<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
- - --------------------------------------------------------------------------------
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
Wyman-Gordon Company
(Name of Registrant as Specified In Its Charter)
Wallace F. Whitney, Jr.
Vice President, General Counsel and Clerk
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies: Common
Stock, $1 par value
2) Aggregate number of securities to which transaction applies: 16,500,000
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11: $4.875, which was the closing sales price per
share of the Company's common stock on January 14, 1994, as reported on
the NASDAQ National Market System.
4) Proposed maximum aggregate value of transaction: $85,437,500
Set forth the amount on which the filing fee is calculated and state how it
was determined.
The filing fee of $17,088 was calculated pursuant to Rule 0-11(c)(1) and
equals one-50th of 1% of the proposed maximum value of the transaction.
The proposed maximum aggregate value of the transaction equals the sum of
$80,437,500 (the value of the 16,500,000 shares of Common Stock to be
issued) plus $5,000,000 (the amount of cash to be paid).
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $17,088
2) Form, Schedule or Registration Statement No.: Schedule 14A
3) Filing Party: Wyman-Gordon Company
4) Date Filed: January 20, 1994 and March 8, 1994 and March 25, 1994
- - --------------------------------------------------------------------------------
<PAGE> 2
[LETTERHEAD OF JOHN M. NELSON]
April 4, 1994
Dear Shareholder:
You are cordially invited to attend a Special Meeting to be held in lieu of
the Annual Meeting of Shareholders of Wyman-Gordon Company. The Special Meeting
will be held at Mechanics Hall, 321 Main Street, Worcester, Massachusetts, on
Tuesday, May 24, 1994 at 10:00 a.m.
At this important meeting, you will be asked to approve the issuance of
16,500,000 shares of common stock of Wyman-Gordon to Cooper Industries, Inc. in
connection with the acquisition by Wyman-Gordon of all of the shares of common
stock of Cameron Forged Products Company, a Cooper subsidiary. Included as a
part of this proposal are amendments to the Articles of Organization of
Wyman-Gordon increasing the number of shares of common stock authorized
thereunder and exempting Cooper from the fair price provisions of the Articles
of Organization, subject to certain limitations.
You will also be asked at the meeting to elect four persons to the Board of
Directors and to vote upon the selection of independent auditors for
Wyman-Gordon. If the proposal to acquire Cameron is approved and the acquisition
is consummated, the Company anticipates that the size of the Board of Directors
will be expanded by two directors and that representatives of Cooper will be
appointed to fill the vacancies created by this expansion.
The accompanying Proxy Statement provides a description of the proposals to
be presented at the meeting and extensive information concerning Wyman-Gordon
and Cameron. Please give this information your careful attention.
THE BOARD OF DIRECTORS OF WYMAN-GORDON HAS UNANIMOUSLY APPROVED THE
ACQUISITION AND BELIEVES THAT IT IS FAIR TO AND IN THE BEST INTERESTS OF
WYMAN-GORDON AND ITS SHAREHOLDERS. THE BOARD RECOMMENDS A VOTE FOR THE ISSUANCE
OF COMMON STOCK OF WYMAN-GORDON IN CONNECTION WITH THE ACQUISITION AND THE
PROPOSED AMENDMENTS OF THE ARTICLES OF ORGANIZATION. THE REASONS FOR THE BOARD'S
RECOMMENDATION, AND A DESCRIPTION OF CERTAIN FACTORS THAT SHAREHOLDERS SHOULD
CONSIDER IN DECIDING HOW TO VOTE AT THE MEETING, ARE SET FORTH IN THE
ACCOMPANYING PROXY STATEMENT UNDER THE CAPTIONS, "SUMMARY -- CERTAIN EFFECTS OF
THE ACQUISITION ON SHAREHOLDERS" AND "THE ACQUISITION AND RELATED MATTERS."
Your vote is important regardless of the number of shares you own. Please
be sure you are represented at the meeting, whether or not you plan to attend,
by signing, dating and mailing the proxy card promptly. A postage-paid return
envelope is enclosed for your convenience.
Sincerely yours,
JOHN M. NELSON
Chairman of the Board
<PAGE> 3
WYMAN-GORDON COMPANY
244 WORCESTER STREET
GRAFTON, MASSACHUSETTS 01536
NOTICE OF SPECIAL MEETING IN LIEU OF
ANNUAL MEETING OF SHAREHOLDERS ON MAY 24, 1994
To the Holders of Common Stock:
A Special Meeting in lieu of Annual Meeting of Shareholders (the "Meeting")
of Wyman-Gordon Company (the "Company") will be held at Mechanics Hall, 321 Main
Street, Worcester, Massachusetts, on Tuesday, May 24, 1994 at 10:00 a.m. for the
following purposes:
(1) to consider and vote upon a single, integrated proposal that
contains three elements:
(a) to approve the issuance of 16,500,000 shares of common stock,
par value $1.00 per share, of the Company ("Shares") pursuant to a Stock
Purchase Agreement, dated as of January 10, 1994, between Cooper
Industries, Inc., an Ohio corporation ("Cooper"), and the Company,
providing for the purchase by the Company of all of the outstanding
shares of common stock, par value $.208 1/3 per share, of Cameron Forged
Products Company, a Delaware corporation, and in connection therewith,
(b) to approve an amendment to the Articles of Organization of the
Company increasing the number of authorized Shares from 35,000,000 to
70,000,000, and
(c) to approve a further amendment to the Articles of Organization
of the Company exempting Cooper from the fair price provisions of the
Company's Articles of Organization;
(2) to elect four persons to the Board of Directors, each for a
three-year term expiring in 1997 and until his or her successor is elected
and qualified;
(3) to vote upon the selection of independent auditors for the Company
for the year 1994; and
(4) to consider and act upon any other matters which may properly come
before the Meeting or any adjournment thereof.
The foregoing items are more fully described in the Proxy Statement
accompanying this Notice. March 28, 1994 has been fixed as the record date for
determination of shareholders entitled to notice of and to vote at the Meeting.
It is important that your stock be represented at the Meeting. You are
encouraged to date, sign and return your proxy in the accompanying envelope to
State Street Bank & Trust Company, 2 Heritage Drive, North Quincy, Massachusetts
02171, whether or not you expect to be able to attend the Meeting in person.
Your proxy is revocable up to the time it is voted, and you may vote in person
at the Meeting even though you have previously submitted your proxy.
/s/ WALLACE F. WHITNEY, JR.
WALLACE F. WHITNEY, JR.
Clerk
April 4, 1994
<PAGE> 4
WYMAN-GORDON COMPANY
244 WORCESTER STREET
GRAFTON, MASSACHUSETTS 01536
PROXY STATEMENT FOR SPECIAL MEETING IN LIEU OF
ANNUAL MEETING OF SHAREHOLDERS
MAY 24, 1994
This Proxy Statement is furnished in connection with the special meeting in
lieu of annual meeting of shareholders of Wyman-Gordon Company, a Massachusetts
corporation (the "Company"), to be held at Mechanics Hall, 321 Main Street,
Worcester, Massachusetts, on Tuesday, May 24, 1994, at 10:00 a.m. (the
"Meeting"). At the Meeting, shareholders of the Company will be asked:
(1) to consider and vote upon a single, integrated proposal (the
"Acquisition Proposal") that contains three elements:
(a) to approve the issuance of 16,500,000 shares of common stock, par
value $1.00 per share, of the Company ("Shares") pursuant to a Stock
Purchase Agreement, dated as of January 10, 1994 (the "Stock Purchase
Agreement"), between Cooper Industries, Inc., an Ohio corporation
("Cooper"), and the Company, providing for the acquisition (the
"Acquisition") by the Company of all of the outstanding shares of common
stock, par value $.208 1/3 per share (the "Cameron Common Stock"), of
Cameron Forged Products Company, a Delaware corporation ("Cameron"), and in
connection therewith,
(b) to approve an amendment to the Articles of Organization of the
Company increasing the number of authorized Shares from 35,000,000 to
70,000,000 (the "Authorized Shares Amendment"), and
(c) to approve a further amendment to the Articles of Organization of
the Company exempting Cooper from the provisions of Article 6(e)2 of the
Company's Articles of Organization (the "Fair Price Provision"), subject to
certain limitations (the "Fair Price Amendment");
(2) to elect four persons to the Board of Directors, each for a three-year
term expiring in 1997 and until his or her successor is elected and qualified;
(3) to vote upon the selection of independent auditors for the Company for
the year 1994; and
(4) to consider and act upon any other matters which may properly come
before the meeting or any adjournment thereof.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
ACQUISITION AND BELIEVES THAT IT IS FAIR TO AND IN THE BEST INTERESTS OF THE
COMPANY'S SHAREHOLDERS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS APPROVE THE ACQUISITION PROPOSAL. SEE "THE ACQUISITION AND RELATED
MATTERS -- RECOMMENDATION OF THE BOARD OF DIRECTORS."
Pursuant to the Stock Purchase Agreement, the Company will pay a purchase
price (the "Purchase Price") for the shares of Cameron Common Stock equal to (i)
16,500,000 Shares and (ii) $5,000,000, payable as provided in the Stock Purchase
Agreement. The Purchase Price will be subject to a cash adjustment to be paid by
either Cooper or the Company based upon certain changes in the balance sheet of
Cameron between September 26, 1993 and the date (the "Closing Date") of the
closing of the Acquisition (the "Closing"). See "Description of the Stock
Purchase Agreement." After giving effect to the Acquisition, Cooper will own
approximately 48% of the outstanding Shares. Pursuant to the Investment
Agreement, dated as of January 10, 1994, between the Company and Cooper (the
"Investment Agreement"), the Shares to be issued to Cooper pursuant to the Stock
Purchase Agreement will be subject to certain restrictions on voting and
disposition as well as entitled to certain registration rights. In addition,
pursuant to the Investment Agreement, if the Acquisition Proposal is approved
and the Acquisition is consummated, the size of the Board of Directors will be
expanded by two members and two persons designated by Cooper will be appointed
by the Board to fill the vacancies created by such expansion. See "Description
of Investment Agreement" and "Election of Directors -- Persons Designated by
Cooper as Directors."
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHAREHOLDERS SHOULD CONSIDER
BEFORE VOTING, SEE "SUMMARY -- CERTAIN EFFECTS OF THE ACQUISITION ON
SHAREHOLDERS" AND "THE ACQUISITION AND RELATED MATTERS."
March 28, 1994 has been fixed as the record date for determination of
shareholders entitled to notice of and to vote at the Meeting (the "Record
Date"). The outstanding capital stock of the Company, as of the Record Date,
consisted of 18,040,150 Shares. Proxies delivered in response to this
solicitation may be revoked by persons executing them at any time prior to the
exercise of the power they confer. The proxies are solicited by the Board of
Directors of the Company. All expenses in connection with the solicitation of
proxies will be borne by the Company.
This Proxy Statement is first being mailed to shareholders on or about April 8,
1994.
------------------------
THE DATE OF THIS PROXY STATEMENT IS APRIL 4, 1994.
<PAGE> 5
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Summary............................................................................... 3
Introduction.......................................................................... 10
Voting and Proxies.................................................................... 10
The Acquisition and Related Matters................................................... 12
Unaudited Pro Forma Combined Financial Data of Wyman-Gordon Company with Cameron
Forged Products Company............................................................. 21
Selected Combined Financial Data of Cameron Forged Products Company................... 26
Management's Discussion and Analysis of Financial Condition and Results of Operations
of Cameron.......................................................................... 27
Business of Cameron................................................................... 32
Selected Consolidated Financial Data of Wyman-Gordon Company.......................... 40
Management's Discussion and Analysis of Financial Condition and Results of Operations
of the Company...................................................................... 42
Business of the Company............................................................... 46
Executive Compensation................................................................ 53
Beneficial Ownership of Shares........................................................ 61
Market and Dividend Information....................................................... 62
Description of the Company's Capital Stock............................................ 63
Description of the Stock Purchase Agreement........................................... 67
Description of the Investment Agreement............................................... 78
Proposed Amendments of the Company's Articles of Organization......................... 82
Election of Directors................................................................. 86
Independent Auditors.................................................................. 90
Selection of Auditors................................................................. 90
Amendment of By-Laws.................................................................. 91
Stockholder Proposals for 1995 Annual Meeting......................................... 91
Available Information................................................................. 91
Other Business........................................................................ 91
Index to Financial Statements......................................................... F-1
Annex A -- Stock Purchase Agreement
Annex B -- Investment Agreement
Annex C -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
</TABLE>
2
<PAGE> 6
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and the Annexes hereto. This summary does not contain a
complete statement of all material features of the proposal to be voted on and
is qualified in its entirety by reference to the full text of this Proxy
Statement and the Annexes hereto. Shareholders are urged to read this Proxy
Statement and the Annexes in their entirety.
THE COMPANY AND CAMERON
The Company, founded in 1883, is a leading producer of highly engineered,
technically advanced components, primarily for the aerospace industry. The
Company uses forging and investment casting technologies to produce components
to exacting customer specifications for demanding applications such as jet
turbine engines and airframes and designs and produces prototype products using
composites technologies. The Company's principal offices are located at 244
Worcester Street, Grafton, Massachusetts 01536, and its telephone number at that
address is (508) 839-4441.
Cameron, founded in 1920, and acquired by Cooper as part of its acquisition
of Cameron Iron Works, Inc. ("CIW") in November 1989, is an important
manufacturer and marketer of technically advanced forgings and extrusions for
use in critical applications in the aerospace, defense, power generation and oil
and gas industries. Cameron manufactures products which can be classified into
the following principal product lines: closed die forgings, extrusions and
other.
THE ACQUISITION AND THE PURCHASE PRICE
Pursuant to the Stock Purchase Agreement, the Purchase Price will be equal
to (i) 16,500,000 Shares and (ii) $5,000,000, payable as provided in the Stock
Purchase Agreement. The Purchase Price will be subject to a cash adjustment to
be paid by either Cooper or the Company based upon certain changes in the
balance sheet of Cameron between September 26, 1993 and the Closing Date. See
"Description of the Stock Purchase Agreement."
As of the Record Date, there were 18,040,150 Shares outstanding, and, after
giving effect to the Acquisition, Cooper will own approximately 48% of the
outstanding Shares. Pursuant to the Investment Agreement, the Shares to be
issued to Cooper pursuant to the Stock Purchase Agreement will be subject to
certain restrictions on voting and disposition as well as certain registration
rights. See "Description of Investment Agreement."
The estimated fees and expenses, other than bank fees, related to the
Acquisition are approximately $2,500,000 (including professional fees of
approximately $2,000,000).
It is contemplated that the Closing will occur shortly after the Meeting,
if shareholders approve the Acquisition Proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
ACQUISITION AND BELIEVES THAT IT IS FAIR TO AND IN THE BEST INTERESTS OF THE
COMPANY'S SHAREHOLDERS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS APPROVE THE ACQUISITION PROPOSAL. See "The Acquisition and Related
Matters -- Recommendation of the Board of Directors."
OPINION OF FINANCIAL ADVISOR
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), financial
advisor to the Board of Directors of the Company in connection with the
Acquisition, has delivered its opinion to the Board of Directors of the Company
that, based on the various considerations set forth in its opinion, the
consideration to be paid by the Company in the Acquisition is fair from a
financial point of view. The full text of DLJ's opinion is set forth as Annex C
to this Proxy Statement. See "The Acquisition and Related Matters -- Opinion of
Financial Advisor."
3
<PAGE> 7
GOVERNMENTAL AND REGULATORY APPROVALS
The Company and Cooper are not aware of any governmental or regulatory
requirements relating to consummation of the Acquisition other than compliance
with applicable federal and state securities laws, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act") and German cartel statutes. The Company and Cooper
filed a notification on October 13, 1993 pursuant to the HSR Act, and the
waiting period under the HSR Act expired on November 12, 1993. See "The
Acquisition and Related Matters -- HSR Act."
CERTAIN EFFECTS OF THE ACQUISITION ON SHAREHOLDERS
As part of the Purchase Price to be paid by the Company to Cooper under the
Stock Purchase Agreement, Cooper will receive 16,500,000 Shares. As of the
Record Date, there were 18,040,150 Shares outstanding. After giving effect to
the Acquisition, Cooper will own approximately 48% of the outstanding Shares and
will be entitled to certain registration rights with respect to such Shares and
current shareholders will own approximately 52% of the outstanding Shares. See
"Description of Investment Agreement -- Registration Rights." The sale of a
significant amount of Shares by Cooper, or the possibility of such sales, could
have an adverse effect on the market price of Shares. The holding by Cooper of
such a large block of Shares may discourage potential tender offers or other
transactions, which shareholders other than Cooper may believe are beneficial to
them, and could result in decreased market prices and liquidity for the Shares.
The Investment Agreement provides that Cooper is entitled to designate two
persons to serve on the Board of Directors of the Company for so long as Cooper
owns more than 5% of the outstanding Shares. If the Acquisition Proposal is
approved and the Acquisition is consummated, the size of the Board of Directors
will be expanded by two members and two persons designated by Cooper will be
appointed to fill the vacancies created by such expansion. See "Election of
Directors -- Persons Designated by Cooper for Appointment as Directors."
For a period of ten years after the Closing Date, so long as Cooper owns 5%
or more of the outstanding Shares, Cooper will be subject to certain limitations
on transfer of its Shares and will be required to vote its Shares either in the
manner recommended to shareholders by the Board of Directors of the Company, or,
at Cooper's election, in the same proportion as the vote of the other
shareholders of the Company, unless the matter being voted on by the
shareholders of the Company would, if approved, result in a breach of the
Investment Agreement. The limitations on Cooper's transfer of its Shares and the
voting restrictions on Cooper's Shares will terminate upon the occurrence of any
of certain Trigger Events (as defined in the Investment Agreement). Such Trigger
Events include certain issuances of voting securities by the Company, certain
changes of control of the Company, certain acquisitions or investments by the
Company, a decline of at least 35% in the Consolidated Net Worth of the Company
(as defined in the Investment Agreement), subject to certain exceptions, certain
defaults by the Company under agreements relating to indebtedness for money
borrowed, certain events of bankruptcy and the failure to nominate Cooper's two
representatives for election to the Company's Board of Directors. See
"Description of the Investment Agreement."
The Company has agreed to take certain actions to exempt Cooper in certain
respects from certain antitakeover provisions, including the Company's rights
plan and the Fair Price Provision. See "Description of the Company's Capital
Stock -- Rights Agreement" and "Description of the Stock Purchase
Agreement -- Shareholder Meeting" and " -- Conditions." In addition, approval of
the Authorized Shares Amendment might have the effect of making an acquisition
of the Company less likely. See "Proposed Amendments of the Company's Articles
of Organization -- Increase in Authorized Shares -- Potential Antitakeover
Effects of Increase in Authorized Capital Stock."
Holders of Shares will not be entitled to dissenters' rights of appraisal
in connection with the Acquisition. See "The Acquisition and Related
Matters -- No Dissenters' Rights of Appraisal."
Environmental liabilities and other costs are inherent in the nature of
Cameron's business, and there can be no assurance that no material environmental
costs will arise that will be assumed liabilities
4
<PAGE> 8
in the Acquisition. However, based on the Company's investigations to date, the
Company does not anticipate any material adverse effect on its operations or
financial condition as a result of any assumed environmental liabilities of
Cameron. See "Business of Cameron -- Environmental Regulation."
The purchase of Cameron by the Company will have no federal income tax
effect on the holders of Shares. However, for federal income tax purposes, the
issuance of 16,500,000 Shares to Cooper pursuant to the Acquisition may result
in the imposition of significant limitations on the Company's ability to offset
future taxable income with the Company's net operating loss ("NOL")
carryforwards. See "The Acquisition and Related Matters -- Certain Federal
Income Tax Consequences."
On a pro forma basis, the consummation of the Acquisition would have
resulted in a decrease of approximately 32% in the Company's net tangible book
value per Share as of December 31, 1993 and an increase of 20% in the Company's
loss before cumulative effect of changes in accounting principles per Share for
the year ended December 31, 1993. See "The Acquisition and Related
Matters -- Dilution."
PURPOSE OF THE MEETING
At the Meeting, shareholders of the Company will be asked (1) to consider
and vote upon the Acquisition Proposal, (2) to elect four persons to the Board
of Directors, each for a three-year term expiring in 1997 and until his or her
successor is elected and qualified, (3) to vote upon the selection of
independent auditors for the Company for the year 1994 and (4) to consider and
act upon any other matters which may properly come before the Meeting or any
adjournment thereof.
RECORD DATE AND MEETING
The Meeting is scheduled to be held at Mechanics Hall, 321 Main Street,
Worcester, Massachusetts, on Tuesday, May 24, 1994 at 10:00 a.m. March 28, 1994
has been fixed as the Record Date for determining shareholders entitled to vote
at the Meeting. At the close of business on the Record Date, there were
18,040,150 Shares outstanding, each entitled to one vote. Only holders of the
Shares as of the Record Date are entitled to vote at the Meeting. See "Voting
and Proxies."
The Company expects that representatives of Ernst & Young will be present
at the Meeting with the opportunity to make a statement if they desire to do so
and that such representatives will be available to answer appropriate inquiries
raised at the Meeting.
VOTES REQUIRED
Approval of the Acquisition Proposal requires the affirmative vote of
holders of two-thirds of the outstanding Shares. The affirmative vote of a
majority of the Shares voting at the Meeting is required for election of
directors and for the selection of Ernst & Young as auditors for the year 1994.
See "Voting and Proxies -- Votes Required."
5
<PAGE> 9
<TABLE>
SUMMARY COMBINED FINANCIAL DATA OF
CAMERON FORGED PRODUCTS COMPANY
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1989(1) 1990 1991 1992 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(000'S OMITTED)
INCOME STATEMENT DATA(2):
Revenues.................................................. $179,520 $214,628 $198,937 $174,334 $149,534
Costs and expenses:
Cost of goods sold.................................... 156,196 174,440 164,134 149,222 135,686
Selling, general and administrative expenses.......... 12,709 11,618 13,498 12,893 11,904
Depreciation and amortization......................... 867 3,092 6,247 6,982 8,902
Loss on long-term contracts and agreements............ -- -- -- -- 15,200
Nonrecurring income................................... -- -- -- (2,300) --
Interest expense...................................... 4,832 -- -- -- --
Other expense, net.................................... 874 -- -- -- --
-------- -------- -------- -------- --------
175,478 189,150 183,879 166,797 171,692
-------- -------- -------- -------- --------
Income (loss) before income taxes and cumulative effect of
changes in accounting principles........................ 4,042 25,478 15,058 7,537 (22,158)
Income tax (expense) benefit.............................. (1,484) (10,565) (6,936) (2,995) 2,104
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of changes in
accounting principles................................... 2,558 14,913 8,122 4,542 (20,054)
Cumulative effect on prior years of changes in accounting
principles(3)........................................... -- -- -- (14,097) --
-------- -------- -------- -------- --------
Net income (loss)......................................... $ 2,558 $ 14,913 $ 8,122 $ (9,555) $(20,054)
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD)(2):
Receivables, net.......................................... $ 30,169 $ 38,877 $ 32,838 $ 23,489 $ 25,710
Inventories, net.......................................... 80,056 76,869 63,024 64,584 54,493
Plant and equipment, net.................................. 22,323 27,918 42,415 62,976 60,687
Total assets.............................................. 152,121 161,361 156,505 163,850 151,840
Total indebtedness(2)..................................... -- -- -- -- --
Net assets(4)............................................. 83,331 85,781 86,258 86,153 64,449
- - ---------------
<FN>
(1) The income statement data for 1989 includes eleven months of results prior to Cooper's acquisition of CIW and one month
subsequent to Cooper's acquisition of CIW. No adjustments have been made to conform accounting policies or presentation
of the income statement data.
(2) Subsequent to the acquisition of CIW by Cooper, all cash generated or required by Cameron's operations was regularly
remitted to or provided by Cooper pursuant to Cooper's centralized cash management program.
(3) Effective January 1, 1992, Cameron adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pension" ("SFAS 106"), No. 109, "Accounting for Income Taxes" ("SFAS 109"), and No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS 112"). See Note C of the Notes to Combined Financial Statements
for further information regarding Cameron's adoption of these accounting standards.
(4) Net assets represent Cooper's net investment in Cameron.
6
</TABLE>
<PAGE> 10
<TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF WYMAN-GORDON COMPANY
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1989 1990 1991 1992 1993(1)
-------- -------- -------- -------- --------
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue(2)..................................................... $372,761 $405,381 $355,390 $298,881 $239,761
Cost of goods sold............................................. 322,958 331,435 310,456 234,577 210,069
Selling, general and administrative expenses................... 26,014 26,461 28,311 21,154 20,098
Depreciation and amortization.................................. 24,116 27,474 25,319 15,875 15,569
Restructuring, disposal and other nonrecurring charges......... -- -- 106,464 -- 2,453
-------- -------- -------- -------- --------
Income (loss) from operations.................................. (327) 20,011 (115,160) 27,275 (8,428)
Interest expense and miscellaneous, net........................ 4,721 5,613 10,591 5,480 8,576
-------- -------- -------- -------- --------
Income (loss) before income taxes and cumulative effect of
changes in accounting principles............................. (5,048) 14,398 (125,751) 21,795 (17,004)
Income tax benefit (expense)................................... 1,864 (5,702) 26,070 -- --
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of changes in accounting
principles................................................... (3,184) 8,696 (99,681) 21,795 (17,004)
Cumulative effect of changes in accounting principles(1)....... -- -- -- -- (43,000)
-------- -------- -------- -------- --------
Net income (loss).............................................. $ (3,184) $ 8,696 $(99,681) $ 21,795 $(60,004)
======== ======== ======== ======== ========
OTHER DATA:
Dividends paid................................................. $ 14,265 $ 14,265 $ 5,349 $ -- $ --
Per share data:
Income (loss) before cumulative effect of changes in
accounting principles.................................... $ (0.18) $ 0.49 $ (5.59) $ 1.21 $ (0.95)
Cumulative effect of changes in accounting principles(1)... -- -- -- -- (2.39)
-------- -------- -------- -------- --------
Net income (loss).......................................... $ (0.18) $ 0.49 $ (5.59) $ 1.21 $ (3.34)
======== ======== ======== ======== ========
Dividends paid............................................. $ 0.80 $ 0.80 $ 0.30 $ -- $ --
Book value................................................. 13.49 13.02 7.18 8.37 4.91
BALANCE SHEET DATA (AT END OF PERIOD):
Accounts receivable, net....................................... $ 81,045 $106,898 $ 83,966 $ 68,789 $ 51,287
Inventories(2)................................................. 80,079 76,570 70,287 53,688 42,388
Property, plant and equipment, net............................. 173,595 186,091 110,400 102,680 98,344
Total assets................................................... 400,251 421,886 339,154 291,878 286,634
Total indebtedness............................................. 74,941 102,002 92,692 70,615 90,538
Stockholders' equity........................................... 240,568 232,157 128,088 149,516 88,349
- - ---------------
<FN>
(1) Effective January 1, 1993, the Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and SFAS 109, "Accounting for Income Taxes." SFAS 106 requires postretirement benefits obligations to be
accounted for on an accrual basis rather than an expense-as-incurred basis formerly used. The Company elected to recognize
the cumulative effect of these accounting changes, resulting in a non-cash reduction in earnings for the year ended
December 31, 1993 of $43.0 million or $2.39 per share. The adoption of SFAS 109 in the year ended December 31, 1993 has
not had a material effect on the earnings or financial position of the Company.
</TABLE>
7
<PAGE> 11
<TABLE>
(2) In 1991, the Company divested its automotive crankshaft operations. The following table reflects the pro forma effect on
revenues and inventories of the divestiture of the automotive crankshaft operations as of the beginning of each of the
periods presented below:
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C>
Revenue(a)......................................................... $372,761 $405,381 $355,390 $298,881 $239,761
Elimination of divested operations................................. (60,937) (61,364) (48,771) -- --
-------- -------- -------- -------- --------
Revenue from ongoing operations.................................... $311,824 $344,017 $306,619 $298,881 $239,761
======== ======== ======== ======== ========
Inventories........................................................ $ 80,079 $ 76,570 $ 70,287 $ 53,688 $ 42,388
Elimination of divested operations................................. (7,438) (5,244) -- -- --
-------- -------- -------- -------- --------
Inventories of ongoing operations.................................. $ 72,641 $ 71,326 $ 70,287 $ 53,688 $ 42,388
======== ======== ======== ======== ========
- - ---------------
<FN>
(a) The increase in revenue from 1989 to 1990 was attributed primarily to the Company's acquisition of its composites and
casting operations.
