315 for the write-off of deferred financing costs in connection with the early extinguishment of debt. 9. DIP FINANCING AND CREDITORS SUBORDINATED TERM LOAN On May 8, 1997, the Company and certain of the Company's subsidiaries obtained DIP financing to enable it to continue operations during the Chapter 11 proceedings. The DIP financing provided for $65,000 of Term Loans and $110,000 of Revolving Credit Loans which included a $25,000 sub-limit of credit facility principally for standby letters of credit. As collateral, the Debtors pledged substantially all of the assets of the Debtors. The Company entered into a Term Loan Agreement dated as of January 16, 1998 for a $25,000 post-petition term loan facility which was subordinated to the security interests under the existing DIP loans. The loan was payable on the earlier of May 8, 1999 or the date the existing DIP loan is terminated and bore interest at a rate per annum equal to the greater of (I) the highest per annum interest rate for term loans and revolving credit loans under the existing DIP loans plus 3% or (ii) 13%. The net proceeds of $22,500 from the loan were used to reduce the current balance of the revolver portion of the DIP loans. As discussed in Note 1, both of these financing facilities were repaid upon emergence from bankruptcy on November 24, 1998. All of the pre-petition indebtedness outstanding at May 8, 1997 under the financing agreement amounting to $105,044 was repaid from borrowings under the DIP financing. At September 30, 1998, the amount outstanding under the term loans was $64,161, the amount outstanding under the Revolving Credit Loans was $0, and outstanding letters of credit (principally standby) were $12,243. The Revolving Credit Loans bore interest at the rate of 1.5% in excess of the Base Rate (Prime) and the Term Loans bore interest at the rate of 1.75% in excess of the Base Rate. The prime rate was 8.25% at September 30,1998. The DIP Lenders also earned a fee of 2% per annum of the face amount of each standby letter of credit in addition to passing along to the borrowers all bank charges imposed on the DIP Lenders by the letter of credit issuing bank. Further, the DIP Lenders received a line of credit fee of .5% per annum on the unutilized portion of the revolving Line of Credit, together with certain other fees, including a $1,375 closing fee. The Term Loans provided for quarterly payments of $3,250, beginning November 30, 1997 through February 28,1999, with a final installment of $45,500 due on May 8, 1999. The Company failed to meet the fixed charge ratio financial covenant during the months of October and November 1997 and on December 29, 1997 obtained a waiver of such default from its lenders. On December 29, 1997 the Company entered into Amendment No. 1, Waiver and Consent (the "Amendment") to the DIP Financing with its lenders whereby the lenders waived all defaults or events of default which had occurred prior to such date from the Company's failure to comply with the above financial covenants. The lenders also entered into the Amendment to replace the fixed charge ratio covenant with monthly consolidated EBITDA and consolidated tangible net worth covenants commencing calculations at December 31, 1997. The Amendment required the lenders' consent for capital expenditures in excess of $30 million for the year ending September 30, 1998. The Company also entered into Amendment No. 2 and Consent to the DIP Financing, dated January 27, 1998 (the "Amended DIP Financing Agreement"), pursuant to which the lenders consented to the term loan, discussed above, the creation of subordinated liens thereunder and to certain asset sales. 51 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 9. DIP FINANCING AND CREDITORS SUBORDINATED TERM LOAN--(CONTINUED) The Company entered into Amendment Nos. 3 and 4 to the Post-Petition Loan and Security Agreement, dated April 30, 1998 and June 23, 1998, respectively, extending to May 31, 1998 and June 30, 1998, respectively, the date upon which an agreement with Ford regarding the wind-down of the Toledo facility was required to be approved by the Court. An agreement with Ford was signed on May 18, 1998 and approved by the Court on June 22, 1998. (See Note 3). 10. LONG TERM DEBT AND CREDIT AGREEMENTS On November 24, 1998, the Company issued $25,000 of 14 1/2% Senior Secured Notes (the "Notes") due September 1, 2003. The Notes were issued pursuant to an indenture by and among the Company and Guarantors, which are subsidiaries of the Company, and Norwest Bank Minnesota, National Association, as Trustee. In addition to the stated coupon interest rate the Notes had a Cash Flow Participation Interest provision which entitled the holder to additional interest computed as a percentage of consolidated cash flow as set forth in the indenture. This interest can be no less than $1,000 for any 12 month period. The Notes are subject to restrictive covenants for Consolidated Leverage Ratio and Consolidated Interest Coverage Ratio as defined. The Notes were repurchased on September 30, 1999 with a portion of the proceeds of the sale of the assets of Kingston-Warren (See Note 4). On November 24, 1998, the Company entered into a $115,000 senior credit facility ("the Facility") that provides for up to $50,000 in term loan borrowings and up to $65,000 of revolving credit borrowings. The term loan has an interest rate equal to the base rate (prime rate) plus 2.250% or the EURODOLLAR base rate (Eurodollar loan rate) plus 3.500%. The term loan had 16 quarterly installment payments of principal in the amount of $250 which commenced on January 3, 1999 with the balance of the loan due on September 30, 2002. The revolver has an interest rate of the base rate plus 2.125% or the Eurodollar base rate plus 3.375%. The revolving credit facility terminates on November 24, 2001. The Facility is subject to restrictive covenants for Consolidated Leverage Ratio, Consolidated Interest Coverage Ratio and Fixed Charge Ratio, as defined. The Facility was repaid on September 30, 1999 with a portion of the proceeds of the sale of the assets of Kingston-Warren (See Note 4). Penalties paid as a result of the prepayments of the Facility and the Notes along with the writeoff of financing fees incurred as part of the emergence from bankruptcy resulted in an extraordinary loss of approximately $9,701 for early extinguishment of debt. On September 30, 1999 the Company put in place a new $50,000 revolving credit facility with GECC. The Facility is secured by substantially all of the assets of the Company. The interest rate is base rate (prime rate) plus 1.25% or LIBOR plus 2.50% (interest rate at September 30, 1999 was 9.50%). Effective March 2000, the interest rate will be adjusted (up or down) prospectively based upon the Company's achievement of consolidated financial performance targets. The facility commitment terminates on September 30, 2001. No amounts were drawn down on the facility as of September 30, 1999 except for $9,720 of letters of credit. The Company no longer has any publicly registered securities outstanding that are guaranteed by its subsidiaries, and no debt facilities other than its new $50,000 revolving credit facility. 52 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 11. ACCRUED EXPENSES Accrued expenses at September 30 are summarized as follows:
1999 1998 ------- ------- Interest...................................................... $ -- $ 758 Salaries and wages............................................ 9,806 17,080 Pension liabilities........................................... 2,353 3,404 Workers' compensation and medical............................. 10,015 11,510 Costs related to discontinued/divested operations............. 6,886 7,885 Tooling and maintenance costs................................. 4,433 3,031 Environmental................................................. 1,750 2,785 Post-retirement benefits...................................... 7,000 2,112 Reorganization costs.......................................... 1,682 8,808 Restructuring costs (see Note 13)............................. 625 4,064 Other......................................................... 13,104 31,900 ------- ------- Total.................................................... $57,654 $93,337 ------- ------- ------- -------
12. OTHER LIABILITIES Other liabilities at September 30 are summarized as follows:
1999 1998 ------- ------- Pension liabilities (see Note 20)............................. $24,849 $23,566 Workers' compensation......................................... 19,349 26,478 Environmental................................................. 5,250 5,748 Deferred taxes................................................ 8,543 4,345 Tool and die replacement...................................... 2,268 3,189 Other......................................................... 3,057 27 ------- ------- Total.................................................... $63,316 $63,353 ------- ------- ------- -------
13. IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES In 1999, 1998 and 1997 the Company recorded the following charges:
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 29, ------------------- 1999 1998 1998 1997 ------------- ------------ ------- -------- Impairment of Doehler-Jarvis long-lived assets.... $ -- $ -- $ -- $266,545 Impairment of long-lived assets................... -- -- 5,842 12,000 Severance payments related to facilities scheduled for closing..................................... (1,405) -- 2,500 3,285 Restructuring charges............................. (1,000) -- 2,500 6,715 ------- ---- ------- -------- Total........................................ $(2,405) $ 0 $10,842 $288,545 ------- ---- ------- -------- ------- ---- ------- --------
During the ten-month period ended September 30, 1999 the Company recorded a $1,200 restructuring charge representing shut-down costs for the Ripley, Tennessee facility, which included $1,000 for severance and $200 for facility-related costs. In addition, during this period the Company reversed previously provided restructuring reserves in the amount of $3,605, primarily as a result of lower severance and related costs for the 53 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 13. IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES--(CONTINUED) Tampa office, Harman Automotive and the Harvard Interiors Furniture Division ($2,300) and lower facility-related costs at the Toledo, Ohio facility ($1,200) due to the sale of that facility and all other of ($105). During the year ended September 30, 1998, the Company recorded a $5,000 restructuring charge representing estimated shutdown costs, of which $2,500 related primarily to severance costs for twenty-two salaried office personnel and moving costs associated with the move of the corporate headquarters from Tampa, Florida to Lebanon, New Jersey, which was substantially completed by August 31, 1998, and approximately $2,500 related to three senior officers pursuant to agreements entered into as part of the bankruptcy proceedings. In March 1998, the Company announced its intention to sell or wind down its Tiffin operations and recorded a charge of $3,042 for the impairment of long lived assets. In addition, it recorded a charge of $2,800 for the impairment of certain long lived assets relating to a platform that will end sooner than planned. Doehler-Jarvis incurred significant operating losses since its acquisition date in 1995. A corrective action plan was initiated (focusing on cost reduction, improved manufacturing yields, attraction and retention of key personnel and seeking price concessions from customers) in 1996 and early 1997. However, Doehler-Jarvis continued to incur significant operating losses during the first and second quarters of 1997. In addition, during the second quarter of 1997, Doehler-Jarvis lost a significant contract from a customer who decided to resource this major contract to another supplier. As a result of these changes in Doehler-Jarvis's business, the Company performed an impairment analysis of the Doehler-Jarvis long-lived assets. A revised operating plan was developed. The Company calculated the expected future cash flows from Doehler-Jarvis's operations to determine the fair value of the long-lived assets. The expected cash flows under this analysis were sufficient to recover the net book value of the fixed assets but not the goodwill balance. Accordingly, the Company recorded an impairment charge of $114,385 in the second quarter of 1997 to write-off the unamortized goodwill related to its 1995 acquisition of Doehler-Jarvis. During the third quarter of 1997, the Company concluded that it did not have the financial capability to continue to fund the capital investments required to improve the Doehler-Jarvis operations and retained investment advisors to sell Doehler-Jarvis. Based upon advice from the investment advisor, the Company initially determined that the range of possible proceeds (net of disposal costs) from the sale of Doehler-Jarvis could result in recovery of their fixed assets. However, after three months of discussions with prospective buyers, the lack of support for a sale by major customers, and continued adverse operating results, the Company concluded that it would be unable to sell the Doehler-Jarvis division at a price which would recover any of the fixed asset book value and accordingly recorded an impairment loss of $152,160 at September 30, 1997. In fiscal 1998, the new management of the Company decided to dispose of the Doehler-Jarvis Greenville and Toledo facilities (see Note 3 related to dispositions) and to continue to operate the Doehler-Jarvis Pottstown Plant. Depreciation expense would have been $3.2 million greater in each of the twelve-month periods ended September 30, 1999 and 1998 for the Pottstown facility if the assets had not been written down as impaired in fiscal 1997. In February 1997, due to significant recurring operating losses at the Harman Automotive subsidiary, the Company announced its plan to sell Harman. In March 1997 the Company performed an impairment analysis of Harman's long-lived assets and the expected cash flows under this analysis were insufficient to recover the net book value of the fixed assets resulting in an impairment charge of $8,800 in March 1997. Due to the absence of acceptable third party offers, the Company closed down the Harman operation in April 1998 and sold certain machinery and equipment in September 1998 (see Note 3 related to dispositions). In February 1997, due to significant recurring operating losses at the Tiffin, Ohio operation, the Company performed an impairment analysis of Tiffin's long-lived assets. The expected cash flows from this analysis were 54 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 13. IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES--(CONTINUED) insufficient to recover the net book value of the fixed assets and an impairment charge of $3,200 was recorded in March 1997. In September 1997, the Company reflected a restructuring charge of $10,000 for employee severance covering 539 salaried and hourly employees and plant closing costs relating primarily to annual maintenance, insurance and inventory for the Harman and Harvard Interiors facilities. The restructuring was substantially completed by May 1998 for Harvard Interiors and by July 1998 for Harman Automotive. See Note 3 for information relating to the sales of the above operations. 14. OTHER EXPENSE, NET Other (income) expense, net includes the following:
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 29, ---------------- 1999 1998 1998 1997 ------------- ------------ ------ ------ (Gain) loss on disposal of equipment.................. $ 124 $ -- $1,030 $1,931 Loss on joint venture................................. -- -- -- 2,221 Interest income....................................... (282) (2) (37) (106) Other, net............................................ 2,063 (32) 2,987 1,484 ------- ---- ------ ------ Total............................................ $ 1,905 $(34) $3,980 $5,530 ------- ---- ------ ------ ------- ---- ------ ------
15. INCOME TAXES Provision for income tax expense for continuing operations consists of the following:
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 29, ---------------- 1999 1998 1998 1997 ------------- ------------ ------ ------ Domestic.............................................. $ (344) $344 $5,722 $ -- Foreign............................................... 886 240 485 1,204 ------- ---- ------ ------ Income tax provision.................................. $ 542 $584 $6,207 $1,204 ------- ---- ------ ------ ------- ---- ------ ------
55 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 15. INCOME TAXES--(CONTINUED) Deferred income taxes result from temporary differences in the recognition of revenue and expense for tax and financial statement purposes. The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at September 30, 1999 and 1998 are as follows: Deferred tax assets:
SEPTEMBER 30, --------------------- 1999 1998 --------- -------- Net operating loss carry forwards.......................... $ 124,118 $ 96,788 Pension and post-retirement benefits obligations........... 45,901 34,264 Reorganization items capitalizable for tax purposes........ 4,094 4,094 Reserves and accruals not yet recognized for tax purposes................................................. 102,304 116,546 --------- -------- Total................................................. 276,417 251,692 Less valuation allowance................................... (221,108) (201,354) --------- -------- Total deferred tax assets............................. $ 55,309 $ 50,338 --------- -------- --------- --------
