EX-99.C.4 2 0002.txt Highly Confidential Project Harbor SUMMARY PROCESS OVERVIEW July 28, 2000 SALOMON SMITH BARNEY -------------------- A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Confidential Information The following pages contain material provided to the Board of Directors of Harbor (the "Company") in the context of a meeting of the Board of Directors held to consider a possible transaction involving the Company. The accompanying materials were compiled or prepared on a confidential basis solely for use by the Board of Directors and not with a view toward public disclosure under state or federal securities laws or otherwise. The information utilized in preparing this presentation was obtained from the Company and public sources. Any estimates and projections for the Company contained herein have been prepared by the Company, or are based upon such estimates and projections, and involve numerous and significant subjective determinations, which may or may not prove to be correct. No representation or warranty, expressed or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past or the future. Because this material was prepared for use in the context of an oral presentation to the Board of Directors, which is familiar with the business and the affairs of the Company, neither the Company nor Salomon Smith Barney nor any of their respective legal or financial advisors or accountants take any responsibility for the accuracy or completeness of any of the material if used by persons other than the Board of Directors of the Company. Neither the Company nor Salomon Smith Barney undertakes any obligation to update or otherwise revise the accompanying materials. SALOMON SMITH BARNEY -------------------- A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Table of Contents 1 REVIEW OF STRATEGIC ALTERNATIVES 2 SALE PROCESS 3 SITUATION OVERVIEW SALOMON SMITH BARNEY -------------------- A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 1 REVIEW OF STRATEGIC ALTERNATIVES SALOMON SMITH BARNEY -------------------- A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Background o In March 1999, Harbor requested that Salomon Smith Barney Inc. ("SSB") review strategic alternatives available to maximize shareholder value o During April and May, SSB met with management to perform initial due diligence o On May 18, 1999, Harbor's Board of Directors met with management and SSB to review the following: o Factors generally influencing market valuation o Shareholder value creation alternatives o Following this review, Harbor's Board of Directors requested that SSB assist Harbor in pursuing a sale of Harbor SALOMON SMITH BARNEY -------------------- 1 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Relative Valuation Issues o Despite a number of high margin niche businesses with attractive growth opportunities, Harbor has been undervalued relative to its peers o A combination of corporate, industry and market factors have led to Harbor's relative undervaluation ------------- ------------ ----------- | Corporate | + | Industry | + | Market | | Factors | | | | Factors | ------------- ----------- ----------- Small Size Cyclicality Low Liquidity High Leverage Consolidation Trend Limited Research Coverage Lower Relative Growth Systems vs. Components Expectations Complex Corporate Structure Mixed Earnings Performance and Predictability ------------------------------------------------------------------- | | v Low Harbor Public Market Value SALOMON SMITH BARNEY -------------------- 2 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Shareholder Value Creation Alternatives o A number of alternatives were reviewed ---Equity Carve-Out --- Status Quo | | |-- Spin-Off | Leveraged | --Stand Alone-----|- Recapitalization --|-- Split-Off | | | | | | | --- Tracking Stock | -- Major Acquisition | | | | | | | | Public | | --Distribution-------- | | HARBOR----Separation -----| Private | --Distribution-------- | | | | --- Leveraged | | | Partnership | ---- Cash | | | | (Taxable) | | | | ---|-- Sale ---- Sale---------|--- Stock | | (Tax Free) | | --- Morris Trust ---- LBO SALOMON SMITH BARNEY -------------------- 3 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Review of Strategic Alternatives STANDALONE ALTERNATIVES -------------------------------------------------------------------------------------------- Alternative Key Considerations -------------------------------------------------------------------------------------------- Advantages Disadvantages Status Quo o Execution of management's o Does not address valuation plan should result in value challenges in the near term creation o Subject to execution risks and o Maintains flexibility to pursue changes in market/competitive alternatives in the future dynamics -------------------------------------------------------------------------------------------- Major Acquisition o Would add critical mass and o Debt levels limit large cash demonstrate growth acquisitions o Stock is not attractive acquisition currency at current stock price --------------------------------------------------------------------------------------------
SALOMON SMITH BARNEY -------------------- 4 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Review of Strategic Alternatives (continued) SEPARATION: PUBLIC DISTRIBUTION -------------------------------------------------------------------------------------------- Alternative Key Considerations -------------------------------------------------------------------------------------------- Advantages Disadvantages Spin/Split Off o Creates two "pure play" o Exacerbates most of Harbor's companies valuation challenges related to corporate and market factors o Tax leakage associated with leverage in excess of basis -------------------------------------------------------------------------------------------- Tracking Stock o Tax efficient, non-permanent o Exacerbates most of Harbor's separation with retention of valuation challenges related to synergies of consolidated corporate and market factors company o Creates complex corporate o Avoids separation costs governance issues and generates potential conflicts of interest o Queers pooling on tracking stock entity and eliminates possibility of control premium --------------------------------------------------------------------------------------------