</TABLE>
8
<PAGE> 12
<TABLE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF
WYMAN-GORDON COMPANY WITH CAMERON FORGED PRODUCTS COMPANY
The summary unaudited pro forma combined financial data of Wyman-Gordon
Company with Cameron Forged Products Company presented below do not reflect any
sales attrition which may result from the combination or the cost savings that
the Company expects to achieve from the combination, and should be read in
conjunction with the unaudited pro forma combined financial data of Wyman-Gordon
Company with Cameron Forged Products Company and the accompanying notes
appearing elsewhere in this Proxy Statement.
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
------------------
(000'S OMITTED,
EXCEPT PER SHARE
DATA)
<S> <C>
INCOME STATEMENT DATA:
Revenue............................................................... $389,295
Cost of goods sold.................................................... 349,961
Selling, general and administrative expenses.......................... 32,177
Depreciation and amortization......................................... 19,881
Loss on long-term contracts and agreements............................ 15,200
Other expense (income)................................................ 2,453
Income (loss) from operations......................................... (30,377)
Interest expense and miscellaneous, net............................... 8,894
Income (loss) before income taxes and cumulative effect of changes in
accounting principles................................................ (39,271)
Income tax benefit (expense).......................................... --
Income (loss) before cumulative effect of changes in accounting
principles........................................................... (39,271)
Income (loss) per share before cumulative effect of changes in
accounting principles................................................ (1.14)
BALANCE SHEET DATA (AT END OF PERIOD):
Accounts receivable, net.............................................. $ 76,997
Inventories........................................................... 101,444
Property, plant and equipment, net.................................... 128,957
Total assets.......................................................... 431,707
Total indebtedness.................................................... 112,802
Stockholders' equity.................................................. 109,972
Book value per share.................................................. 3.19
</TABLE>
9
<PAGE> 13
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of the Company of proxies to be voted at the Meeting. At
the Meeting, shareholders of the Company will be asked (1) to consider and vote
upon the Acquisition Proposal, (2) to elect four persons to the Board of
Directors, each for a three-year term expiring in 1997 and until his or her
successor is elected and qualified, (3) to vote upon the selection of
independent auditors for the Company for the year 1994 and (4) to consider and
vote upon any other matters that may properly come before the meeting or any
adjournment thereof.
VOTING AND PROXIES
RECORD DATE AND MEETING
The Meeting is scheduled to be held at Mechanics Hall, 321 Main Street,
Worcester, Massachusetts, on Tuesday, May 24, 1994 at 10:00 a.m. March 28, 1994
has been fixed as the Record Date. At the close of business on the Record Date,
there were 18,040,150 Shares outstanding, each entitled to one vote. Only
holders of the Shares as of the Record Date are entitled to vote at the Meeting.
PROXIES AND VOTING INSTRUCTIONS
All proxies that are properly executed and returned, unless revoked prior
to the Meeting, will be voted at the Meeting and any postponements or
adjournments thereof in accordance with the instructions indicated thereon or,
if no direction is indicated, in accordance with the recommendations of the
Board of Directors. Management knows of no matters to be submitted at the
Meeting other than as specified in the Notice of Meeting included with this
Proxy Statement. However, if any other business properly comes before the
Meeting, it is the intention of the persons named in the proxy to vote in
respect thereof in accordance with their best judgment. The execution of a proxy
will not affect a shareholder's right to attend the Meeting and vote in person.
A shareholder who has given a proxy may revoke it at any time before it is
exercised at the Meeting by filing with the Secretary of the Company a written
notice of revocation or a proxy bearing a later date or by attendance at the
Meeting and voting in person. Attendance at the Meeting will not, by itself,
revoke a proxy.
The matters set forth in the Notice of Special Meeting in Lieu of Annual
Meeting will be voted in the order in which they are listed in such notice. The
proxy form accompanying this Proxy Statement provides boxes by means of which
shareholders executing the proxy forms may (i) vote for or against the
Acquisition Proposal, (ii) vote for or withhold authority in the election of
management's nominees for election of directors and (iii) vote for or against
the proposal to select Ernst & Young as auditors for the Company for the year
1994. Proxies will be voted in accordance with such designation or, if no such
designation is indicated, will be voted (i) in favor of the Acquisition
Proposal, (ii) in favor of the election of management's nominees and (iii) in
favor of the proposal to select Ernst & Young as auditors for the Company for
the year 1994. While management has no reason to believe that any of its
nominees will not be available as a candidate at the Meeting, should any of the
nominees not be a candidate, the proxy will, unless authority to vote has been
withheld by the person giving the proxy, be voted for a substitute designated by
management. Abstentions and broker non-votes will neither be counted in
establishing a quorum nor be voted for or against matters presented for
shareholder consideration; thus, since abstentions and broker non-votes with
respect to a proposal are not counted as favorable votes, they have the same
effect as a vote against the proposal.
VOTES REQUIRED
Although the Massachusetts Business Corporation Law (the "Massachusetts
Law") does not require that the shareholders of the Company approve the
Acquisition, the Shares are quoted
on The Nasdaq Stock Market National Market System (the "Nasdaq/NMS"), and under
the rules of the Nasdaq/NMS, each Nasdaq/NMS issuer must obtain shareholder
approval prior to the issuance of
10
<PAGE> 14
designated securities in connection with the acquisition of the stock or assets
of another company involving (i) the issuance of common stock, or securities
convertible into or exercisable for common stock, other than a public offering
for cash, and the common stock has or will have upon issuance voting power equal
to or in excess of 20% of the voting power outstanding before the issuance of
such stock or securities or (ii) the issuance of a number of shares of common
stock in excess of 20% of the number of shares of common stock outstanding
before the issuance of such stock. As of the Record Date, there were 18,040,150
Shares outstanding, and after giving effect to the Acquisition, Cooper will own
approximately 48% of the outstanding common stock. Therefore, under the rules of
the NASDAQ/NMS, the Company's shareholders are required to approve the issuance
of the Shares in connection with the Acquisition by a majority of votes cast at
the Meeting, provided that the total vote cast represents over 50% of the
outstanding Shares.
It is a condition of Cooper's obligation to consummate the Acquisition that
the Authorized Shares Amendment and the Fair Price Amendment be approved by the
Company's shareholders. See "Proposed Amendments of the Company's Articles of
Organization." Under the Massachusetts Law, approval of the Authorized Shares
Amendment requires the affirmative vote of holders of a majority of the
outstanding Shares. The Fair Price Provision provides that it may not be amended
unless the amendment is approved by holders of voting stock entitling them to
exercise 85% of the voting power of the Company, except that if the Board of
Directors recommends adoption of the Amendment by a two-thirds vote of the
Continuing Directors (as defined in the Fair Price Provision) at a meeting at
which a Continuing Director Quorum (as defined therein) was present, then the
amendment may be approved by the affirmative vote of such number of shareholders
as may be required by the Massachusetts Law. The Fair Price Amendment has been
recommended by the Board of Directors by a two-thirds vote of the Continuing
Directors at a meeting at which a Continuing Director Quorum was present. Under
the Massachusetts Law, therefore, approval of the Fair Price Amendment by share-
holders at the Meeting requires the affirmative vote of holders of two-thirds of
the outstanding Shares.
Since the Acquisition Proposal is a single, integrated proposal that
includes three elements -- the issuance of 16,500,000 Shares to Cooper pursuant
to the Acquisition, the Authorized Shares Amendment and the Fair Price Amendment
- - -- the required shareholder vote for approval of the Acquisition Proposal will
be equal to the highest vote that would be required for any of these elements.
Therefore, the approval of the Acquisition Proposal requires the affirmative
vote of holders of two-thirds of the outstanding Shares.
Each of the directors and executive officers of the Company, and each of
the shareholders known to the Company's management to own beneficially more than
5% of the outstanding Shares as of January 10, 1994, has agreed to vote all of
the Shares beneficially owned by such person in favor of the Acquisition
Proposal. In the aggregate, such persons beneficially own 6,603,161 Shares, or
approximately 37% of the outstanding Shares. See "Beneficial Ownership of
Shares" and "Description of the Stock Purchase Agreement -- Shareholder
Meeting."
The affirmative vote of a majority of the Shares voting at the Meeting is
required for election of directors. See "Election of Directors."
The affirmative vote of a majority of the Shares voting at the Meeting is
required for the selection of Ernst & Young as auditors for the year 1994. See
"Selection of Auditors."
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation of proxies from its
shareholders as well as the cost of preparing, assembling, printing and mailing
this Proxy Statement, the proxy and any additional information furnished to
shareholders. Copies of solicitation material will be furnished to brokerage
houses, fiduciaries and custodians holding in their names Shares beneficially
owned by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial
11
<PAGE> 15
owners of Shares for their expenses in forwarding solicitation material to such
beneficial owners. Solicitation of proxies by mail may be supplemented by
telephone, telegram or personal solicitation by directors, officers or other
regular employees of the Company who will not receive additional compensation
for such services. In addition, the Company has retained Georgeson & Company
Inc. to assist in the solicitation of proxies. Such firm will solicit proxies by
mail, telephone, telegram, and personal interview. For these services, Georgeson
& Company Inc. will be paid customary fees not in excess of $8,000 by the
Company, plus out-of-pocket costs and expenses.
THE ACQUISITION AND RELATED MATTERS
GENERAL
The Stock Purchase Agreement provides that, subject to the approval of the
Acquisition Proposal by the shareholders of the Company, and subject to the
satisfaction of certain other conditions, the Company will acquire all of the
outstanding shares of Cameron Common Stock in exchange for the Purchase Price.
BACKGROUND OF THE ACQUISITION
In early 1989, CIW, a publicly traded company which was the corporate
parent of Cameron, contacted a number of parties, including Cooper and the
Company, to explore the possible sale of CIW or of the interests of CIW's
controlling stockholders. As a result of these contacts, Cooper acquired CIW in
November 1989.
Following Cooper's acquisition of CIW, the Company contacted Cooper with a
view towards the possible sale of Cameron to the Company. Cooper and the Company
continued to discuss the possibility of such a sale throughout 1990 and into
1991. However, Cooper and the Company were unable to reach agreement on the
terms of such a sale, and these discussions were terminated in June 1991.
In early 1992, Robert Cizik, the Chairman and Chief Executive Officer of
Cooper, telephoned John M. Nelson, the Chairman and Chief Executive Officer of
the Company, and said that he still thought a combination of Cameron and the
Company would make good business sense. Thereafter, Cooper and the Company again
engaged in negotiations regarding such a combination. Although the parties
reached substantial agreement on a term sheet for a shareholders agreement with
terms similar in most respects to the terms of the Investment Agreement, they
were unable to agree on price and certain other terms of the combination. The
negotiations were again terminated in August 1992.
In May 1993, Mr. Nelson called Mr. Cizik to suggest that discussions
regarding the possible combination of Cameron and the Company be reopened.
Thereafter, the Company and Cooper engaged in numerous meetings and discussions
regarding the possibility of the Company acquiring Cameron, without initially
discussing specific prices and terms of such a transaction. On August 10, 1993,
in accordance with Cooper's request that the Company outline the basis on which
the Company would be prepared to acquire Cameron, a representative of DLJ sent
to a representative of Cooper's financial advisor a letter proposing that the
Company would deliver 15,000,000 Shares to Cooper in exchange for Cameron and
would enter into a shareholders agreement on the terms set forth in the term
sheet that had been agreed to in 1992, except that a decline in net worth would
not be a Trigger Event. This proposal was formulated by the Company's
management, with the advice of its financial advisors, and was reviewed by
management with the Board of Directors of the Company prior to being transmitted
to Cooper.
Over the next several weeks, the parties and their financial advisors
engaged in occasional additional discussions regarding the price and other terms
of the August 10 proposal, without any specific counterproposal being made. On
September 13, Mr. Cizik sent Mr. Nelson a letter proposing that the Company
acquire Cameron for 16,000,000 Shares and $20,000,000 in cash. In his letter,
12
<PAGE> 16
Mr. Cizik stated that the term sheet for the shareholders agreement was
generally acceptable to Cooper but would require some additional discussion,
especially regarding the proposed deletion of the net worth Trigger Event.
As a result of the ensuing negotiations, on September 16, 1993, Cooper and
the Company executed a letter of intent setting forth the proposed terms of an
agreement for the sale of Cameron to the Company (the "Letter of Intent"). The
Letter of Intent reflected the parties' nonbinding understanding that the
Company would acquire the stock of Cameron and any assets used primarily in
Cameron's business for 16,500,000 Shares and $10,000,000 in cash and that the
Company and Cooper would enter into a shareholders agreement on substantially
the terms set forth in the 1992 term sheet, including a net worth Trigger Event.
The terms of the Letter of Intent were determined through negotiations between
the Company and Cooper and were approved by the Board of Directors of the
Company.
Following the execution of the Letter of Intent, Cooper and the Company
conducted due diligence reviews of each other's business and engaged in
additional negotiations regarding the definitive agreements for the Acquisition.
After these due diligence procedures, the parties agreed to the Stock Purchase
Agreement and the Investment Agreement. The Board of Directors of the Company
approved the terms of such agreements on January 10, 1994, subject to resolution
by the Company's management of certain minor, unresolved issues. These issues
were resolved through discussions between the parties over the next few days,
and the Stock Purchase Agreement and the Investment Agreement were executed on
January 14, 1994. As described herein, pursuant to the Stock Purchase Agreement,
the Purchase Price will be equal to 16,500,000 Shares and $5,000,000, payable as
provided in the Stock Purchase Agreement. The terms of the Stock Purchase
Agreement and the Investment Agreement were determined by negotiations between
the Company and Cooper and were approved by the Board of Directors of the
Company. See "Description of the Stock Purchase Agreement" and "Description of
the Investment Agreement."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
ACQUISITION AND BELIEVES THAT IT IS FAIR TO AND IN THE BEST INTERESTS OF THE
COMPANY'S SHAREHOLDERS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS APPROVE THE ACQUISITION PROPOSAL.
Prior to reaching these conclusions, the Board of Directors received
presentations from, and reviewed the Acquisition with, management of the
Company, as well as DLJ, the Company's financial advisor. In evaluating the
Acquisition, the Board of Directors considered a variety of factors, including
the following:
(i) The business, operations, properties, assets, financial condition
and operating results of the Company and of conditions in the forgings
industry in general, as well as judgments as to the future prospects for
the Company and the forgings industry;
(ii) The historical trading prices of the Shares and the absence since
the 1991 third quarter of dividend payments to holders of Shares;
(iii) The compatibility of the businesses of the Company and Cameron
and the opportunities for increased efficiencies and other benefits as a
result of the combination of these businesses;
(iv) The opinion of DLJ as to the fairness of the consideration to be
paid in the Acquisition;
(v) The terms of the Stock Purchase Agreement and the Investment
Agreement, which were the product of extensive arms' length negotiations;
(vi) The fact that no party other than Cooper had expressed any
interest in acquiring, or otherwise combining its business with, the
Company even though the signing of the Letter of Intent had been publicly
announced on September 16, 1993; and
13
<PAGE> 17
(vii) The fact that the Acquisition may result in the imposition of
significant limitations on the Company's utilization of its NOL
carryforwards.
In view of the wide variety of factors that the Board considered in
connection with its evaluation of the Acquisition, the Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors they considered in reaching its conclusions,
although the Board did place a special emphasis on management's analysis of the
potential increased efficiencies that could result from the Acquisition and on
DLJ's opinion and analyses. On balance, the Board considered each of the factors
set forth above as supporting its conclusions, except that the Board believed
that factor (vii) did not support its conclusions, although the Board believed
this factor was outweighed by the factors supporting its conclusions. The
following discussion describes in greater detail each of these factors
considered by the Board.
(i) Business and Prospects of the Company and the Forgings Industry. The
Board believed that its conclusions were supported by its analysis of the
business and prospects of the Company and the forgings industry in general. Both
Cameron and the Company sell their products principally to the commercial
aerospace and defense markets. In recent years these markets have been generally
depressed because of the airlines' financial difficulties and also as a result
of significant defense cutbacks, which have caused the cancellation or delay of
orders for new aircraft and engines. From 1990 to 1993, Cameron's sales to
commercial aerospace customers and defense contractors declined by 33.5% and the
Company's sales to commercial aerospace customers and defense contractors
declined by 31.4%.
In response to this market shrinkage, both Cameron and the Company have
consolidated their operations by reconfiguring facilities and equipment and
reducing work forces. For example, Cameron's and the Company's current
employment levels are approximately 72% and 60%, respectively, of the levels
that existed at December 31, 1990. In spite of these efforts, however, Cameron
and the Company are currently operating at less than 50% of forging production
capacity and the Company has concluded that consolidation in the industry, not
simply consolidation within individual firms, is necessary for the long-term
viability of the industry.
(ii) Share Prices and Dividends. The Board believed that its conclusions
were supported by the fact that the prices of Shares and the total return to the
Company's shareholders have substantially underperformed both the stock market
as a whole and the defense and aerospace industry. In this regard, the Board was
aware that the Company discontinued dividends on the Shares beginning in the
fourth quarter of 1991, due to the Company's financial performance, which was
the result in large part of adverse industry conditions. See "Executive
Compensation -- Total Shareholder Return" and "Market and Dividend Information."
The Board was concerned that, because of substantial overcapacity in the
forgings industry and the particular sensitivity of the forgings industry to the
defense and aerospace cycle, the Shares were likely to continue to underperform,
and the Company might be unable to resume the payment of dividends, in the
absence of consolidation in the forgings industry or a significant recovery in
the defense and aerospace industry.
(iii) Potential Increased Efficiencies and Other Benefits. The Board of
Directors believed that its conclusions were supported by, and gave special
weight to, the potential efficiencies and other benefits that it believed, based
upon its own knowledge and upon management's presentations, could be achieved
from the combination of the Company with Cameron. The Acquisition will unite two
of the country's largest and most technically advanced forgings companies and
should enable shareholders to benefit directly from the economies of scale
projected to result from the combination. The Company plans to achieve
substantial operating and processing efficiencies through the consolidation of
systems and facilities and the reduction of personnel performing duplicate
functions. The Company expects to utilize more fully the available capacities of
the combined companies' state-of-the-art facilities; to gain an attractive new
pool of seasoned management and sales personnel; and to eliminate substantial
overlapping expense from the restructured organization. The Company expects that
these cost savings and improvements in efficiency will result from, among other
things, the elimination of duplicative
14
<PAGE> 18
facilities (including the closing of a Cameron manufacturing facility in
Houston, Texas), the reduction in employment levels, the adoption of best
manufacturing practices at their respective facilities, cross-fertilization of
technology, the complementary nature of their respective equipment and
processes, economies of scale in raw materials purchasing and other
manufacturing activities and a more complete integration of manufacturing
systems.
The Company projects the potential cost savings that may be achieved by the
Company and Cameron on a combined basis as a result of such measures to be
approximately $25 to $30 million annually following an initial period of
consolidation. These projections are based upon a variety of estimates and
assumptions which, though considered reasonable by the Company, might not be
realized, and are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control. The Company cautions that no assurances can be made as to the
accuracy of these projections or as to the Company's ability to achieve the
projected cost savings. Holders of Shares should understand that, while these
projections represented the best judgment of the Company at the time they were
made, and under the circumstances and conditions then prevailing, such estimates
and the circumstances and conditions affecting the Company and Cameron are
likely to change substantially with the passage of time.
In order to achieve these potential cost savings, the Company will incur
certain direct and indirect costs. Based on the Company's current plans for the
integration of Cameron into the Company, management currently estimates that
these costs will total approximately $44.7 million, consisting of cash costs of
approximately $28.4 million and non-cash charges of approximately $16.3 million.
Cash costs include relocating machinery, equipment, tooling and dies as well as
relocation and severance costs related to personnel. Non-cash charges include
the write-down of certain assets of the Company, including portions of metal
production facilities and certain forging, machining and testing equipment, to
net realizable value as a result of consolidating certain systems and
facilities, idling certain machinery and equipment, and eliminating certain
processes, departments and operations as a result of the Acquisition. See Notes
to Unaudited Pro Forma Combined Financial Data of Wyman-Gordon Company with
Cameron Forged Products Company. The Board believed, however, that these
one-time costs would be outweighed by the potential continuing cost savings that
could be realized from the Acquisition.
Additionally, the combination of Cameron and the Company is expected to
create an entity with a pre-eminent position in the forgings industry and to
provide the Company with an enhanced presence in the global marketplace. The
combination also gives the Company an international presence which is expected
to enhance the Company's opportunities to market structural components in the
European market. The Company believes that Cameron adds complementary products,
resources and capabilities to those of the Company and, accordingly, that the
combination of Cameron and the Company offers additional market opportunities to
those which currently exist for each of Cameron and the Company individually.
(iv) Opinion of Financial Advisor. The Board believed that its conclusions
were supported by, and placed special emphasis upon, the opinion of DLJ that the
consideration to be paid in the Acquisition is fair to the Company from a
financial point of view, as well as on DLJ's presentation to the Board of
certain financial analyses that DLJ performed in arriving at its opinion. Such
opinion and analyses are described in "The Acquisition and Related
Matters -- Opinion of Financial Advisor." In concluding that the Acquisition was
fair to and in the best interests of the Company's shareholders, the Board
accepted as reasonable the opinion and analyses of DLJ.
(v) Terms of Agreement; Arms' Length Negotiations. The Board believed that
its conclusions were supported by the fact that the Stock Purchase Agreement and
the Investment Agreement were the product of arms' length negotiations over a
period of many months. In this regard, the Board noted that negotiations
following the execution of the Letter of Intent had resulted in the Purchase
Price being decreased by $5,000,000 in cash and in other improvements in the
terms of the Acquisition. In light of the duration and intensity of these
negotiations, the Board was satisfied that further negotiations would
15
<PAGE> 19
not result in further improvements in the terms of the Acquisition. See "The
Acquisition and Related Matters -- Background of the Acquisition" and
"Description of the Stock Purchase Agreement."
In addition, the Board of Directors' recommendation was also favorably
influenced by the terms of the Investment Agreement, which contains several
provisions designed to protect other shareholders against possible domination by
Cooper. The Investment Agreement provides that for a period of ten years after
the Closing Date, so long as Cooper owns 5% or more of the outstanding Shares,
Cooper will be subject to certain limitations on transfer of its Shares and will
be required to vote its Shares either in the manner recommended to shareholders
by the Board of Directors of the Company, or, at Cooper's election, in the same
proportion as the vote of the other shareholders of the Company, unless the
matter being voted on by the shareholders of the Company would, if approved,
result in a breach of the Investment Agreement. These limitations on Cooper's
transfer of its Shares and the voting restrictions on Cooper's Shares will
terminate upon the occurrence of any of certain Trigger Events. Such Trigger
Events include certain issuances of voting securities by the Company, certain
changes of control of the Company, certain acquisitions or investments by the
Company, a decline of at least 35% in the Consolidated Net Worth of the Company
(as defined in the Investment Agreement), certain defaults by the Company under
agreements relating to indebtedness for money borrowed, subject to certain
exceptions, certain events of bankruptcy or the failure to nominate Cooper's two
representatives for election to the Company's Board of Directors. See
"Description of the Investment Agreement."
The Board of Directors of the Company was aware that after giving effect to
the Acquisition, Cooper will own approximately 48% of the outstanding Shares,
while existing shareholders will own 52% of the outstanding Shares, and that
sales of a significant number of Shares by Cooper, or the possibility of such
sales, could have an adverse effect on the market price of the Shares. The Board
was also aware that the holding by Cooper of such a large block of Shares may
discourage potential tender offers or other transactions, which shareholders
other than Cooper may believe are beneficial to them, and could decrease the
market prices and liquidity of the Shares. In addition, the Board noted that the
Investment Agreement provides that Cooper is entitled to designate two persons
to serve on the Board of Directors for so long as Cooper owns more than 5% of
the outstanding Shares and that, as a result of this provision and Cooper's
holdings of Shares, Cooper would likely have substantial influence over the
policies and direction of the Company. However, the Board of Directors believed
that the other provisions of the Investment Agreement provided sufficient
protection to shareholders against undue domination by Cameron and that, in any
case, these considerations were outweighed by the other advantages of the
Acquisition to the Company. Moreover, the Board believed that the combined
companies could benefit from the inclusion on the Board of Cooper's designees,
who are widely experienced business men and who are familiar with the forgings
industry.
(vi) Absence of Available Alternative Transactions. The Board believed
that its conclusions were supported by its determination that there was not
likely to be any alternative transaction available to the Company that would
provide opportunities for the Company and its shareholders comparable to the
opportunities that would be provided by the Acquisition. In light of the Board's
view of the need for consolidation in the forgings industry, as well as the
importance that the Board assigned to the possible efficiencies and other
benefits that the Company could achieve from the Acquisition, the Board believed
that the Company should not forego the Acquisition unless there were a
substantial likelihood of consummating an alternative business combination with
another company that offered comparable advantages. In this regard, the Board of
Directors particularly noted the fact that no inquiries or proposals had been
received from third parties regarding a possible business combination with the
Company during the nearly three months that had elapsed between the signing of
the Letter of Intent and the signing of the Stock Purchase Agreement.
(vii) Limitations on Utilization of NOL Carryforwards. The Board regarded
as unfavorable the fact that the issuance of 16,500,000 Shares to Cooper
pursuant to the Acquisition may result in imposition of significant limitations
on the Company's ability to offset future taxable income with the Company's NOL
carryforwards. See "The Acquisition and Related Matters -- Certain Federal
Income Tax Consequences." However, the Board believed that this potential
disadvantage was outweighed by the other factors described above.
16
<PAGE> 20
OPINION OF FINANCIAL ADVISOR
The Company's Board of Directors has retained DLJ as its financial advisor
in connection with the Acquisition. DLJ has delivered to the Company its written
opinion that, based on the matters set forth therein, the consideration to be
paid in the Acquisition is fair to the Company from a financial point of view. A
copy of the opinion is attached as Annex C and should be read in its entirety by
the shareholders of the Company for information with respect to the assumptions
made and other matters considered by DLJ in rendering its opinion. The Company
did not impose any limitations on DLJ with respect to its opinion. DLJ has
consented to the description of its opinion in, and the attachment of its
opinion as an Annex to, this Proxy Statement.
In arriving at their opinion, DLJ reviewed the Stock Purchase Agreement,
the Investment Agreement and this Proxy Statement. DLJ also reviewed financial
and other information that was publicly available or furnished to them by the
Company and Cameron, including information provided during discussions with
their respective managements. Included in the information provided during
discussions with the respective managements were certain financial projections
of the Company prepared by the management of the Company, certain financial
projections of Cameron prepared by the Company in conjunction with the
management of Cameron and certain financial projections of the Company and
Cameron on a combined basis prepared by the Company. DLJ compared the relative
contributions of the Company and Cameron to the combined entity and analyzed the
discounted cash flows of the Company and the combined entity. In addition, DLJ
compared certain financial and securities data of the Company and Cameron with
various other publicly traded companies, reviewed prices paid in other business
combinations and conducted such other financial studies, analyses and
investigations as they deemed appropriate for purposes of their opinion.
In rendering their opinion, DLJ relied upon and assumed, without
independent verification, the accuracy, completeness and fairness of all of the
financial and other information that was available to them from public sources,
that was provided to them by the Company, Cameron and Cooper and their
respective representatives, or that was otherwise reviewed by them. In
particular, DLJ relied, without independent investigation, upon the estimates of
the managements of the Company and Cameron of the operating synergies achievable
as a result of the Acquisition and upon their discussion of such synergies with
the managements of the Company and Cameron. With respect to the financial
projections supplied to them, DLJ assumed that they had been reasonably prepared
on a basis reflecting the best currently available estimates and judgments of
the management of the Company and Cameron as to the future operating and
financial performance of the Company and Cameron. DLJ did not make any
independent evaluation of the assets or liabilities of the Company or Cameron
nor did they verify any of the information reviewed by them. DLJ's opinion
stated that it was necessarily based on economic, market, financial and other
conditions as they existed on, and on the information made available to them as
of, the date of such opinion.
The following is a summary of the financial analyses performed by DLJ in
arriving at its opinion.
Contribution Analysis. DLJ analyzed the relative contributions of the
Company and Cameron to the proposed combined entity, based on revenues, earnings
before interest, taxes, depreciation and amortization ("EBITDA"), earnings
before interest and taxes ("EBIT") and total assets. DLJ calculated that
historically for the three fiscal years ended December 31, 1992 and the nine
months ended September 30, 1993, Cameron had contributed from 36.8% to 39.4% of
the two companies' total combined revenues, from 6.0% to 70.3% of the two
companies' total combined EBITDA, from 56.0% to 63.5% of the two companies'
total combined EBIT and from 34.0% to 38.0% of the two companies' total combined
assets. DLJ noted that the Company had net debt of approximately $83.5 million,
while Cameron would be free of debt at the time of the Acquisition, and
estimated that Cameron would contribute approximately 51.0% to 61.2% of the
combined companies' total equity value. By way of comparison, DLJ noted that the
Shares to be issued by the Company in the Acquisition would represent only 47.9%
of the outstanding Shares after giving effect to the Acquisition.