The Company believes it will more likely than not be able to realize its net deferred tax assets of $55,309 by offsetting it against deferred tax liabilities related to existing temporary differences that would reverse in the carry forward period. The Company has established a valuation allowance for certain of its gross deferred tax assets which exceed such deferred tax liabilities. The change in the valuation allowance in 1999 and 1998 primarily represents recognition of the deferred tax asset related to reserves and accruals not yet recognized for tax purposes. Deferred tax liabilities:
SEPTEMBER 30, ------------------ 1999 1998 ------- ------- Depreciation.................................................. $61,845 $51,580 Other......................................................... 2,007 3,103 ------- ------- Total deferred tax liabilities................................ $63,852 $54,683 ------- ------- ------- -------
The net deferred tax liabilities of $8,543 and $4,345 are included in other liabilities in the consolidated balance sheets at September 30, 1999 and 1998, respectively. 56 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 15. INCOME TAXES--(CONTINUED) The following reconciles the statutory federal income tax expense (benefit), computed at the applicable federal tax rate, to the effective income tax expense:
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 29, --------------------- 1999 1998 1998 1997 ------------- ------------ -------- --------- Tax expense (benefit) at statutory rate.......... $ (31,665) $(16,511) $(16,863) $(135,879) State income taxes, net of federal benefit....... 2,093 419 1,529 549 Permanent items.................................. 17,963 35 1,241 43,105 Earnings of foreign subsidiaries subject to a different tax rate............................. 132 36 134 109 U.S. Federal Minimum Tax......................... -- -- 500 -- Amount for which no tax benefit is recognized.... 12,019 16,605 19,666 93,320 --------- -------- -------- --------- Actual tax expense from continuing operations................................ $ 542 $ 584 $ 6,207 $ 1,204 --------- -------- -------- --------- --------- -------- -------- ---------
At September 30, 1999, the Company had available net operating loss carryforwards and general business tax credits of approximately $310,760 for Federal income tax purposes. These carryforwards expire in the years 2003 through 2009. Of this total, approximately $291,000 is subject to current limitation under Section 382 of the Tax Code and approximately $27,700 is subject to the "SRLY" limitations of the Income Tax Regulations. These tax attributes are reduced by income realized as a result of the reorganization plan, in particular, any discharge of indebtedness income ("COD Income") excluded from income pursuant to Section 108 of the Tax Code. In addition, because the reorganization resulted in an "ownership change" (as defined in Section 382 of the Tax Code), the availability of any NOLs remaining after reduction for COD income to offset income of the Company after the Effective Date is limited. Under the Tax Code, a taxpayer is generally required to include COD income in gross income. COD income is not includable in gross income unless it arises in a case under the Bankruptcy Code. Instead, COD income otherwise includable in gross income is generally applied to reduce certain tax attributes in the following order: NOLs, general business credit carryovers, minimum tax credit carryovers, capital loss carryovers, the taxpayer's basis in property and foreign tax credit carryovers. Discharge under the reorganization plan of certain of the General Unsecured Claims, in particular the Senior Notes, resulted in the realization of COD income, which reduced the tax attributes of the Company by the difference between the fair market value of the consideration received by the creditors and the amount of the discharged indebtedness. 16. COMPREHENSIVE INCOME Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, which was adopted as of October 1, 1998, establishes a standard for reporting and displaying comprehensive income and its components within the financial statements. Comprehensive income includes charges and credits to equity that are not the result of transactions with shareholders. Comprehensive income is composed of two subsets--net income and other comprehensive income. Included in other comprehensive income for the Company are cumulative translation adjustments and minimum pension liability adjustments. These adjustments are disclosed within the Consolidated Statement of Shareholders' Equity (Deficiency). As of September 30, accumulated other 57 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 16. COMPREHENSIVE INCOME--(CONTINUED) comprehensive income/(loss), as reflected in the consolidated statement of shareholders' equity, was comprised of the following:
1999 1998 1997 ---- -------- ------- Minimum pension liability adjustments........................... $ -- $ (8,902) $(3,665) Cumulative translation adjustments.............................. 525 (2,991) (1,930) ---- -------- ------- $525 $(11,893) $(5,595) ---- -------- ------- ---- -------- -------
The amounts reflected at September 30, 1998 were eliminated as of November 29, 1998 as part of Fresh Start Reporting. 17. RELATED PARTY TRANSACTIONS Pursuant to a Termination, Consulting and Release Agreement, dated as of February 12, 1997, among the Company, Vincent J. Naimoli and Anchor Industries International, Inc. ("Anchor"), his affiliated corporation, the parties agreed to terminate Mr. Naimoli's management services relationship with the Company, and cancel the prior Management and Option Agreement, as amended, under which Mr. Naimoli's services had been performed as the Company's then Chairman of the Board and Chief Executive Officer, except for certain provisions of the Management and Option Agreement relating to options, registration rights and certain indemnification. The Termination, Consulting and Release Agreement provided for Mr. Naimoli to receive vested benefits which had accrued prior to termination, and Mr. Naimoli agreed to act as a consultant to the Company for three years after termination. The Company charged selling, general and administrative expense for all of the fees and benefits related to the Agreement amounting to in excess of $3,000 in the second quarter of 1997. On June 19, 1997, the Company applied to the Court for an Order authorizing the rejection of the Agreement, and on July 16, 1997, Mr. Naimoli filed an objection to the Company's motion. A stipulation resolving all claims of Mr. Naimoli arising out of his employment and shareholder and other relationships with the Company was approved by the Court on April 9, 1999. In conjunction with said stipulation, the Company paid life insurance premiums on behalf of Mr. Naimoli, in the amount of $269, and assigned the benefits of the underlying life insurance policy, paid in full, to him. On May 1, 1999, the Company agreed to retain Vincent J. Naimoli as a consultant for a period of five months for a fee of $97. Mr. Naimoli is a stockholder of Nice and Easy Travel & Co., Inc. ("Nice and Easy"), a travel agency, which agreed to act as exclusive travel agent and to arrange travel services in such capacity for the Company and its employees and representatives, beginning in December 1994. It had been agreed that with respect to travel services rendered to the Company by Nice and Easy, the latter rebates to the Company five percent through February 10, 1995 and three percent thereafter of annual billings to the Company for travel business. During the year ended September 30, 1997 Nice and Easy billed the Company, $2,100 for travel services and rebated $28 to the Company in 1997. In October 1995, the Board of Directors of the Company approved the lease of a private suite at the Tropicana Field in St. Petersburg, Florida for Tampa Bay Devil Rays baseball. Mr. Naimoli is the Managing General Partner of Tampa Bay Devil Rays, Ltd. Management agreed with two other partners to share in the cost of the suite, thereby reducing the suite cost to $20 per annum. In connection with the transaction, the Board determined that the transaction was fair and on terms comparable to those which would be obtained from a third party in an arm's-length transaction. The Tampa Bay Devil Rays filed a claim in the Chapter 11 proceeding for the unpaid balance of the suite subscription but did not provide Harvard access to the private suite according to the lease agreement. In May of 1999, the Company applied to the Court for an Order directing the Tampa Bay 58 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 17. RELATED PARTY TRANSACTIONS--(CONTINUED) Devil Rays to turn over the down payment made by Harvard. A stipulation resolving all claims of the Tampa Bay Devil Rays and Harvard arising out of this transaction was approved by the Court on November 10, 1999. The Company paid in 1997 to The Blackstone Group, LP, an investment banking firm of which Mr. Hoffman, a former Director of the Company, is a partner, $54 for expenses and $75 as an up-front fee for additional advice rendered in structuring alternatives to enhance shareholder value and to pay designated success fees in the event such alternatives are effected and consummated successfully. 18. COMMITMENTS AND CONTINGENT LIABILITIES ENVIRONMENTAL MATTERS The Company's operations are subject to extensive and rapidly changing federal and state environmental regulations governing waste water discharges and solid and hazardous waste management activities. The Company is a party to a number of matters involving both Federal and State regulatory agencies relating to environmental protection matters, some of which relate to waste disposal sites including Superfund sites. The most significant site is the Alsco-Anaconda Superfund Site (the "Site") (Gnadenhutten, Ohio). Alsco, Inc. ("Alsco"), a predecessor of Harvard, was the former owner and operator of a manufacturing facility located in Gnadenhutten, Ohio. The Alsco division of Harvard was sold in August 1971 to Anaconda Inc. Subsequently, Alsco became Alsco-Anaconda, Inc., a predecessor to an entity now merged with and survived by the Atlantic Richfield Company ("ARCO"). The facility, when acquired by ARCO's predecessor, consisted of an architectural manufacturing plant, office buildings, a wastewater treatment plant, two sludge settling basins and a sludge pit. The basins and pit were used for treatment and disposal of substances generated from its manufacturing processes. The basins, pit and adjacent wooded marsh were proposed for inclusion on EPA's National Priorities List in October 1984. Those areas were formally listed by the EPA as the "Alsco-Anaconda Superfund Site" in June 1986. On December 28, 1989, EPA issued a unilateral administrative order pursuant to Section 106 of CERCLA, to Harvard and ARCO for implementation of the remedy at the Alsco-Anaconda Superfund Site. Litigation between Harvard and ARCO subsequently commenced in the United States District Court for the Northern District of Ohio regarding allocation of response costs. Pursuant to a Settlement Agreement dated January 16, 1995, Harvard agreed to pay ARCO $6,250 (as its share of up to $25,000 of the cleanup and environmental costs at the Alsco-Anaconda Superfund Site). In twenty equal quarterly installments with accrued interest at the rate of 9% per annum, of which nine installments were paid through May 7, 1997. In return, ARCO assumed responsibility for cleanup activities at the site and agreed to indemnify Harvard against any environmental claims below the cap. If cleanup costs should exceed $25,000, the parties will be in the same position as if the litigation was not settled. Based on information provided by ARCO, Harvard believes that ARCO has completed 100% of the cleanup of the 4.8-acre National Priorities List site and 80% of the cleanup of the property adjacent to the National Priorities List site. Total costs are expected to be in the range of $19,000 Due to the Chapter 11 Cases, payments to ARCO, pursuant to the Settlement Agreement, have been suspended. ARCO Environmental Remediation, LLC, ARCO's successor, made a claim in the Chapter 11 Cases for all amounts that ARCO is owed under the Settlement Agreement or, in the alternative, for all amounts that ARCO has expended or may expend for cleanup of the site. The Company has agreed to assume the Settlement Agreement with the modification that the Company will pay ARCO $575 in cash in full satisfaction of its claim. This payment was made in December, 1998. The Company's Harman subsidiary has been named as one of several PRPs by EPA pursuant to CERCLA concerning environmental contamination at the Vega Alta, Puerto Rico Superfund site (the "Vega Alta Site"). Other named PRPs include subsidiaries of General Electric Company ("General Electric"), Motorola, Inc. 59 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 18. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED) ("Motorola"), and The West Company, Inc. ("West Company") and the Puerto Rico Industrial Development Corporation ("PRIDCO"). PRIDCO owns the industrial park where the PRPs were operating facilities at the time of alleged discharges. Another party, Unisys Corporation, was identified by General Electric as an additional PRP at the Superfund Site as a successor to the prior operator at one of the General Electric facilities. Unisys Corporation was not initially designated as a PRP by EPA, although it was named as a PRP in conjunction with the settlement proceedings and consent decree discussed below. There are currently two phases of administrative proceedings in progress. The first phase, involves a Unilateral Order by EPA that the named PRPs implement the Vega Alta Site remedy chosen by EPA, consisting of the replacement of the drinking water supply to local residents and installation and operation of a groundwater treatment system to remediate groundwater contamination. In addition, EPA sought recovery of costs it had expended at the Vega Alta Site. Motorola, West Company and Harman completed construction of the EPA remedy pursuant to a cost-sharing arrangement whereby Harman owed West Company and Motorola a total of approximately $557 payable in twenty equal installments. Payments were suspended due to the Chapter 11 cases. West Company and Motorola each filed a claim for the remaniing amounts due them in the amount of approximately $139. The claims were allowed under the Plan and are payable in common stock of the Company. Effective June 30, 1993, the PRPs reached a settlement among themselves. Harman, together with Motorola and West Company, completed the agreed-upon work for the first phase of administrative proceedings, as outlined above, which included final construction and initial testing of the cleanup system. In addition, Harman, Motorola and West Company each agreed to pay General Electric the sum of $800 in return for General Electric's agreement to assume liability for, and indemnify and hold Harman and the others harmless against, EPA's cost recovery claim, to undertake operation and maintenance of the cleanup system and to construct, operate and maintain any other proposed system that may be required by EPA, and to conduct any further work required concerning further phases of work at the Vega Alta Site. Harman's settlement payment to General Electric was being made in 20 equal quarterly installments, which commenced in January 1995, with 9% interest per annum. However, due to the current bankruptcy proceedings, payments have been suspended . General Electric filed a claim in the Chapter 11 Cases for the remaining amounts due it pursuant to the Settlement Agreement. On December 29, 1998, the Bankruptcy Court approved the Company's Assumption and Modification of the Settlement Agreement whereby the Company paid General Electric a total of $300 in three installments of $100 in settlement of its claim. Harman, West Company and Motorola retained liability for any cleanup activities that may in the future be required by EPA at their respective facilities due to their own actions, for toxic tort claims and for natural resource damage claims. As of December 23, 1999, two installments totaling $200 had been paid. Pursuant to a letter dated January 31, 1994 and subsequent notices since that date, Harman and the other PRPs have been put on notice of potential claims for damages, allegedly suffered by the owners and operators of farms located in the vicinity of the Vega Alta Site. If Harman were to be found liable in any future lawsuit, some of the alleged damages (e.g., personal injury, property and punitive damages) would not be covered by the settlement agreement with General Electric. In a letter to General Electric's counsel, counsel for the owners and operators alleged estimated losses of approximately $400 "based primarily on lost income stream," purportedly based on certain assumptions concerning the value of the property, its potential for development and groundwater contamination issues. At this time, however, Harman has no information that would support such unindemnified claims, and believes the claims to be speculative. On August 25, 1997, the Company was notified by the Michigan Department of Environmental Quality ("MDEQ") that it is a responsible person as defined in the Michigan Natural Resources and Environmental 60 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 18. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED) Protection Act. On October 15, 1998, the Bankruptcy Court issued an order expunging MDEQ's claim because it was filed after the bar date. MDEQ may bring an action for injunctive relief in the future. By letter dated June 4, 1996, the American Littoral Society ("ALS"), a public interest group operated through the Environmental Law Clinic of the Widener University School of Law, sent a notice letter to the Company pursuant to the Clean Water Act threatening suit based on past and anticipated future discharges to the Schuykill River in excess of the limits established in the National Pollutant Discharge Elimination System permit ("NPDES") for the Pottstown, Pennsylvania plant. Doehler-Jarvis' Pottstown plant has been and is currently operating under an expired but still effective NPDES permit. The plant's wastewater treatment system (or use "equipment") is not capable of achieving routine compliance with certain discharge limitations, including limits for phenol, oil, grease and total dissolved solids. The Pottstown plant has been attempting to solve this problem by arranging to convey its effluent to the Pottstown Public Owned Treatment Works ("Pottstown POTW"). In March 1997, the Company entered into a consent decree with ALS whereby the Pottstown plant is required to construct a wastewater recycling system by December 31, 1997. In addition, the Company agreed to pay a civil penalty of $1,000 and $125 penalty from a parallel consent decree. The Company has met its construction schedule but the $1,125 in penalties has not been paid. Such penalty is a prepetition liability, payable in common stock of the Company. The $125 penalty was allowed as a claim by order of the Bankruptcy court payable in common stock of the Company. As of September 30, 1999, and in addition to the above matters, the Company has received information requests, or notifications from EPA, state agencies, and private parties alleging that the Company is a PRP pursuant to the provisions of CERCLA or analogous state laws; or is currently participating in the remedial investigation or closure activities at 22 other sites. In accordance with the Company's policies and based on consultation with legal counsel, the Company has provided environmental related accruals of $7,000 as of September 30, 1999. Furthermore, the Company does not expect to use a material amount of funds for capital expenditures related to currently existing environmental matters. Various environmental matters are currently being litigated, however, and potential insurance recoveries, other than those noted, are unknown at this time. While it is not feasible to predict the outcome of all pending environmental suits and claims, based on the most recent review by management of these matters and after consultation with legal counsel, management is of the opinion that the ultimate disposition of these matters will not have a material adverse effect on the financial position or results of operations of the Company. LEGAL PROCEEDINGS In June 1995, a group of former employees of the Company's subsidiary, Harman Automotive-Puerto Rico, Inc., commenced an action against the Company and individual members of management in the Superior Court of the Commonwealth of Puerto Rico seeking approximately $48,000 in monetary damages and unearned wages relating to the closure by the Company of the Vega Alta, Puerto Rico plant previously operated by such subsidiary. Claims made by the plaintiffs in such action include the following allegations: (i) such employees were discriminated against on the basis of national origin in violation of the laws of Puerto Rico in connection with the plant closure and that, as a result thereof, the Company is alleged to be obligated to pay unearned wages until reinstatement occurs, or in lieu thereof, damages, including damages for mental pain and anguish; (ii) during the years of service, plaintiffs were provided with a one-half hour unpaid meal break, which is alleged to violate the laws of Puerto Rico, providing for a one-hour unpaid meal break and demand to be paid damages and penalties and request seniority which they claim was suspended without jurisdiction; and (iii) plaintiffs were paid pursuant to a severance formula that was not in accordance with the laws of Puerto Rico, which payments were conditioned upon the plaintiffs executing releases in favor of the Company, and that, as a result thereof, they allege that they were discharged without just cause and are entitled to a statutory severance formula. Any recovery is payable in common stock of the Company. 61 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 18. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED) On June 11, 1999, Doehler-Jarvis, Inc. and Harvard Industries, Inc. (the "Companies") filed a declaratory judgment action in the United States District Court for the Eastern District of Pennsylvania seeking a declaration that the termination of certain insurance benefits, including health insurance benefits, to individuals on the seniority list when they retired from active or inactive employee status at Doehler-Jarvis facilities in Pottstown, Pennsylvania or Toledo, Ohio after July 16, 1999, and/or their eligible surviving spouses and/or eligible dependents does not violate the Employee Retirement Income Security Act ("ERISA") or any other law, applicable collective bargaining agreement, or contract. Thomas E. Kopystecki was named as the representative of the proposed class of defendants. On June 23, 1999, John C. Gilbert, Eugene Appling, Robert A. LaClair, John E. Malkulan, Christiane J. Myers, Kenneth McKnight, Thomas F. Klejta, and Fern M. Yerger, on behalf of themselves and a class of persons similarly situated filed an action against the Companies in the United States District Court for the Northern District of Ohio seeking a declaration that the termination of insurance benefits violates ERISA and the Labor Management Relations Act ("LMRA") and seeking unspecified damages resulting from the anticipated termination of benefits. The Companies filed a motion to transfer the Ohio action to Pennsylvania because the Pennsylvania action was the first filed action and is the more convenient forum for the resolution of the issues. The United States District Court for the Eastern District of Pennsylvania dismissed the Pennsylvania action finding that the United States District Court for the Northern District of Ohio was a more appropriate venue. The motion by the Companies to dismiss the Ohio action was denied and the Companies are vigorously defending the action in Ohio. Based on information currently available, management of the Company believes, after consultation with legal counsel, that the result of such claims and litigation will not have a material adverse effect on the financial position or results of operations of the Company. The Company is also a party to various claims and routine litigation arising in the normal course of its business. Based on information currently available, management of the Company believes, after consultation with legal counsel, that the result of such claims and litigation, including the above mentioned claims, will not have a material adverse effect on the financial position or results of operations of the Company. 19. LEASES Rent expense under operating leases, consisted of the following:
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 29, ---------------- 1999 1999 1998 1997 ------------- ------------ ------ ------ Rent Expense.......................................... $ 4,052 $710 $4,354 $5,624
The following is a schedule of future annual minimum rental payments, principally for machinery and equipment required under operating leases that have initial or remaining noncancellable lease terms in excess of one year as of September 30, 1999.
YEARS ENDING SEPTEMBER 30 AMOUNT - -------------------------------------------------------------------------- ------ 2000...................................................................... $2,053 2001...................................................................... 1,525 2002...................................................................... 1,127 2003...................................................................... 661 2004...................................................................... 488
62 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 20. RETIREMENT PLANS The Company sponsors various defined benefit pension and savings (principally 401(k)) plans covering substantially all employees. Expense under these plans amounted to $833 in 1999 (including a curtailment gain of $2,818) $10,248 in 1998 (including a curtailment loss of $7,182), and $3,619 in 1997. The Company annually contributes to the pension plans amounts that are actuarially determined to provide the plans with sufficient assets to meet future benefit payment requirements. The Company contributes to the savings plans amounts that are directly related to employee contributions. The Company sponsors a defined benefit pension plan covering all non-bargaining unit employees. The annual benefits payable under this plan to a covered employee at the normal retirement age (age 65) are 1% of the first $9 of the employee's career average annual earnings, as defined in the plan, plus 1 1/2% of annual earnings in excess of $9 multiplied by the number of years of service. Substantially all of the other defined benefit pension plans the Company sponsors provide benefits of a stated amount for each year of service. In addition, the Company participates in several multi-employer pension plans for the benefit of certain union members. The Company's contributions to these plans amounted to $450 in 1999, $349 in 1998, and $459 in 1997. Under the Multi-Employer Pension Plan Amendments Act of 1980, if the Company were to withdraw from these plans or if the plans were to be terminated, the Company would be liable for a portion of any unfunded plan benefits that might exist. Information with respect to the amount of this potential liability is not readily available. Pension expense for all of the Company's defined benefit pension plans consisted of the following:
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 29, ------------------------------ 1999 1998 1998 1997 ------------- ------------ ------------- ------------- Service cost............................... $ 3,343 $ 497 $ 2,988 $ 2,823 Interest cost.............................. 9,846 1,608 9,584 8,790 Expected return on plan assets............. (11,250) (2,063) (23,265) (17,378) Net amortization and deferral.............. 0 0 12,806 8,318 Curtailment (gain) loss.................... (2,818) 0 7,182 0 --------- -------- --------- --------- Net periodic pension cost (income)......... $ (879) $ 42 $ 9,295 $ 2,553 --------- -------- --------- --------- --------- -------- --------- ---------
During 1999, the Company recorded curtailment gains of $2,818 primarily to reflect the curtailment of benefits due to the sale of its Kingston-Warren business. The gain was included as a component of the loss on disposal. During 1998, the Company recorded net curtailment losses of $7,182 primarily to reflect the curtailment of defined benefit plans due to the Toledo plant shutdown, which was recorded as an increase in cost of sales. 63 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 20. RETIREMENT PLANS--(CONTINUED) The following tables set forth reconciliations of the beginning and ending balances of the benefit obligation, fair value of plan assets, funded status and amounts recognized in the Consolidated Balance Sheets related to the defined benefit plans.
SEPTEMBER 30, ---------------------- 1999 1998 --------- --------- (THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year................. $ 162,771 $ 119,554 Service cost............................................ 3,840 2,988 Interest cost........................................... 11,454 9,584 Actuarial (gain) loss................................... (18,034) 34,788 Benefits paid........................................... (11,469) (8,900) Business combinations................................... 8,120 0 Plan amendments......................................... 0 11,939 Curtailments............................................ (2,818) (7,182) --------- --------- Benefit obligation at end of year....................... $ 153,864 $ 162,771 --------- --------- --------- --------- Change in plan assets: Fair value of plan assets at beginning of year.......... 144,784 121,943 Actual return on plan assets............................ 10,801 24,156 Employer contributions.................................. 5,651 7,585 Business combinations................................... (3,194) 0 Benefits paid........................................... (11,469) (8,900) --------- --------- Fair value of plan assets at end of year................ $ 146,573 $ 144,784 --------- --------- --------- --------- Reconciliation of funded status: Funded status........................................... (7,291) (17,987) Unrecognized prior service cost......................... 0 2,312 Unrecognized actuarial (gain) loss...................... (17,614) 18,082 Contributions after measurement date.................... 2,178 0 --------- --------- Net amount recognized................................... $ (22,727) $ 2,407 --------- --------- --------- --------- Amounts recognized in consolidated balance sheets: Prepaid benefit cost.................................... 4,475 18,676 Accrued benefit cost.................................... (27,202) (26,970) Intangible asset........................................ 0 1,799 Additional minimum pension liability.................... 0 8,902 --------- --------- Net amount recognized................................... $ (22,727) $ 2,407 --------- --------- --------- ---------
In determining the projected benefit obligation, the assumed discount rate was 8.0% and 7.2% for 1999 and 1998, respectively. The expected long-term rate of return on assets, used in determining net periodic pension cost (income), was 9.5% for 1999 and 1998. The Company entered into a Settlement Agreement (the "Settlement Agreement"), dated as of July 26, 1994, with the Pension Benefit Guaranty Corporation (the "PBGC") pursuant to which the Company agreed to make contributions to certain of its underfunded pension plans. These contributions were in addition to the minimum statutory funding requirements with respect to such plans. Pursuant to the Settlement Agreement, the Company made additional contributions to its underfunded pension plans in an amount aggregating $6,000 on 64 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 20. RETIREMENT PLANS--(CONTINUED) August 2, 1994 and $1,500 quarterly thereafter through September 30, 1997. The Settlement Agreement, among other things, includes a covenant restricting the Company's ability to redeem the PIK Preferred Stock and a covenant not to create or suffer to exist a lien upon any of its assets to secure both the 12% and 11 1/8% Senior Notes unless contemporaneously therewith effective provision is made to equally and ratably secure the Company's potential "unfunded benefit liabilities" (as defined in Section 4001(a)(18) of the Employee Retirement Income Security Act). Subsequent to September 30, 1998, the settlement agreement was terminated and the PBGC and the Company entered into a new agreement. In order to secure minimum funding contributions required for the Doehler-Jarvis Plan and underfunding of the Doehler-Jarvis Plan, Harvard provided the PBGC, for the benefit of the Doehler-Jarvis Plan and PBGC, with a pledge of new common stock of Reorganized Harvard ("New Common Stock"), in an amount equal to what the PBGC would have received as an unsecured general creditor of Harvard having an allowed Class 5 Claim (as such term is defined in the Plan of Reorganization) of $18,700, less the amount of all contributions made after April 15, 1998 but prior to the Effective Date. The number of shares of New Common Stock received by the PBGC is 399,156. In January 1999, the Company adopted a Supplemental Employee Retirement Plan ("SERP"), the provisions of which were effective January 1, 1998. Such plan was subsequently amended in July 1999. In connection with such amendment the Company reversed approximately $5,500 of previously provided charges associated with such SERP. 21. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS Certain of the Company's subsidiaries provide post-retirement health care and life insurance benefits for all salaried and for hourly retirees of certain of its plants. The obligation, as of September 30, 1999 and 1998 was determined by utilizing a discount rate of 8.0% and 7.2% respectively, and a graded medical trend rate projected at annual rates ranging ratably from 3.5% and 6.5% in 1999 to 3.5% by the year 2001 and remain level thereafter. Since the Company does not fund post-retirement benefit plans, there are no plan assets. The net periodic post-retirement benefit cost included the following components:
TEN MONTHS TWO MONTHS YEAR ENDING ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 29, ------------------------------ 1999 1998 1998 1997 ------------- ------------ ------------- ------------- Service cost............................... $ 784 $157 $ 1,100 $ 1,593 Interest on accumulated post-retirement benefit obligation....................... 5,797 827 5,827 6,955 Net amortization and deferral.............. (11) 0 (1,337) (959) Curtailment gains.......................... (415) 0 (2,792) (8,249) ------- ---- ------- ------- Net periodic post-retirement benefit cost (benefit)................................ $ 6,155 $984 $ 2,798 $ (660) ------- ---- ------- ------- ------- ---- ------- -------