SALOMON SMITH BARNEY -------------------- 5 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Review of Strategic Alternatives (continued) SEPARATION: PRIVATE DISTRIBUTION -------------------------------------------------------------------------------------------- Alternative Key Considerations -------------------------------------------------------------------------------------------- Advantages Disadvantages Sale of Segment o Creates more focused company o Tax leakage with potentially stronger balance sheet o Potential earnings dilution o Reduces critical mass -------------------------------------------------------------------------------------------- Morris Trust o Achieves separation in tax o Inhibited by limited number of efficient manner possible partners with smaller equity values o Potential for modest M&A premium for merged entity if o Public market valuation issues control is given up exacerbated for spun-off entity --------------------------------------------------------------------------------------------
SALOMON SMITH BARNEY -------------------- 6 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Review of Strategic Alternatives (continued) SALE OF COMPANY -------------------------------------------------------------------------------------------- Alternative Key Considerations -------------------------------------------------------------------------------------------- Advantages Disadvantages Sale of Company o Potentially alleviates many of o Debt levels make strategic sale Harbor's valuation challenges challenging related to corporate and market factors o Strategic interest may be limited by diversified/automotive business o Greatest potential to maximize portfolio value in near term - acquisition premium o Active M&A market --------------------------------------------------------------------------------------------
SALOMON SMITH BARNEY -------------------- 7 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 2 SALE PROCESS SALOMON SMITH BARNEY -------------------- A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Overview of Sale Process o In May 1999, Harbor's Board of Directors requested that SSB assist Harbor in pursing a sale of Harbor o In June and July 1999, in-depth due diligence was conducted and confidential marketing materials were prepared o A comprehensive group of potential buyers was reviewed o Subsequently approached a selected group of both strategic and financial parties o In August 1999, a customary marketing process began o Throughout the process, Harbor, with the assistance of SSB, continued to: o evaluate potential alternatives o maintain contact with previously identified potential buyers o initiate contact with new potential buyers SALOMON SMITH BARNEY -------------------- 8 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Sale Process Summary Potential Buyers ------------------------- Strategic Financial --------- --------- Initially Identified (58) 46 12 Contacted (19) 13 6 Sent Confidential Memorandum (10) 6 4 Received Indications (2)(a) 0 2 Entered into Negotiations (1) 0 1 ------------------------------------------------------------------------------- (Re) Contacted (7)(b) 5 2 Sent Confidential Memorandum/ 2 1 Updated Information (3) Received Indications (3)(c) 2 1 Entered into Negotiations 0 1 (1) Note: (#) indicates number of parties involved. (a) One potential buyer rescinded its bid due to antitrust concerns. (b) Includes 3 newly identified parties. (c) 2 indications for automotive segment. SALOMON SMITH BARNEY -------------------- 9 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Overview of Sale Process (continued) o Throughout the process, and particularly after initial discussions ended, Harbor continued to evaluate strategic alternatives, including but not limited to: o Status quo o Leveraged recapitalization o Sale of segment o Spin-off of segment o Sale of investments o Throughout the process, previously identified, potential buyers were again contacted and newly identified potential buyers were approached SALOMON SMITH BARNEY -------------------- 10 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Overview of Sale Process (continued) o A Confidential Memorandum and / or updated information were distributed to 3 parties o 2 indications of interest for the automotive segment and 1 indication for the entire Company were received o Indications for the automotive segment were considered insufficient in terms of value, structure and/or commitment to pursue a transaction o Negotiations for sale of the entire Company began SALOMON SMITH BARNEY -------------------- 11 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 3 SITUATION OVERVIEW SALOMON SMITH BARNEY -------------------- A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Overview of Harbor's Current Situation THE COMBINATION OF CORPORATE, INDUSTRY AND MARKET FACTORS THAT LED TO HARBOR'S RELATIVE UNDERVALUATION STILL PERSIST CORPORATE FACTORS INDUSTRY FACTORS MARKET FACTORS ----------------- ---------------- -------------- o Small Size o Cyclicality o Low Liquidity o High Leverage o Consolidation Trend o Limited Research o Lower Relative Growth o Systems vs. Components Coverage Expectations o Complex Corporate Structure o Mixed Earnings Predictability and Performance MARKET AND COMPANY-SPECIFIC FACTORS CONSIDERED IN CONNNECTION WITH A SALE OF THE ENTIRE COMPANY INCLUDED: o Stock Price Performance o Public Market Multiples o High Leverage / Inability to Fund Acquisitions o Tax Leakage on Separation of Businesses o Industry Outlook SALOMON SMITH BARNEY -------------------- 12 A member of citigroup HIGHLY CONFIDENTIAL PROJECT HARBOR / JULY 28, 2000 Industry Outlook DECLINE IN BUILD RATE EXPECTED o Record North American production levels are anticipated to slow CHANGING INDUSTRY DYNAMICS o OEM and supplier consolidation continues o Pressures placed on suppliers increases o Competitors are growing larger and more global o M&A drivers in supplier sector remain intact NEGATIVE EQUITY INVESTOR SENTIMENT TOWARD AUTOMOTIVE SECTOR o Concerns of cyclical peak have depressed public valuations o Value funds have experienced outflows, impacting demand for industrial sectors WEAK FINANCING ENVIRONMENT o No automotive equity new issues in over 12 months o High yield market experienced mutual fund outflows, widening spreads and difficult new issue conditions o Bank debt remains available, but leverage is limited and terms are not issuer-friendly o Mezzanine funds have grown, yet this capital is costly SALOMON SMITH BARNEY -------------------- 13 A member of citigroup