Discounted Cash Flow Analysis. DLJ performed a discounted cash flow
analysis of the Company on a stand-alone basis, and of the Company and Cameron
on a combined basis, using certain financial
17
<PAGE> 21
projections of the Company prepared by the Company, certain financial
projections of Cameron prepared by the Company in conjunction with the
management of Cameron and certain financial projections of the Company and
Cameron on a combined basis prepared by the Company. Using a range of discount
rates from 10.0% to 20.0%, the discounted cash flow analysis indicated that on a
per Share basis, at a purchase price of $85.7 million, which was the indicated
value of the total consideration to be paid for Cameron in the Acquisition
(based on a $5 1/8 per share stock price on January 7, 1994 and the present
value of the contingent cash payment to Cooper, assuming the full amount is
paid, discounted to present value at 15%), each original Share would show an
increase in value on a combined basis, relative to the stand-alone basis.
Merger and Acquisition Multiples for Selected Industrial Companies. DLJ
performed an analysis of certain multiples paid in 16 recent mergers and
acquisitions involving selected industrial companies. DLJ calculated the market
capitalization of common stock plus long-term debt less cash ("Enterprise
Value") of the acquired companies, based on the acquisition price, as a multiple
of revenues, EBITDA and EBIT for the four quarters immediately prior to the
announcement of each transaction. Multiples of Enterprise Value to revenues for
the transactions ranged from 0.2x to 2.3x, compared to 0.6x for Cameron.
Multiples of Enterprise Value to EBITDA for the transactions reviewed ranged
from 3.5x to 10.1x, compared to a range of 5.5x (assuming that 50% of projected
cost savings were achieved) to 34.3x (assuming that no cost savings were
achieved) for Cameron. Multiples of Enterprise Value to EBIT for the
transactions reviewed ranged from 5.2x to 15.4x, compared to 11.7x for Cameron
assuming that 50% of projected cost savings were achieved (the multiple was not
meaningful in the absence of cost savings). As described above, for purposes of
comparison, DLJ assumed that the indicated value of the total consideration to
be paid for Cameron was $85.7 million. DLJ did not establish any specific
valuation or reference range for Cameron indicated by the above comparisons.
Analysis of Certain Other Publicly Traded Companies. DLJ compared certain
historical earnings and operating and financial ratios for Cameron to the
corresponding data and ratios of certain other companies with publicly traded
securities. The companies considered were ABS Industries, BE Aerospace,
Fansteel, Johnson & Firth Brown plc, Park-Ohio Industries, Precision Castparts,
SIFCO Industries, UNC Inc. and the Company. While these companies are similar in
some respects to Cameron, none of them is directly comparable to Cameron, making
a direct comparison of trading multiples for valuation purposes less meaningful
than would be the case in industries where there are a number of similar
competitors. The data and ratios considered by DLJ included Enterprise Value as
a multiple of EBITDA, EBIT and revenues, and share prices as a multiple of book
value. For purposes of these comparisons, DLJ assumed that the Enterprise Value
of Cameron was equal to $85.7 million, which was the indicated value of the
total consideration to be paid for Cameron. Multiples of Enterprise Value to
EBITDA for the companies reviewed ranged from 5.6x to 11.6x, compared to a range
of 5.5x (assuming that 50% of projected cost savings were achieved) to 34.3x
(assuming that no cost savings were achieved) for Cameron. Multiples of
Enterprise Value to EBIT for the companies reviewed ranged from 9.1x to 21.1x,
compared to 11.7x for Cameron assuming that 50% of projected cost savings were
achieved (the multiple was not meaningful in the absence of cost savings).
Multiples of Enterprise Value to revenues ranged from 0.4x to 1.5x for the
companies reviewed, compared to 0.6x for Cameron. Multiples of share price to
book value for the companies reviewed ranged from 0.6x to 7.6x, compared to 1.4x
for Cameron. DLJ did not establish any specific valuation or reference range for
Cameron indicated by the above comparisons.
Other Analyses. In the course of its assignment, DLJ also reviewed the
Company's historical stock price performance. This analysis involved the
examination of the historical prices and trading volumes of the Shares and was
used primarily to confirm the reasonableness of using the January 7, 1994 market
price of the Shares in calculating the indicated value of the total
consideration to be paid for Cameron.
Although DLJ relied on all of the above analyses in arriving at its
opinion, it put greater weight on the contribution and discounted cash flow
analyses. DLJ viewed comparisons to other publicly traded companies and merger
and acquisition transactions as less meaningful due to the fact that none of
these
18
<PAGE> 22
companies or transactions were directly comparable to the Company or the
Acquisition and due to the significant synergies associated with the
Acquisition. However, the analysis of publicly traded companies and merger and
acquisition transactions supported DLJ's conclusion when it was assumed that 25%
to 50% of the projected synergies of the Acquisition were attributed to Cameron.
In DLJ's view, no company or transaction used in the above analyses is
directly comparable to the Company, Cameron or the proposed Acquisition.
Accordingly, the evaluation of these analyses is not purely mathematical but
rather involves complex considerations and judgments concerning differences in
the financial and operating characteristics of the companies and other factors
that could affect public trading values.
The summary set forth above is not a complete description of the analyses
performed by DLJ. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Accordingly, notwithstanding the separate factors summarized above,
DLJ believes that its analyses must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses and factors, would create an incomplete view of the evaluation
process underlying its opinion. In performing its analyses, DLJ made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters. The analyses performed by DLJ are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses.
In connection with its engagement, DLJ was not authorized to solicit, and
did not solicit, alternative proposals or competing offers relating to the
Acquisition. DLJ's opinion does not constitute a recommendation as to how any
shareholder should vote at the Meeting. Furthermore, DLJ expresses no opinion as
to the price at which the Shares will trade if the Acquisition is consummated.
DLJ is an investment banking firm with extensive experience in the
valuation of businesses and their securities in connection with mergers,
acquisitions, negotiated underwritings and private placements and in valuations
for corporate and other purposes. The Company selected DLJ as its financial
advisor based upon DLJ's expertise in such matters, experience in the industry
of the Company and Cameron and DLJ's familiarity with the Company. DLJ has
received a fee of $100,000 for its services to date, and if the Acquisition is
completed, DLJ will be entitled to an additional fee of $800,000. In addition,
the Company has agreed to indemnify DLJ against certain liabilities, including
certain liabilities under the securities laws. DLJ has performed investment
banking services for the Company from time to time in the past. For investment
banking services related to the issuance of the Company's 10 3/4% Senior Notes
due 2003 (the "Senior Notes"), DLJ was paid approximately $1.2 million by the
Company in 1993. DLJ may also hold trading positions in securities of Cooper.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The acquisition of Cameron by the Company will have no federal income tax
effect on the current holders of the Shares. However, for federal income tax
purposes, the issuance of 16,500,000 shares to Cooper pursuant to the
Acquisition may result in the imposition of significant limitations on the
Company's ability to offset future taxable income with the Company's NOL
carryforwards.
For federal income tax purposes, the Company currently has net operating
loss ("NOL") carryforwards that are available to offset future taxable income of
the Company and its affiliates included in a consolidated federal income tax
return. At December 31, 1993, such NOL carryforwards aggregated approximately
$57.2 million and were not subject to limitation. These NOL carryforwards will
expire, if not previously utilized, in the taxable years ending December 31,
2006 through December 31, 2008. The Company's ability to utilize its NOL
carryforwards in the future is principally affected by Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code"), which generally limits
the use of a corporation's NOL following a more than 50 percentage point change
in the ownership of the corporation's equity within any three-year period (an
"ownership change").
19
<PAGE> 23
The issuance of 16,500,000 Shares to Cooper in connection with the
Acquisition may result in an ownership change with respect to the Company under
Section 382 of the Code. Assuming that the Acquisition does result in such an
ownership change, the amount of the Company's post-ownership change annual
taxable income that can be offset by its preownership change NOL generally will
not exceed an amount equal to the product of (i) the fair market value of the
equity of the Company immediately before the ownership change (subject to
various adjustments) and (ii) the federal long-term tax-exempt rate in effect on
the date of the ownership change.
For example, based on the closing sale price of the Shares on January 10,
1994, the last trading day prior to the public announcement of the execution of
the Stock Purchase Agreement and the Investment Agreement, and the federal
long-term tax-exempt rate at that time of 5%, the fair market value of the
Company's equity (exclusive of the equity created by the issuance of shares to
Cooper) would be $87,673,214, and the Company's pre-ownership change NOL that
would be deductible following the Closing generally would be limited to
$4,383,661 per year. This example is for illustrative purposes only, since the
actual limitation would be based on the fair market value of the Company's
equity and the federal long-term tax-exempt rate on the Closing Date.
Pursuant to the Stock Purchase Agreement, if Cooper so elects, the
Acquisition will be treated for federal income tax purposes as a purchase of
assets pursuant to Section 338(h)(10) of the Code, provided that Cooper does not
own, and is not deemed to own, and as a result of the Acquisition will not own
and will not be deemed to own, 50% or more of the issued and outstanding Shares.
It is anticipated that Cooper will so elect and that, accordingly, the purchase
price, consisting of the Shares and cash issued to Cooper and any indebtedness
assumed, will be allocated among the purchased assets in accordance with their
relative fair market values. See "Description of the Stock Purchase
Agreement -- Taxes."
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION WITH RESPECT TO THE COMPANY AND ITS SHAREHOLDERS ONLY AND DOES NOT
DESCRIBE THE EFFECT OF THE PROPOSED TRANSACTIONS ON COOPER OR COOPER'S
SHAREHOLDERS. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, SHAREHOLDERS ARE
URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM
OF THE ACQUISITION, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR OTHER
TAX LAWS.
DILUTION
On a pro forma basis, assuming that the Acquisition had occurred on
December 31, 1993, the Company's net tangible book value per Share would have
been $2.56, compared to the historical net tangible book value of $3.76 per
Share on December 31, 1993, or a decrease of 32% in net tangible book value per
Share. Also, on a pro forma basis, assuming an Acquisition date of January 1,
1993, the Company would have had a loss before cumulative effect of changes in
accounting principles of $1.14 per Share for the year ended December 31, 1993,
compared to the historical loss before cumulative effect of changes in
accounting principles of $0.95 per Share, or an increase of 20% in loss before
cumulative effect of changes in accounting principles per Share.
NO DISSENTERS' RIGHTS OF APPRAISAL
Under the Massachusetts Law, the Company's shareholders will not be
entitled to dissenters' rights of appraisal in connection with the Acquisition.
HSR ACT
Under the HSR Act, certain acquisition transactions, including the
Acquisition, may not be consummated unless certain information has been
furnished to the Federal Trade Commission (the "FTC") and the Antitrust Division
of the United States Department of Justice (the "Antitrust Division") and
certain waiting period requirements have been satisfied.
Pursuant to the HSR Act, on October 13, 1993, the Company and Cooper filed
a notification relating to the Acquisition as required by the HSR Act. The
filings have been reviewed by the Antitrust Division and the FTC, and the
waiting period under the HSR Act expired on November 12, 1993.
20
<PAGE> 24
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF
WYMAN-GORDON COMPANY WITH CAMERON FORGED PRODUCTS COMPANY
The following unaudited pro forma combined financial data give effect to
the Acquisition and are based on estimates and assumptions set forth below in
the notes to such data which include pro forma adjustments. These unaudited pro
forma combined financial data have been prepared utilizing the historical
financial statements of the Company and Cameron and should be read in
conjunction with such historical financial statements and accompanying notes.
The unaudited pro forma combined financial data do not reflect any sales
attrition which may result from the combination or the cost savings that the
Company expects to achieve from the combination. These unaudited pro forma
combined financial data do not purport to be indicative of the results which
actually would have been obtained if the Acquisition had been effected on the
date or dates indicated or of those results which may be obtained in the future.
The pro forma combined financial data are based on the purchase method of
accounting for the Acquisition. The pro forma condensed combined balance sheet
assumes a December 31, 1993 acquisition date. The pro forma combined statement
of operations assumes that the Acquisition had occurred on January 1, 1993.
Although neither the Company nor Cooper has complete current information as
to the fair market values of Cameron's individual assets and liabilities, a
preliminary estimate of the allocation of the purchase price was made on the
basis of available information. The actual allocation of the purchase price may
be different from that reflected in the pro forma financial data. Such
differences would result from adjustments in the purchase price and refinements
in the fair market values of the net assets acquired.
<TABLE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1993
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ---------------------------
WYMAN- COMBINED
GORDON CAMERON ADJUSTMENTS COMPANIES
-------- -------- --------- --------
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents..................................... $ 14,817 $ -- $ (400)(d) $ 33,304
18,887(c)
Accounts receivable........................................... 51,287 25,710 76,997
Inventories................................................... 42,388 54,493 4,563(d) 101,444
Prepaid expenses.............................................. 12,480 58 -- 12,538
-------- -------- --------- --------
Total current assets...................................... 120,972 80,261 23,050 224,283
-------- -------- --------- --------
Property, plant and equipment, net............................ 98,344 60,687 (13,774)(d) 128,957
(16,300)(a)
Intangible assets............................................. 20,738 1,998 (1,998)(d) 21,538
800(d)
Pension intangible and asset.................................. 8,368 8,550 (8,550)(b) 8,368
Deferred program costs........................................ 13,561 -- -- 13,561
Deferred income taxes......................................... -- -- 10,005(d) 10,005
Other assets.................................................. 24,651 344 -- 24,995
-------- -------- --------- --------
$286,634 $151,840 $ (6,767) $431,707
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current maturities of long-term debt.......................... $ 77 $ -- $ -- $ 77
Accounts payable and accrued liabilities...................... 25,654 35,442 (2,009)(b) 59,087
Note payable.................................................. -- -- 19,078(c) 19,078
Loss on long-term contracts and agreements.................... -- 15,200 7,400(d) 22,600
Deferred income taxes......................................... -- 9,437 (9,437)(d) --
Accrued restructuring, integration, disposal and
environmental............................................... 4,556 -- 7,759(d) 23,415
11,100(a)
-------- -------- --------- --------
Total current liabilities................................. 30,287 60,079 33,891 124,257
-------- -------- --------- --------
Restructuring, integration, disposal and environmental........ 14,515 -- 9,553(d) 24,068
Long-term debt................................................ 90,461 -- -- 90,461
Pension liability............................................. 14,065 10,946 (10,946)(b) 18,565
4,500(d)
Deferred income taxes and other............................... 7,613 4,125 (4,125)(d) 10,799
3,186(d)
Postretirement benefits other than pensions................... 41,344 12,241 -- 53,585
Stockholders' equity.......................................... 88,349 64,449 (27,400)(a) 109,972
(191)(c)
49,214(d)
(64,449)(d)
-------- -------- --------- --------
$286,634 $151,840 $ (6,767) $431,707
======== ======== ========= ========
Book value per share.............................................. $ 4.91 $ 3.19
======== ========
Number of common shares outstanding used to calculate book value
per share....................................................... 18,003 34,503
======== ========
</TABLE>
21
<PAGE> 25
<TABLE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF
WYMAN-GORDON COMPANY WITH CAMERON FORGED PRODUCTS COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
<CAPTION>
HISTORICAL PRO FORMA(A)
----------------------- ----------------------
WYMAN- COMBINED
GORDON CAMERON ADJUSTMENTS COMPANIES
-------- -------- ------- --------
<S> <C> <C> <C> <C>
(000'S OMITTED, EXCEPT PER SHARE DATA)
Revenue................................... $239,761 $149,534 $ -- $389,295
Costs and expenses:
Cost of sales........................ 210,069 135,686 4,206(e) 349,961
Selling, general and
administrative..................... 20,098 11,904 175(e) 32,177
Depreciation and amortization........ 15,569 8,902 (4,590)(e) 19,881
Loss on long-term contracts and
agreements......................... -- 15,200 -- 15,200
Other................................ 2,453 -- -- 2,453
-------- -------- ------- --------
248,189 171,692 (209) 419,672
-------- -------- ------- --------
Income (loss) from operations........ (8,428) (22,158) 209 (30,377)
Other deductions (income):
Interest expense..................... 9,897 -- 318(e) 10,215
Miscellaneous, net................... (1,321) -- -- (1,321)
-------- -------- ------- --------
8,576 -- 318 8,894
-------- -------- ------- --------
Income (loss) before income taxes and
cumulative effect of changes in
accounting principles................... (17,004) (22,158) (109) (39,271)
Income tax (expense) benefit.............. -- 2,104 (2,104)(e) --
-------- -------- ------- --------
Income (loss) before cumulative effect of
changes in accounting principles........ $(17,004) $(20,054) $(2,213) $(39,271)
======== ======== ======= ========
Income (loss) per share before cumulative
effect of changes in accounting
principles.............................. $ (0.95) $ (1.14)
======== ========
Average number of common shares
outstanding............................. 17,936 34,436
======== ========
</TABLE>
22
<PAGE> 26
<TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF
WYMAN-GORDON COMPANY WITH CAMERON FORGED PRODUCTS COMPANY
(a) The unaudited pro forma combined statement of operations does not
include non-recurring charges which result from the transaction and the
integration into the Company of Cameron, and which are expected to be charged to
operations at the consummation of the Acquisition. Such charges, which are
expected to approximate $27.4 million, represent only those integration expenses
related to the Company's personnel, facilities, machinery and equipment and
production operations and include movement of machinery and equipment and
tooling and dies, transfer of technology between the Company and Cameron,
relocation and severance of personnel of the Company and the write-down of
certain assets of the Company to net realizable value as a result of
consolidating certain systems and facilities, idling certain machinery and
equipment, and eliminating certain processes, departments, and operations as a
result of the acquisition. Following is a summary of such charges based on the
Company's current plans for the integration into the Company of Cameron which
have been reflected in the pro forma balance sheet (000's omitted):
<CAPTION>
CASH NON-CASH TOTAL
------- -------- -------
<S> <C> <C> <C>
Movement of the Company's machinery and equipment and
tooling and dies.................................... $ 5,100 $ -- $ 5,100
Relocation, severance and other costs related to
personnel of the Company............................ 6,000 -- 6,000
Write-down of certain assets of the Company to net
realizable value:
Metal production facility........................ -- 8,500 8,500
Forging equipment................................ -- 5,700 5,700
Machining and testing equipment.................. -- 2,100 2,100
------- -------- -------
$11,100 $16,300 $27,400
======= ======== =======
</TABLE>
Certain of these charges are preliminary estimates based on current plans
for the integration into the Company of Cameron and may change based on
additional information.
(b) To eliminate Cameron assets not acquired and liabilities not assumed.
(c) To reflect the planned factoring of Cameron's U.S. accounts receivable
by Cooper in accordance with the Stock Purchase Agreement and under terms and
conditions that provide for a purchase price of 99% of the total face amount of
such receivables, less a reserve of uncollectible accounts and for the
repurchase by the Company of any such receivables uncollected 90 days following
the acquisition.
23
<PAGE> 27
<TABLE>
(d) To record the purchase price, to allocate the purchase price to
acquired assets and liabilities based on their relative fair values, and to
adjust property, plant and equipment for the excess of the fair value of net
assets acquired over the purchase price as follows (000's omitted):
<S> <C>
Cost of acquisition:
Issuance of 16,500 shares of common stock to Cooper, including direct
costs of $2,527..................................................... $ 49,214
Note payable to Cooper net of discount of $1,414....................... 3,186
Cash paid to Cooper.................................................... 400
--------
52,800
Estimated direct costs related to the acquisition and integration of
Cameron into the Company............................................ 17,312
--------
$ 70,112
========
Allocation of cost of acquisition:
----------------------------------
Historical cost of net assets acquired................................. $ 68,854
Purchase accounting adjustments:
Adjust inventories to reflect the Company's full absorbtion method
of valuing inventories............................................. 4,563
Adjust intangible assets to fair value.............................. (1,998)
Record favorable lease.............................................. 800
Record revaluation of Cameron's long-term sales agreements.......... (7,400)
Record pension transition liability................................. (4,500)
Adjust deferred income taxes:
Long-term asset................................................... 10,005
Current liability................................................. 9,437
Long-term liability............................................... 4,125
Adjustment to property, plant and equipment......................... (13,774)
--------
$ 70,112
========
</TABLE>
The Stock Purchase Agreement provides for adjustment of the purchase price
based on changes in certain assets and liabilities between September 26, 1993
and the closing date. Management presently believes these adjustments will not
significantly affect the purchase price.
<TABLE>
Estimated direct costs related to the Acquisition and integration of
Cameron into the Company include the following (000's omitted):
<CAPTION>
LONG-
CURRENT TERM TOTAL
------- ------- -------
<S> <C> <C> <C>
Stand-alone costs for settling assumed workers
compensation liabilities............................... $ -- $1,400 $ 1,400
Cost of relocating Cameron's machinery and equipment and
tooling and dies....................................... 2,100 6,100 8,200
Severance of Cameron personnel........................... 3,500 -- 3,500
Other.................................................... 2,159 2,053 4,212
------- ------- -------
$7,759 $9,553 $17,312
======= ======= =======
</TABLE>
All such costs are incremental and directly related to the Acquisition and
reflect only those costs associated with Cameron's facilities, organization, and
personnel. Certain of these costs are estimates based on preliminary information
and may change based on receipt of additional information.
24
<PAGE> 28
<TABLE>
(e) To adjust historical operating results to reflect the Acquisition as
follows (000's omitted):
<CAPTION>
INCREASE (DECREASE) IN INCOME
----------------------------------------------------------------
SELLING, GENERAL DEPRECIATION INCOME TAX
COST OF AND AND INTEREST (EXPENSE)
SALES ADMINISTRATIVE AMORTIZATION EXPENSE BENEFIT
------- ---------------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
Reflect the Company's full absorption
method of valuing inventories....... $(1,592)
Reflect stand-alone fringe benefit and
insurance costs..................... (2,214) $ (175)
Reflect amortization of favorable
lease value......................... (400)
Reduce historical Cameron depreciation
and amortization to reflect the
acquisition basis and useful lives
of assets purchased................. $4,590(1)
Reflect amortization of discount on
note payable to Cooper ($2,300
discounted at 10% for 38 months and
$2,300 at 10% for 50 months)........ $(318)
Adjust income tax (expense) benefit to
reflect the Acquisition............. $ (2,104)
------- ---------------- ------------ ------- ----------
$(4,206) $ (175) $4,590 $(318) $ (2,104)
======= ================ ============ ======= ==========
</TABLE>
- - ---------------
<TABLE>
(1) Adjustment is calculated as follows:
<CAPTION>
ACQUISITION ESTIMATED
BASIS USEFUL LIFE DEPRECIATION
----------- ----------- ------------
<S> <C> <C> <C>
Acquisition basis of property, plant and equipment:
Land................................................. $ 3,199 N/A $ --
Buildings and land improvements...................... 9,060 25 years 362
Machinery and equipment.............................. 34,654 8.8 years 3,950
----------- ------------
$46,913 4,312
===========
Historical 1993 Cameron depreciation and
amortization......................................... 8,902
------------
Increase in income..................................... $4,590
============
</TABLE>
25
<PAGE> 29
<TABLE>
SELECTED COMBINED FINANCIAL DATA OF
CAMERON FORGED PRODUCTS COMPANY
The selected historical financial data presented below at December 31, 1992
and 1993 and for each of the years ended December 31, 1991, 1992 and 1993 have
been derived from Cameron's combined financial statements, which were audited by
Ernst & Young, independent auditors. The selected combined financial data at
December 31, 1989, 1990 and 1991 and for the years ended December 31, 1989 and
1990 have been derived from Cameron's unaudited combined financial statements.
Except for the item noted in footnote (1) below, in the opinion of management,
the unaudited combined financial statements have been prepared on the same basis
as the audited combined financial statements and include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the financial position and results of operations for these periods. The
financial information included herein may not necessarily be indicative of the
financial position or results of operations of Cameron in the future or what the
financial position or results of operations of Cameron would have been if
Cameron had been a separate, stand-alone company during the periods presented.
This data should be read in conjunction with the Combined Financial Statements,
related notes and other financial information included elsewhere in this Proxy
Statement.
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1989(1) 1990 1991 1992 1993
-------- -------- -------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2):
Revenues.......................................................... $179,520 $214,628 $198,937 $174,334 $149,534
Costs and Expenses:
Cost of goods sold............................................ 156,196 174,440 164,134 149,222 135,686
Selling, general and administrative expenses.................. 12,709 11,618 13,498 12,893 11,904
Depreciation and amortization................................. 867 3,092 6,247 6,982 8,902
Loss on long-term contracts and agreements.................... -- -- -- -- 15,200
Nonrecurring income........................................... -- -- -- (2,300) --
Interest expense.............................................. 4,832 -- -- -- --
Other expense, net............................................ 874 -- -- -- --
-------- -------- -------- -------- --------
175,478 189,150 183,879 166,797 171,692
-------- -------- -------- -------- --------
Income (loss) before income taxes and cumulative effect of changes
in accounting principles........................................ 4,042 25,478 15,058 7,537 (22,158)
Income tax (expense) benefit...................................... (1,484) (10,565) (6,936) (2,995) 2,104
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of changes in accounting
principles...................................................... 2,558 14,913 8,122 4,542 (20,054)
Cumulative effect on prior years of changes in accounting
principles(3)................................................... -- -- -- (14,097) --
-------- -------- -------- -------- --------
Net Income (loss)................................................. $ 2,558 $ 14,913 $ 8,122 $ (9,555) $(20,054)
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD)(2):
Receivables, net.................................................. $ 30,169 $ 38,877 $ 32,838 $ 23,489 $ 25,710
Inventories, net.................................................. 80,056 76,869 63,024 64,584 54,493
Plant and equipment, net.......................................... 22,323 27,918 42,415 62,976 60,687
Total assets...................................................... 152,121 161,361 156,505 163,850 151,840
Total indebtedness(2)............................................. -- -- -- -- --
Net assets(4)..................................................... 83,331 85,781 86,258 86,153 64,449
- - ---------------
<FN>
(1) The income statement data for 1989 includes eleven months of results prior to Cooper's acquisition of CIW and one month
subsequent to Cooper's acquisition of CIW. No adjustments have been made to conform accounting policies or presentation of
the income statement data.
(2) Subsequent to the acquisition of CIW by Cooper, all cash generated or required by Cameron's operations was regularly remitted
to or provided by Cooper pursuant to Cooper's centralized cash management program.
(3) Effective January 1, 1992, Cameron adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other than Pension,"
SFAS 109, "Accounting for Income Taxes," and SFAS 112, "Employers' Accounting for Postemployment Benefits." See Note C of the
Notes to Combined Financial Statements for further information regarding Cameron's adoption of these accounting standards.
(4) Net assets represent Cooper's net investment in Cameron.
</TABLE>
26
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CAMERON
RESULTS OF OPERATIONS
OVERVIEW
Since 1990, Cameron's net income, excluding the effect of changes in
accounting principles, has gone from a net profit of $14.9 million to a net loss
of $20.1 million, while revenues have declined from $214.6 million to $149.5
million. The discussion that follows will aid in understanding the year-to-year
changes in the business, the actions that management has taken to minimize the
earnings impact of dramatic market declines and Cameron's prospects going
forward.
1993 COMPARED TO 1992
The year-to-year revenue decline, combined with accounting recognition of a
loss on 1994 and beyond committed contracts and pricing agreements and an
inability on a stand-alone basis to tax benefit the resulting losses, led to a
net loss for 1993 of $20.1 million.
Revenues in 1993 decreased $24.8 million or 14.2% as compared to 1992. The
die forging and defense equipment product lines suffered significant declines,
only minimally offset by small increases in sales of extruded products and
powder systems. In addition to overall lower volumes and prices in the die
forging business, the lower revenues also reflect the adverse effects of lower
exchange rates. Orders from Cameron's major customers in this product line have
weakened as a result of deferrals and cancellations due to the financial
difficulties of the global airline market and a decline in defense-related
activity. Defense equipment revenues were hard hit by the late 1992 loss of a
U.S. government contract. Extruded product sales improved slightly due to timing
of shipments. Powder systems revenues recovered somewhat from a particularly
dismal 1992 period.
Cameron's gross margin (defined as revenues, less cost of goods sold,
depreciation and amortization and the loss on long-term contracts and
agreements) was a negative $10.3 million or 6.9% of revenues in 1993, compared
with positive $18.1 million or 10.4% of revenues in 1992. The primary factors in
the decline were the $15.2 million provision for the losses associated with
long-term contracts and pricing agreements (see the discussion below and Note E
of the Notes to Combined Financial Statements for further information), the
negative effects of lower volumes, an adverse product mix, pricing pressures and
higher depreciation and amortization expense. These factors outweighed the
offsetting effects of actions taken by Cameron to improve profitability, such as
workforce reductions, cost controls, reductions in scrap and rework costs and
other production efficiencies.