During 1999, the Company recorded a curtailment gain to reflect the curtailment of medical benefits due to the sale of its Kingston-Warren business. The gain was recorded as a component of the loss on disposal. During 1998, the Company recorded a curtailment gain to reflect the curtailment of medical benefits at one plant of Doehler-Jarvis, which was recorded as a reduction in cost of sales. During the fourth quarter of 1997 the company recorded curtailment gains of $8,249 to reflect the curtailment of medical benefits at one plant and for all active salaried employees of Doehler-Jarvis. 65 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 21. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS--(CONTINUED) The following table sets forth reconciliations of the beginning and ending balances of the post-retirement benefit obligation, funded status and amounts recognized in the Consolidated Balance Sheets related to post-retirement medical and life insurance benefits:
SEPTEMBER 30, --------------------- 1999 1998 --------- -------- Change in benefit obligation: Benefit obligation at beginning of year.................. $ 92,290 $ 78,433 Service cost............................................. 941 1,100 Interest cost............................................ 6,624 5,827 Actuarial (gain) loss.................................... (10,986) 14,121 Business combinations.................................... 11,502 0 Benefits paid............................................ (7,197) (4,399) Curtailments............................................. (415) (2,792) --------- -------- Benefit obligation at end of year........................ $ 92,759 $ 92,290 --------- -------- --------- -------- Change in plan assets: Fair value of plan assets at beginning of year........... 0 0 Employer contributions................................... 7,197 4,399 Benefits paid............................................ (7,197) (4,399) --------- -------- Fair value of plan assets at end of year................. $ 0 $ 0 --------- -------- --------- -------- Reconciliation of funded status: Funded status............................................ (92,759) (92,290) Unrecognized actuarial (gain) loss....................... (10,975) (5,337) --------- -------- Net amount recognized.................................... $(103,734) $(97,627) --------- -------- --------- -------- Included in accrued expenses............................. 7,000 2,112 --------- -------- Noncurrent postretirement benefit obligations............ $ 96,734 $ 95,515 --------- -------- --------- --------
The effect of a 1% annual increase in the assumed cost trend rates discussed above would increase the accumulated post-retirement obligation at September 30, 1999 by approximately $11,611, and would increase the aggregate of the service and interest cost components by approximately $910. The effect of a 1% annual decrease in the assumed cost trend rates discussed above would decrease the accumulated post-retirement obligation at September 30, 1999 by approximately $11,263 and would decrease the aggregate of the service and interest cost components by approximately $882. 22. PREFERRED STOCK On March 24, 1999, the Board of Directors of Harvard Industries, Inc., a Delaware corporation (the "Company"), declared a dividend of one preferred share purchase right ("Right") on each outstanding share of the Company's common stock, par value $0.01 per share (the "Common Shares"), payable to stockholders of record on April 5, 1999 (the "Record Date"). Each Right, when exercisable, entitles the holder thereof to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (the "Preferred Shares"), of the Company at an exercise price of $30 per one one-hundredth of a Preferred Share (the "Purchase Price"), subject to adjustment. The terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and State Street Bank and Trust Company, a Massachusetts trust company, as Rights Agent. 66 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 22. PREFERRED STOCK--(CONTINUED) Under the terms of the Plan of Reorganization, holders of Harvard's Pay-In-Kind Exchangeable Preferred Stock ("PIK Preferred Stock") and holders of Harvard's existing common stock (the "Old Common Stock") will each receive warrants ("Warrants") to acquire, in the aggregate, approximately 5% of the New Common Stock, with holders of PIK Preferred Stock each receiving their pro rata share of 66.67% of the Warrants and holders of the Old Common Stock each receiving their pro rata share of 33.33% of the Warrants. On the Effective Date, the Old Common Stock and PIK Preferred Stock were canceled in their entirety. 23. STOCK OPTIONS On December 9, 1998, the Board of Directors approved a Stock Incentive Plan (the "Plan") (regarding stock option awards), which provides for up to 2,229,102 shares of the Company's Common Stock to be granted to members of the Board of Directors and key employees. Options under the plan were granted at the fair market value on the date of grants and have an exercise period of ten years. Options under the Director's plan vest 100% at the date of grant while the key employee's plan become exercisable at 33 1/3% per year. The Company's Plan of Reorganization also provides for holders of its Old Common Stock and PIK Preferred Stock to receive in the aggregate approximately 633,000 warrants, expiring November 23, 2003, permitting the purchase of new common shares at an exercise price of $41.67 per share. Seven members of the Company's Board of Directors have each been granted 20,000 shares which vest over five (5) years. A total of 120,000 shares will be issued as one director declined the grant. The above options, warrants and shares to be issued have been excluded from the computation of earnings per share as their effect would be antidilutive. The Company has elected the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," and applies APB Opinion No. 25 and related interpretations in accounting for the Plan. If the Company had elected to recognize compensation cost based on the fair value of awards under the Plan at grant dates, the Company's pro forma net loss for the ten months ended September 30, 1999 would have been ($93,021), and pro forma loss per share would have been ($10.34). The fair value of the Company's stock options used to compute pro forma net income and earnings per share is the estimated present value at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk free interest rate 5.7%; expected life of 5 years; expected votality of 51.6%; and dividend yield of 0%. A summary of the Company's stock option activity under the Plan is as follows:
KEY EXERCISE PRICE EMPLOYEES DIRECTORS TOTAL RANGE PER SHARE --------- --------- --------- ---------------- Granted 1999................................... 1,845,000 120,000 1,965,000 $6.10 to $7.50 Exercised...................................... -- -- -- 0 Cancelled...................................... -- -- -- 0 --------- ------- --------- Balance 9/30/99................................ 1,845,000 120,000 1,965,000 $6.10 to $7.50 --------- ------- --------- --------- ------- --------- 1999........................................... 615,000 40,000 655,000 $6.10 to $7.50 --------- ------- --------- --------- ------- ---------
67 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 23. STOCK OPTIONS--(CONTINUED) The following table summarizes the status of stock options outstanding and exercisable under the Plan at September 30, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISEABLE RANGE OF ----------------------------------------------- ---------------------------- EXERCISE WTD. AVG. WTD. AVG. WTD. AVG. PRICES SHARES EXERCISE PRICE REMAINING LIFE SHARES EXERCISE PRICE ---------- --------- -------------- -------------- --------- -------------- $ 7.50 1,675,000 $ 7.50 9 yrs 558,278 $ 7.50 $ 6.10 290,000 $ 6.10 9 yrs 96,324 $ 6.10 --------- --------- Total 1,965,000 $ 7.29 9 yrs 654,602 $ 7.29 --------- --------- --------- ---------
On November 24, 1998 the Company's plan of reorganization became effective and all stock options authorized, granted or exercised were cancelled along with the Old Common Stock. However, for historical purposes, the following information is presented outlining the plans in existence prior to the Company's emergence from bankruptcy.
KEY EXERCISE PRICE EMPLOYEES DIRECTORS ANCHOR TOTAL RANGE PER SHARE --------- --------- -------- --------- ---------------- Balance September 30, 1996......... 186,350 36,000 569,096 791,446 $6.00 to $28.00 --------- ------- -------- --------- --------- ------- -------- --------- Granted 1997....................... 68,500 8,000 -- 76,500 $.8125 to $8.00 Exercised.......................... -- -- -- -- Cancelled.......................... (31,375) -- -- (31,375) $8.00 to $28.00 --------- ------- -------- --------- Balance September 30, 1997......... 223,475 44,000 569,096 836,571 $.8125 to $28.00 --------- ------- -------- --------- --------- ------- -------- --------- Granted 1998....................... -- -- -- -- Exercised.......................... -- -- -- -- Cancelled.......................... -- -- -- -- --------- ------- -------- --------- Balance September 30, 1998......... 223,475 44,000 569,096 836,571 $.8125 to $28.00 --------- ------- -------- --------- --------- ------- -------- --------- Cancelled in connection with bankruptcy emergence............. (223,475) (44,000) (569,096) (836,571) --------- ------- -------- --------- Balance November 29, 1998.......... 0 0 0 0 --------- ------- -------- --------- --------- ------- -------- --------- Exercisable at September 30: 1997............................... 108,200 42,000 369,096 519,296 $.8125 to $28.00 1998............................... 108,200 42,000 369,096 519,296 $.8125 to $28.00 --------- ------- -------- --------- --------- ------- -------- ---------
On January 19, 1994, the Board of Directors approved Stock Option Plans, and on August 4, 1994 approved certain modifications thereto, which provides for up to 400,000 shares of the Company's Common Stock to be granted to members of the Board of Directors (other than the Company's Chairman and Chief Executive Officer) and key employees. Options under both plans were granted at the fair market value on the date of grants and have an exercise period of ten years. Options under the Director's plan vest 100% at the date of grant while the key employee's plan become exercisable at 25% or 33 1/3% per year after a one-year waiting period. On August 4, 1994, the Board of Directors granted to Anchor options to purchase 17,000 shares of Common Stock which became exercisable immediately at $13.75 per share and granted Anchor an aggregate of 300,000 additional stock options to purchase 300,000 shares of Common Stock at $14.00 per share, which become exercisable as follows: 100,000--8/16/95; 100,000--8/16/96; 100,000--8/16/97. Such options are exercisable if the closing price of the Company's Common Stock equals or exceeds $20.00 per share for 15 of 30 trading days prior to August 16, 1995 for the first 100,000 options; and $30.00 and $40.00 per share for any 30 trading days 68 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 23. STOCK OPTIONS--(CONTINUED) subsequent to August 16, 1995 and 1996, respectively, and prior to August 16, 1996 and August 16, 1997, respectively. On August 16, 1995 such condition was met and the first 100,000 options became exercisable. No options became exercisable during 1996, 1997 and 1998. On August 16, 2002 any options outstanding will be exercisable without regard to the per share price of Common Stock if Anchor is continuing to provide services to the Company at such date. The Company has elected to continue to measure compensation cost for its stock option plans using the intrinsic value based method of accounting. No pro forma disclosure of net loss is presented since it is immaterial and antidilutive. 24. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and DIP Financing. The carrying value amount approximates fair value because of the short maturity of these instruments. Long-Term Debt. The fair value of the Company's Senior Notes is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. PIK Preferred Stock. The fair value was determined by quoted market price. The estimated fair value of the Company's financial instruments are as follows:
SEPTEMBER 30, SEPTEMBER 30, --------------------- --------------------- 1999 1998 CARRYING 1999 FAIR CARRYING 1998 FAIR AMOUNT VALUE AMOUNT VALUE -------- --------- -------- --------- Cash and cash equivalents................................... $ 21,840 $21,840 $ 11,624 $11,624 Accounts receivable......................................... 35,324 35,324 57,046 57,046 Accounts payable............................................ 28,489 28,489 25,098 25,098 DIP financing (including current portion)................... -- -- 39,161 39,161 Senior notes................................................ -- -- 309,728 140,543 PIK preferred stock......................................... -- -- 124,637 --
69 HARVARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA) 25. QUARTERLY FINANCIAL DATA (UNAUDITED)
TWO MONTHS ONE MONTH FISCAL 1999 ENDED ENDED QUARTERS ENDED NOVEMBER 29 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 - ------------------------------------ --------- --------- -------- -------- -------- Net sales........................... $ 89,050 $ 40,166 $128,727 $129,908 $107,280 Gross profit........................ 9,422 4,532 15,057 12,981 8,764 Net loss before extraordinary item.. (48,563) (4,997) (14,117) (14,613) (47,022) Extraordinary item.................. 206,363 -- -- -- (9,701) Net income (loss)................... $ 157,800 $ (4,997) $(14,117) $(14,613) $(56,723)(b) Earnings (loss) per share of common stock (basic and diluted)(a): Net loss before extraordinary item.. $ (6.91) $ (0.61) $ (1.71) $ (1.62) $ (4.70) Extraordinary item.................. 29.37 0.00 0.00 0.00 (0.97) --------- --------- -------- -------- -------- Net income (loss)................... $ 22.46 $ (0.61) $ (1.71) $ (1.62) $ (5.67) --------- --------- -------- -------- -------- --------- --------- -------- -------- --------
FISCAL 1998 QUARTERS ENDED DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 - -------------------------------------------------- ----------- -------- -------- ------------ Net sales......................................... $ 197,052 $206,339 $169,234 $117,451 Gross profit...................................... 5,330 12,248 12,873 3,382 Net loss.......................................... $ (5,519) $ (3,081) $ (7,313) $(39,891)(c) --------- -------- -------- -------- --------- -------- -------- -------- Earnings per share of common stock (basic and diluted)(a) Net Loss per share................................ ($ 0.79) ($ 0.44) ($ 1.04) ($ 5.68) --------- -------- -------- -------- --------- -------- -------- --------
(a) Year-to-date earnings per share do not equal the sum of the quarterly earnings per share. (b) Includes extraordinary loss on early extinguishment of debt and loss on sale of Kingston-Warren. (c) Includes charges of $10,000 for deferred compensation arrangement and $13,500 for emergence related costs. Results of operations were also negatively impacted by the General Motors strike which occurred from June 7, 1998 to July 31, 1998. 26. SUBSEQUENT EVENTS On October 5, 1999, the Company used part of the proceeds of the sale of the assets of its Kingston-Warren subsidiary to purchase 762,000 shares of its common stock in a private transaction at an aggregate cost of approximately $4,950. On December 21, 1999, the Company sold the land and building and certain machinery and equipment of the Ripley, TN facility of its Hayes-Albion subsidiary for approximately $2,325 in cash. ITEM 9. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS N/A 70 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Date: December 23, 1999 HARVARD INDUSTRIES, INC. By: /s/ ROGER G. POLLAZZI ---------------------------------- Roger G. Pollazzi Chairman of the Board Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Roger G. Pollazzi, acting individually, as such person's true and lawful attorney-in-fact and agent, with full power of substitution for such person, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this report on Form 10-K, and to file with the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes may do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - ------------------------------------------ ------------------------------------------- ------------------- /s/ ROGER G. POLLAZZI Chairman of the Board, Chief December 23, 1999 - ------------------------------------------ Executive Officer and Director Roger G. Pollazzi (Principal Executive Officer) /s/ THEODORE W. VOGTMAN Executive Vice President and Chief December 23, 1999 - ------------------------------------------ Financial Officer (Principal Financial Theodore W. Vogtman Officer) /s/ KEVIN L. B. PRICE Vice President, Controller and Treasurer December 23, 1999 - ------------------------------------------ (Principal Accounting Officer) Kevin L. B. Price /s/ JON R. BAUER Director December 23, 1999 - ------------------------------------------ Jon R. Bauer /s/ THOMAS R. COCHILL Director December 23, 1999 - ------------------------------------------ Thomas R. Cochill /s/ RAYMOND GARFIELD, JR. Director December 23, 1999 - ------------------------------------------ Raymond Garfield, Jr.
71
SIGNATURE TITLE DATE - ------------------------------------------ ------------------------------------------- ------------------- /s/ DONALD P. HILTY Director December 23, 1999 - ------------------------------------------ Donald P. Hilty /s/ GEORGE A. POOLE, JR. Director December 23, 1999 - ------------------------------------------ George A. Poole, Jr. /s/ JAMES P. SHANAHAN, JR. Director December 23, 1999 - ------------------------------------------ James P. Shanahan, Jr. /s/ RICHARD W. VIESER Director December 23, 1999 - ------------------------------------------ Richard W. Vieser
72 EX-10.10 2 EQUIPMENT PURCHASE AGREEMENT EQUIPMENT PURCHASE AGREEMENT THIS EQUIPMENT PURCHASE AGREEMENT, dated as of December 17, 1999 (the "Agreement"), is made between MACDONALD'S INDUSTRIAL PRODUCTS, INC., a Michigan corporation ("Buyer"), and HARVARD INDUSTRIES, INC., a Delaware corporation, and HAYES-ALBION CORPORATION, a Michigan corporation (together, "Seller"). Seller is engaged in the die casting business (the "Business") at a facility it leases in Ripley, Tennessee (the "Leased Real Property"). Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, certain of the equipment associated with Seller's Business, on the terms and subject to the conditions set forth in this Agreement. ARTICLE 1 PURCHASE AND SALE OF EQUIPMENT 1.1 Agreement to Purchase and Sell Equipment. On the terms and subject to the conditions of this Agreement, Buyer shall purchase and acquire from Seller, and Seller shall sell, convey, assign, transfer, and deliver to Buyer, all of the assets and property of Seller described on Exhibit 1.1 and described below (the "Purchased Assets") which shall include 125,000 pounds of secondary type magnesium metal ingot inventory alloyed to Specification AZ91D at the Leased Real Property which has been produced by Spectralite, Halco, Magcorp or primary type Chinese production. Seller shall transfer the Purchased Assets to Buyer free and clear of all claims, liens, mortgages, security interests, encumbrances, charges, obligations, and other restrictions. Buyer has inspected the Purchased Assets and agrees to purchase them on an "As Is" basis regarding their physical condition. Purchaser has requested that some other materials remain on site at Closing. Purchases agrees to take any and all containers of oils (including but not limited to lubricating oils, die lubricants, compressor oils, hydraulic oils/fluids, etc.); chemicals (including but not limited to water treatment chemicals, cooling tower treatment chemicals, process chemicals, fluxes, etc.); maintenance items (including but not limited to paints, solvents, building maintenance materials, floor cleaners, floor waxes, etc.); testing laboratory chemicals; fuels (including but not limited to gasoline, kerosene, etc.); that remain on site at date of Closing. Purchaser agrees that in the event Purchaser does not want or need the material, any disposal of this type of material, whether hazardous or not, will be at Purchaser's expense. Nothing contained in this paragraph shall be deemed to limit Seller's representations, warranties or indemnification obligations. 1.2 Purchase Price. As consideration for the transfer of the Purchased Assets to Buyer and Seller's other convenants in this Agreement (the "Purchase Price"), Buyer shall pay to Seller at Closing in immediately available funds the amount of $2,325,000, less the amount of any escrow holdback described in Section 2.3(h). 1.3 No Assumed Liabilities. Buyer shall not assume or be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of Seller of any kind, description, or character, whether accrued, absolute, contingent, or otherwise or whether or not disclosed to Buyer in this Agreement, the Disclosure Schedule (defined below), or otherwise (collectively, the "Excluded Liabilities"). Without limiting the generality of the foregoing, and notwithstanding anything to the contrary contained in this Agreement, Buyer shall not assume or be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of Seller even if imposed upon Buyer as a successor to Seller, with respect to any action, suit, proceeding, or claim arising out of or relating to any event occurring, or with respect to any cause of action arising, before or after the Closing Date, whether or not asserted before or after the Closing Date; including any liablity, obligation, debt, charge, or expense related to taxes, environmental matters, agreements with sales representatives, employee benefits, obligations or policies, judgments, product warranty claims, product liability claims, and contractual claims. Seller shall be liable for all product warranty claims and all product liability claims arising from products shipped by Seller. 1.4 Allocation of Purchase Price. Within one hundred twenty (120) days after the Closing Date, Buyer shall deliver to Seller a Certificate of Allocation detailing the allocation of the Purchase Price among the Purchased Assets and Seller's other covenants set forth in this Agreement. The Seller shall review the Purchase Price Allocation set forth by the Buyer. The Purchase Price Allocation as set forth must be satisfactory to both the Buyer and the Seller. If within forty-five (45) days following delivery of its computation of the Purchase Price Allocation, Seller has not given the Buyer written notice of Seller's objection to the Buyer's computation of the Purchase Price Allocation, then the Purchase Price Allocation will be final and binding on the Buyer and the Seller. If Seller gives such notice of objection, Buyer and the Seller shall negotiate in good faith to resolve any such disputes within fifteen (15) days following the delivery of such objection by Seller. If Buyer and the Seller are unable to resolve such disputes, then the issues in dispute will immediately be submitted to a mutually agreed upon CPA Firm (the "Accountants") for resolution within thirty (30) days after such submission. If issues in dispute are submitted to the Accountants for resolution, (i) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may request and are available to that party or its stockholders (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination of the Purchase Price Allocation as of the Closing Date and to discuss the determination of the Purchase Price Allocation as of the Closing Date with the Accountants; (ii) the determination of the final Purchase Price Allocation as of the Closing Date by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be final and binding on the Buyer and the Seller; and (iii) Seller and the Buyer shall each bear 50% of the fees of the Accountants for such determination. The Buyer and the Seller shall use the agreed upon or arbitrarily assigned Purchase Price Allocation for all income tax purposes and agree to file all required Returns (including, without limitation, Returns required under Section 1060 of the Code) consistent with such Purchase Price Allocation. ARTICLE 2 CLOSING 2.1 Place and Date of Closing. The purchase and sale contemplated by this Agreement (the "Closing") shall take place at the offices of Miller, Johnson, Snell & 2 Cummiskey, P.L.C. on December 17, 1999 (which may be completed by facsimile and a wire transfer), or at any other place, time, and date specified by either Buyer or Seller upon five (5) business days' notice to the other, after fulfillment or waiver of the conditions precedent set forth in this Agreement (the "Closing Date"). The Closing shall be deemed to be effective upon the close of business on the Closing Date. 2.2 Deliveries at Closing. (a) Buyer's Deliveries. At the Closing, Buyer shall execute and/or deliver, or cause to be executed and/or delivered: (i) the Cash Payment; (ii) a closing certificate from a duly authorized officer of Buyer as required by this Agreement; and (iii) any and all other agreements, certificates, instruments, and other documents required of Buyer under this Agreement. (b) Seller's Deliveries. At the Closing, Seller shall execute and/or deliver, or cause to be executed and/or delivered: (i) bills of sale, certificates of title, vehicle certificates, endorsements, assignments, and other instruments of conveyance, reasonably acceptable to Buyer, that shall be sufficient to transfer title to the Purchased Assets to Buyer; (ii) written consents of third parties (including debt holders), if necessary, with respect to the transfer of the Purchased Assets to Buyer and lien releases from Seller's secured parties regarding the Purchased Assets; (iii) a closing certificate from a duly authorized officer of Seller as required by this Agreement; and (iv) any and all other agreements, certificates, instruments, and other documents required of Seller under this Agreement. 2.3 Conditions to Buyer's Closing Obligations. Notwithstanding anything to the contrary contained in this Agreement, Buyer's obligation to complete the Closing is subject to the complete fulfillment (unless expressly waived in writing by Buyer) of all of the following conditions at or before the Closing: (a) Representations and Warranties; Performance. Each of the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement, and shall be true and correct in all material respects as of the Closing Date, with the same force and effect as if made again as of the Closing Date. Seller shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by Seller at or before the Closing, including the delivery of all bills of sale, assignments, and other documents required by this Agreement to be delivered by Seller at the Closing, all reasonably acceptable to Buyer. (b) Closing Certificate. Buyer shall have received a certificate reasonably acceptable to Buyer, signed by Seller and dated as of the Closing Date, to the effect that all representations, warranties, and covenants made in this Agreement by Seller are on the Closing Date and correct in all material respects and that Seller has performed in all material respects the obligations, agreements, and covenants undertaken by it, in this Agreement to be performed on or before the Closing Date. 3 (c) No Material Adverse Change. Except as contemplated by this Agreement, there shall have been no material adverse change in the condition of the Purchased Assets from the date of this Agreement to the Closing Date, including, without limitation, the removal of any assets listed on Exhbit 1.1 from the Leased Real Property. (d) Litigation. On the Closing Date, there shall not be any pending or threatened litigation in any court or any proceedings by or before any governmental commission, board, agency, arbitration tribunal, or other instrumentality with a view to seeking to restain or prohibit the consummation of the transactions contemplated by this Agreement or in which it is sought to obtain divestiture, recission, or damages in connection with the transactions contemplated by this Agreement. (e) Necessary Consents and Notices. All authorizations, consents, and approvals by any third parties, including federal, state, local and foreign regulatory bodies and officials, that are necessary for the consummation of the transactions contemplated by this Agreement, shall have been received in writing and shall be in full force and effect. All necessary filings, declarations, and notices of Buyer and Seller with or to third parties shall also have been made or given. (f) Lease for Real Property. Buyer shall have entered into an agreement with the City of Ripley regarding the transfer of the lease for the Leased Real Property in form acceptable to Buyer. Such agreement shall include an option to purchase the Leased Real Property and an arrangement regarding pre-Closing environmental matters on terms acceptable to Buyer. (g) Buyer's Examination. Buyer shall be satisfied with the contents of all exhibits, schedules, information, and other documents and materials (including the Disclosure Schedule) and with the results of Buyer's examination of Seller, the Purchased Assets, the condition and value of the Purchased Assets as of Closing, and the environmental condition of the Leased Real Property. (h) Tax Clearance Certificate. Seller shall deliver to Buyer a tax clearance certificate from the appropriate Tennessee state authority which states that all taxes required to be paid by Seller in Tennessee have been paid. If such certificate is not available at Closing, $100,000 of the Purchase Price shall be withheld by Buyer and will be delivered to Seller within seven (7) days of receipt of such certificate from Seller. 2.4 Conditions to Seller's Closing Obligations. Notwithstanding anything to the contrary contained in this Agreement, Seller's obligation to complete the Closing is subject to the complete fulfillment (unless expressly waived in writing by Seller) of all of the following conditions at or before the Closing: (a) Representations and Warranties; Performance. Each of the representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement, and shall be true and correct in all material respects as of the Closing Date, with the same force and effect as if made again as of the Closing Date. Buyer shall have performed and complied in all material respects with 4 all agreements and conditions required by this Agreement to be performed or complied with by Buyer at or before the Closing, including payment of the Purchase Price and all other documents required by this Agreement to be delivered by Buyer at the Closing, all reasonably acceptable to Seller. (b) Closing Certificate. Seller shall have received a certificate reasonably acceptable to the Seller, signed by Buyer and dated as of the Closing Date, to the effect that all representations and warranties in this Agreement are true and correct in all material respects as if made again on the Closing Date and that Buyer has performed in all material respects the obligations, agreements, and covenants undertaken by Buyer in this Agreement to be performed on or before the Closing Date. (c) Litigation. On the Closing Date, there shall not be any pending or threatened litigation in any court or any proceedings by or before any governmental commission, board, agency, arbitration tribunal, or other instrumentality with a view to seeking, to restrain or prohibit the consummation of the transactions contemplated by this Agreement. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: 3.1 Disclosure Schedule. At least three (3) days before the date of this Agreement, Seller has delivered to Buyer individually numbered schedules (collectively, the "Disclosure Schedule") corresponding to the sections and subsections of this Article. Each individual schedule in the Disclosure Schedule contains exceptions to the specifically identified section and subsection contained in this Article and sets forth each exception in reasonable detail, with attached documentation as necessary to reasonably explain the exception. Any exception to the representations and warranties contained in a section or subsection of this Article is described in a separate schedule of the Disclosure Schedule that specifically identifies the applicable section or subsection of this Article. The Disclosure Schedule is complete and accurate in all respects. Seller has provided Buyer with true and complete copies of all documents referenced in the Disclosure Schedule. 3.2 Seller's Organization and Good Standing. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of Seller's incorporation. Seller has all requisite corporate power and authority to own, lease, and operate the properties now owned or leased by Seller and to carry on Seller's Business as presently conducted. 3.3 Enforceability. Seller has full capacity, power, and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, and this Agreement is binding upon Seller and is enforceable against Seller in accordance with the terms of this Agreement. 5 3.4 No Conflict with Other Instruments or Proceedings. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not (a) result in the breach of any of the terms or conditions of, or constitute a default under, Seller's corporate charter or bylaws or any contract, agreement, lease, commitment, indenture, mortgage, pledge, note, bond, license, or other instrument or obligation to which Seller is now a party or by which Seller or any of Seller's properties or assets may be bound or affected; (b) result in the imposition of any lien or encumbrance on any of the Purchased Assets; or (c) give rise to any right of first refusal or similar right to any third party with respect to any of the Purchased Assets. 3.5 Absence of Certain Changes or Events. Since September 10, 1999, there has been no adverse change in the condition of the Purchased Assets and Seller has not (i) subjected any of the Purchased Assets to any claim, lien, mortgage, security interest, encumbrances, charge, or other restriction; or (ii) sold, transferred, or otherwise disposed of any of the Purchased Assets. 3.6 Taxes. Seller has paid all taxes and assessments due and payable by Seller relating to the Purchased Assets. 