Depreciation and amortization expense increased from $7.0 million for 1992
to $8.9 million in 1993. This 27.5% increase was primarily related to
depreciation on capital expenditures which totalled $28 million in 1992 and $9
million in 1993.
Selling, general and administrative expenses decreased from $12.9 million
in 1992 to $11.9 million in 1993. As a percent of revenues, selling, general and
administrative expenses were 8.0% and 7.4% in 1993 and 1992, respectively. This
result reflects management's inability in the short term to reduce these costs
as rapidly as the decline in revenues has occurred without jeopardizing
Cameron's ability to respond to market opportunities. If market conditions
continue to deteriorate resulting in further revenue declines, further cost
cutting and other actions may become necessary.
Cameron's results for 1993 included a provision of $15.2 million in
recognition of the anticipated loss on committed customer purchase orders and
several long-term pricing agreements entered into with several major customers
in the second quarter of 1993. Starting in the latter part of 1992 and
continuing into 1993, Cameron has experienced extreme pricing pressure from its
major customers, who in turn have been under pressure from their major airline
customers as well as continuing cutbacks from the U.S. military. This pressure,
combined with large amounts of industry-wide excess forging capacity have caused
Cameron's margins to decline faster than Cameron can adjust its fixed and semi-
fixed period costs. In an effort to keep its operations functioning with the
highest possible utilization
27
<PAGE> 31
and corresponding efficiency levels, Cameron has increasingly accepted orders
with lower gross profit levels and also in the second quarter of 1993 entered
into three-year pricing agreements with two of its major customers. Since the
time when the original terms of these agreements were negotiated, the delivery
dates have been steadily pushed into the future, exacerbating the current
utilization problem.
In accordance with Cameron's policy of accruing for losses on backlog and
long-term pricing agreements, when available information indicates that a
material loss will be incurred when the goods are delivered pursuant to the
commitments, a loss accrual of $15.2 million was provided in connection with the
preparation of Cameron's financial statements for 1993. See Note E of the Notes
to Combined Financial Statements for further information.
In 1992, nonrecurring income of $2.3 million was recognized as a result of
a modification in Cameron's vacation policy. See Note D of the Notes to Combined
Financial Statements for further information.
Cameron's effective tax rate for 1993 reflected only a 9.5% benefit on
pretax losses of $22.2 million, compared with an effective tax expense of 39.7%
in 1992. The low rate in 1993 and the higher than statutory rate in 1992 both
reflect the inability of Cameron, on a stand-alone basis, to fully utilize both
current and deferred tax deductions being generated in the respective periods.
See Note M of the Notes to Combined Financial Statements for further
information.
1992 COMPARED TO 1991
Excluding the earnings charge associated with adopting new accounting
principles in 1992, year-to-year revenue declines resulted in a nearly 45%
decline in Cameron's net income.
Revenues for 1992 decreased $24.6 million or 12.4% from 1991. Lower volumes
in Cameron's major markets were accompanied by pricing pressures in an
increasingly competitive environment. The revenue decline was centered in two
product lines, die forging and defense equipment. The die forging product line
was negatively impacted by a number of factors. Airlines postponed commercial
aircraft orders which reduced the demand for new aircraft engines. Major
domestic defense budget reductions impacted the quantities of defense aircraft
engines being built. "Just-in-time" inventory reduction programs implemented by
Cameron's major customers resulted in delayed deliveries during 1992.
Additionally, intense competition among the major aircraft engine manufacturers
has driven down engine prices, and resulted in pressure on the engine makers'
suppliers to reduce prices. The defense equipment product line was adversely
affected by the loss of a U.S. government production contract. Sales of extruded
products improved slightly from 1991 due primarily to power plant building
programs in the Pacific Rim.
Gross margins were $18.1 million or 10.4% of revenues in 1992 as compared
to $28.6 million or 14.4% of revenues in 1991. Lower scrap and rework expenses,
lower raw material costs and other production efficiencies partially reduced the
adverse effect of lower volumes on the gross margin. However, the severity of
the revenues decline and lower realization on scrap sales more than offset these
positive contributions.
Depreciation and amortization of $7.0 million in 1992 increased $.7 million
or 11.8% from 1991. This increase was due to normal changes in the depreciable
asset base.
Selling, general and administrative expenses were $12.9 million in 1992, a
4.5% decline from the $13.5 million in 1991. As a percentage of revenues,
selling, general and administrative expenses increased to 7.4% in 1992 from 6.8%
in 1991 due to the significance of the sales decline in 1992.
Nonrecurring income in 1992 resulted from a change in the vacation policies
with respect to salaried and hourly employees. See Note D of the Notes to the
Combined Financial Statements for further information.
The effective tax rate decreased from 46.1% in 1991 to 39.7% in 1992. The
year-to-year decrease in the effect of tax losses, which could not be benefited
for book purposes, more that offset the elimination starting in 1992, as a
result of SFAS No. 109, of favorable tax effects resulting from nontaxable fixed
asset write-downs relating back to Cameron's acquisition by Cooper. In the
course of adopting the new
28
<PAGE> 32
required income tax accounting standard, Cameron wrote up certain fixed assets
which were recorded net of tax and also eliminated the favorable effect
associated with fixed assets write downs which were being treated as "permanent
differences" in the tax provision calculations in prior years.
1991 COMPARED TO 1990
Year-to-year revenue declines resulted in a nearly 46% decline in Cameron's
1991 net income compared with 1990.
Revenues for 1991 decreased $15.7 million or 7.3% from 1991. Demand for die
forgings from one of Cameron's major customers decreased from a particularly
strong 1990 performance, resulting in lower sales of both nickel-based alloy
parts and spares components in 1991. Shipments in the domestic die forging
business were in line with the 1990 results. Domestic sales of extruded products
declined from 1990 due in part to nonrecurring nuclear aircraft carrier catapult
business. In the smaller product lines, defense equipment revenues were
consistent with the 1990 period and powder systems business improved over 1990.
Gross margins were $28.6 million or 14.4% of revenues in 1991 as compared
to $37.1 million or 17.3% of revenues in 1990. These declines were due to the
negative impact of the lower volumes in the U.K., a higher percentage of
domestic aircraft gas turbine business at more competitive long-term agreement
pricing levels and higher depreciation and amortization expense.
Depreciation and amortization expense doubled from 1990, increasing from
$3.1 million to $6.2 million in 1991. This increase was primarily due to the
finalization of the fixed asset values included in the purchase price allocation
with respect to the 1989 acquisition of CIW by Cooper.
Selling, general and administrative expenses increased from $11.6 million
in 1990 to $13.5 million in 1991. As a percent of revenues, selling, general and
administrative expenses increased from 5.4% in 1990 to 6.8% in 1991. This
increase resulted from economic increases in salaries and related fringe benefit
costs, as well as increases related to higher manpower levels in 1991 compared
with 1990.
The effective tax rate increased from 41.5% in 1990 to 46.1% in 1991 as a
result of changes in the amounts of nontaxable depreciation expense reductions
and higher tax deductions that Cameron could not tax benefit as a separate
entity.
LIQUIDITY AND CAPITAL RESOURCES
Since 1990, Cameron's business has declined dramatically due to the
shrinking commercial aerospace and defense markets. The declines in these
markets have resulted in pricing pressures and inventory reduction programs by
Cameron's major customers, delays in scheduling, and order cancellations that
have led to significant overcapacity in the industry. During this period,
Cameron has downsized its operations and made other operating adjustments in
response to the decrease in market activity. In spite of these reductions,
however, Cameron's operating cash flows have steadily declined from $28.5
million in 1991 to a negative $2.4 million in 1993. Although management expects
that it will be able to reduce working capital such that positive operating cash
flows could be generated in the short term, the magnitude of the working capital
decreases are not such that Cameron anticipates transferring any net positive
cash flows to its parent Cooper.
Longer term, further declines in activity levels and continuing pricing
pressure may cause the earnings losses that Cameron has experienced to continue
and strain management's ability to reduce working capital as an offset. This
trend, along with other factors, is what has led Cameron's parent --
Cooper -- to enter into the transaction with Wyman-Gordon for which these
financial statements are being furnished.
Cameron has historically maintained only petty cash and imprest bank
accounts because it utilized Cooper's centralized cash management system for all
of its operating and financing requirements and regularly remitted all of its
excess cash to Cooper. In addition, although Cameron has been unable, from a
stand-alone perspective, to realize a tax benefit from the losses that it has
generated, Cooper has realized a tax benefit from them. This cash flow benefit
acts to substantially reduce in 1993, and
29
<PAGE> 33
eliminate in 1992, the cash utilized by the Cameron operations. Cooper has
substantial resources such that there is at present no reason to believe that
Cameron will not be able to obtain all of the capital resources and other funds
that it requires for its operations.
WORKING CAPITAL
During 1993, operating working capital (defined as receivables and
inventories, less accounts payable and accrued liabilities, excluding the effect
of foreign currency translation, nonrecurring income and the cumulative effect
of changes in accounting principles) increased $8.5 million. In 1993,
receivables increased over the prior year end as a result of 60-day payment
terms granted to a major customer at the end of 1993. Inventories and accounts
payable and accrued liabilities (excluding nonrecurring income) each declined
significantly primarily due to lower raw materials requirements resulting from
customer scheduling modifications and revised delivery requirements.
During 1992, operating working capital increased $1.1 million. This
increase was the result of lower accounts payable and accrued liabilities,
substantially offset by reductions in receivables and inventories. These
reductions were caused by the lower volumes as a result of the demand factors
discussed above, as well as lower accruals relating to employee costs and
benefits.
During 1991, operating working capital decreased $9.7 million. The decline
was driven by significant reductions in inventories and receivables caused by
the downturn in business activities. Accounts payable and accrued liabilities
declined during the year as a result of spending related to various management
programs for which accruals had previously been established.
CASH FLOWS
During 1993, cash flow used for operating activities was $2.4 million. This
use of cash was caused by the reduction in net income and the increase in
operating working capital as explained above. Cameron expended $9.2 million on
capital projects, and received $1.1 million on sales of fixed assets and $10.6
million from Cooper.
During 1992, cash flows from operating activities totaled $11.8 million and
proceeds from sales of fixed assets totalled $.4 million. These cash flows,
along with $14.4 million received from Cooper, were used to fund $27.7 million
of capital expenditures. Translation provided a $1.1 million increase in the
recorded cash flows.
During 1991, Cameron generated $28.5 million from operating activities and
$.6 million from sales of plant and equipment. Cameron expended $20.8 million
for capital projects and transferred $8.2 million to Cooper.
FINANCIAL POSITION
Cameron's financial position reflects the various factors discussed above
in "-- Results of Operations," "-- Liquidity and Capital Reserves -- Working
Capital" and "-- Cash Flows." Other changes in the assets and liabilities of
Cameron are the result of normal operating activities.
CAPITAL EXPENDITURES AND COMMITMENTS
Capital projects to reduce product costs, improve product quality, increase
manufacturing efficiency and operating flexibility or expand production capacity
resulted in expenditures of $9.2 million during 1993, compared with $27.7
million in 1992 and $20.8 million in 1991.
OUTLOOK
Cameron's results for the year 1993 include a significant earnings
reduction as a result of recording losses associated with long-term contracts
and pricing agreements. On a stand-alone basis and absent significant
improvements in the marketplace, management believes that this loss accrual
would continue to increase from year to year, although not dramatically. As a
result, although management believes that Cameron will continue to have
operating losses, it expects those losses to be somewhat
30
<PAGE> 34
lower in 1994 than the losses recorded in 1993. Longer term, without some form
of market stability or a reduction in industry capacity, the magnitude of the
operating losses is difficult to predict with any degree of certainty.
IMPACT OF INFLATION
During the periods presented, inflation had a relatively minor effect on
Cameron's reported results of operations.
ACCOUNTING AND TAX MATTERS
Effective January 1, 1992, Cameron elected early adoption of SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," SFAS
109, "Accounting for Income Taxes," and SFAS 112, "Employers' Accounting for
Postemployment Benefits." Applying the new standards resulted in a one-time
charge against earnings of $14.1 million. On an ongoing basis, the new standards
with respect to postretirement and postemployment benefits are expected to have
a small negative impact on Cameron's results, while, as discussed above in
"-- Results of Operations -- 1992 Compared to 1991," the income tax accounting
change has significantly increased Cameron's income tax expense. See Note C of
the Notes to Combined Financial Statements of Cameron for further information.
31
<PAGE> 35
BUSINESS OF CAMERON
GENERAL
Cameron, founded in 1920, and acquired by Cooper as part of its acquisition
of CIW in November 1989, is an important manufacturer and marketer of
technically advanced forgings and extrusions for use in critical applications in
the aerospace, defense, power generation and oil and gas industries.
Cameron also manufactures superalloy powders and thermal products.
CLOSED DIE FORGINGS
A substantial portion of Cameron's business is the manufacture of rotating
parts for aircraft engines, both commercial and defense. These parts include
turbine and compressor discs as well as shafts, cases and hubs. Cameron also
supplies forgings for a variety of components used in several commercial and
defense aircraft landing gear programs, and structural airframe parts.
Cameron participates in several U.S. Government missile programs and
manufactures several defense equipment products. Examples of these products
include breech block and breech rings for large cannons, and forged steel
casings for a variety of bombs, rockets and expendable launch vehicles.
Cameron provides a variety of forgings for the U.S. and U.K. Navy nuclear
programs. The products supplied to these programs include forged valve bodies,
fittings and pump cases used in propulsion systems for nuclear submarine and
aircraft carriers.
Cameron provides forged valve components for power generation equipment,
and components for turbine engines including discs, shafts and cases. Cameron
also manufactures forgings for oil field equipment components including blowout
preventers, gate valves, bonnets, spools and hangers.
EXTRUSIONS
Cameron is a major supplier of missile, rocket and bomb cases. Cameron also
supplies extruded products for nuclear submarines and aircraft carriers
including heavy wall piping for nuclear propulsion systems, torpedo tubes and
catapult launch tubes.
Cameron's major product in the power generation equipment market is
extruded seamless heavy wall pipe for the critical piping systems in commercial
power plants worldwide.
Cameron also supplies extruded powders for other superalloy powder
manufacturers.
<TABLE>
MARKETS
Cameron markets and sells its products both domestically and worldwide. The
following table presents Cameron's sales to unaffiliated customers by geographic
area:
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1991 1992 1993
---------------- ---------------- ----------------
% OF % OF % OF
AREA REVENUES TOTAL REVENUES TOTAL REVENUES TOTAL
- - -------------------------------- -------- --- -------- --- -------- ---
(000'S OMITTED)
<S> <C> <C> <C> <C> <C> <C>
United States................... $157,712 79% $132,176 76% $115,949 78%
Other........................... 41,225 21 42,158 24 33,585 22
-------- --- -------- --- -------- ---
Total........................... $198,937 100% $174,334 100% $149,534 100%
======== === ======== === ======== ===
</TABLE>
For information regarding Cameron's industry segments and domestic and
international operations, see Note L of Notes to Combined Financial Statements
of Cameron included elsewhere herein.
32
<PAGE> 36
<TABLE>
The principal markets served by Cameron are commercial aerospace, defense
equipment and power generation. Revenues by principal market, as estimated by
Cameron, are as follows:
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1991 1992 1993
---------------- ---------------- ----------------
% OF % OF % OF
MARKET REVENUES TOTAL REVENUES TOTAL REVENUES TOTAL
- - ----------------------------------------- -------- ----- -------- ----- -------- -----
(000'S OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Commercial aerospace..................... $ 90,937 46% $ 80,334 46% $ 78,434 52%
Defense equipment........................ 60,000 30 49,000 28 31,100 21
Power generation......................... 23,000 12 23,000 13 28,000 19
Other.................................... 25,000 12 22,000 13 12,000 8
-------- ----- -------- ----- -------- -----
Total.................................... $198,937 100% $174,334 100% $149,534 100%
======== ===== ======== ===== ======== =====
</TABLE>
COMMERCIAL AEROSPACE
Cameron manufactures rotating parts for aircraft engines. Cameron supplies
components for many of the major commercial jet engines manufactured in the U.S.
and Europe today. Cameron also supplies forgings for components used in landing
gear programs, and structural airframe parts.
DEFENSE EQUIPMENT
Cameron supplies products to builders of military aircraft and missiles.
Examples of these products include forged rotating parts for jet engines as well
as components for airframes and landing gears for aircraft and components for
large cannon and forged steel casings for bombs, rockets and expendable launch
vehicles. Cameron participates in a variety of U.S. Government programs
including the Standard, Harm, Patriot and Aegis programs. For naval defense
applications, Cameron supplies components for propulsion systems for nuclear
submarine and aircraft carriers.
POWER GENERATION
To the power generation market, Cameron is a major supplier of extruded
seamless heavy wall pipe for the critical piping systems in commercial power
plants worldwide, both fossil fuel and nuclear. Cameron believes it is the
leading U.S. supplier, and also a leading U.K. supplier, of large diameter,
heavy wall pipe.
OTHER MARKETS
Cameron also manufactures forged components for the industrial and oil and
gas markets.
CUSTOMERS
Cameron has approximately 67 customers that purchase closed die forgings,
75 customers that purchase extruded products and 30 customers that purchase
other products. Cameron's principal customers are similar across all of these
products. Approximately 60% of Cameron's revenues are generated from sales of
aircraft jet engine components, and the majority of these sales are to three
customers, General Electric Company, Rolls-Royce plc and United Technologies
Corporation (principally its Pratt & Whitney Division). During the years ended
December 31, 1992 and 1993, sales to these three principal customers represented
approximately 50% of Cameron's total revenues. Additionally, during the years
ended December 31, 1992 and 1993 each of these three principal customers
accounted for more than 10% of revenues.
Cameron participates in most active aircraft jet engine programs and is
involved in the development of major new programs.
MARKETING AND SALES
Cameron markets its products principally through its own sales engineers
and makes only limited use of manufacturers' representatives. Substantially all
sales are made directly to original equipment manufacturers.
33
<PAGE> 37
Cameron's sales are not subject to significant seasonal fluctuations,
although production in the third quarter normally tends to be somewhat less than
that of other quarters as a result of scheduled plant shutdowns in the U.K.
A substantial portion of Cameron's revenues is derived from long-term,
fixed price contracts with major engine and aircraft manufacturers. These
contracts are typically "requirements" contracts under which the purchaser
commits to purchase a given portion of its requirements of a particular
component from Cameron. Actual purchase amounts are typically not determined
until shortly before the year in which the products are to be delivered.
<TABLE>
BACKLOG
The backlog of unfilled orders from customers for each of the years ended
December 31, 1991, 1992 and 1993 in the commercial aerospace, defense equipment,
power generation and other markets served by Cameron was as follows, as
estimated by Cameron:
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1991 1992 1993
---------------- ---------------- ----------------
% OF % OF % OF
MARKET BACKLOG TOTAL BACKLOG TOTAL BACKLOG TOTAL
------ -------- ----- -------- ----- -------- -----
(000'S OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Commercial aerospace..................... $193,000 69% $149,000 70% $105,000 71%
Defense equipment........................ 49,000 18 36,000 17 20,000 14
Power generation......................... 16,000 6 12,000 5 12,000 8
Other.................................... 21,000 7 17,000 8 11,000 7
-------- ----- -------- ----- -------- -----
Total.................................... $279,000 100% $214,000 100% $148,000 100%
======== ===== ======== ===== ======== =====
</TABLE>
At December 31, 1992 and 1993, approximately $190 million and $108 million,
respectively, of total backlog was scheduled to be shipped within one year and
the remainder in subsequent years, although there can be no assurances that
products ordered will be shipped as scheduled.
MANUFACTURING PROCESSES
Cameron produces forgings and extrusions using purchased materials and
materials produced in its own facilities. Cameron's principal manufacturing
facilities are in Houston, Texas, in Cypress, Texas, which is located near
Houston, and in Livingston, Scotland. Following the Acquisition, Cooper will
retain ownership of the Houston manufacturing facility, which the Company's
management considers to be surplus to the combined operations of the Company and
Cameron. The Company will occupy the Houston manufacturing facility under a
two-year, rent-free lease from Cooper, as provided in the Stock Purchase
Agreement, in order to remove certain equipment from the Houston facility to
other facilities owned by the Company. Cameron also operates a superalloy powder
metals facility in Brighton, Michigan. Cameron's forging presses include
35,000-ton, 55,000-ton and 29,000-ton presses at the Cypress plant, 8,000-ton
isothermal, 11,000-ton and 20,000-ton presses at the Houston plant, and a
30,000-ton press at the Livingston plant, as well as several other smaller
presses. Three of these presses are designed to utilize the multiple-ram forging
technique, which Cameron pioneered in the 1940's. Three of the presses have
exceptionally large extrusion capabilities. One press is designed to forge in
the isothermal mode, where the dies and the part to be forged are at the same
temperature. Also, most of these large presses are equipped with computer
controls to ensure process repeatability.
Cameron's Brighton powder metal facility has the capability to atomize,
process, and consolidate (by hot isostatic pressing) superalloy metal powders
for use in aerospace, medical implant, petrochemical, hostile environment oil
and gas drilling and production, and other high-technology applications. This
facility has a production capacity of up to 500,000 pounds of superalloy powder
per year. In addition, Cameron has the capacity to consolidate powdered metals
by extrusion using its 20,000-ton, 30,000-ton and 35,000-ton presses. Extruded
billets are further processed and either sold to other forge shops or forged
into critical jet engine components on the 8,000-ton isothermal press in the
Houston plant.
34
<PAGE> 38
All of Cameron's facilities included as part of the Acquisition are in good
condition and are currently operating at approximately 40% capacity utilization.
Increased production can be added with little additional capital investment.
CLOSED DIE FORGINGS
Although both conventional and hot-die forging processes require heated
dies, temperatures in the hot-die method are generally much higher. Cameron's
hot-die forging techniques produce forgings with superior surface conditions,
metallurgical structures and tighter tolerances. Aspects of the manufacturing
process are discussed below.
Conventional/Multiple-Ram Process. The closed-die, multiple-ram process
enables Cameron to produce extremely complex forgings with multiple cavities in
a single heating and pressing cycle. Dies may be split either on a vertical or a
horizontal plane and shaped punches may be operated by side rams, piercing rams,
or both. Multiple-ram forging enables Cameron to produce a wide variety of
shapes, sizes, and configurations utilizing less input weight. The process also
optimizes grain flow and uniformity of deformation, reduces machining
requirements, and minimizes overall costs.
Hot-Die Process. This process utilizes special die materials that can
withstand relatively high temperatures to produce forgings with superior surface
conditions and controlled metallurgical structures.
Isothermal Forging. Cameron's isothermal forging capability is
representative of the most advanced forging technology available today.
Intricate shapes are forged in a totally enclosed, environmentally controlled
chamber from materials that often cannot be forged by conventional techniques.
This process creates near-net shape forgings which require a minimum of
machining. Cameron's 8,000-ton isothermal press is housed in a positive-pressure
inert gas chamber, is robot-fed from electric furnaces and is
computer-controlled for consistency and quality.
EXTRUSION
Cameron's 35,000-ton vertical extrusion press is one of the largest and
most advanced presses in the world. This press has been modified to produce
55,000 tons of pressure to forge the very large components needed for both
aircraft and industrial gas turbines. Extrusions are also produced for
applications in the oil and gas industry, including tension leg platforms, riser
systems and production manifolds. It is supported by manipulators capable of
handling work pieces weighing up to 20 tons, rotary hearth furnaces and a
14,000-ton blocking press. It is capable of producing heavy wall seamless pipe
with outside diameters up to 48 inches and wall thicknesses from 1/2 inch up to
7 inches or more. Solid extrusions can be manufactured from 6 to 32 inches in
diameter. Typical lengths vary from 10 to 45 feet. Powder materials can also be
compacted and extruded into forging billets utilizing this press. The 30,000-ton
press in Scotland has similar extrusion capabilities in addition to its
multi-ram forging capabilities.
TOOLING
Cameron designs, manufactures and repairs most of its own forging dies and
tools. Modelling and finite element analysis techniques are used in
determination of forging stresses and loads imposed within the die cavity.
Forging shapes and their processing sequence are designed using computer-
assisted design technology. Utilizing this data, dies are produced through
conventional and numerically controlled machining techniques.
FINISHING
After forging, the product moves through heat treating, machining, and
final testing. These steps insure that every product is properly finished and
ready for shipment.
Heat Treating. To guarantee the final integrity of each forging, specific
heat treating programs are designed and followed meticulously. Cameron's heat
treating facilities include box and car bottom
35
<PAGE> 39
furnaces equipped with computer-controlled monitoring devices and recorders to
provide process control and permanent records of heat treating cycles. Products
are quenched in air, oil, water or polymer in order to meet customer
specifications.
Machining. Cameron's machine shops feature a complete range of
computer-controlled machine cells. Machine cell technology insures
repeatability, minimizes machine time, and reduces tooling and fixturing. This
results in faster process times, lower machining costs, and enhanced product
quality.
Testing. Throughout the manufacturing process, Cameron's engineers perform
numerous tests and inspections to insure the final quality of each product;
statistical process control ("SPC") techniques are also applied throughout the
entire manufacturing process. Specific measures which may be performed after
heat treating and machining are as follows:
- Nondestructive Testing. To meet customers' dimensional tolerances,
Cameron relies on computer-controlled coordinate measuring machines with
rapid, multiple axis measuring capabilities. Other nondestructive tests
include fluorescent and magnetic particle testing and contact and
immersion ultrasonic testing. Pipe can also be hydrostatically tested.
- Destructive Testing. Cameron's destructive testing capabilities include
creep, stress rupture, Charpy impact testing, fatigue testing, tensile
testing and fracture toughness testing, among others. Examination
equipment supporting this testing includes spectrographic analysis, light
optics, and electron metallographic equipment.
MELTING
Cameron's powder metal facility in Brighton, Michigan melts and atomizes
superalloy powder metal. The Brighton facility is fully integrated with melting,
atomizing, powder processing and hot isostatic pressing. The powder metal is
compacted via extrusion at Cameron's Houston facility. The primary product is
nickel-based superalloy powder for aircraft engine applications, but powder clad
valves for the oil and gas industry and other specialty materials are also
produced.
Cameron's management believes that Cameron's vacuum arc remelt ("VAR") shop
at Cypress is one of the finest facilities of its kind in the world. This
facility, with its five computer-controlled VAR furnaces, accepts electrodes up
to 42 inches in diameter and weighing up to 40,000 pounds. The Cypress VAR
furnaces are used to remelt purchased electrodes into high purity alloys for
internal use in severe applications. In addition, the VAR furnaces are used for
toll melting. These vacuum metallurgy techniques provide consistently high
levels of purity, low gas content, and precise control over the solidification
process. This minimizes segregation in complex alloys and results in improved
mechanical properties, as well as hot and cold workability.
Cameron applies SPC techniques to the remelt process. Each VAR furnace is
fully programmable and computer-controlled. Feedback from the process is logged
by a local computer as a permanent record of the melt history and as an input
for SPC analysis. Real-time video monitoring and video taping of the melt pool
is also provided. These capabilities combine to insure total control and
conformance to requirements.
36
<PAGE> 40
<TABLE>
FACILITIES
The following table sets forth certain information with respect to
Cameron's major facilities, all of which are owned by Cameron. Cameron believes
its facilities are well-maintained, are suitable to support Cameron's business
and are adequate for Cameron's present and anticipated needs. The facilities are
owned by Cameron in fee, except as indicated. At December 31, 1993, Cameron's
facilities were operating at approximately 40% of their total productive
capacity.
<CAPTION>
APPROXIMATE
SQUARE PRIMARY
LOCATION FOOTAGE FUNCTION
-------- ----------- --------
<S> <C> <C>
Cypress, Texas...................... 1,283,800 Forgings
Houston, Texas(a)................... 433,000 Forgings
Brighton, Michigan.................. 34,500 Super alloy
powder
Livingston, Scotland................ 517,200 Forgings
- - ---------------
<FN>
(a) To be leased from Cooper after the Acquisition. See "Business of Cameron --
Manufacturing Processes."
</TABLE>
RAW MATERIALS AND ENERGY USAGE
Cameron purchases alloys of titanium, nickel, steel and high temperature
alloys. Three companies supply the majority of Cameron's titanium requirements,
two companies supply its high-temperature alloys, and several companies supply
its alloy steels. Cameron works very closely with suppliers to ensure consistent
quality of materials.
The forging process is energy intensive. Natural gas is the primary fuel
used to heat material for forging and custom heat treating. A significant amount
of electricity is also used in the manufacturing process. Supplies of natural
gas and electricity have been sufficient and there is no anticipated shortage
for the future.
EMPLOYEES
As of December 31, 1993, Cameron had 1,170 employees, of whom approximately
448 were executive, administrative, engineering, research, sales and clerical
and 722 were production and craft. Approximately 99% of the production and craft
employees and 22% of other employees are represented by a total of four unions.
International Association of Machinists and Aerospace Workers Local 15
represents 470 active employees and 130 employees with recall rights at Houston.
The current contract runs from August 10, 1992 through August 6, 1995. The
contract covers production and maintenance (excluding electrical) employees.
International Brotherhood of Electrical Workers Local 716 represents 37 active
electrical maintenance employees and 4 additional on recall status. This
contract, for Houston-based employees, runs from August 10, 1992 to August 6,
1995.
The Amalgamated Engineering Union represents 215 hourly production and
maintenance personnel in Livingston, Scotland. The contract for the period
beginning December 1, 1991 expired on November 3, 1993. Cameron and the union
are currently negotiating a new contract. The Manufacturing, Science and Finance
Union represents 98 clerical and technical personnel at Livingston. This
contract runs from February 1, 1992 and expired on January 30, 1994. Cameron and
the union are currently negotiating a new contract.
RESEARCH AND PATENTS
Cameron maintains a Research and Development facility dedicated to active
research and development in materials and forging technology, and in evaluating
interactions between temperature and metal deformation speed and degree. A
number of projects are customer-funded or jointly funded, but most of the
investigational work undertaken relates to future or current business interests
and
37
<PAGE> 41
supports Cameron's product lines. Cameron expended approximately $2.9 million
and $1.8 million on applied research and development during the years ended
December 31, 1992 and 1993, respectively. Although Cameron owns patents covering
certain of its processes, Cameron does not consider that these patents are of
material importance to Cameron's business taken as a whole. All of Cameron's
products are manufactured to customer specifications and, consequently, there
are no proprietary products.
COMPETITION
Cameron's production capabilities are possessed in varying degrees by other
companies in the industry, including both domestic and foreign manufacturers.
Competition is intense among the companies currently involved in the industry.
ENVIRONMENTAL REGULATIONS
Cameron is subject to numerous federal, state, local and foreign laws and
regulations relating to the storage, handling, emission and discharge of
materials into the environment, including the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Clean Water Act, the
Clean Air Act (including the 1990 Amendments) and the Resource Conservation and
Recovery Act. Cameron believes that its existing environmental control
procedures are adequate and it has no current plans for substantial capital
expenditures in this area.
Cameron has been identified as a PRP with respect to only one site. The
site is designated for cleanup under the Texas Superfund program, which imposes
liability for cleanup of certain waste sites without regard to fault or the
prior legality of waste generation or disposal. Persons liable for such costs
and damages generally include the site owner or operator and persons that
disposed or arranged for the disposal of hazardous substances found at those
sites. Although the state law can impose joint and several liability on all
PRPs, in application, the PRPs typically allocate the investigation and cleanup
costs based upon the volume of waste contributed by each PRP. Settlements can be
achieved through negotiations with the appropriate environmental agency or the
other PRPs. At the particular site in question, Cameron has reached agreement
with the other PRPs and has agreed to contribute fifty percent of all costs
related to site investigation and remediation; however, this percentage may be
substantially reduced if other potentially responsible parties are identified at
the site in the future. The current liability associated with this state
Superfund site is estimated at a present value of approximately $0.7 million. As
provided in the Stock Purchase Agreement, Cooper has agreed to assume from
Cameron all environmental liabilities related to the designation of this site as
a Superfund site. Accordingly, this liability is not reflected in the financial
statements of Cameron.
Former operations at Cameron's manufacturing facility located in Houston,
Texas may have resulted in soil and groundwater contamination which has been
identified at the site. Remediation of the soil and groundwater at this facility
may be necessary. These liabilities are currently estimated at a present value
of approximately $1.4 million. As provided in the Stock Purchase Agreement,
Cooper has agreed to assume from Cameron certain environmental liabilities
related to the disposal and discharge of materials into the environment at this
facility. Accordingly, this liability is not reflected in the financial
statements of Cameron.
Cameron does not currently anticipate any material adverse effect on its
results of operations, financial conditions or competitive position as a result
of compliance with federal, state, local or foreign environmental laws or
regulations or cleanup costs of the sites discussed above. However, some risk of
environmental liability and other costs is inherent in the nature of Cameron's
business, and there can be no assurance that material environmental costs will
not arise. Moreover, it is possible that future developments, such as
promulgation of implemented regulations under the 1990 Amendments to the Clean
Air Act and other increasingly strict requirements of environmental law and
enforcement policy thereunder, could lead to material cost of environmental
compliance and cleanup by Cameron.
38
<PAGE> 42
PRODUCT LIABILITY EXPOSURE
Cameron produces many critical engine and structural parts for commercial
and military aircraft. As a result, Cameron faces an inherent business risk of
exposure to product liability claims. Cameron maintains insurance against
product liability claims, but there can be no assurances that such coverage will
continue to be available on terms acceptable to Cameron or that such coverage
will be adequate for liabilities actually incurred. Cameron has not experienced
any material loss from product liability claims and believes that its insurance
coverage is adequate to protect it against any claims to which it may be
subject.
LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened which, in the opinion
of Cameron's management, would be reasonably likely to have a material adverse
effect on Cameron.
39
<PAGE> 43
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA OF WYMAN-GORDON COMPANY
The selected consolidated financial data presented below for each of the
three fiscal years in the period ended December 31, 1991 have been derived from
the Company's consolidated financial statements which were audited by Coopers &
Lybrand, independent accountants. The selected consolidated financial data for
each of the years ended December 31, 1992 and 1993 have been derived from the
Company's consolidated financial statements, which were audited by Ernst &
Young, independent auditors. This data should be read in conjunction with the
Consolidated Financial Statements, related notes and other financial information
included elsewhere in this Proxy Statement.
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1989 1990 1991 1992 1993(1)
-------- -------- -------- -------- --------
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue(2)................................................ $372,761 $405,381 $355,390 $298,881 $239,761
Cost of goods sold........................................ 322,958 331,435 310,456 234,577 210,069
Selling, general and administrative expenses.............. 26,014 26,461 28,311 21,154 20,098
Depreciation and amortization............................. 24,116 27,474 25,319 15,875 15,569
Restructuring, disposal and other non-recurring charges... -- -- 106,464 -- 2,453
-------- -------- -------- -------- --------
Income (loss) from operations............................. (317) 20,011 (115,160) 27,275 (8,428)
Interest expense and miscellaneous, net................... 4,721 5,613 10,591 5,480 8,576
-------- -------- -------- -------- --------
Income (loss) before income taxes and cumulative effect of
changes in accounting principles........................ (5,048) 14,398 (125,751) 21,795 (17,004)
Income tax benefit (expense).............................. 1,864 (5,702) 26,070 -- --
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of changes in
accounting principles................................... (3,184) 8,696 (99,681) 21,795 (17,004)
Cumulative effect of changes in accounting
principles(1)........................................... -- -- -- -- (43,000)
-------- -------- -------- -------- --------
Net income (loss)......................................... $ (3,184) $ 8,696 $(99,681) $ 21,795 $(60,004)
======== ======== ======== ======== ========
OTHER DATA:
Dividends paid............................................ $ 14,265 $ 14,265 $ 5,349 $ -- $ --
Per share data:
Income (loss) before cumulative effect of changes in
accounting principles............................... $ (0.18) $ 0.49 $ (5.59) $ 1.21 $ (0.95)
Cumulative effect of changes in accounting
principles(1)....................................... -- -- -- -- (2.39)
-------- -------- -------- -------- --------
Net income (loss)..................................... $ (0.18) $ 0.49 $ (5.59) $ 1.21 $ (3.34)
======== ======== ======== ======== ========
Dividends paid............................................ $ 0.80 $ 0.80 $ 0.30 $ -- $ --
Book value................................................ 13.49 13.02 7.18 8.37 4.91
BALANCE SHEET DATA (AT END OF PERIOD):
Accounts receivable, net.................................. $ 81,045 $106,898 $ 83,966 $ 68,789 $ 51,287
Inventories(2)............................................ 80,079 76,570 70,287 53,688 42,388
Property, plant and equipment, net........................ 173,595 186,091 110,400 102,680 98,344
Total assets.............................................. 400,251 421,886 339,154 291,878 286,634
Total indebtedness........................................ 74,941 102,002 92,692 70,615 90,538
Stockholders' equity...................................... 240,568 232,157 128,088 149,516 88,349
<FN>
- - ---------------
(1) Effective January 1, 1993, the Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," and SFAS 109, "Accounting for Income Taxes." SFAS 106 requires postretirement benefits obligations to be
accounted for on an accrual basis rather than as "expense-as-incurred" basis formerly used. The Company elected to
immediately recognize the cumulative effect of these accounting changes, resulting in a non-cash reduction in earnings
for the year ended December 31, 1993 of $43.0 million or $2.39 per share. The adoption of SFAS 109 in the year ended
December 31, 1993, has not had a material effect on earnings or the financial position of the Company.
</TABLE>
40
<PAGE> 44
<TABLE>
(2) In 1991, the Company divested its automotive crankshaft operations. The following table reflects the
pro forma effect on revenues and inventories of the divestiture of the automotive crankshaft operations
as of the beginning of each of the periods presented below:
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C>
Revenue(a)........................... $372,761 $405,381 $355,390 $298,881 $239,761
Elimination of divested operations... (60,937) (61,364) (48,771) -- --
-------- -------- -------- -------- --------
Revenue from ongoing operations...... $311,824 $344,017 $306,619 $298,881 $239,761
======== ======== ======== ======== ========
Inventories.......................... $ 80,079 $ 76,570 $ 70,287 $ 53,688 $ 42,388
Elimination of divested operations... (7,438) (5,244) -- -- --
-------- -------- -------- -------- --------
Inventories of ongoing operations.... $ 72,641 $ 71,326 $ 70,287 $ 53,688 $ 42,388
======== ======== ======== ======== ========
<FN>
- - ---------------
(a) The increase in revenue from 1989 to 1990 was attributed primarily to the Company's acquisition of
its composites and casting operations.
</TABLE>
41
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
1993 COMPARED TO 1992
Revenues for 1993 decreased $59.1 million or 19.8% from 1992. This decline
in revenues was primarily attributable to continued sluggishness in the
commercial aerospace industry during 1993.
Gross margins in 1993 were $16.5 million or 6.9% of revenues as compared to
$50.8 million or 17.0% of revenues in 1992. The Company's gross margins
excluding depreciation were 12.4% and 21.5% of revenues in 1993 and 1992,
respectively. The decline in gross margins during 1993 as compared to 1992 is a
result of (1) lower production volume, (2) lower LIFO credits recorded in 1993
as compared to 1992 and (3) competitive pricing which is continuing to place
pressure on the Company's gross margins. LIFO inventory credits, which include
LIFO liquidation and deflation effects, of $7.9 million and $22.8 million were
recognized in 1993 and 1992, respectively. Excluding depreciation and the
benefits of the LIFO credit, the Company's gross margins were 9.1% of revenues
and 15.0% of revenues in 1993 and 1992, respectively.
Selling, general and administrative expenses decreased to $22.5 million in
1993 from $23.5 million in 1992, but increased as a percent of revenues from
7.9% in 1992 to 9.4% in 1993 resulting from the revenue decline. Selling,
general and administrative expenses, excluding depreciation, as a percent of
revenues were 8.9% and 7.5% in 1993 and 1992, respectively. The decrease in
selling, general and administrative expenses was mainly due to lower payroll
costs from reductions in personnel. Selling, general and administrative expenses
in 1993 included a $2.4 million fourth quarter charge resulting from a change in
estimated cash surrender values provided by the Company's insurance actuaries on
Company-owned life insurance policies.
In November 1993, the Company sold substantially all of the net assets and
business operations of its Wyman-Gordon Composites, Inc. operations. The Company
recorded a non-cash charge on the sale in 1993 of $2.5 million.
Interest expense increased to $9.9 million in 1993 from $5.8 million in
1992 primarily as a result of higher interest rates on the 10.75% Senior Notes
due 2003 (the "Senior Notes") as compared to that on the debt retired with the
proceeds of the Senior Notes. The average debt balance was $87.7 million and
$84.8 million in 1993 and 1992, respectively. The Company also wrote off $1.7
million in bank fees related to the Company's prior credit facility during 1993.
Miscellaneous, net income was $1.3 million in 1993 and $0.3 million in
1992. Miscellaneous income in 1993 reflects primarily the gain of approximately
$3.3 million on the sale of an investment. Miscellaneous income in 1992 reflects
primarily the gain of approximately $0.9 million on the sale of an investment
and a gain of approximately $0.6 million from a settlement of an overfunded
pension plan terminated in a prior year.
1992 COMPARED TO 1991
Revenues for 1992 decreased $56.5 million or 15.9% from 1991, primarily as
a result of the inclusion of $48.8 million in revenue from the Company's
divested automotive crankshaft operations in 1991. Excluding the effects of the
divested automotive crankshaft operations, in 1992 the Company experienced a
decrease in revenues of $7.7 million or 2.5% from 1991. This decrease was
primarily attributable to a decrease in revenues of approximately $22.5 million
in the defense aerospace market, offset in part by an increase in revenues of
approximately $10.2 million in the commercial aerospace market. The increase in
commercial aerospace revenues was primarily attributable to shipments of parts
for the larger jet engines manufactured by General Electric and Pratt & Whitney
for widebody aircraft.
42
<PAGE> 46
The Company's gross margins excluding the divested automotive crankshaft
operations increased to 17.0% of revenues in 1992 from 5.2% of revenues in 1991.
The Company's gross margins, excluding depreciation and the divested automotive
crankshaft operations, improved to 21.5% of revenues in 1992 from 11.1% of
revenues in 1991. The Company believes that the majority of this increase is
attributable to the implementation of various management programs designed to
improve operating performance of the Company. Specifically, the increase in
gross margins is attributable to (1) a LIFO credit of $22.8 million in 1992 as
compared to $2.6 million in 1991, (2) significant reductions in personnel, (3)
improved production cycle times, and (4) lower energy expense due to the
renegotiation of a power contract. Excluding the benefit of the LIFO credit,
depreciation and the divested automotive crankshaft operations, the Company's
gross margins increased to 13.9% of revenues in 1992 from 10.2% of revenues in
1991.
Selling, general and administrative expenses excluding the divested
automotive crankshaft operations, as a percentage of revenue was 9.0% in 1991
and 7.9% in 1992. Selling, general and administrative expenses from ongoing
operations, excluding depreciation, decreased from $26.3 million in 1991 to
$22.4 million in 1992 or, as a percentage of revenues from ongoing operations,
from 8.6% in 1991 to 7.5% in 1992. Selling, general and administrative expenses,
excluding depreciation, from the divested automotive crankshaft operations
totalled $3.1 million during 1991. The decrease in selling, general and
administrative expenses from 1991 to 1992 was attributable to lower salary and
fringe benefit expenses due to lower personnel levels and the divestiture of the
automotive crankshaft operations.
Interest expense and miscellaneous, net decreased from $10.6 million in
1991 to $5.5 million in 1992, or 48.1%. Interest expense decreased $2.3 million
(or 28.3%) during 1992 when compared to 1991 as a result of lower interest rates
(the average rate was 6.5% in 1992 compared to 8.2% in 1991) and lower debt
balances (average debt was $84.8 million in 1992 compared to $96.6 million in
1991).
The increase in miscellaneous income during 1992 is primarily attributable
to the gain on the sale of an investment totaling approximately $0.9 million,
and a gain of approximately $0.6 million from settlement of an over-funded
pension plan terminated in a prior year.
No provision for income taxes was recorded in 1992 because the Company used
tax deductions, primarily related to the restructuring reserve recorded in 1991,
which had not been previously recognized as reductions in the tax provision in
the prior years' financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations in 1993 resulted primarily from $1.0 million in
earnings before depreciation and amortization, the non-cash loss on the sale of
production facilities and the adoption of SFAS 106 (see Accounting and Tax
Matters) and decreases in working capital of $23.0 million, offset by increases
in non-working capital items of $7.1 million and expenditures of $9.6 million
for restructuring, disposal and environmental activities.
As of December 31, 1993, the Company expects to spend $0.6 million in 1994
and $5.4 million thereafter on environmental activities. The Company has
completed all environmental projects within established timetables and is
continuing to do so at the present time.
In connection with its 1991 restructuring, the Company expects to expend an
additional $12.7 million over the next several years, including approximately
$3.8 million in 1994 and $8.9 million thereafter. For 1994 and thereafter, these
expenditures include consolidation and reconfiguration of existing facilities of
$3.0 million in 1994 and $7.1 million thereafter, and severance costs of $0.8
million in 1994 and $1.8 million thereafter.
During 1991 and the years which followed, the Company has made substantial
progress in implementing its 1991 restructuring plan. The consolidation and
reconfiguration of the Company's two Massachusetts forging facilities is
substantially complete, although there are some retooling and relocation
activities which still remain to be completed in 1994 and thereafter. The
process of divesting the Company's automotive crankshaft operations is virtually
complete with minor costs remaining.
43
<PAGE> 47
In 1991 the Company charged $52.6 million against the newly established
reserve, $51.9 million of non-cash charges to write assets down to their
realizable value and $0.7 million of cash charges incurred from consolidation
and reconfiguration of existing facilities. In 1992 the Company charged $2.4
million of non-cash charges against the reserve in order to write-down certain
assets after consolidation and reconfiguration to their realizable value, cash
charges were made against the reserve for consolidation and reconfiguration of
existing facilities of $21.1 million and for severance and related costs of $2.2
million. In 1993 the Company made non-cash charges against the reserve of $1.7
million in order to write-down certain assets to their net realizeable value,
cash charges were made against the reserve for consolidation and reconfiguration
of existing facilities of $4.8 million and for severance and related costs of
$2.0 million.
<TABLE>
A summary of charges made or estimated against 1991 restructuring and
disposal reserves is as follows (000's millions):
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1991 1992 1993 1994 THEREAFTER TOTAL
----- ----- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
CASH
Consolidation and Reconfiguration of
existing facilities.................. $ 0.7 $21.1 $4.8 $3.0 $7.1 $36.7
Severance.............................. -- 2.2 2.0 0.8 1.8 6.8
----- ----- ---- ---- ----- -----
Total cash charges........... 0.7 23.3 6.8 3.8 8.9 43.5
NON-CASH
Asset Revaluation...................... 51.9 2.4 1.7 -- -- 56.0
----- ----- ---- ---- ----- -----
Total charges against reserve.......... $52.6 $25.7 $8.5 $3.8 $8.9 $99.5
===== ===== ==== ==== ===== =====
</TABLE>
The Company from time to time expends cash on capital expenditures for more
cost effective operations and joint development programs with the Company's
customers. Capital expenditures amounted to $10.2 million, $11.2 million and
$13.9 million in the years ended December 31, 1991, 1992 and 1993, respectively.
Capital expenditures in the foreseeable future are not expected to vary
materially from historical levels. As of December 31, 1993, the Company had
contributed $4.1 million in cash towards its share of the capital requirements
of its Australian joint venture for the production of nickel-based superalloy.
The Company is committed to contribute an additional $3.4 million to the joint
venture. However, the joint venture has entered into a credit agreement with an
Australian bank which the Company expects will provide sufficient liquidity to
meet the joint venture's future cash requirements. The Company has guaranteed
25% of the joint venture's obligations under the credit agreement. This
guarantee expires at such time as the joint venture demonstrates its ability to
produce commercially acceptable products. In addition, the Company has committed
to expend $5.7 million on a waste water treatment facility to comply with an
administrative order, of which $1.4 million had been spent as of December 31,
1993.
On March 16, 1993, the Company issued $90.0 million of 10 3/4% Senior Notes
due 2003. The Company used approximately $75.0 million of net proceeds from the
sale of the Senior Notes, together with its new working capital credit facility
discussed below, to retire indebtedness, replace outstanding letters of credit
and terminate its prior credit agreement.
In conjunction with the issuance of the Senior Notes, the Company
contemporaneously entered into a three year $40.0 million revolving credit
agreement with a lending institution. With the exception of the issuance of
letters of credit, there are no borrowings under this credit facility.
The primary sources of liquidity available in 1994 to fund the Company's
operations, anticipated expenditures in connection with its 1991 restructuring,
planned capital expenditures and planned environmental expenditures include
available cash ($14.8 million at December 31, 1993), borrowing availability
under the Company's $40.0 million revolving credit agreement, cash generated by
opera-
44
<PAGE> 48
tions and reductions in working capital requirements through planned inventory
reductions and accounts receivable management.
Available cash, cash from operations and debt are expected to be the
Company's primary sources of liquidity beyond 1994. The Company believes that it
has adequate resources to provide for its operations and the funding of
restructuring, capital and environmental expenditures.
The Company's current plans to improve operating results include further
reductions of personnel and various other cost reduction measures. Programs to
expand the Company's revenue base include participation in new aerospace
programs and entry into the land based gas turbine market and other markets in
which the Company has not traditionally participated. Additionally, the Company
anticipates that the aging of the current commercial airline fleet will result
in future orders for the replacement of such fleet. The Company does not,
however, expect to report a profit for 1994.
IMPACT OF INFLATION
The Company's earnings may be affected by changes in price levels and in
particular, changes in the price of basic metals. The Company's contracts
generally provide for fixed prices for finished products with limited protection
against cost increases. The Company would therefore be affected by changes in
prices of the raw materials during the term of any such contract. The Company
attempts to minimize this risk by ordering raw materials as needed to fill
specific orders, and by seeking fixed price arrangements with raw materials
suppliers.
ACCOUNTING AND TAX MATTERS
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106"), and No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 106 requires postretirement benefit obligations to be
accounted for on an accrual basis rather than the expense-as-incurred basis
formerly used. The Company elected to recognize the cumulative effect of these
accounting changes, resulting in a non-cash reduction in earnings for the year
ended 1993 of $43.0 million or $2.39 per share. (See Note E to the Consolidated
Financial Statements.)
The adoption of SFAS 109 in 1993 has not had a material effect on earnings
or the financial position of the Company. At December 31, 1993, the Company had
approximately $57.2 million in tax net operating loss carryforwards and no tax
benefits were recorded when the Company adopted SFAS 106. (See Note I to the
Consolidated Financial Statements.)
During 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Post-employment Benefits." This standard provides that the Company follow an
accrual method of accounting for benefits payable to employees when they leave
the Company other than by reason of retirement. The Company currently accounts
for these costs on an expense-as-incurred basis. The effect of adopting the new
rule is not expected to be material to the Company's financial position or
results of operations.
CHANGE IN ACCOUNTANTS
On June 17, 1992, the Company changed its independent accountants from
Coopers & Lybrand to Ernst & Young. Coopers & Lybrand's reports for the years
ended December 31, 1990 and 1991 contained no adverse opinion, disclaimer or
qualification as to uncertainty, audit scope or accounting principles. Through
the date of dismissal, there were no disagreements between the Company and
Coopers & Lybrand on any matter of accounting principles or practices, financial
statement disclosures, or auditing scope or procedures that if not resolved to
the satisfaction of Coopers & Lybrand would have caused such firm to make
reference thereto in connection with its reports on the financial statements of
the Company. The Company's decision to change its independent accountants was
approved by the Audit Committee of the Company's Board of Directors and by the
full Board.
45
<PAGE> 49
BUSINESS OF THE COMPANY
GENERAL
Wyman-Gordon Company, founded in 1883, is a leading producer of highly
engineered, technically advanced components, primarily for the aerospace
industry. The Company uses forging and investment casting technologies to
produce components to exacting customer specifications for demanding
applications such as jet turbine engines and airframes. The Company also designs
and produces prototype products using composite technologies.
JET ENGINE COMPONENTS
The Company manufactures numerous forged and cast components for jet
engines for both commercial and defense aircraft produced by all of the major
manufacturers, including General Electric, Pratt & Whitney, Rolls-Royce and CFM
International. The Company's forged engine parts include fan discs, compressor
discs, turbine discs, seals, spacers and cases. Cast engine parts include thrust
reversers, valves and fuel system parts such as combustion chamber swirl guides.
Jet engines may produce in excess of 100,000 pounds of thrust and may subject
parts produced by the Company to temperatures reaching 1,350()F. Components for
such extreme conditions require precision manufacturing and expertise with
high-purity titanium and nickel-based superalloys. Rotating parts such as fan
compressor and turbine discs must be manufactured to precise quality
specifications.
AIRFRAME STRUCTURAL COMPONENTS
The Company manufactures forged and cast structural parts for fixed-wing
aircraft and helicopters. These products include wing spars, engine mounts,
struts, landing gear beams, landing gear, wing hinges, wing and tail flaps,
housings, and bulkheads. These parts may be made of titanium, steel, aluminum
and other alloys, as well as composite materials. The Company also produces
dynamic rotor forgings for helicopters. Forging is particularly well-suited for
aircraft parts because of its ability to impart greater proportional strength to
metal than other manufacturing processes. Investment casting can produce complex
shapes to precise, repeatable dimensions.
The Company has been a major supplier for many years of the beams that
support the main landing gear assemblies on the Boeing 747 and has begun
shipment of main landing gear beams for the new Boeing 777 widebody. The Company
forges landing gear and other airframe structural components for the Boeing 747,
757, 767 and 777, the McDonnell Douglas MD-11 and the Airbus A330 and A340. The
Company produces structural forgings for the F-15, F-16 and F-18 fighter
aircraft and the Sikorsky Black Hawk helicopter. The Company has also been
contracted to produce large, one-piece bulkheads for Lockheed and Boeing for the
new F-22 advanced tactical fighter.
OTHER PRODUCTS
The Company produces steam turbine and gas turbine generator components for
land-based power generation applications. The Company also manufactures shafts,
cases, compressor and turbine discs for marine gas turbines. The Company's
investment castings operation produces components for medical devices, power
equipment, food processing equipment, land-based military equipment such as
tanks, and various other applications. The Company derived approximately 5% of
its 1992 and 1993 revenues from sales of nonaerospace products. In 1992, the
Company received preliminary vendor qualification to provide components to a
major producer of land-based gas turbines. The Company expects to receive final
vendor qualifications in the second quarter of 1994 and has received an order to
produce those components beginning in 1994.
46
<PAGE> 50
<TABLE>
MARKETS
The principal markets served by the Company are commercial aerospace and
defense equipment. Revenue from these markets over the last three years,
excluding the Company's divested automotive crankshaft operations, have been as
follows:
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1991 1992 1993
----------------- ----------------- -----------------
% OF % OF % OF
MARKET REVENUE TOTAL REVENUE TOTAL REVENUE TOTAL
------ -------- ----- -------- ----- -------- -----
(000'S OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Commercial aerospace............. $161,075 53% $171,312 57% $127,635 53%
Defense equipment................ 135,573 44 113,029 38 101,329 42
Other............................ 9,982 3 14,540 5 10,797 5
-------- ----- -------- ----- -------- -----
Total....................... $306,630 100% $298,881 100% $239,761 100%
======== ===== ======== ===== ======== =====
</TABLE>
COMMERCIAL AEROSPACE
The Company manufactures high-technology forged and cast products for
virtually all models of commercial aircraft produced in the United States and
several aircraft produced in Europe. Forged and investment cast parts include a
wide variety of components for both the jet engines and structural airframes of
these aircraft. The Company's composite operation designs and produces aerospace
prototypes. The Company also produces products utilized in general aviation and
business jet aircraft.
DEFENSE EQUIPMENT
The Company is a supplier to builders of military aircraft and missiles,
manufacturing forged and investment cast components for jet engines as well as
structural components and systems for defense and defense related industries.
The Company manufactures fan, compressor and turbine discs, seals and spacers
for jet engines, structural components such as aluminum, steel and titanium
bulkheads for military aircraft and various fittings, spars and landing gear
components. The Company also produces gunports for aircraft and weapons cases
for missiles and rockets. For naval defense applications, the Company
manufactures components for nuclear propulsion plants, as well as pump, valve,
structural and non-nuclear propulsion forgings.
OTHER MARKETS
The Company also participates in a number of other markets, principally in
the nuclear and non-nuclear power generation, marine and food processing
industries. The Company is actively seeking to identify alternative applications
for its capabilities, such as the automotive and other commercial markets.
CUSTOMERS
The Company has approximately 100 active customers that purchase forgings,
approximately 425 active customers that purchase investment castings and
approximately ten active customers that purchase composite structures. The
Company's principal customers are similar across all of these production
processes. Five customers, General Electric Company, United Technologies
Corporation (principally its Pratt & Whitney Division), Boeing Company,
McDonnell Douglas Corporation and Mitsui & Company U.S.A., accounted for
approximately 53% of the Company's revenues during 1992 and approximately 54% of
the Company's revenues during 1993. General Electric and United Technologies
each accounted for more than 10% of revenues for 1992 and 1993.