3.7 Personal Property. Seller has good and marketable title to all of Purchased Assets, subject to no security interest, mortgage, pledge, lien, encumbrance, charge, obligation, assignment, leasing, or other restriction. All personal property included in the Purchased Assets will be in the possession of Seller on the Closing Date. 3.8 Employee Relations. Seller is not a party to any written or oral, express or implied, collective bargaining agreement or other contract, agreement, or arrangement with any labor union or any other similar arrangement at the Leased Real Property, and Seller has no knowledge of any current union organizing activity at the Leased Real Property. Seller represents to Buyer that the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section 2101 et seq. ("WARN"), or any other similar state, local or foreign statute or government regulation or ordinance, is either inapplicable to the transactions contemplated in this Agreement or Seller has fully complied with all those statutes. 3.9 Environmental Matters. (a) Definitions. For purposes of this Agreement: (i) "Environmental Claim" means any claim, action, cause of action, investigation, or notice (written or oral) by any person or entity alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or civil or criminal penalties) arising out of or resulting from (A) the actual or alleged presence or release into the environment of any Hazardous Material (defined below) at any location, whether or not owned or operated by Seller, (B) circumstances forming the basis of any actual or alleged violation of any Environmental Law, or (C) a consent order, consent decree, judgment, government order or notice; (ii) "Environmental Laws" means all federal, state, local, and foreign laws, regulations, ordinances, rules, standards, and common law principles of tort liability relating to protection 6 of human health or the environment (including ambient air, surface water, ground water, wetlands, land surface, subsurface strata, and indoor and outdoor workplace), remediation of the environment (including the Comprehensive Environmental Response, Compensation, and Liability Act, and all other analogous federal and state laws), management (including transportation, storage, treatment and disposal) of solid or hazardous waste (as defined by the Resource Conservation and Recovery Act, and all other analogous federal and state laws); (iii) "Hazardous Material" means any contaminant, pollutant, waster, petroleum, petroleum product, genetically modified organism, chemical or other substance defined, designated, or classified as hazardous, toxic, radioactive, or dangerous, or that is otherwise regulated by any Environmental Law; and (iv) "CONTAMINATION" means the presence of any Hazardous Material in, on, or under the air, soil, groundwater, or surface water, that may result in an Environmental Claim. (b) Compliance. To Seller's knowledge, Seller is, and has been, in full compliance with all applicable Environmental Laws regarding the Leased Real Property and its operations there, which compliance includes (i) Seller's possession of all permits and other governmental authorization required under applicable Environmental Laws, and compliance with the terms and conditions thereof, at the Leased Real Property and (ii) compliance with notification, reporting, and registration provisions of the Toxic Substances Control Act, Federal Insecticide, Fungicide, and Rodenticide Act, and other federal, state, local, and foreign laws that may apply to Seller's manufacture, importation, processing, use, and other handling of chemical substances at the Leased Real Property. (c) Notices and Permits. Seller has not received any communication (written or oral), whether from a governmental authority, citizens group, employee, or otherwise, that alleges that Seller is not or was not in full compliance with the Environmental Laws at the Leased Real Property and, to Seller's knowledge, there are no circumstances that may prevent or interfere with full compliance in the future. All permits, governmental authorizations, and compliance schedules currently held by Seller pursuant to the Environmental Laws regarding the Leased Real Property are identified in the Disclosure Schedule. (d) Environmental Claims. To Seller's knowledge, there is no Environmental Claim existing, pending, or threatened against Seller regarding the Leased Real Property. There are no past or present actions, activities, circumstances, conditions, events, or incidents caused by Seller, including the release, emission, discharge, presence or disposal of any Hazardous Material, that could form the basis of any Environmental Claim against Seller regarding the Leased Real Property. (e) Real Property. Without in any way limiting the generality of the foregoing: (i) to Seller's knowledge, the Leased Real Property is not listed on or is being considered for listing on any list of contaminated sites maintained under any Environmental Law or is subject to or is being considered for enforcement action under any Environmental Law, and of the Leased Real Property has not been designated as an area under the control of any conservation authority; (ii) to Seller's knowledge, the Leased Real Property is free of Contamination; (iii) to Seller's knowledge, no underground storage tanks, receptacles, or 7 other similar containers or depositories are, or ever have been, present on the Leased Real Property; (iv) to Seller's knowledge, none of the buildings, building components, structures, or improvements that are part of this transaction is constructed in whole or in part of any material that, in its present form, releases or may release any substance, whether gaseous (including radon gas), liquid, or solid, that may give rise to an Environmental Claim, including asbestos; (v) to Seller's knowledge, there have been no investigations conducted, or other proceedings taken or threatened by any governmental body or any other person pursuant to any Environmental Law with respect to the Leased Real Property or the Purchased Assets; (vi) to Seller's knowledge, no polychlorinated biphenyls (PCB's) were ever used, stored or disposed of at any of the Leased Real Property; (vii) there is no consent decree, consent order, or other agreement to which Seller is a party in relation to any environmental matter and no agreement is necessary for Seller's continued compliance with all Environmental Laws at the Leased Real Property; (viii) to Seller's knowledge, Seller has not caused any contamination on the Leased Real Property and no Hazardous Material or any other material was used, generated, emitted, transported, stored, treated, or disposed of by Seller in violation of any Environmental Law or which may result in any Environmental Claim regarding the Leased Real Property; or (ix) Seller has not disposed of, permitted the disposal of, or knows of the disposal of any Hazardous Material on the Leased Real Property. 3.10 Litigation. There is no suit, action, proceeding (legal, administrative, or otherwise), claim, investigation, or inquiry (by an administrative agency, governmental body, or otherwise) pending or threatened by, against, or otherwise affecting Seller regarding the Purchased Assets or the Leased Real Property, and to Seller's knowledge there is no factual basis upon which any such suit, action, proceeding, claim, investigation, or inquiry could be asserted or based. 3.11 Accuracy of Statements. No representation or warranty made by Seller in this Agreement, or any written statement, certificate, or schedule furnished, or to be furnished, to Buyer pursuant to this Agreement contains or will contain any untrue statement of a material fact. The representations and warranties of Seller shall be deemed to be made as of the date of this Agreement and again as of the Closing Date. ARTICLE 4 BUYER'S REPRESENTATIONS AND WARRANTIES Buyer represents and warrants to Seller as follows: 4.1 Buyer's Organization and Good Standing. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Michigan. 4.2 Enforceability. Buyer has full capacity, power, and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, and this Agreement is binding upon Buyer and is enforceable against Buyer in accordance with the terms of this Agreement. 8 ARTICLE 5 COVENANTS 5.1 Employees. (a) Offers of Employment. Buyer has no obligation to hire or offer employment to any of Seller's employees. However, Buyer is free, without obligation, to interview, seek employment applications from, and employ any of Seller's former employees. (b) Employee Benefit Plans or Other Obligations. With respect to any employee of Seller hired by Buyer, Buyer shall not assume, honor, or be obligated to perform, and Seller shall remain solely responsible for, any duties, responsibilities, commitments, or obligations of Seller with respect to any qualified or non-qualified employee benefit plan presently maintained by Seller or for the benefit of Seller's employees or any contract or commitment concerning any of Seller's employees. The terms and conditions of employment, if any, offered by Buyer to any former employee of Seller shall be determined by Buyer in Buyer's sole discretion. 5.2 Pre-Closing and Post-Closing Access. During the period from the date of this Agreement to the Closing Date, Seller shall permit Buyer and Buyer's designated representatives and agents free access to the buidings, offices, records, and files, for the purpose of conducting an investigation of the Purchased Assets and the Leased Real Property. For a period of ninety (90) days after the Closing Date, Buyer shall permit Seller and Seller's designated representatives and agents reasonable access to the Leased Real Property for any reason or purpose including removing assets which are not purchased assets. 5.3 Disclosure of Breaches. Buyer and Seller shall promptly notify the other of the occurrence of any event or condition that could reasonably be expected to adversely affect the ability of any party to perform fully the transactions comtemplated by this Agreement or to make that party's respective representations and warranties set forth in this Agreement not be materially true and correct at the Closing. 5.4 Further Assurances. Buyer and Seller shall execute all documents and take all further actions as may be reasonably required or desirable to carry out the provisions of this Agreement and the transactions contemplated by this Agreement at or after the Closing to evidence the consummation of the transactions contemplated pursuant to this Agreement. Upon the terms and subject to the conditions of this Agreement, Buyer and Seller shall take all actions and do, or cause to be done, all other things necessary, proper, or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement and obtain in a timely manner all necessary waivers, consents, and approvals, and to effect all necessary registrations and filings. 9 ARTICLE 6 INDEMNIFICATION 6.1 Indemnity. Seller shall, defend, indemnify, and hold harmless Buyer and Buyer's affiliates, and their respective directors, officers, employees, shareholders, representatives, agents, successors and assigns, against and with respect to any and all loss, cost, damage, assessment, administrative fine or penalty, decrease in value, liability, obligation, claim, expense (including professional fees and similar expenses), or deficiency (collectively, the "Indemnified Losses") from, resulting by reason of, or arising in connection with: (a) any and all liabilities of Seller of any nature, whether accrued, absolute, contingent, or otherwise (including any Excluded Liabilities, tax, severence/pension benefits, workers' compensation claims, and environmental liabilities); (b) facts, circumstances, or events constituting an inaccuracy, misrepresentation, breach, or nonperformance of any representation, warranty, covenant, undertaking, condition, or agreement made or to be performed by Seller pursuant to this Agreement or any document delivered to Buyer in the consummation of the transactions contemplated by this Agreement, regardless of whether the inaccuracy, misrepresentation, breach, or omission was deliberate, reckless, negligent, innocent, or unintentional; (c) any failure to comply with any applicable bulk sale or transfer laws relating to this Agreement and any claims against Buyer by creditors of Seller; (d) any claim relating to any failure to comply with WARN or any similar federal, state, local, or foreign plant closing law, whether asserted against Buyer or Seller, arising from the transactions set forth in this Agreement; (e) any claims asserted by current or former employees of Seller (who are not employed by Buyer after the Closing Date) for benefits pursuant to COBRA, whether the claim is asserted against Buyer or Seller; (f) any pollution or threat to human health or the environment that is directly related to Seller's management, use, control, ownership or operation of the Purchased Assets or the Leased Real Property, including all on-site and off-site activities involving Hazardous Material, and that occurred, existed, arises out of conditions or circumstances that occurred or existed, or was caused, on or before the Closing Date, whether or not the pollution or threat to human health or the environment is described in the Disclosure Schedule or is known to Seller and Buyer; and (g) any use of the Purchased Assets and the conduct of the Business by Seller on or before the Closing Date, including any environmental related matters arising from Seller's actions, inactions, or events occurring on or before the Closing Date. 6.2 Indemnification Period. Buyer's right to seek indemnification under this Article shall survive for a period of three (3) years from the Closing Date (the "Indemnity Period"), except that the Indemnity Period shall not expire, but shall survive forever, for claims with respect to representations, warranties, covenants, and agreements relating to unencumbered title to the Purchased Assets, and the representations, warranties, covenants, and agreements regarding taxes, environmental matters, and the enforceability of this Agreement. The making of a claim for indemnification under this Agreement shall toll the running of the limitation period with respect to that claim. For purposes of the preceding sentence, a claim shall be deemed made upon the commencement of an independent judicial proceeding with respect to the matter underlying the claim or receipt by the Seller of a written notice of claim setting forth the amount of the claim (if known by Buyer) and a general description of the facts underlying the claim. 10 6.3 Third-Party Claims. If after the Closing Date Seller or Buyer (in either case, the "Indemnitee") shall receive notice of any third party claim or alleged third party claim asserting the existence of any matter of the nature as to which the Indemnitee has been indemnified against under this Article VI by the other parties hereto ("Indemnitor"), Indemnitee shall promptly notify Indemnitor in writing with respect thereto. Indemnitor shall have the right to defend against any such claim provided (i) Indemnitor shall, within 10 days after the giving of such notice by Indemnitee, notify Indemnitee that it disputes such claim, giving reasons therefor, and that Indemnitor will, at its own cost and expense, defend the same, and (ii) such defense is instituted and continuously maintained in good faith by Indemnitor. In such event the defense may, if necessary, be maintained in the name of Indemnitee. Indemnitee may, if it so elects, designate its own counsel to participate with the counsel selected by Indemnitor in the conduct of such defense at its own expense. Indemnitor shall not permit any lien or execution to attach to the assets of the Indemnitee as a result of such claim, and the Indemnitor shall provide such bonds or deposits as shall be necessary to prevent the same. In any event Indemnitee shall be kept fully advised as to the status of such defense. If Indemnitor shall be given notice of a claim and shall fail to notify Indemnitee of its election to defend such claim within 10 days, or after having so elected to defend such claim shall fail to institute and maintain such defense in accordance with the foregoing, or if such defense shall be unsuccessful, then, in any such event, the Indemnitor shall fully satisfy and discharge the claim within 10 days after notice from Indemnitee requesting Indemnitor to do so. No Indemnitor shall settle any such claim without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld. 6.4 Remedies Cumulative. The remedies provided in this Article are cumulative and shall not prevent the assertion by Buyer of any other rights or the seeking of any other remedies against Seller. ARTICLE 7 TERMINATION 7.1 Termination Events. This Agreement may, by notice given before or at the Closing, be terminated: (a) by either Buyer or Seller if a material breach of any provision of this Agreement has been committed by the other party and the breach has not been waived; (b) by Buyer if any of the conditions precedent to Buyer's closing obligations have not been satisfied as of the Closing Date or if satisfaction of a condition is or becomes impossible (other than through the failure of Buyer to comply with Buyer's obligations under this Agreement) and Buyer has not waived the condition on or before the Closing Date; (c) by Seller if any of the conditions precedent to Seller's closing obligations have not been satisfied as of the Closing Date or if satisfaction of a condition is or becomes impossible (other than through the failure of Seller to comply with Seller's obligations under this Agreement) and Seller has not waived the condition on or before the Closing Date; (d) by mutual consent of Buyer and Seller or (e) by either Buyer or Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to 11 comply fully with that party's obligations under this Agreement) on or before December 31, 1999, or any later date as the parties may agree. 