The Company has organized its operations into product groups which focus on
specific customers or groups of customers with similar needs. The Company has
become actively involved with its aerospace customers through joint development
relationships and cooperative research and development, engineering, quality
control, just-in-time inventory control and computerized design programs. This
involvement begins with the design of the tooling and processes to manufacture
the customer's components to its precise specifications.
47
<PAGE> 51
The Company increasingly participates with its customers in joint
development projects. The Company's plasma arc melting ("PAM") unit is being
developed in cooperation with General Electric Company in order to develop new
processing techniques and materials, including alloys for use in components for
the new GE90 jet engine. In addition, General Electric has contracted with the
Company to produce tooling for several components for the GE90 engine. Another
customer partnership involves the creation of a joint venture with Pratt &
Whitney and Australian investors to produce aerospace grade, nickel-based
superalloy ingot in Perth, Australia. Pratt & Whitney has committed to purchase
a portion of the joint venture's output, and the Company anticipates that a part
of such commitment will be satisfied through orders of forgings produced by the
Company.
MARKETING AND SALES
The Company markets its products principally through its own sales
engineers and makes only limited use of manufacturers' representatives.
Substantially all sales are made directly to original equipment manufacturers.
The Company's sales are not subject to significant seasonal fluctuations,
although production in the third quarter normally tends to be somewhat less than
that of other quarters as a result of scheduled plant shutdowns.
A substantial portion of the Company's revenues is derived from long-term,
fixed price contracts with major engine and aircraft manufacturers. These
contracts are typically "requirements" contracts under which the purchaser
commits to purchase a given portion of its requirements of a particular
component from the Company. Actual purchase quantities are typically not
determined until shortly before the year in which products are to be delivered.
<TABLE>
BACKLOG
The backlog of unfilled orders from customers at the following dates in the
commercial aerospace, defense and other markets served by the Company was as
follows:
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1991 1992 1993
----------------- ----------------- -----------------
% OF % OF % OF
MARKET BACKLOG TOTAL BACKLOG TOTAL BACKLOG TOTAL
------ -------- ----- -------- ----- -------- -----
(000'S OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Commercial aerospace.............. $266,103 69% $205,771 66% $167,740 65%
Defense equipment................. 103,648 27 97,224 31 82,000 32
Other............................. 17,154 4 6,684 3 6,519 3
-------- ----- -------- ----- -------- -----
Total........................ $386,905 100% $309,679 100% $256,259 100%
======== ===== ======== ===== ======== =====
</TABLE>
The decreased level of backlog at December 31, 1992 is attributable
primarily to (1) delays by the Company's two largest engine component customers
releasing long-term supply agreements to their supplier base, (2) more rapid
production cycle times which require shorter lead order times and (3) the
implementation of just-in-time delivery schedules by customers.
The decreased level of backlog at December 31, 1993 is attributable
primarily to (1) continuing lower levels of demand in the commercial aerospace
and defense equipment markets, (2) the inclusion at December 31, 1992 of backlog
of approximately $12.9 million related to the Company's Wyman-Gordon Composites,
Inc. operation which was sold in November of 1993 and (3) the continued effect
of the implementation of just-in-time delivery schedules by customers.
At December 31, 1993, approximately $153.0 million of total backlog was
scheduled to be shipped within one year and the remainder in subsequent years,
although there can be no assurances that products ordered will be shipped as
scheduled.
MANUFACTURING PROCESSES
The Company employs three manufacturing processes: forging, investment
casting and composites production.
48
<PAGE> 52
FORGING
Forging is the process by which desired shapes, metallurgical
characteristics, and mechanical properties are imparted to metal by heating and
shaping it through hammering or pressing. The Company forges alloys of titanium,
aluminum and steel as well as high temperature nickel-based superalloys.
The Company manufactures most of its forged aerospace components at its
facilities in Grafton and Worcester, Massachusetts (although the Company
continues to consolidate its forging operations into the Grafton facility). The
Company has three large closed-die hydraulic forging presses rated at 18,000,
35,000 and 50,000 tons, an open-die cogging press rated at 2,000 tons and a
hydraulic isothermal forging press rated at 8,000 tons. The Company also
operates forging hammers rated up to 35,000 pounds, a 220-ton ring-roll and
supporting facilities. The Company employs all major forging processes,
including the following:
Open-Die Forging. In this process, the metal is forged between dies that
never completely surround the metal, thus allowing the metal to be observed
during the process. Typically, open-die forging is used to create relatively
simple, preliminary shapes.
Closed-Die Forging. Closed-die forging involves hammering or pressing
heated metal into the required shape and size determined by machined impressions
in specially prepared dies which exert three dimensional control on the metal.
In hot-die forging, a type of closed-die process, the dies are heated to a
temperature approaching the transformation temperature of the materials being
forged so as to allow the metal to flow more easily within the die cavity, which
enhances the repeatability of the part shapes and allows greater metallurgical
control. Both titanium and nickel-based superalloys are forged using this
process, in which the dies are heated to a temperature of approximately
1,300()F.
Isothermal Forging. Isothermal forging is a closed-die process in which
the dies are heated to the same temperature as the metal being forged, typically
in excess of 1,900()F. The forged material typically consists of nickel-based
superalloy powders. Because of the extreme temperatures necessary for forming
these alloys, the dies must be made of refractory metal (such as molybdenum) so
that the die retains its strength and shape during the forging process. Because
the dies may oxidize at these elevated temperatures, the forging process is
carried on in a vacuum or inert gas atmosphere. The Company's isothermal press
also allows it to produce near-net shape components (requiring less machining by
the customer) made from titanium alloys, which can be an important competitive
advantage in times of high titanium prices. The Company carries on this process
in its 8,000-ton isothermal press.
Ring-Rolling. This process, conducted on the Company's 220-ton ring-roll,
involves rotating heated metal rings between two rotating rolls to produce
seamless metal rings for use as seals, cases, spacers and similar parts for jet
turbine engines. The Company can produce rings up to 80 inches in diameter and
20 inches in height.
Titanium and Superalloy Production. The Company has backward-integrated
into the manufacturing of raw materials used in its forging processes. In 1987
the Company began to cast titanium scrap and "sponge" into ingot and to convert
the ingot into billet by forging the ingot on its forging presses. Such billet
may be used as raw material for the Company's forgings or may be converted or
sold for other uses. The Company markets titanium ingots, billets, engineered
mults and open-die forgings for use outside the Company's forging activities.
The Company's PAM unit produces high quality titanium and can also be modified
for the manufacture of nickel-based superalloy powders through an atomization
process. The Company expects that the PAM unit will be certified by certain
customers for the manufacture of some of their components in late 1994 and will
thereafter produce the high-purity materials required for future high
performance jet engines. The Company entered into a joint venture with Pratt &
Whitney and certain Australian investors to produce nickel-based superalloy
ingots in Perth, Australia. The Company expects that these ingots will be
utilized as raw materials for the Company's forging and casting products. See
"Business of the Company -- Customers."
49
<PAGE> 53
Support Operations. The Company manufactures its own forging dies out of
high-strength steel and molybdenum. These dies can weigh in excess of 100 tons
and can be up to 25 feet in length. In manufacturing its dies, the Company takes
its customers' drawings and engineers the dies using CAD/CAM equipment and
sophisticated metal flow computer models that simulate metal flow during the
forging process. This activity improves die design and process control and
permits the Company to enhance the metallurgical characteristics of the forging.
The Company also has a large machine shop with computer aided profiling
equipment, vertical turret lathes and other equipment that it employs to rough
machine products to a shape required to allow inspection of the products. The
Company also operates rotary and car-bottom heat treating furnaces that enhance
the performance characteristics of the forgings. These furnaces have sufficient
capacity to handle all the Company's forged products. The Company subjects its
products to extensive quality inspection and contract qualification procedures
involving zyglo, chemical etching, ultrasonic, red dye, and electrical
conductivity testing facilities.
INVESTMENT CASTING
The Company's investment castings operations use modern, automated, high
volume production equipment and both air-melt and vacuum-melt furnaces to
produce a wide variety of complex investment castings. Castings are made of a
range of metal alloys including aluminum, magnesium, steel, titanium and
nickel-based superalloys.
The Company's casting operations are conducted in facilities located in
Connecticut, New Hampshire, Nevada and California. These plants house air and
vacuum-melt furnaces, wax injection machines and investment dipping tanks. The
Company's Groton, Connecticut facility was recently expanded to produce high
quality titanium castings.
Investment castings are produced in four major stages. First, aluminum
molds, known as "tools," are fabricated in the shape of the component to the
specifications of the customer. Tools are primarily purchased from outside die
makers, although the Company maintains internal tool-making capabilities. Wax is
injected into the mold from a heated reservoir to form a "pattern." In the
second stage, the wax patterns are mechanically coated with a sand and
silicate-bonded slurry. This forms a ceramic shell which is subsequently
air-dried under controlled environmental conditions. The wax inside this shell
is then melted and removed in a high temperature steam autoclave and the molten
wax is recycled. In the third, or foundry stage, metal is melted in an electric
furnace in either an air or vacuum environment and poured into the ceramic
shell. After cooling, the ceramic shells are removed by vibration. The metal
parts are then cleaned in a high temperature caustic bath, followed by water
rinsing. In the fourth, or finishing stage, the castings are finished to remove
excess metal. The final product then undergoes a lengthy series of inspections
(radiography, fluorescent penetrant, magnetic particle and dimensional) to
ensure quality and consistency.
COMPOSITES
The Company's composites operation, Scaled Composites, Inc., designs,
fabricates and tests prototypes for aerospace, automotive and other customers.
These customers include Lawrence Livermore Laboratories, Orbital Sciences Corp.
and McDonnell Douglas. In November 1993, the Company sold substantially all of
the net assets and business operations of its Wyman-Gordon Composites, Inc.
operations. Accordingly, such operations are not included in the above
discussion.
50
<PAGE> 54
<TABLE>
FACILITIES
The following table sets forth certain information with respect to the
Company's major facilities at December 31, 1993. The Company believes that its
facilities are well-maintained, are suitable to support the Company's business
and are adequate for the Company's present and anticipated needs. At December
31, 1993, the Company's forging, investment casting and composites facilities
were operating at approximately 35%, 55% and 97% of their total productive
capacity, respectively.
<CAPTION>
APPROXIMATE PRIMARY OWNED/
LOCATION SQUARE FOOTAGE FUNCTION LEASED
-------- -------------- -------- ------
<S> <C> <C> <C>
Grafton, Massachusetts............ 85,420 Administrative Offices Owned
Grafton, Massachusetts............ 843,200 Forging Owned
Worcester, Massachusetts.......... 43,200 Currently idle Owned
Worcester, Massachusetts.......... 323,700 Forging Owned
Millbury, Massachusetts........... 104,125 Research and Development, Owned
Metals Production
Groton, Connecticut (2 plants).... 162,550 Casting Owned
Franklin, New Hampshire........... 43,200 Currently idle Owned
Tilton, New Hampshire............. 94,000 Casting Owned
Carson City, Nevada............... 46,000 Casting Owned
San Leandro, California........... 45,000 Casting Owned
Mojave, California................ 67,000 Composites Owned
</TABLE>
RAW MATERIALS
Raw materials used by the Company in its forgings and castings include
alloys of titanium, nickel, steel, aluminum and other high-temperature alloys.
The composites operation uses high-strength fibers such as fiberglass or
graphite, as well as materials such as foam and epoxy, to fabricate composite
structures. The major portion of metal requirements for forged and cast products
are purchased from major nonferrous metal suppliers producing forging and
casting quality material as needed to fill customer orders. The Company has two
or more sources of supply for all significant raw materials. The Company
satisfies some of its titanium requirements internally by producing titanium
alloy from titanium scrap and "sponge." The Company's PAM unit will also produce
high-quality titanium and advanced nickel alloys.
The titanium and nickel-based superalloys utilized by the Company have a
high dollar value. Accordingly, the Company attempts to recover and recycle
scrap materials such as machine turnings, forging flash, scrapped forgings, test
pieces and casting sprues, risers and gates.
In the event of customer cancellation, the Company may, under certain
circumstances, obtain reimbursement from the customer if the material cannot be
diverted to other uses. Costs of material already on hand, along with any
conversion costs incurred, have generally been billed to the customer unless
transferable to another order.
ENERGY USAGE
The Company is a large consumer of energy. Energy is required primarily for
heating materials to be forged and cast melting of ingots, heat-treating
materials after forging and casting, and operating forging hammers, forging
presses, melting furnaces, ring-rolls, die-sinking, mechanical manipulation and
pollution control equipment and space heating. The Company uses natural gas, oil
and electricity in varying amounts at its manufacturing facilities. In recent
years, the Company's production facilities experienced no energy shortages which
caused them to curtail their operations.
EMPLOYEES
As of December 31, 1993, the Company had 1,853 employees of whom
approximately 612 were executive, administrative, engineering, research, sales
and clerical and 1,241 production and craft. Approximately 44% of the production
and craft employees, consisting of employees in the forging
51
<PAGE> 55
business, are represented by a union. In April 1992, the Company entered into a
new three year collective bargaining agreement with the forging operations
employees.
RESEARCH AND PATENTS
The Company maintains a research and development center at Millbury,
Massachusetts which is engaged in applied research and development work
primarily relating to the Company's forging operations. The Company works
closely with customers, universities and government technical agencies in
developing advanced forging materials and processes. The Company's composites
operation conducts research and development related to aerospace composite
structures at the Mojave, California facility. The Company expended
approximately $2.8 million on applied research and development work during 1993.
Although the Company owns patents covering certain of its processes, the Company
does not consider that these patents are of material importance to the Company's
business as a whole. All of the Company's products are manufactured to customer
specifications and, consequently, there are no proprietary products.
COMPETITION
Most of the Company's production capabilities are possessed in varying
degrees by other companies in the industry, including both domestic and foreign
manufacturers. Competition is intense among the companies currently involved in
the industry. Competitive advantages are afforded to those with high quality
products, low cost manufacturing, excellent customer service and delivery and
engineering and production expertise.
ENVIRONMENTAL REGULATIONS
The Company is subject to extensive, stringent and changing federal, state
and local environmental laws and regulations, including those regulating the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of alleged environmental contamination. Accordingly, the Company is
involved from time to time in administrative and judicial inquiries and
proceedings regarding environmental matters. Nevertheless, the Company believes
that compliance with these laws and regulations will not have a material adverse
effect on the Company's operations as a whole. The Company continues to design
and implement a system of programs and facilities for the management of its raw
materials, production processes and industrial waste to promote compliance with
environmental requirements. In the fourth quarter of 1991, the Company recorded
a pre-tax charge of $7.0 million with respect to environmental investigation and
remediation costs at the Grafton facility and a pre-tax charge of $5.0 million
against potential environmental remediation costs upon the eventual sale of the
Worcester facility. Pursuant to an agreement entered into with the U.S. Air
Force upon the acquisition of the Grafton facility from the federal government
in 1982, the Company has agreed to make additional expenditures of approximately
$10.1 million for environmental management and remediation projects at that site
during the period 1992 through 1999, including $4.4 million for new wastewater
treatment facilities to be constructed during 1993 and 1994 in accordance with
an administrative compliance order entered into with the United States
Environmental Protection Agency (the "EPA"). The Company, together with numerous
other parties, has also been alleged to be a potentially responsible party
("PRP") at the following four federal or state superfund sites: Operating
Industries, Monterey Park, California; Cedartown Municipal Landfill, Cedartown,
Georgia; PSC Resources, Palmer, Massachusetts; and the Gemme site, Leicester,
Massachusetts. The Company believes that any liability it may incur with respect
to these sites will not be material. In view of the relatively small number of
PRP's identified at the Gemme site, the possibility exists that the Company
could ultimately be liable for remediation costs in excess of its pro rata share
of the wastes disposed of at that site. Preliminary engineering studies of the
potential remediation costs associated with this site estimate that these costs
could range from $0.3 million to $9.9 million, depending on the levels of
toxicity ultimately found and the method or methods of remediation selected. No
allocation of liability has yet been agreed upon by the PRPs.
52
<PAGE> 56
The Company's Grafton, Massachusetts plant location is one of 46 sites
throughout the country included in the U.S. Nuclear Regulatory Commission's
("NRC") May 1992 Site Decommissioning Management Plan ("SDMP") for low-level
radioactive waste. The SDMP identifies the Company's site as a "Priority C"
(lowest priority) site. The NRC conducted a long-range dose assessment in 1992
to determine what action, if any, it would order with respect to the site; its
draft report states that the site should be remediated. However, the Company
believes that the NRC's draft assessment was flawed and has retained an
environmental engineering firm to challenge that draft assessment. The Company
has submitted the environmental engineering firm's Dose Assessment Review to the
NRC for consideration but has had no response from the NRC to date. The Company
has provided $1.5 million for the estimated cost of the remediation. The Company
believes that it may have meritorious claims for reimbursement from the U.S. Air
Force in respect of any liabilities it may have for such remediation.
PRODUCT LIABILITY EXPOSURE
The Company produces many critical engine and structural parts for
commercial and military aircraft. As a result, the Company faces an inherent
business risk of exposure to product liability claims. The Company maintains
insurance against product liability claims, but there can be no assurance that
such coverage will continue to be available on terms acceptable to the Company
or that such coverage will be adequate for liabilities actually incurred. The
Company has not experienced any material loss from product liability claims and
believes that its insurance coverage is adequate to protect it against any
claims to which it may be subject.
LEGAL PROCEEDINGS
At December 31, 1993, the Company was involved in certain legal proceedings
arising in the normal course of its business. The Company believes the outcome
of these matters will not have a material adverse effect on the Company.
In December 1992, the Company made a number of modifications to the
Company's retiree health plans to limit the Company's obligations thereunder. In
1993, two separate class action suits were filed by certain retirees from the
Company's Massachusetts and Michigan facilities contesting the Company's
actions. The Company believes that it has meritorious defenses to these lawsuits
and intends to defend its actions vigorously. The Company further believes that
the outcome of this litigation will not have a material adverse effect on the
Company.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
OVERALL POLICY
The Management Resources and Compensation Committee (the "Committee") of
the Board of Directors is composed entirely of independent outside directors.
The Committee is responsible for setting and administering the policies which
govern the Company's executive compensation and stock ownership programs.
The Company's executive compensation program is designed to be closely
linked to corporate performance and return to stockholders. To this end, the
Company maintains an overall compensation policy and specific compensation plans
that tie a significant portion of executive compensation to the Company's
success in meeting specified annual performance goals and to appreciation in the
price of Shares. The overall objectives of this strategy are to attract and
retain talented executives, to motivate those executives to achieve the goals
inherent in the Company's business strategy, to link executive and stockholder
interests through equity based incentive plans and, finally, to provide a
compensation package that recognizes individual contributions as well as overall
business results.
53
<PAGE> 57
The Committee approves the compensation of John M. Nelson, the Company's
Chief Executive Officer, and Messrs. Gruber, Leon and Whitney, the three
corporate executives who report directly to Mr. Nelson. Each of these officers'
compensation is detailed below. The Committee also sets policies in order to
ensure consistency throughout the executive compensation program. In reviewing
the individual performance of the executives whose compensation is determined by
the Committee (other than Mr. Nelson), the Committee takes into account Mr.
Nelson's evaluation of their performance.
There are three principal elements of the Company's executive compensation
program: base salary, annual bonus and stock options. The Committee's policies
with respect to each of these elements, including the bases for the compensation
awarded to Mr. Nelson, are discussed below. In addition, while the elements of
compensation described below are considered separately, the Committee takes into
account the full compensation package provided by the Company to the individual,
including pension benefits, supplemental retirement benefits, savings plans,
severance plans, insurance and other benefits, as well as the programs described
below. The Committee did not rely on compensation surveys or the services of
consultants in making its determinations regarding compensation amounts or the
relative proportions of fixed and variable compensation; rather its decision was
based on its own judgment as to the most efficient manner of achieving the
Company's compensation objectives specified above.
BASE SALARIES
Base salaries for new executive officers are initially determined by
evaluating the responsibilities of the position held and the experience of the
individual, taking into account the competitive marketplace.
Annual salary adjustments are determined by evaluating the performance of
the Company and of each executive officer, and also take into account changed
responsibilities. The Committee, where appropriate, also considers non-financial
performance measures such as increase in market share, manufacturing efficiency
gains, improvements in product quality and improvements in relations with
customers, suppliers and employees.
Mr. Nelson serves as Chief Executive Officer of the Company pursuant to a
May 21, 1991 employment agreement. Mr. Nelson's employment agreement calls for
the payment of an annual base salary of $300,000 during his service as the
Company's Chief Executive Officer. In determining Mr. Nelson's base salary, the
Committee took into account a comparison of base salaries of chief executive
officers of other companies, the Company's financial situation and Mr. Nelson's
experience as chief executive officer of a Fortune 500 company. Mr. Nelson's
base salary is approximately 35% lower than that of his predecessor. Pursuant to
his employment agreement, the Committee granted Mr. Nelson an option in 1991 to
purchase 300,000 Shares at a price of $6.625 per Share. This mix of compensation
was determined by the Committee based on its philosophy that executive
compensation should be variable as much as possible.
ANNUAL BONUS
The Company maintains a Management Incentive Plan ("MIP") under which
executive officers (as well as other key employees) are eligible for an annual
cash bonus. The Committee establishes individual and corporate performance
objectives at the beginning of each year. Eligible executives are assigned
threshold, target and maximum bonus levels. The Committee determines the
corporate performance targets for bonus payments based on the corporate
financial plan for the ensuing year and may use such measures as operating
income and cash generation. If minimum objectives are not met, no bonuses are
paid. As in the case of base salary, the Committee may consider individual non-
financial performance measures and, where appropriate, unit performance
measures, in determining bonus amounts. The Committee has final authority in
interpreting the MIP and discretion in making any awards under the MIP.
54
<PAGE> 58
In 1993, as in 1992, the Committee determined that in view of the Company's
financial condition, it would be inappropriate to adopt a bonus plan under the
MIP and thus no bonuses have been or will be paid under the MIP for 1993
performance.
At the recommendation of Mr. Nelson, the Committee authorized the grant of
special bonuses in 1993 to Messrs. Gruber, Leon and Whitney to recognize their
efforts in successfully refinancing the Company's debt in adverse circumstances
during the year. Such bonuses were granted apart from the operation of the MIP
and are reported in the Summary Compensation Table following this report.
STOCK OPTIONS
Under the Company's Long-Term Incentive Plan, options with respect to
Shares may be granted to the Company's key employees, including executive
officers. The Committee sets guidelines for the size of stock option awards
based on factors similar to those used to determine base salaries and annual
bonus.
Stock options are designed to align the interests of executives with those
of the shareholders. Stock options may be exercised over a ten-year period at an
exercise price equal to the market price of the Shares on the date of grant and
vest over three years. This approach is designed to provide an incentive for the
creation of shareholder value over the long term since the full benefit of the
compensation package cannot be realized unless appreciation of the price of
Shares occurs over a number of years. In 1993 the Committee granted options to a
total of 48 key employees; the Committee believes that broad dissemination of
options within the Company enhances the benefits to the Company of stock-based
incentives.
In 1993, Mr. Nelson was granted options to purchase 25,000 Shares with an
exercise price of $5.125 per Share and now has options to purchase a total of
375,000 Shares. The 1993 grant was made to further the Committee's view that
executive compensation ought to be dependent in large measure on the performance
of the Company and the Shares. Mr. Nelson now beneficially owns 52,000 Shares
that he purchased on the open market since he became Chief Executive Officer.
The Committee believes that significant equity interests in the Company held by
the Company's management better align the interests of shareholders and
management.
CONCLUSION
Through the incentive and stock option programs described above, a
significant portion of the Company's executive compensation is linked directly
to individual and corporate performance and stock price appreciation. The
Committee intends to continue the policy of linking executive compensation to
corporate performance and returns to stockholders, recognizing that the ups and
downs of the business cycle from time to time may result in an imbalance for a
particular period.
Charles A. Zraket, Chairman
E. Paul Casey
Robert G. Foster
Judith S. King
55
<PAGE> 59
EXECUTIVE COMPENSATION
The remuneration of the Company's Chief Executive Officer and each of the
four most highly compensated executive officers at December 31, 1993 for
services rendered to the Company during 1993, 1992 and 1991 is reported in the
table set forth below. The remuneration of Edouard C. Thys, who retired from the
Company in October 1993, is also reported.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------------
--------------------------- NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- - --------------------------- ---- -------- ------- --------- ---------------
<S> <C> <C> <C> <C> <C>
John M. Nelson 1993 $300,000(2) 25,000 $ 4,440
Chairman and Chief Executive Officer 1992 300,000 50,000 11,934
1991 163,731 300,000 6,224
David P. Gruber 1993 200,000(2) $50,000 50,000 9,124
President and Chief Operating Officer 1992 200,000 45,000 3,168
1991 50,000 100,000 793
Luis E. Leon 1993 150,000(2) 40,000(3) 6,000 7,143
Vice President, Finance and Treasurer 1992 150,000 31,000 5,068
1991 96,154 45,000 50,000 30,949
Wallace F. Whitney, Jr. 1993 144,000(2) 30,000 6,000 6,494
Vice President, General Counsel and 1992 144,000 31,000 1,329
Clerk 1991 79,749 50,000 711
Sanjay N. Shah 1993 135,204 6,000 5,522
Vice President, Assistant General 1992 116,434 21,000 611
Manager, Forgings Division 1991 107,195 50,000 1,244
Edouard C. Thys 1993 127,379 17,178(4) 4,936
Group Vice President, 1992 158,949 17,441(4) 2,818 4,532
Wyman-Gordon Investment Castings, 1991 160,492 22,832(4) 4,090 4,532
Inc.
- - ---------------
<FN>
(1) Consists of Company contributions to the Savings/Investment Plan described elsewhere in this
Proxy Statement, group term life insurance premiums and, in the case of Mr. Leon in 1991, moving
expense reimbursement and related income tax gross-up.
(2) Salary stated represents payment for remainder of the year after becoming employed by the Company.
(3) Mr. Leon's 1991 bonus was paid pursuant to contractual arrangements entered into at the time of
his employment.
(4) Mr. Thys' bonuses were paid pursuant to a profit-sharing plan covering all employees of Wyman-Gordon
Investment Castings, Inc.
</TABLE>
56
<PAGE> 60
The table below presents information with respect to stock options
("Options") granted during 1993 to the Chief Executive Officer and those
executive officers named in the Summary Compensation Table who received Options
pursuant to the terms of the 1991 Long-Term Incentive Plan (the "Option Plan").
No options were granted to Mr. Thys in 1993. No stock appreciation rights
("SARs") are attached to the Options granted in 1993.
<TABLE>
OPTION GRANTS IN 1993
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATE OF STOCK
% OF TOTAL PRICE APPRECIATION
NUMBER OF OPTIONS GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED FISCAL YEAR (PER SHARE)(1) DATE 5% 10%
---- --------- --------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
J. M. Nelson............. 25,000 8.8 $5.125 10/19/03 $ 80,577 $204,198
D. P. Gruber............. 50,000 17.5 5.125 10/19/03 161,154 408,397
L. E. Leon............... 6,000 2.1 5.125 10/19/03 19,339 49,008
W. F. Whitney, Jr........ 6,000 2.1 5.125 10/19/03 19,339 49,008
S. N. Shah............... 6,000 2.1 5.125 10/19/03 19,339 49,008
- - ---------------
<FN>
(1) Exercise price of each option grant was equal to the market price of the Shares on the date of grant.
</TABLE>
The following table relates to aggregate grants of Options and SARs under
the Option Plan and the 1975 Executive Long-Term Incentive Program, which
expired on December 31, 1992 and under which no additional grants may be made.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN 1993
AND 12/31/93 OPTION/SAR VALUES
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS/SARS OPTIONS/SARS
SHARES ACQUIRED AT 12/31/93 AT 12/31/93(1)
NAME ON EXERCISE VALUE REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
J. M. Nelson........ -- -- 216,667/158,333 $-- / --
D. P. Gruber........ -- -- 81,667/113,333 58,334/29,333
L. E. Leon.......... -- -- 43,666/43,334 23,333/11,734
W. F. Whitney, Jr... -- -- 43,666/43,334 29,333/14,667
S. N. Shah.......... -- -- 49,798/36,667 29,333/14,667
E. C. Thys.......... -- -- 6,994/7,418 2,340/1,199
- - ---------------
<FN>
(1) The value of an SAR attached to an Option granted prior to 1992 is equal to 80% of the excess of the fair
market value of a Share on the date of exercise over the exercise price of such Option.