7.2 Termination Procedure and Effect. If this Agreement is terminated pursuant to this Article, the party or parties so electing to terminate shall give written notice to that effect to the other party or parties, and this Agreement shall terminate and the transactions contemplated by this Agreement shall be abandoned without further action by either party. Buyer shall then return to Seller all documents and copies and other materials received by Buyer. If this Agreement is terminated other than pursuant to a breach by Buyer or by Seller, the parties shall have no further duties, obligations, or rights to or against each other except for the provisions of this Agreement relating to confidentiality and use of confidential or proprietary information. If this Agreement is terminated pursuant to a breach of this Agreement by Buyer, Seller shall have the right to pursue any rights and remedies as Seller may have, at law or in equity, against Buyer with respect to the breach. If this Agreement is terminated pursuant to a breach of this Agreement by Seller, Buyer shall have the right to pursue any rights and remedies as Buyer may have, at law or in equity, against Seller with respect to the breach. ARTICLE 8 GENERAL 8.1 Survival Of Representations, Warranties, Covenants, and Indemnities. Subject to the limitation of the Indemnity Period described above, all representations, warranties, covenants, and indemnities made by any party to this Agreement shall survive the Closing and any investigation at any time made by or on behalf of any party before or after the Closing. No investigation by Buyer shall in any way affect Buyer's right to rely on the representations, warranties, and covenants of Seller set forth in this Agreement or any document related to this Agreement. 8.2 Assignment and Benefits. No party to this Agreement may assign or transfer this Agreement, either directly or indirectly, by merger, liquidation, consolidation, sale of stock, change of control, operation of law, or other means, without the prior written consent of all parties of this Agreement, except that Buyer may assign all or part of Buyer's interest in this Agreement to one or more persons or entities controlling, controlled by, or under common control with Buyer. Any assignment of the obligations of this Agreement shall not release the assignor or any guarantor from the duty to perform that person's obligations under this Agreement. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective successors and permitted assigns of each of the parties to this Agreement. 12 8.3 Notices. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given when delivered, sent by telecopy, or sent by express delivery service with charges prepaid and receipt requested, or, if those services are not reasonably available, mailed (postage prepaid) by certified mail with return receipt requested: To Buyer at: With a copy to: MacDonald's Industrial Products, Inc. Miller, Johnson, Snell & Cummiskey 4242 44th Street SE 800 Calder Plaza Building Kentwood, MI 49512 250 Monroe Avenue NW Fax: (616) 554-6400 Grand Rapids, MI 49503 Attn: Robert E. MacDonald Fax: (616) 831-1701 Attn: J. Lee Murphy To Seller at: Harvard Industries 3 Werner Way Lebanon, NJ 08833 Attn: D. Craig Bowman Fax: (908) 236-0072 Any party may change that party's address by prior written notice to the other parties. 8.4 Expenses. Each party to this Agreement shall pay that party's respective expenses, costs, and fees (including professional fees) incurred in connection with the negotiation, preparation, execution, and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement. Seller shall pay the cost of any conveyance, transfer, excise, storage, sales, use, recording, or similar taxes or fees, if any, arising out of the sale, transfer, conveyance, or assignment of the Purchased Assets to Buyer. 8.5 Entire Agreement. This Agreement, and the exhibits and schedules (including the Disclosure Schedule) to this Agreement (which are incorporated in this Agreement by reference), and the agreements referred to in this Agreement, contains the entire agreement and understanding of the parties and supersede all prior agreements, negotiations, arrangements, and understandings relating to the subject matter of this Agreement. 8.6 Amendments and Waivers. This Agreement may be amended, modified, superseded, or canceled, and any of the terms, covenants, representations, warranties, or conditions of this Agreement may be waived, only by a written instrument signed by each party to this Agreement or, in the case of a waiver, by or on behalf of the party waiving compliance. The failure of any party at any time to require performance of any provision in this Agreement shall not affect the right of that party at a later time to enforce that or any 13 other provision. No waiver by any party of any condition, or or any breach of any term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall be deemed to be a further or continuing waiver of any condition or of any breach of any other term, covenant, representation, or warranty. 8.7 No Third-Party Beneficiaries. The provisions of this Agreement are solely between and for the benefit of the respective parties to this Agreement, and do not inure to the benefit of, or confer rights upon, any third party, including any employee of Buyer or Seller. 8.8 Severability. Except as otherwise specifically provided in this Agreement, this Agreement shall be interpreted in all respects as if any invalid or unenforceable provision were omitted from this Agreement. All provisions of this Agreement shall be enforced to the full extent permitted by law. 8.9 Headings. The headings of the sections and subsections of this Agreement have been inserted for convenience of reference only and shall not restrict or modify any of the terms or provisions of this Agreement. 8.10 Governing Law. This Agreement shall be governed by, and interpreted and enforced in accordance with, the laws of the State of Michigan, as applied to contracts made and to be performed in that state, without regard to conflicts of law principles. 8.11 Counterparts. This Agreement may be signed in original or by fax in counterparts, each of which shall be deemed to be an original, and the counterparts shall together constitute one complete document. 8.12 Seller. Harvard Industries, Inc. and Hayes-Albion Corporation shall be jointly and severally liable for the obligations of Seller under this Agreement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.] 14 Signed by the parties. MACDONALD'S INDUSTRIAL HARVARD INDUSTRIES, INC. PRODUCTS, INC. By By /s/ D. Craig Bowman -------------------------- ------------------------------ Its Its Vice President ----------------------- --------------------------- "Buyer" "Seller" HAYES-ALBION CORPORATION By /s/ D. Craig Bowman ------------------------------- Its Vice President ---------------------------- "Seller" 15 EX-10.11 3 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT between OUTBOARD MARINE CORPORATION and HARVARD INDUSTRIES, INC. THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of November 29 1999, among OUTBOARD MARINE CORPORATION, a Delaware corporation (the "Seller") and HARVARD INDUSTRIES, INC., a Delaware corporation, (the "Purchaser"). WITNESETH: WHEREAS, Seller owns certain tooling, machinery and equipment located at its Milwaukee, Wisconsin facility; and WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, the tooling, machinery and equipment, on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, the parties hereto do hereby agree as follows: 1. SALE OF ASSETS 1.1 Purchased Assets. In reliance upon the representations, warranties and agreements herein contained and upon the terms and subject to the conditions set forth in this Agreement, Seller hereby agrees to sell, assign, transfer, convey and deliver to Purchaser, and Purchaser hereby agrees to purchase and acquire from Seller on an as is, where is basis all of Seller's right, title and interest, free and clear of liens and encumbrances, in and to all of the following assets, rights and interests as the same exist on the date hereof (all of such assets, rights and interests of Seller being referred to herein as the "Purchased Assets"): See Exhibit A, attached hereto and incorporated herein. 1.2 Closing. The closing of such sale and purchase (the "Closing") shall take place at 10:00 A.M., Eastern Daylight time, on November 30, 1999 or at such other time and date as the parties hereto shall agree in writing (the "Closing Date"), at such place as the parties hereto shall agree in writing. At the Closing, Seller shall deliver to Purchaser a bill of sale in the form of Exhibit "B", attached hereto and incorporated herein. 1.3 Purchase Price: Manner of Payment. The total consideration for the Purchased Assets (the "Consideration"), shall be: Nine Hundred Ten Thousand Dollars ($910,000.00), in the form of a check, or wire transfer, one-third (1/3) payable upon the signing of this agreement, one-third (1/3) 1 payable on January 15, 2000, and one-third (1/3) payable on February 28, 2000. 2. REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Purchaser that the execution and delivery of this Agreement and the performance by the Seller of its obligations hereunder and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary acts on the part of Seller and no further acts are required to approve the execution and delivery of this Agreement, the performance by Seller of its obligations hereunder and the consummation of the transactions contemplated hereby. 3. CONDITIONS TO OBLIGATIONS OF PURCHASER All obligations of Purchaser under this Agreement are subject to the fulfillment, at or prior to the Closing Date, of the following conditions; 3.1 Representations and Warranties of Seller. All representations and warranties made by Seller in this Agreement shall be true and correct on and as of the Closing Date. 3.2 Deliveries to Purchaser. Seller shall have delivered to Purchaser a Bill of Sale conveying the Purchased Assets to Purchaser substantially in the form of Exhibit B hereto. 4. CONDITIONS TO OBLIGATIONS OF SELLER 4.1 Obligations. All obligations of Seller under this Agreement are subject to the fulfillment, at or prior to the Closing Date, of the following conditoins; 4.2 Purchase Price. Purchaser shall deliver to Seller the Purchase Price. 5. TERMINATION 5.1 Termination of Agreement. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written consent of the Purchaser and the Seller; or (b) by either the Purchaser or the Seller, if the Closing shall not have occurred on or before December 15, 1999; or 5.2 Procedure and Effect of Termination. In the event of termination of this Agreement by either or both of the parties pursuant to Section 5.1 hereof, written notice thereof shall forthwith be given to the other party specifying the provision hereof pursuant to which such termination is made, and this Agreement shall forthwith become void and there shall be no liability on the part of 2 the parties hereto (or their respective officers, directors or affiliates), except that nothing herein shall relieve either party from liability for any willful breach thereof. 6. MISCELLANEOUS PROVISIONS 6.1 Publicity and Non-Disclosure. Neither Seller nor Purchaser shall issue or cause the publication of any press release or other announcement with respect to this Agreement or the transactions contemplated hereby without the consent of the other parties hereto, which consent shall not be unreasonably withheld, and shall not be withheld where such release or announcement is required by applicable law or is made on advice of counsel to Purchaser. 6.2 Successors and Assigns. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors, heirs, representatives and assigns, as the case may be. 6.3 Brokers and Finders. Seller and Purchaser represent and warrant to each other that he or it has nor engaged any broker, finder or investment banker in connection with the transactions contemplated by this Agreement. 6.4 Expenses. Except as otherwise provided in this Agreement, the parties hereto shall bear their respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby, including, without limitation, all fees and expenses of agents, representatives, counsel and accountants. 6.5 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been given or made if in writing and delivered personally or sent by registered or certified mail (postage prepaid, return receipt requested) to the parties at the following addresses: (a) if to Purchaser, to: Outboard Marine Corporation Attn: Gordon G. Repp 100 Sea Horse Drive Waukegan, Illinois 60085 3 (b) if to Seller, to: Harvard Industries, Inc. Attn: D. Craig Bowman 3 Werner Way Lebanon, New Jersey 08833 or to such other persons or at such other addresses as shall be furnished by any party by like notice to the others, and such notice or communication shall be deemed to have been given or made as of the date so delivered or mailed. 6.6 Entire Agreement. This Agreement, together with the Exhibits attached hereto, represents the entire agreement and understanding of the parties hereto with reference to the transactions set forth herein, and no representations, warranties or covenants have been made in connection with this Agreement other than those expressly set forth herein, in the Schedules or in the certificates, agreements and other documents delivered in accordance herewith. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement and all prior drafts of this Agreement, all of which are merged into this Agreement. 6.7 Waivers, Amendments and Remedies. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by Purchaser and Seller or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any waiver on the party of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any part may otherwise have at law or in equity. The rights and remedies of any party based upon, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement among the parties) as to which there is no inaccuracy or breach. 6.8 Severability. This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. 6.9 Section Headings. The Section headings contained in this Agreement are solely for convenience of reference and shall not affect the meaning or interpretation of this Agreement or of any term or provision hereof. 4 6.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. All references herein to Sections, clauses, Exhibits and Schedules shall be deemed references to such parts of this Agreement, unless the context shall otherwise require. 6.11 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. 6.12 Exhibits and Schedules. The Exhibits and Schedules attached hereto are a part of this Agreement as if fully set forth herein. 