</TABLE>
PENSION BENEFITS
All salaried employees and executive officers of the Company participate in
a defined benefit pension plan (the "Pension Plan"). Under the terms of the
Pension Plan each eligible employee receives a retirement benefit based on the
number of years of his or her credited service (to a maximum 35 years) and
average annual total earnings (salary plus incentive bonus only) for the five
consecutive most highly paid years during the ten years preceding retirement. In
addition, with the exception of
57
<PAGE> 61
Messrs. Nelson and Thys, the executive officers covered by the Summary
Compensation Table and certain other key executives designated by the Committee
are eligible to receive benefits under the Supplemental Retirement Plan for
Senior Executives (the "Supplemental Pension Plan"). Under the Supplemental
Pension Plan, participants who have been employed by the Company for at least 15
years and who retire on or after their 62nd birthday receive an annual pension
which, when added to other retirement benefits received from the Company, totals
50% of their highest average annual earnings during any preceding
60-consecutive-month period. This supplemental benefit is reduced if the
participant has been employed for less than 15 years or retires prior to age 62
and may be further reduced by certain other income benefits payable to
participants. Benefits under the Pension Plan are not offset for Social Security
payments but Supplemental Pension Plan benefits are offset for such payments. If
the Committee so determines, payments under the Supplemental Pension Plan may be
terminated if a retired participant becomes "substantively employed," as defined
in the Supplemental Pension Plan, by another employer before age 65. The
following table indicates the aggregate estimated annual benefits payable, as
single life annuity amounts, under both the Pension Plan and the Supplemental
Pension Plan to participants retiring in various categories of earnings and
years of service. To the extent that an annual retirement benefit exceeds the
limit imposed by the Code, the difference will be paid from the general
operating funds of the Company.
As of December 31, 1993, the individuals named in the Summary Compensation
Table had full credited years of service with the Company as follows: Mr.
Nelson, 2; Mr. Gruber, 2; Mr. Leon, 2; Mr. Whitney, 2; Mr. Shah, 18; and Mr.
Thys, 35.
<TABLE>
PENSION BENEFITS
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------
REMUNERATION 10 16 25 38
- - ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$125,000 $ 50,000 $ 62,500 $ 62,500 $ 62,500
150,000 60,000 75,000 75,000 75,000
175,000 70,000 87,500 87,500 87,500
200,000 80,000 100,000 100,000 100,118
225,000 90,000 112,500 112,500 113,243
250,000 100,000 125,000 125,000 126,368
300,000 120,000 150,000 150,000 152,618
400,000 160,000 200,000 200,000 205,118
</TABLE>
58
<PAGE> 62
TOTAL SHAREHOLDER RETURN
The graph presented below compares the yearly percentage change in the
Company's cumulative total shareholder return, assuming dividend reinvestment,
with the cumulative total return of the Dow Jones Equity Market Index, a broad
market index, and the Dow Jones Aerospace & Defense Sector Index, which includes
several of the Company's most significant customers and other aerospace industry
companies, for the five-year period ending December 31, 1993.
<TABLE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL
RETURN AMONG WYMAN-GORDON COMPANY, DOW JONES EQUITY
MARKET INDEX AND DOW JONES AEROSPACE & DEFENSE SECTOR(1)
<CAPTION>
MEASUREMENT PERIOD AEROSPACE & WYMAN-GORDON EQUITY MAR-
(FISCAL YEAR COVERED) DEFENSE STOCK KET INDEX
<S> <C> <C> <C>
1988 100.0 100.0 100.0
1989 116.8 105.1 130.9
1990 120.8 50.0 125.8
1991 150.3 32.9 166.6
1992 156.8 43.2 180.9
1993 198.9 38.0 202.6
<FN>
(1) Assumes $100 invested on December 31, 1988 in the Shares, Dow Jones Equity
Market Index and Dow Jones Aerospace and Defense Sector Index. Total return
assumes reinvestment of dividends at December 31 of each year.
</TABLE>
SAVINGS/INVESTMENT PLAN
All full-time salaried employees with at least one year's service with the
Company may participate in the Savings/Investment Plan (the "S/I Plan").
Participating employees may through payroll deductions make a basic contribution
of up to five percent of their covered compensation and a supplemental
contribution of up to an additional ten percent of their covered compensation.
The Company currently contributes an amount equal to 50% of a participant's
basic contribution. The Company's contributions are made in the form of Shares.
The right of a participant with less than five years of Company service to such
Company contributions vests at the rate of 20% per year. Supplemental employee
contributions beyond the five percent limit, when made, receive no matching
Company contributions.
59
<PAGE> 63
The S/I Plan allows participants to take advantage of Section 401(k) of the
Internal Revenue Code by realizing a federal income tax deferral through a
voluntary salary reduction and equivalent contribution by the Company to the
participant's special S/I Plan account for that purpose. Such tax-deferred
savings are not available for withdrawal by an employee before age 59 1/2 except
in circumstances of financial hardship. A participant may elect deductions for
regular savings and tax-deferred savings in any combination not exceeding
fifteen percent of the participant's covered compensation, provided, however,
that tax-deferred savings may not exceed $9,240 in 1994.
Participants currently have a choice of six investment funds and may
allocate both their personal and Company contributions and earnings as they wish
among them. They include Income Accumulation, Growth Stock, S & P 500 Stock,
U.S. Treasury and Asset Allocation Funds and a Wyman-Gordon Stock Fund that
invests primarily in Shares. A participant retiring under a Company retirement
income plan may elect among several methods of distribution of his S/I Plan
account.
The S/I Plan is administered by the Savings/Investment Plan Committee,
whose members are appointed by the Chief Executive Officer.
AGREEMENTS WITH MANAGEMENT
In addition to the employment agreement with John M. Nelson described in
"-- Compensation Committee Report -- Base Salaries," the Company has entered
into agreements with each of its executive officers, other than Messrs. Nelson
and Thys, that would provide such officers with specified benefits in the event
of termination of employment within three years following a change of control of
the Company when both employment termination and such change in control occur
under conditions defined in the agreements. Such benefits include a payment
equal to a maximum of 250% of the executive officer's annual compensation,
continuation of insurance coverages for up to twenty-four months following
termination and accelerated vesting of existing options and stock appreciation
rights. No benefits are payable under the agreements in the event of an
executive officer's termination for cause, in the event of retirement,
disability or death or in cases of voluntary termination in circumstances other
than those specified in the agreements that would entitle an executive officer
to benefits.
60
<PAGE> 64
<TABLE>
BENEFICIAL OWNERSHIP OF SHARES
The following table shows as of the Record Date information with respect to
holdings of Shares by shareholders beneficially owning 5% or more of all
outstanding Shares and the Company's directors and executive officers, before
giving effect to the proposed issuance of 16,500,000 Shares to Cooper pursuant
to the Stock Purchase Agreement. As of the Record Date, there were 18,040,150
Shares outstanding, and after giving effect to the Acquisition, Cooper will own
approximately 48% of the outstanding Shares. Cooper is a Delaware corporation,
and its common stock is listed and traded on the New York Stock Exchange. Each
of the persons named in the table has agreed to vote all of the Shares
beneficially owned by such person in favor of the Acquisition Proposal. See
"Voting and Proxies -- Proxies and Votes Required" and "Description of the Stock
Purchase Agreement -- Shareholder Meeting." The Shares are the only class of the
Company's stock outstanding.
<CAPTION>
SHARES PERCENT
NAME AND ADDRESS OF BENEFICIALLY EXERCISABLE OF
BENEFICIAL OWNER(1) OWNED OPTIONS CLASS(2)
------------------- ------------ ----------- --------
<S> <C> <C> <C>
The Stoddard Charitable Trust(3)................... 1,665,080 9.2%
340 Main Street,
Worcester, MA 01608
George F. & Sybil H. Fuller Foundation(5).......... 3,369,344 18.7%
730 Main Street
P. O. Box 252
Boylston, MA 01505
Directors & Officers:
E. Paul Casey................................. 5,000
Warner S. Fletcher(3)(4)...................... 2,736,524 15.2%
Robert G. Foster.............................. 200
Russell E. Fuller(5).......................... 3,374,344 18.7%
David P. Gruber............................... 984 81,667
M Howard Jacobson............................. 1,000
Judith S. King(3)............................. 2,139,629 11.9%
Luis E. Leon.................................. 2,801 43,666
George S. Mumford, Jr......................... 88,904
John M. Nelson................................ 52,000 216,667
Sanjay N. Shah................................ 1,708 49,798
Jon C. Strauss................................ 1,200
Edouard C. Thys(6)............................ 34,582 6,994
Wallace F. Whitney, Jr........................ 1,549 43,666
Charles A. Zraket............................. 6,000
All directors and executive officers as a
group....................................... 6,603,161 455,140 39.1%
- - ---------------
<FN>
(1) The address of all directors and executive officers is Wyman-Gordon Company, 244 Worcester Street,
North Grafton, MA 01536.
(2) Unless otherwise indicated, less than one percent; includes exercisable options.
(3) Warner S. Fletcher and Judith S. King are two of the five trustees of The Stoddard Charitable Trust
(the "Stoddard Trust") and the Shares beneficially owned by the Stoddard Trust are therefore reported
in the above table. Mr. Fletcher and Mrs. King disclaim any beneficial interest in the Shares
beneficially owned by the Stoddard Trust.
(4) Mr. Fletcher is a trustee of the Fletcher Foundation, which holds 378,350 Shares and of other trusts
that hold 179,880 Shares for the benefit of Judith S. King and her sister, who are his cousins, and the Shares
beneficially owned by the Fletcher Foundation and by such trusts are therefore reported in the above table.
Mr. Fletcher disclaims beneficial ownership of such Shares.
(5) Russell E. Fuller is one of seven trustees of the George F. and Sybil H. Fuller Foundation (the "Fuller Foundation")
and the Shares beneficially owned by the Fuller Foundation are therefore reported in the above table.
Mr. Fuller disclaims any beneficial ownership in the Shares beneficially owned by the Foundation.
(6) Mr. Thys has retired from the Company and is no longer a director.
61
</TABLE>
<PAGE> 65
<TABLE>
MARKET AND DIVIDEND INFORMATION
The Shares are traded in the over-the-counter market and prices of Shares
appear daily in the Nasdaq/NMS. The table below lists the quarterly price range
and dividends paid per Share during the periods indicated:
<CAPTION>
YEAR HIGH LOW DIVIDENDS
---- ---- ---- ---------
<S> <C> <C> <C>
1991
First quarter...................................... $8 3/4 $6 $.10
Second quarter..................................... 8 5/8 6 .10
Third quarter...................................... 6 5/8 3 7/8 .10
Fourth quarter..................................... 4 3/8 3 --
1992
First quarter...................................... 6 1/4 3 5/8 --
Second quarter..................................... 5 1/2 3 3/4 --
Third quarter...................................... 5 1/4 3 3/4 --
Fourth quarter..................................... 5 5/8 4 1/8 --
1993
First quarter...................................... 6 3/4 4 5/8 --
Second quarter..................................... 5 1/4 4 --
Third quarter...................................... 5 1/8 3 1/2 --
Fourth quarter..................................... 5 1/8 4 --
1994
First quarter (through March 31, 1994)............. 7 1/8 4 3/4 --
</TABLE>
On September 15, 1993, the last trading day prior to the public
announcement by the Company and Cooper that they had entered into the Letter of
Intent, the closing sale price of Shares on the Nasdaq/NMS as reported in The
Wall Street Journal was $3 7/8. On January 14, 1994, the last trading day prior
to the public announcement of the execution of the Stock Purchase Agreement and
the Investment Agreement, the closing sale price of Shares on the Nasdaq/NMS as
reported in The Wall Street Journal was $4 7/8. On March 31, 1994, the last
trading day prior to the date of this Proxy Statement, the closing sale price of
Shares on the Nasdaq/NMS as reported in The Wall Street Journal was $4 7/8.
In view of the Company's financial performance, the Board of Directors
discontinued dividends on the Shares beginning in the fourth quarter of 1991.
While it is the intention of the Board of Directors to consider the resumption
of dividends on the Shares from time to time, the declaration of future
dividends will be dependent upon the Company's earnings, financial condition,
and other relevant factors. See "The Acquisition and Related
Matters -- Recommendation of the Board of Directors."
The Company is limited in the amount of dividends it may pay under the
terms of the indenture for the Senior Notes (the "Senior Note Indenture"). Such
limitation is provided by the Senior Note Indenture's limitation on restricted
payments, including dividends. The Senior Note Indenture provides that the
Company will not, and will not permit any of its subsidiaries to, make any
restricted payment if, after giving effect thereto the aggregate amount of all
restricted payments made from and after the date of the Senior Note Indenture
would exceed the sum of (a) 50% of consolidated net income of the Company
accrued for the period (taken as one accounting period) commencing with March
29, 1993 to and including the date of such calculation (or, in the event
consolidated net income is a deficit, then minus 100% of such deficit); (b) the
aggregate net proceeds, including the fair market value of property other than
cash, received by the Company from the issuance or sale of its capital stock,
including the issuance of its capital stock upon conversion of securities other
than its capital stock, and options, warrants and rights to purchase its capital
stock (other than redeemable stock), from and after the date of the Senior Note
Indenture; and (c) $5 million.
Under the terms of the Company's credit agreement with The CIT
Group/Business Credit, Inc. ("CIT"), the Company is limited in the amount of
cash dividends it may pay to 50% of consolidated net income of the Company for
each fiscal year.
On the Record Date there were approximately 1,698 record holders of Shares.
62
<PAGE> 66
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
The following summary does not purport to be complete and is subject to,
and qualified in its entirety by, the provisions of the Company's Articles of
Organization.
GENERAL
The Company has the authority to issue 35,000,000 Shares and 5,000,000
shares of preferred stock, no par value (the "Preferred Stock"). The Company's
Board of Directors has authority (without action by shareholders) to issue the
authorized and unissued shares of Preferred Stock in one or more series and,
within certain limitations, to determine the voting rights (including the right
to vote as a series on particular matters), preference as to dividends and in
liquidation, conversion, redemption and other rights of each such series. There
are no shares of Preferred Stock issued or outstanding.
SHARES
Holders of Shares are entitled to one vote per Share on all matters to be
voted on by shareholders, including the election of directors. Shareholders are
not entitled to cumulative voting rights, and, accordingly, the holders of a
majority of the Shares voting for the election of directors can elect the entire
Board if they choose to do so and, in that event, the holders of the remaining
Shares will not be able to elect any person to the Board of Directors. Pursuant
to the Company's bylaws, the number of directors of the Company may be not less
than seven nor more than thirteen, as determined from time to time by the
directors. The number of directors is currently eleven. The bylaws provide that
the Board of Directors is divided into three classes in respect of term of
office, each class to contain as near as may be one-third of the whole number of
the Board. At each annual meeting of shareholders, one class of directors is
elected to serve until the annual meeting of shareholders held three years next
following and until their successors are elected and qualify. In the event any
vacancy occurs on the Board of Directors, the bylaws give the remaining
directors the power to fill the vacancy for the balance of the term of office,
except that any vacancy occurring because of an increase in the number of
directors may be filled only until the next annual meeting of shareholders, at
which time the vacancy shall be filled by vote of the shareholders.
The holders of Shares are entitled to receive such dividends, if any, as
may be declared from time to time by the Board of Directors, in its discretion,
from funds legally available therefor and subject to the prior dividend rights
of holders of any shares of Preferred Stock which may be outstanding. Upon
liquidation or dissolution of the Company, subject to prior liquidation rights
of the holders of Preferred Stock, the holders of Shares are entitled to receive
on a pro rata basis the remaining assets of the Company available for
distribution. Holders of Shares have no preemptive or other subscription rights,
and there are no conversion rights or redemption or sinking fund provisions with
respect to such Shares. The Shares to be issued in the Acquisition will be fully
paid and nonassessable.
RIGHTS AGREEMENT
On October 19, 1988, the Board of Directors of the Company declared a
dividend distribution of one right (a "Right") for each outstanding Share to
shareholders of record at the close of business on November 30, 1988 (the
"Rights Record Date") pursuant to a Rights Agreement dated as of October 19,
1988 between the Company and The First National Bank of Boston (the "Original
Rights Agreement"). On January 10, 1994, in connection with the Stock Purchase
Agreement, the Original Rights Agreement was amended and restated. The
description and terms of the Rights are set forth in an Amended and Restated
Rights Agreement, dated as of January 10, 1994 (the "Rights Agreement"), between
the Company and State Street Bank & Trust Company, as Rights Agent (the "Rights
Agent"). Each Right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Junior Participating Preferred Stock,
no par value (the "Series A Shares"), of the Company at a price of $50 per one
one-hundredth of a Series A Share (the "Exercise Price"), subject to adjustment.
63
<PAGE> 67
Until the earlier to occur of (i) ten days following a public announcement
that a person or group of affiliated or associated persons has become an
Acquiring Person (as defined below) or (ii) ten business days (or such later
date as may be determined by action of the Board of Directors prior to such time
as any person or group of affiliated persons becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in a person or
group becoming an Acquiring Person (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced by the certificates
representing the Shares, with either a copy of the Summary of Rights that was
sent to shareholders in connection with the original issuance of the Rights (the
"Summary of Rights") attached thereto or a notation incorporating the Rights
Agreement by reference. For purposes of the Rights Agreement, an "Acquiring
Person" generally means a person or group of affiliated or associated persons
who have acquired beneficial ownership of 20% or more of the outstanding Shares.
However, Cooper and its affiliates and associates (together, the "Cooper Group")
will not be deemed to be an Acquiring Person for so long as (A) the Cooper Group
beneficially owns at least 10% or more of the outstanding Shares continuously
from and after the Closing Date and (B) the Cooper Group does not acquire
beneficial ownership of any Shares in breach of the Investment Agreement (other
than an inadvertent breach which is remedied as promptly as practicable by a
transfer of the Shares so acquired to a person which is not a member of the
Cooper Group). In addition, for purposes of applying certain provisions of the
Rights Agreement, no person or entity owning more than 5% of the Shares as of
October 19, 1988 will be deemed to be the beneficial owner of, or to
beneficially own, any Shares in excess of 5% of the Shares owned by such person
or entity as of October 19, 1988.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Shares. Until the Distribution Date (or earlier redemption or
expiration of the Rights), Share certificates issued after the Rights Record
Date upon transfer or new issuance of Shares will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for Shares outstanding as of the Rights Record Date, even
without such notation or a copy of the Summary of Rights being attached thereto,
will also constitute the transfer of the Rights associated with the Shares
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Shares as of the close
of business on the Distribution Date and such separate Right Certificates alone
will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on November 30, 1998 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Exercise Price payable, and the number of Series A Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Series A
Shares, (ii) upon the grant to holders of the Series A Shares of certain rights
or warrants to subscribe for or purchase Series A Shares at a price, or
securities convertible into Series A Shares with a conversion price, less than
the then-current market price of the Series A Shares or (iii) upon the
distribution to holders of the Series A Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Series A Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Series A Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Shares or a stock dividend on
the Shares payable in Shares or subdivisions, consolidations or combinations of
the Shares occurring, in any such case, prior to the Distribution Date.
Series A Shares purchasable upon exercise of the Rights will not be
redeemable. Each Series A Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be
64
<PAGE> 68
entitled to an aggregate dividend of 100 times the dividend declared per Share.
In the event of liquidation, the holders of the Series A Shares will be entitled
to a minimum preferential liquidation payment of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per Share. Each
Series A Share will have 100 votes, voting together with the Shares. Finally, in
the event of any merger, consolidation or other transaction in which Shares are
exchanged, each Series A Share will be entitled to receive 100 times the amount
received per Share. These rights are protected by customary antidilution
provisions.
Because of the nature of the Series A Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Series A Share
purchasable upon exercise of each Right should approximate the value of one
Share.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right. In the event that any person or group of affiliated
or associated persons becomes an Acquiring Person, proper provision shall be
made so that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise that number of Shares having a market value of two
times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Shares, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by such person or group which will have become void), in whole
or in part, at an exchange ratio of one Share, or one one-hundredth of a Series
A Share (or of a share of a class or series of the Company's preferred stock
having equivalent rights, preferences and privileges), per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Exercise Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Exercise Price. No fractional Series A Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Series A Share,
which may, at the election of the Company, be evidenced by depositary receipts)
and in lieu thereof, an adjustment in cash will be made based on the market
price of the Series A Shares on the last trading day prior to the date of
exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
Shares, the Board of Directors of the Company may redeem the Rights in whole,
but not in part, at a price of $.02 per Right (the "Redemption Price"). The
redemption of the Rights may be made effective at such time on such basis with
such conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower certain thresholds described above to not less than the greater of (i)
the sum of .001% and the largest percentage of the outstanding Shares then known
to the Company to be beneficially owned by any person or group of affiliated or
associated persons (other than the Cooper Group for so long as the Cooper Group
is deemed not to be an Acquiring Person) and (ii) 10%, except that from and
after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights. Until a Right is exercised, the holder thereof, as
such, will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.
65
<PAGE> 69
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors since the Rights may be redeemed by the Company at the
Redemption Price prior to the time that a person or group has become an
Acquiring Person.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an exhibit to a Registration Statement on Form 8-A/A
dated January 21, 1994. A copy of the Rights Agreement is available to any
holder of Shares free of charge from the Company. This summary description of
the Rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement, which is hereby incorporated herein by
reference.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Shares is State Street Bank &
Trust Company, 2 Heritage Drive, North Quincy, Massachusetts, telephone number
(617) 985-3024.
66
<PAGE> 70
DESCRIPTION OF THE STOCK PURCHASE AGREEMENT
The following summary of the terms of the Stock Purchase Agreement is not
complete and is qualified in its entirety by reference to the full text of the
Stock Purchase Agreement attached to this Proxy Statement as Annex A.
Shareholders are urged to read carefully both this Proxy Statement and the Stock
Purchase Agreement.
SALE OF CAMERON COMMON STOCK; PURCHASE PRICE
At the Closing, upon the terms and subject to the conditions of the Stock
Purchase Agreement, (1) Cooper will sell to the Company, and the Company will
purchase from Cooper, all of the Cameron Common Stock and (2) the Company will
pay, issue, and deliver to Cooper the Purchase Price. The Purchase Price
consists of (i) 16,500,000 Shares (the "Equity Purchase Price") and (ii)
$5,000,000, payable as set forth below (the "Cash Purchase Price"), subject to a
cash adjustment to be paid by either Cooper or the Company based upon certain
changes in the balance sheet of Cameron between September 26, 1993 and the
Closing Date.
The Cash Purchase Price is $5,000,000, consisting of (1) $400,000 in cash
payable to Cooper at the Closing and (2) a promissory note of the Company in the
principal amount of $4,600,000 (the "Note") to be executed and delivered to
Cooper by the Company at the Closing. The principal amount of the Note will be
payable in annual installments, beginning on June 30, 1997 and on each June 30
thereafter until paid in full, in an amount equal to the least of (A)
$2,300,000, (B) 25% of the Company's Free Cash Flow (as defined in the Note) for
the twelve-month period ending on the April 30 immediately preceding such June
30 or (C) the unpaid principal balance of the Note. The Note will not bear
interest, except that it will bear interest from and after May 1, 1998 at a
floating rate equal to the 90-day commercial paper rate for high grade unsecured
notes sold through dealers by major corporations, as published by The Wall
Street Journal on that portion of the principal amount of the Note equal to the
sum of all amounts of unpaid principal that would have been payable but for
mandatory debt payments by the Company. The Company may from time to time prepay
all or any portion of the outstanding balance of the Note without penalty or
premium. Cooper may declare the Note to be immediately due and payable in the
event that (i) the Company does not pay any portion of the principal or interest
on the Note within ten days after such payment becomes due or (ii) a Trigger
Event (as defined below) occurs.
CLOSING
Pursuant to the Stock Purchase Agreement, the Closing will take place on
the fifth business day following the date on which all of the conditions to each
party's obligations under the Stock Purchase Agreement have been satisfied or
waived, or at such other time as the parties may agree. The Closing and the
consummation of the transactions contemplated by the Stock Purchase Agreement
will be deemed effective as of the close of business on the Closing Date.
REPRESENTATIONS AND WARRANTIES
In the Stock Purchase Agreement, Cooper and the Company make customary
representations and warranties to each other, including representations and
warranties regarding the following: (a) organization, (b) capitalization, (c)
authority relative to the Stock Purchase Agreement, (d) consents and approvals
and absence of violations of certain laws and agreements, (e) absence of certain
changes, (f) absence of undisclosed liabilities, (g) accuracy of the information
provided for this Proxy Statement, (h) litigation, (i) compliance with
applicable law, (j) taxes, (k) employee benefits and certain matters arising
under the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute thereto, and the rules and regulations promulgated thereunder
("ERISA"), (l) patents and other intellectual property, (m) material contracts
and absence of defaults thereunder, (n) environmental compliance, and (o)
purchase of the Cameron Common Stock and/or the Shares for investment purposes.
Cooper also makes certain customary representations to the Company regarding (a)
the accuracy of Cameron's financial statements, (b) title to Cameron's real
property, (c) certain
67
<PAGE> 71
labor matters, (d) material contracts of Cameron, (e) the effective transfer of
the assets of Cameron's forging business, (f) absence of any beneficial
ownership of Shares by Cooper and its affiliates, (g) absence of certain change
of control contracts and (h) absence of any business activities other than the
Business (as defined below). In addition, the Company makes a customary
representation to Cooper concerning the accuracy and completeness of the
Company's filings with the Securities and Exchange Commission.
Each of Cooper and the Company represents to the other in the Stock
Purchase Agreement that to its knowledge, (1) its representations and warranties
set forth in the Stock Purchase Agreement and qualified by materiality or by
Material Adverse Effects will be true and correct (subject to such
qualification) as of the Closing Date (except for representations and warranties
that expressly speak only as of some other time), subject to the disclosures in
its disclosure schedule to the Stock Purchase Agreement (respectively, the
"Cooper Disclosure Schedule" and the "Company Disclosure Schedule" and,
collectively, the "Disclosure Schedules"), as supplemented or amended through
the Closing Date and excluding those failures to be true and correct that do not
have a Material Adverse Effect and (2) its representations and warranties set
forth in the Stock Purchase Agreement and not qualified by materiality or by
Material Adverse Effects will be true and correct in all material respects as of
the Closing Date (except for representations and warranties that expressly speak
only as of some other time), subject to the disclosures in its Disclosure
Schedule as supplemented or amended through the Closing Date and excluding those
failures to be true and correct that do not have a Material Adverse Effect (the
"Accuracy Representations"). For purposes of the Stock Purchase Agreement, a
"Material Adverse Effect" means (1) with respect to Cooper or Cameron, a
material adverse effect on the business operations or financial condition of
Cameron and the Cameron Subsidiaries, taken as a whole, or on the Business, and
(2) with respect to the Company, a material adverse effect, in the aggregate, on
the business operations or financial condition of the Company and the Company
Subsidiaries taken as a whole. "Business" means research, development,
engineering, melting, refining, remelting, forging, extrusion, machining,
manufacturing, distribution, sales, marketing, service or repair operations
associated with the Products. "Products" means closed die forgings (including
rotating parts for aircraft engines or industrial turbines, aircraft landing
gear, structural airframe parts, ordnance and related parts, military and power
plant nuclear forgings, valves, heavy wall pipe and fittings, power generation
forgings and oilfield equipment forgings), extrusions (including for aircraft
engines, pipe, oilfield equipment, bar stock and ordnance), super alloy powder
products, thermal rail products for steel support member in push slab furnaces
and custom-shaped insulators, other forged products, skid rail reheat systems,
and high velocity burners.