6.13 Parties. Nothing in this Agreement, expressed or implied, is intended to confer upon any person not a party hereto any rights or remedies hereunder. IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be signed all as of the date first written above. Seller: OUTBOARD MARINE CORPORATION By: /s/ S. Meurlot ---------------------------- Title: V.P. Marketing ------------------------- Purchaser: HARVARD INDUSTRIES, INC. By: /s/ Signature ---------------------------- Title: Executive Vice President 5 EX-10.12 4 SERVICES AGREEMENT SERVICES AGREEMENT This Agreement, dated this 3rd day of December, 1999, is made by and between Outboard Marine Corporation, a Delaware corporation (hereinafter referred to as "OMC"), and Harvard Industries, Inc., a Delaware corporation located at 3 Werner Way, Lebanon, New Jersey 08833 (hereinafter referred to as "Harvard"). WHEREAS, Harvard has experience in opening and managing aluminum die cast manufacturing facilities and operations; and, WHEREAS, OMC desires to retain Harvard to manage certain aspects of its aluminum die cast operation located in Waukegan, Illinois (the "Project"). NOW THEREFORE, in and for good and valuable consideration as provided for herein, the parties hereto agree as follows: I. Services. OMC hereby retains Harvard to perform the following services (the "Services") beginning on January 3, 2000: a. General management of the die cast operation and certain associated machining of the Products (the "Products") produced at OMC's Waukegan, Illinois aluminum die cast facility (the "Facility") as more particularly described on Exhibit "A", attached hereto and incorporated herein, and OMC's employees working at the Facility; b. Purchasing management of all direct and indirect materials and products required for the operation of the Facility and the manufacture of the Products through OMC's Supply Management Department using existing OMC processes; c. Scheduling of production, including inventory required to cover requirements during transition of production from the Facility to locations designated by Harvard and approved by OMC ("Designated Locations"), and delivery of the Products to the designated OMC facilities in accordance with OMC's build schedule, Harvard shall take no direct action which would result in a negative variance to OMC's cost for the Products, except for overtime labor which is required to meet OMC's production requirements. d. Quality control of the Facility, manufacturing processes and the Products to ensure that all Products are built to specification provided by OMC; e. Oversight of OMC's Facility accounting staff responsible for the accounting function for the Facility, including determination of actual cost for each Product manufactured based on OMC's fiscal 1998 actual financial results and further based on Harvard's costing and allocation systems and methodologies; 1 f. In the event that Harvard reasonably determines, pursuant to Section II below, that additional business is not obtainable to justify the purchase of all of the machinery and equipment and lease of the Facility from OMC, Harvard shall manage and be responsible for the orderly and timely relocation and transition of the manufacture of the Products from the Facility to Designated Locations, including the relocation of machinery and equipment, and all other relevant assets (e.g. dies, drawings, etc.) required to meet OMC's production requirements and the costs associated therewith, by not later than December 31, 2000. Notwithstanding the foregoing, if such relocation and transfer shall not have occurred by December 31, 2000, the time frame may be extended by mutual agreement of the parties, on a month to month basis, for a period not to exceed three months. No service fee will be due or payable to Harvard during such extension. g. Use its best efforts to achieve any and all costs savings, which must be approved in writing in advance by OMC, which shall be passed through to OMC; h. Communicate with OMC regarding the Services and timing of the transition of the production of Products from the Facility to Designated Locations; and i. At no time shall Harvard have the authority to terminate any employee of OMC. However, from time to time, in order to reduce direct costs of labor, Harvard may suggest to OMC that certain positions be eliminated to reduce costs. Harvard shall report to and consult with Sandra Meurlot at OMC on a regular basis regarding the Project and the Services provided for hereunder. II. Location Evaluation Period. From the date hereof through December 31, 1999, Harvard shall use its best efforts to evaluate the viability of obtaining additional die casting and machining business in order to utilize excess capacity currently existing at the Facility, or some mutually agreeable reconfiguration thereof, currently being used for the manufacture of the Products. Harvard shall, in its sole discretion after consultation with OMC, determine whether any such additional business would make it cost effective for Harvard to acquire the machinery and equipment associated with or required for the manufacture of the Products and any additional business at the then fair market value, pursuant to a Lease/Purchase Agreement to be entered into between the parties and to lease that portion of the Facility required for the manufacture of the Products and any additional business. Harvard shall provide OMC with written notice of its decision not later than January 3, 2000. III. OMC Responsibilities. During the Term of the Agreement OMC shall be responsible for the following: a. Providing firm build forecasts to Harvard under OMC's manufacturing control system; b. The costs of operating the Facility, including all production costs; 2 c. Human resources administration; and d. Shut down costs associated with the Facility and its employees located there, excluding costs associated with the relocation of the machinery and equipment required for the manufacture of the Products. IV. Term of Agreement. This Agreement shall begin on the date written above and continue until the earlier of (i) December 31, 2000, (ii) the commencement date of a Supply Agreement between the parties for the continuing supply of all of the Products by Harvard from the Facility, or (iii) the date all of the production of the Products has been transferred from the Facility to the Designated Locations, at which time the Project shall be completed, unless terminated earlier in accordance with the terms of this agreement. V. Time Devoted by Harvard. Harvard shall work the hours required to perform the Services over the term. Harvard shall not perform any services, except those provided for herein, without first receiving the prior written approval of OMC. VI. Place Where Services will be Rendered. Harvard will perform most of the services required under this Agreement at the Facility in cooperation with employees of OMC and shall make itself available to OMC on a regular basis. VII. Payment to Harvard. Harvard will be compensated for Services at the rate of One Hundred Fifty Thousand dollars ($150,000.00) per month for the first twelve months of this Agreement. The parties will meet at least every three months in order to review the progress of the transition and to review the service fee. VIII. Independent Contractor. Both OMC and Harvard agree that Harvard will act as an independent contractor in the performance of its duties under this Agreement. Accordingly, Harvard shall be responsible for payment of all taxes, filings and Social Security Administration reporting arising out of Harvard's activities in accordance with this Agreement. Harvard hereby waives any and all rights or claims to participation in or benefits under any and all of OMC's welfare and pensions plans. IX. Warranty. Services shall be performed in a professional manner and meet the reasonable satisfaction of OMC. X. Confidentiality. The parties shall abide by the terms of the "Confidentiality Agreement" entered into between the parties on January 14, 1999. XI. Drawings. All drawings, models, specifications and other documents prepared by Harvard in connection with the Products or Services covered by this Agreement shall become the property of OMC. Thereafter, OMC shall have full right to use such drawings, models, specifications and 3 other documents for any purpose without any claim on Harvard's part for additional compensation for such use. Harvard shall not place any restrictive legend or proprietary notice on any of the foregoing which are inconsistent with the rights of OMC hereunder, and Harvard hereby authorizes OMC to obliterate or disregard any such legend or notice appearing on same. XII. Ability of Harvard to Bind Company. Harvard may not enter into any contract or otherwise bind OMC in any way without the prior written authority from OMC. Any contracts or other agreements entered into by Harvard on behalf of OMC without the requisite authority shall be null and void and non-binding on OMC. XIII. Termination. Either party may terminate this Agreement upon thirty (30) days notice to the other in the event of a breach of this Agreement by the other party. This Agreement shall automatically terminate ninety (90) days from (i) the date that the Supply Agreement between the parties for the manufacture of the Products currently being manufactured at Facility is terminated in accordance with its terms, (ii) January 31, 2000 in the event that the above referenced Supply Agreement is not consummated by that date, (iii) the date that the Lease Agreement between the parties for the machinery and equipment located at the Facility and required for the manufacture of the Products at the Designated Locations is terminated, or (iv) January 31, 2000 in the event that the aboved referenced Lease Agreement is not consummated by that date. In the event of termination of this Agreement as a result of a breach by OMC hereunder or of the Supply Agreement or Lease Agreement, OMC shall compensate Harvard for any and all time spent by Harvard on this project through the date of termination. In the event of a termination of this Agreement for cause by either party, Harvard agrees to continue to provide the Services during the period of transition to a new Service provider, not to exceed 90 days. XIV. Controlling Law. This Agreement shall be construed in accordance with the laws of the State of Illinois and jurisdiction shall be with the State and Federal courts located therein. XV. Harvard Indemnification. Harvard shall indemnify, hold harmless and defend, OMC, its officers, directors, Affiliates, agents and employees from any and all claims, demands, litigation, expenses and liabilities (including costs and attorneys' fees) of every nature ("Liabilities") arising from or incident to a breach of this Agreement or any warranty and representation contained herein. Except to the extent of OMC's negligence, Harvard shall further indemnify, hold harmless and defend, OMC, its officers, directors, Affiliates, agents and employees from any and all Liabilities arising from any claim, demand, litigation, expense or liability resulting from any violation or alleged violation of the collective bargaining agreement between OMC and the employees of the Facility (which results from actions taken by Harvard without the prior written approval of OMC), the presence of Harvard's employees or agents on OMC premises, or Harvard's negligent actions or omissions. All defense of such claims shall be with counsel of OMC's choosing. Notwithstanding any other provision herein, Harvard shall not indemnify OMC for contract disputes or violations arising in the ordinary course of business, grievances filed or arbitration demanded pursuant to the provisions of the collective bargaining agreement, arising from the mere existence of this Agreement or the mere fact that Harvard performs according to its terms. 4 XVI. Limitation of Liability. Neither party shall be liable to the other for consequential, incidental, indirect, or punitive damages, however caused and regardless of legal theory or foreseeability, directly or indirectly arising under this Agreement. Notwithstanding the foregoing, the parties are liable in accordance with the provisions of this Agreement and this limitation of liability shall not apply to the indemnification obligations under this Agreement. XVII. Insurance. Harvard shall maintain insurance as follows: (a) Commercial General Liability covering claims for bodily injury, death, personal injury, or property damage with minimum limits of $1,000,000 each occurrence and in the aggregate and naming OMC as an additional insured as its interest may appear with respect to this Agreement, (b) Comprehensive Automobile Liability, covering the ownership, operation and maintenance of all owned, non-owned and hired automobiles used in connection with the performance of this Agreement, with minimum limits of $500,000 each occurrence; (c) Workers' Compensation with statutory limits as required in the state where Services are being provided and Employers' Liability or "Stop Gap" coverage with limits of $100,000 each accident. OMC shall be given thirty (30) days advance written notification of any cancellation or material change of such policy. Certificate(s) of insurance evidencing coverage shall be forwarded to OMC prior to Services being provided and upon any renewal of such insurance during the term of this Agreement. XVIII. Safety, Health and Accident Reports. The saftey and health of Harvard's employees and agents brought on OMC's premises shall be the sole reponsibility of Harvard. Harvard shall comply with all local, state and federal environmental, health and safety requirements, including those relating to the use and handling of hazardous materials. Harvard shall report all accidents, injury-inducing occurrences or property damage arising from the performance of Services. OMC shall have the right to receive, at its request, copies of any reports filed with Harvard's insurer or others. Harvard's employees and agents on OMC premises shall comply with all facility rules and regulations. XIX. Compliance with Laws. Harvard shall, at its expense, obtain all permits and licenses, pay all fees, and comply with all federal, state and local laws, ordinances, rules, regulations and orders ("Laws") applicable to Harvard's performance under this Agreement. XX. Modifications. This Agreement shall not be modified except as in writing and signed by both parties hereto. XXI. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors, heirs, representatives and assigns as the case may be; provided, however, that Harvard shall not assign or delegate this Agreement or any of the rights or obligations hereunder without OMC's prior written consent, except that no such written consent is necessary with respect to an assignment of this Agreement to its wholly owned subsidiary, operating unit or any entity succeeding to its business. 5 XXII. Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been given or made, if in writing and delivered personally or sent by expedited courier or facsimile, to the parties at the following address: A. If to OMC, to: Outboard Marine Corporation, 100 Sea Horse Drive, Waukegan, Illinois 60085, Attn: Vice President, Manufacturing with a copy to the General Counsel. B. If to Harvard, to: Pottstown Precision Casting, Inc. 400 Old Reading Pike, Stowe, PA 19464 Attn: Carl Coslow, Group Vice President, with a copy to the General Counsel. or such other addresses as shall be furnished by any party by like notice to the other. XXIII. Entire Agreement. This Agreement represents the entire agreement and understanding of the parties hereto and supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter hereof and all prior drafts of this Agreement, all of which are merged into this Agreement. XXIV. Severability. This Agreement shall be deemed severable and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. XXV. Force Majeure. Neither party shall be liable to the other for default hereunder due to strikes, fires, floods, acts of God or the public enemy, acts of the government or other causes beyond its control and without its fault or negligence, provided that notification is provided in writing to the other party within a reasonable time from the beginning thereof. The parties shall consult with each other with respect to performance, suspension or alteration and shall endeavor to remove rapidly the cause and resume their obligations as soon as possible after such cause is removed. XXVI. Year 2000 Compliance. Year 2000 compliance is required for all Services provided by Harvard for the Project under this Agreement. Year 2000 Compliance shall be defined as the ability to continue to provide services or deliver products and to continue normal use of a system or item of software such that neither the performance nor the functionality of the system or software will be affected by any changes to the date format (no value for current date or any manipulations of date values will cause interruption to the system) caused by the advent of the year 2000. IN WITNESS WHEREOF, OMC and Harvard have caused Agreement to be signed as of the date first written abvove. By: /s/ signature Witnessed: /s/ signature --------------------------- ------------------------ Outboard Marine Corporation By: /s/ signature Witnessed: /s/ signature --------------------------- ------------------------ Harvard Industries, Inc. 6 EX-21 5 LIST OF SUBSIDIARIES SUBSIDIARIES: - ------------- Executive Office Jurisdictions - ---------------- ------------- Harman Automotive Michigan 3 Werner Way, Suite 210 Lebanon, NJ 08833 Hayes-Albion Corporation Michigan 3 Werner Way, Suite 210 Lebanon, NJ 08833 Trim Trends Canada, Inc. Canada 3 Werner Way, Suite 210 Lebanon, NJ 08833 Kingston-Warren Corp, New Hampshire 3 Werner Way, Suite 210 Lebanon, NJ 08833 Harvard Transportation, Inc. Michigan 3 Werner Way, Suite 210 Lebanon, NJ 08833 Doehler-Jarvis, Inc. Delaware 3 Werner Way, Suite 210 Lebanon, NJ 08833 Doehler-Jarvis Greeneville, Inc. Delaware 3 Werner Way, Suite 210 Lebanon, NJ 08833 Pottstown Precision Casting, Inc. Delaware (Formerly Doehler-Jarvis Pottstown, Inc.) 3 Werner Way, Suite 210 Lebanon, NJ 08833 Doehler-Jarvis Technologies, Inc. Delaware 3 Werner Way, Suite 210 Lebanon, NJ 08833 Doehler-Jarvis Toledo, Inc. Delaware 3 Werner Way, Suite 210 Lebanon, NJ 08833 177192 Canada, Inc. Canada c/o The Law Firm Of Stikeman, Elliott 1155, Boulevard Rene-Levesque Quest Montreal, Canada H3B 3V2 EX-27 6 FINANCIAL DATA SCHEDULE
5 1000 10-MOS SEP-30-1999 NOV-30-1998 SEP-30-1999 21,840 0 35,324 0 18,107 81,724 81,804 9,446 337,153 92,028 0 0 0 102 84,973 337,153 406,081 406,081 364,747 364,747 0 0 9,878 (80,207) 542 (80,749) 0 9,701 0 (90,450) (10.06) 0
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