CONDUCT PENDING THE CLOSING
The Stock Purchase Agreement provides that, except as expressly
contemplated thereby and by the Ancillary Agreements (as defined below) and
except for certain pre-Closing transactions intended to transfer all of the
assets of the Business to Cameron and the Cameron Subsidiaries, during the
period from the date of the Stock Purchase Agreement and continuing until the
Closing Date, Cooper will cause Cameron and the Cameron Subsidiaries to carry on
their respective businesses in the ordinary course, consistent with past
practice, and to use their respective reasonable best efforts to preserve intact
their present business organizations, to keep available the services of their
present officers and key employees and to preserve their relationships with
customers, suppliers, licensors, licensees, contractors, distributors and others
having business dealings with them. Without limiting the generality of the
foregoing, the Stock Purchase Agreement provides that, except as provided
therein, Cooper will not, without the prior consent of the Company, cause or
permit Cameron and the Cameron Subsidiaries to: (a) (1) declare, set aside or
pay any dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of any of its capital stock, except that the
Cameron Subsidiaries may declare and pay a dividend to Cameron, (2) split,
combine or reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (3) amend the terms of,
repurchase, redeem or otherwise acquire, or permit any subsidiary to repurchase,
redeem or otherwise acquire, any of its
68
<PAGE> 72
securities or any securities of its subsidiaries, or propose to do any of the
foregoing; (b) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities (including indebtedness having the right to
vote) or equity equivalents (including, without limitation, stock appreciation
rights), except pursuant to any Cameron Benefit Plan, or amend in any material
respect any of the terms of any such agreements, commitments, stock, securities
or equity equivalents outstanding on the date of the Stock Purchase Agreement;
(c) amend or propose to amend its charter or by-laws; (d) acquire, sell, lease,
encumber, transfer or dispose of any assets other than in the ordinary course of
business consistent with past practice; (e) make any capital expenditures which
in the aggregate exceed $100,000; (f) create, incur or assume any long-term debt
(including obligations in respect of capital leases); (g) except in the ordinary
course of business consistent with past practice, create, incur, assume,
maintain or permit to exist any short-term debt (including obligations in
respect of capital leases) or assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person, except that such debt or obligations which were
set forth on the Cooper Disclosure Schedule may be maintained and permitted to
exist; (h) permit any of its current insurance policies to be cancelled or
terminated or any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies providing
coverage equal to or greater than coverage remaining under those cancelled,
terminated or lapsed are in full force and effect; (i) change any of the
accounting principles or practices used by it (except as required by generally
accepted accounting principles); (j) except as required by law, or pursuant to
the terms of any collective bargaining agreement, (1) enter into, adopt, amend
or terminate any Cameron Benefit Plan or any agreement, arrangement, plan or
policy between itself and one or more of its directors, executive officers, or
other employees, or (2) increase in any manner the compensation or fringe
benefits of any director, officer or other employee or pay any benefit not
required by any plan or arrangement as in effect as of the date hereof, except
such increases as are granted in the ordinary course of business consistent with
past practice (which will include normal periodic performance reviews and
related compensation and benefit increases but not any general across-the-board
increases); (k) amend or terminate material agreements, commitments or
contracts, or enter into other material agreements, commitments or contracts,
except in the ordinary course of business consistent with past practice and not
in excess of current requirements; (l) lend any money in excess of $100,000 to
any Person other than an affiliate or trade creditor; (m) merge or consolidate
with or into any other Person; (n) enter into any agreement for the purchase of
inventory for the Company in excess of $500,000 if such purchase would cause the
Company's inventory to exceed substantially the amount of inventory required to
fill outstanding contracts with customers of the Company; or (o) agree to take
any of the foregoing actions.
Notwithstanding the foregoing provisions, the Stock Purchase Agreement
provides that Cooper, Cameron and the Cameron Subsidiaries may continue making,
accepting or settling intercompany advances to, from or with one another, or
engaging in any other transaction incidental to their normal cash management
procedures, including without limitation, short-term investments in time
deposits, certificates of deposit and bankers acceptances made in the ordinary
course of business.
The Stock Purchase Agreement further provides that, except as expressly
contemplated thereby, during the period from the date of the Stock Purchase
Agreement and continuing until the Closing Date, the Company will and will cause
the Company Subsidiaries to, carry on their respective businesses in the
ordinary course, consistent with past practice, and to use their respective
reasonable best efforts to preserve intact their present business organizations,
to keep available the services of their present officers and key employees and
to preserve their relationships with customers, suppliers, licensors, licensees,
contractors, distributors and others having business dealings with them. Without
limiting the generality of the foregoing, the Stock Purchase Agreement provides
that, except as provided therein, the Company will not, and will cause the
Company Subsidiaries not, without the prior consent of Cooper, to: (a) (1)
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of any of its capital
stock,
69
<PAGE> 73
(2) split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (3) amend the terms of,
repurchase, redeem or otherwise acquire, or permit any subsidiary to repurchase,
redeem or otherwise acquire, any of its securities or any securities of its
subsidiaries, or propose to do any of the foregoing; (b) authorize for issuance,
sell, deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities (including
indebtedness having the right to vote) or equity equivalents (including, without
limitation, stock appreciation rights), except in accordance with the Company's
Long Term Incentive Plan and Long Term Incentive Program, or amend in any
material respect any of the terms of any such agreements, commitments, stock,
securities or equity equivalents outstanding on the date hereof; (c) amend or
propose to amend its charter or by-laws in any manner adverse to the interests
of Cooper; (d) make any capital expenditures which in the aggregate exceed the
amounts contemplated by the Company's most recent annual operating budget,
unless the Company notifies and consults with Cooper prior to taking any such
action; (e) create, incur or assume any long-term debt (including obligations in
respect of capital leases) in excess of $1,000,000; (f) except in connection
with draws made pursuant to the credit agreement with CIT or otherwise in the
ordinary course of business consistent with past practice, create, incur,
assume, maintain or permit to exist any short-term debt (including obligations
in respect of capital leases) in excess of $1,000,000 or assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person (except that
any such debt or obligations set forth in the Company Disclosure Schedule may be
maintained and permitted to exist); (g) lend any money in excess of $100,000,
unless the Company notifies and consults with Cooper prior to taking any such
action; (h) except as required by law, (1) enter into, adopt, amend or terminate
any agreement, arrangement, plan or policy between itself and one or more of its
directors or executive officers, or (2) increase in any manner the compensation
or fringe benefits of any director or executive officer or pay any benefit to
any director or executive officer not required by any plan or arrangement as in
effect as of the date hereof; (i) enter into any material agreements,
commitments or contracts relating to the acquisition or divestiture of any
businesses; (j) amend or terminate any material agreements, commitments or
contracts, or enter into other material agreements, commitments or contracts,
except in the ordinary course of business consistent with past practice and not
in excess of current requirements, unless the Company notifies and consults with
Cooper prior to taking any such action; (k) merge or consolidate with or into
any other Person; or (l) agree to take any of the foregoing actions.
SHAREHOLDER MEETING
In the Stock Purchase Agreement, the Company has agreed that it will duly
call, give notice of, convene and hold a meeting of its shareholders as promptly
as practicable for the purpose of adopting and approving the Stock Purchase
Agreement, the issuance of the Shares representing the Equity Purchase Price and
the transactions contemplated thereby (including, without limitation, adopting
and approving the Authorized Shares Amendment and the Fair Price Amendment) and
for such other purposes as may be necessary or desirable to effectuate the
transactions contemplated by the Stock Purchase Agreement. The Company has
obtained the agreement of its affiliates to vote all shares of Company Common
Stock beneficially owned by each such affiliate in favor of the matters
presented to the Company's shareholders in connection with the transactions
contemplated by the Stock Purchase Agreement. See "Voting and Proxies -- Votes
Required" and "Beneficial Ownership of Shares." The Company has also agreed
that, as promptly as practicable following adoption of the Acquisition Proposal
by the requisite affirmative vote of the Company's shareholders but prior to
Closing, the Company will file with the Secretary of the Commonwealth of
Massachusetts articles of amendment, duly signed in accordance with the
Massachusetts Law, setting forth the Authorized Shares Amendment, the Fair Price
Amendment and the due adoption thereof. The Company also agreed in the Stock
Purchase Agreement that, prior to the Closing, its Board of Directors will adopt
an amendment to the Company's bylaws exempting the Company from the
Massachusetts Control Share Acquisitions Law
70
<PAGE> 74
and the Company will amend and restate the Rights Agreement to be in the form
described in "Description of the Company's Capital Stock -- Rights Agreement."
FEES AND EXPENSES
Whether or not the transactions contemplated by the Stock Purchase
Agreement are consummated, all costs and expenses incurred in connection with
the Stock Purchase Agreement and the transactions contemplated thereby will be
paid by the party incurring such expense, except that in no event will such
expenses be paid by Cameron or the Cameron Subsidiaries.
EMPLOYEE BENEFITS
The Stock Purchase Agreement provides that, as of the Closing Date, each
individual who, on the Closing Date, is employed in the Business in any active
or inactive status and whose current employment in the Business has not been
terminated (an "Employee") will continue as an employee of Cameron in the same
status and at the same salary or wage and benefit levels as provided to such
Employee on the Closing Date by Cameron, but that nothing in the Stock Purchase
Agreement will prevent the Company from altering such salary, wage and benefit
levels or terminating the employment of any Employee after the Closing Date.
The Stock Purchase Agreement provides that, prior to the Closing Date, the
Company will establish a plan or plans which are substantially similar in all
material respects to the United States pension plans of Cooper that cover any
individual employed or formerly employed in the Business (the "Cameron Pension
Plans"). In the Stock Purchase Agreement, the Company reserves the right to
amend or terminate such plans at any time after the Closing Date. Such plan or
plans will provide credit for the service earned in each of the Cameron Pension
Plans for purposes of eligibility (including for early retirement subsidies and
disability benefits) and vesting. Such plan or plans will also provide credit
for benefit accrual purposes from the Closing Date forward. Benefit accruals
will cease under the Cameron Pension Plans as of the Closing Date for all
Employees. Service on and after the Closing Date with the Company or any
affiliate, subsidiary or successor of the Company will be credited under each
Cameron Pension Plan which is not a Section 401(k) plan solely for the purposes
of eligibility (including for early retirement subsidies and disability
benefits) and vesting. Employees will not be considered terminated or retired by
Cooper under the Cameron Pension Plans until they are no longer being credited
with service for purposes of eligibility (including for early retirement
subsidies and disability benefits) and vesting. Cooper will take all necessary
steps to remove Cameron as sponsoring employer or a participating employer of
the Cameron Pension Plans as of the Closing Date and will retain all assets and
liabilities associated with each Cameron Pension Plan which is not a Section
401(k) plan. Cooper and the Company will take all necessary steps to provide for
the transfer of assets and liabilities from the Cameron Pension Plans which are
Section 401(k) plans to similar Section 401(k) plans designated by the Company.
The assets and liabilities to be transferred will be equal to the sum of the
account balances of each Employee and Former Employee of the Business in each
Cameron Pension Plan which is a Section 401(k) plan as of the last day of the
month in which the Closing Date occurs. The assets to be transferred shall be in
the form of cash, common stock of Cooper or preferred stock of Cooper as
determined by Cooper.
The Stock Purchase Agreement provides that, on or before the Closing Date,
the Company will establish a new retirement benefit plan (the "New U.K. Pension
Plan") for the benefit of the employees of the U.K Sub after the Closing Date.
Pursuant to the Stock Purchase Agreement, the benefits to be provided by the New
U.K. Pension Plan for the employees of the U.K. Sub will be substantially
similar in all material respects to those provided under Cooper's current U.K.
pension plan (the "Cooper U.K. Pension Plan") as of the Closing Date, and for
the purpose of vesting benefits in the New U.K. Pension Plan in respect of those
employees of the U.K. Sub who have not at the Closing Date qualified for
preserved benefits under the Cooper U.K. Pension Plan, the New U.K. Pension Plan
will recognize the period of pensionable service such employees have accrued
under the Cooper U.K. Pension Plan to the
71
<PAGE> 75
intent that they will qualify for preserved benefits on the date that they would
have done had their pensionable service under the Cooper U.K. Pension Plan not
ceased as a consequence of the Stock Purchase Agreement. In the case of those
employees of the U.K. Sub who already qualify for preserved benefits under
Cooper U.K. Pension Plan the New U.K. Pension Plan will contain provisions which
immediately vest the accrual of their benefits after the Closing Date in the New
U.K. Pension Plan. The Company reserves the right in the Stock Purchase
Agreement to modify or terminate the New U.K. Pension Plan at any time after the
Closing Date.
Pursuant to the Stock Purchase Agreement, except for liabilities or
obligations arising under the Cameron Pension Plan (but not including
liabilities or obligations related to the assets and liabilities transferred to
plans designated by the Company pursuant to the provisions for Cameron Pension
Plans which are not Section 401(k) plans) and the Cooper U.K. Pension Plan,
Cooper's Employee Stock Purchase Plan (the "ESPP") and any plan providing for
the issuance of Cooper stock ("Cooper Stock Plans"), the Company, Cameron and
their affiliates will assume all employee benefit obligations arising in respect
of any Employee or any individual employed in the Business by Cooper or any of
its affiliates whose employment has been terminated prior to the Closing Date,
excluding any individuals subsequently employed by Cooper or any of its
affiliates outside of the Business (a "Former Employee") and all obligations and
liabilities arising out of or relating to the employment of any Employee or
Former Employee by Cameron before or after the Closing other than obligations
and liabilities expressly retained by Cooper pursuant to the Stock Purchase
Agreement. Cameron will, as of the Closing Date, assume all obligations and
liabilities of Cameron and its affiliates to provide postretirement health
benefits to any Employee or Former Employee. Cooper will indemnify the Company
and its affiliates against (I) certain liabilities under ERISA with respect to
employee benefit plans or arrangements, other than any employee benefit plans or
arrangements maintained for the benefit of Employees or Former Employees or (II)
the Cameron Pension Plans and the Cooper U.K. Pension Plan.
TAXES
Pursuant to the Stock Purchase Agreement, if Cooper so elects, Cooper and
the Company will jointly make the election described in Section 338(h)(10) of
the Code to treat the purchase of the Cameron Common Stock as a purchase of
assets, and any similar state tax law election (the "Section 338(h)(10)
Election"), provided that Cooper does not own, and is not deemed to own, and as
a result of the transactions contemplated by the Stock Purchase Agreement will
not own and will not be deemed to own, 50% or more of the Company's issued and
outstanding common stock. The Company and Cooper agreed in the Stock Purchase
Agreement to report the transfers under the Stock Purchase Agreement consistent
with such Section 338(h)(10) Election, and to take no position or action
contrary thereto (unless required to do so by applicable tax laws or an
administrative settlement with tax authorities), including but not limited to
any dissolution, merger, consolidation, or liquidation of Cameron into the
Company for a period of two years following the Closing Date without the prior
written consent of Cooper, which consent may be withheld in Cooper's sole
discretion. Pursuant to the Stock Purchase Agreement, if the Section 338(h)(10)
Election is to be made, Cooper agrees to cause Cameron and the Cameron
Subsidiaries to recognize the gain, and to pay all tax on such gain, with
respect to any intangible asset deemed sold pursuant to such election to the
extent necessary to enable the Company, Cameron and the Cameron Subsidiaries to
amortize such intangible asset pursuant to the provisions of Section 197 of the
Code.
Pursuant to the Stock Purchase Agreement, (i) Cooper will indemnify the
Company and Cameron and the Cameron Subsidiaries against all taxes of Cameron
and the Cameron Subsidiaries for any taxable year or taxable period ending on or
before the Closing Date, including, without limitation, any taxes resulting from
the making of the Section 338(h)(10) Election and any liability for taxes
pursuant to Treasury Regulation sec. 1.1502-6, and (ii) the Company will
indemnify Cooper against any and all taxes of Cameron and the Cameron
Subsidiaries for any taxable year or taxable period commencing after the Closing
Date. The Stock Purchase Agreement further provides that any taxes for a taxable
period beginning before the Closing Date and ending after the Closing Date (the
"Straddle Period")
72
<PAGE> 76
with respect to Cameron or any Cameron Subsidiary will be apportioned between
Cooper and the Company based on the actual operations of Cameron or Cameron
Subsidiary, as the case may be, during the portion of such period ending on the
Closing Date (the "Pre-Closing Straddle Period") and the portion of such period
beginning on the date following the Closing Date. The Stock Purchase Agreement
provides that all liabilities and obligations between Cameron and the Cameron
Subsidiaries on the one hand, and Cooper and any of Cooper's affiliates on the
other hand, under any tax allocation agreement or arrangement in effect on or
prior to the Closing Date (other than the Stock Purchase Agreement or as set
forth herein) ceased to exist as of the date thereof.
The Stock Purchase Agreement provides that the Company will cause Cameron
and the Cameron Subsidiaries to elect, where permitted by law, to carry forward
any net operating loss, net capital loss, charitable contribution or other item
arising after the Closing Date that could, in the absence of such an election,
be carried back to a taxable period of Cameron or the Cameron Subsidiaries
ending on or before the Closing Date in which Cameron or the Cameron
Subsidiaries filed a consolidated, combined or unitary tax return with Cooper or
any of Cooper's affiliates. Pursuant to the Stock Purchase Agreement, the
Company, on its own behalf and on behalf of its tax affiliates, waives any right
to use or apply any net operating loss, net capital loss, charitable
contribution or other item of Cameron for any tax year ending on any date
following the Closing Date to part or all of the period prior to the Closing
Date. The Stock Purchase Agreement provides that Cooper will not allow Cameron
or any Cameron Subsidiary to elect to be excluded from any consolidated federal
income tax return of Cooper and its affiliates with respect to which it is
otherwise includible on account of any taxable period, whether of 30 days or
less or otherwise.
INSURANCE
The Stock Purchase Agreement provides that, as of the Closing Date, Cooper
or its affiliates will cancel insurance coverage applicable to Cameron or the
Cameron Subsidiaries for occurrences (with respect to any "occurrence" policies)
or claims made (with respect to any "claims made" policies) after the Closing
Date (other than insurance policies in the name of the Cameron Subsidiaries),
except that the remaining insurance coverage will be available to the Company,
Cameron and the Cameron Subsidiaries with respect to insured occurrences on or
prior to the Closing Date, if and only to the extent that the Company or Cameron
has assumed or paid the loss or liability attributed to such occurrences. If
after the Closing, Cooper actually receives from an insurer cash proceeds
(excluding any return of premium or reimbursed attorneys or investigation or
other fees) attributable to such insurance coverage with respect to any insured
occurrences on or prior to the Closing Date or any claims that were asserted on
or prior to the Closing Date, then such cash proceeds will be paid to the
Company net of any charges paid or payable to the insurance carrier or
obligations to reimburse the insurance carrier for which Cooper or any of its
affiliates is liable, to the extent that the Company or Cameron has assumed or
paid the loss or liability attributed to such occurrence. The Company will
reimburse Cooper for any expenses that Cooper is charged after the Closing by
such insurance carrier relating to insurance coverage applicable to Cameron or
the Cameron Subsidiaries prior to Closing.
USE OF CAMERON NAME
The Company, Cameron and the Cameron Subsidiaries will have the right (1)
to use the name "Cameron Forged Products" in conjunction with the name
"Wyman-Gordon Company" for three years following the Closing Date and (2) to
dispose of or consume existing inventory, stationery, promotional or advertising
literature, labels, office forms and packaging materials (other than that which
relates to oil field equipment forgings) which may be labeled with the "Cameron"
name for up to six months following the Closing Date. Otherwise, the Company,
Cameron and the Cameron Subsidiaries will not have the right to use the
"Cameron" name.
ANCILLARY AGREEMENTS
The Stock Purchase Agreement provides that, as promptly as practicable, the
Company and Cooper will negotiate in good faith the terms of the following
agreements (collectively the "Ancillary
73
<PAGE> 77
Agreements"): (1) a lease agreement pursuant to which the Company or the U.K.
Sub will lease space and certain oil tool equipment to Cooper or an affiliate of
Cooper at Cameron's Livingston, Scotland facility; (2) a lease agreement
pursuant to which Cooper or a Cooper Subsidiary (as defined below) will lease
space and certain equipment to Cameron or an affiliate of the Company at
Cooper's Houston, Texas manufacturing facility (the "Houston Site"); (3) a
supply agreement pursuant to which the Company will cause Cameron to supply
forgings to Cooper or an affiliate of Cooper; (4) a license agreement pursuant
to which Cooper will grant to Cameron a nonexclusive license to make and sell
certain products covered by Cooper's hot isostatic pressing patents; (5) a
license agreement pursuant to which Cooper will grant to Cameron a nonexclusive
license to make and sell to a specified customer of Cameron certain forgings to
be used in a titanium riser covered by Cooper's patent therefor; (6) a computer
services agreement pursuant to which Cooper will permit Cameron to continue to
use Cooper's Cooper Oil Tool computer; and (7) an agreement providing for Cooper
to factor Cameron's receivables and the Company to repurchase any of such
receivables uncollected at 90 days following the Closing. For purposes of the
Stock Purchase Agreement, the "Cooper Subsidiaries" means the subsidiaries of
Cooper other than Cameron and the Cameron Subsidiaries.
INDEMNIFICATION
The Stock Purchase Agreement provides that Cameron will assume Cooper's
Cameron Obligations (as defined below), effective on the Closing Date. For
purposes of the Stock Purchase Agreement, "Cooper's Cameron Obligations" means
any obligation, commitment, liability or responsibility of Cooper, its
affiliates or their predecessors (whether or not also an obligation, commitment,
liability, or responsibility of or claim against, in whole or in part, Cameron,
the U.K. Sub or the Pipeline Sub), arising, undertaken or created before the
Closing Date in connection with, on behalf of or for the benefit of any of
certain entities, to the extent that such entities presently conduct or formerly
conducted all or part of the Business (the "Cameron Entities"), or arising from
the conduct of the Business, including without limitation (i) any consulting,
employment or severance agreements, guarantees, letters of credit, performance
bonds, or indemnities, or obligations or indemnities to officers or directors of
any Cameron Entity, (ii) any agreements with any transferors to Cooper, its
affiliates, or their predecessors, of any assets of any Cameron Entity or of the
Business, (iii) any labor or collective bargaining agreements relating to any
Cameron Entity, (iv) any governmental contracts relating to any Cameron Entity,
(v) any sales or purchase agreements relating to any Cameron Entity, (vi) any
leases of real or personal property relating to any Cameron Entity, and (vii)
any other agreements or commitments relating to any Cameron Entity under which
Cooper, its affiliates or predecessors will have any liability after the Closing
Date, except that Cooper's Cameron Obligations exclude the matters that Cooper
is required to indemnify as described in this Proxy Statement.
Except for the Accuracy Representations, which will survive the Closing and
remain in full force and effect thereafter until 18 months after the Closing,
the representations and warranties of the parties contained in the Stock
Purchase Agreement will expire with, and be terminated and extinguished by, the
Closing and will not survive the Closing Date. Any claim for indemnification
with respect to the Accuracy Representations that is not asserted by notice
given as herein provided within the 18-month period may not be pursued and will
be irrevocably waived and released after such time.
Subject to certain terms and conditions set forth in the Stock Purchase
Agreement, (i) Cooper has agreed to indemnify the Company, its affiliates, and
their directors, officers or employees (collectively, "Company's Group") against
all Losses (as defined in the Stock Purchase Agreement) resulting from (a) any
inaccuracy in the Accuracy Representation given by Cooper or (b) any breach of
Cooper's covenants in the Stock Purchase Agreement and (ii) the Company has
agreed to indemnify Cooper, its affiliates, and their directors, officers or
employees (collectively, "Cooper's Group") against all Losses resulting from (a)
any inaccuracy in Accuracy Representation given by the Company, (b) any breach
of the Company's covenants in the Stock Purchase Agreement or (c) Cooper's
Cameron Obligations.
In addition, the Company has agreed in the Stock Purchase Agreement to
indemnify Cooper's Group against all Losses resulting from any liabilities or
obligations of or relating to, or claims against, any Cameron Entity or the
Business (other than the Losses that Cooper is required to indemnify as
74
<PAGE> 78
described in the preceding paragraph or the following paragraph or the employee
benefit matters described in "-- Employee Benefits" or the tax matters described
in "-- Taxes") on, before or after the Closing Date, including without
limitation (i) all Losses resulting from any Product Liability Claims (as
defined in the Stock Purchase Agreement) arising out of or resulting from
Products sold or furnished by Cooper, any of its affiliates or any Cameron
Entity (including without limitation any product liability assumed in connection
with the acquisition of any business or product line) on, before or after the
Closing Date; (ii) all Losses resulting from (A) any noncompliance of the
operations, properties or business activities of any Cameron Entity or the
Business with any environmental law on, before or after the Closing Date or (B)
any liabilities or obligations of or relating to, or claims against, any Cameron
Entity or the Business based upon any environmental law, or arising from the
disposal of any regulated materials, on, before, or after the Closing Date; and
(iii) all Losses resulting from (A) any workers' compensation claim filed
against any Cameron Entity on, before or after the Closing Date, and (B) any
employment or severance agreements entered into by Cooper or Cameron relating to
employees of Cameron on, before or after the Closing Date, other than severance
payments under a specified employment agreement.
Cooper has agreed in the Stock Purchase Agreement, other than losses that
the Company is required to indemnify as described in the preceding paragraph or
the employee benefit matters described in "-- Employee Benefits" or the tax
matters as described in "-- Taxes", (i) to indemnify the Company's Group against
all Losses resulting from any liabilities or obligations of or relating to, or
claims against, Cooper or the Cooper Subsidiaries to the extent that such
liabilities, obligations or claims (x) do not relate to the Business and (y)
arise from the activity of (a) any Cameron Entity (other than the Company or the
Pipeline Sub) before the Closing Date, or (b) Cooper or any of Cooper's
subsidiaries other than the Cameron Entities, (ii) except to the extent the
actions of the Company, Cameron or their affiliates may cause or increase any
such Losses after the Closing Date, to indemnify the Company's Group against all
Losses resulting from any regulated materials disposed of on, or discharged into
the environment at, the Houston Site or at a specified Superfund location on or
before the Closing Date; and (iii) to indemnify the Company's Group against all
Losses resulting from severance payments under a specified employment agreement.
Notwithstanding any contrary provision of the Stock Purchase Agreement, no
claim by either party against the other for indemnification will be valid unless
the aggregate amount of Losses associated with such claim exceeds $100,000.
Further, any claims by the indemnified party will be determined net of any tax
benefit actually recognized and utilized to offset or reduce the tax liability
of the indemnified party or the other members of its group. All indemnification
payments (other than indemnifications for taxes and employee benefit matters)
will be treated as adjustments to the purchase price of the Cameron Common
Stock.
CONDITIONS
The respective obligations of each party to effect the transactions
contemplated by the Stock Purchase Agreement will be subject to the satisfaction
at or prior to the Closing Date of the following conditions: (a) each of Cooper
and the Company will have executed and delivered the Investment Agreement; (b)
the transactions contemplated by the Stock Purchase Agreement will have been
approved by the requisite affirmative vote of the holders of the Company Common
Stock and the Senior Notes, and by CIT; (c) articles of amendment, signed in
accordance with the Massachusetts Law and setting forth the Authorized Shares
Amendment and the Fair Price Amendment and the due adoption thereof, will have
been filed with the Secretary of the Commonwealth of Massachusetts and will be
in full force and effect; (d) the Company's Board of Directors will have adopted
a bylaw exempting the Company from the Massachusetts Control Share Acquisitions
Law; (e) the Rights Agreement will have been executed and delivered by the
Company and the other parties thereto and will be in full force and effect; (f)
no statute, rule, regulation, executive order, decree or injunction will have
been enacted, entered, promulgated or enforced, and no action, suit or
proceeding will be pending or threatened, by any governmental entity of
competent jurisdiction which prohibits or challenges the
75
<PAGE> 79
consummation of the transactions contemplated by the Stock Purchase Agreement,
or conditions such consummation on divestitures of assets or certain other
changes or restrictions in the business of Cooper or the Company, and is in
effect; and (g) the Ancillary Agreements will have been negotiated on terms
mutually satisfactory to the Company and Cooper and executed and delivered by
each of the parties thereto.
The obligations of Cooper to effect the transactions contemplated by the
Stock Purchase Agreement are further subject to the satisfaction at or prior to
the Closing Date of the condition that the representations and warranties of the
Company set forth in the Stock Purchase Agreement and qualified as to
materiality or Material Adverse Effects be true and correct and those not so
qualified be true and correct in all material respects as of the date of the
Stock Purchase Agreement and as of the Closing Date, as if made at and as of the
Closing Date (except for representations and warranties that expressly speak
only as of some other time), the Company have delivered the Equity
Consideration, the Note and the Cash Consideration, as well as certain officers
certificates and other documents, and the Company have performed and complied,
in all material respects, with all obligations and covenants required to be
performed or complied with by it under the Stock Purchase Agreement at or prior
to the Closing Date.
Similarly, the obligations of the Company to effect the transactions
contemplated by the Stock Purchase Agreement are further subject to the
satisfaction at or prior to the Closing Date of the condition that the
representations and warranties of Cooper set forth in the Stock Purchase
Agreement and qualified as to materiality or Material Adverse Effects be true
and correct and those not so qualified be true and correct in all material
respects as of the date of the Stock Purchase Agreement (except that certain
pre-Closing transactions have not been consummated) and as of the Closing Date,
as if made at and as of the Closing Date (except for representations and
warranties that expressly speak only as of some other time), Cooper have
delivered the Cameron Common Stock and certain officers' certificates and other
documents and Cooper have performed and complied, in all material respects, with
all obligations and covenants required to be performed or complied with by it
under the Stock Purchase Agreement at or prior to the Closing Date.
TERMINATION AND ABANDONMENT
The Stock Purchase Agreement may be terminated at any time prior to the
Closing Date, whether before or after approval by the shareholders of the
Company of the transactions contemplated by the Stock Purchase Agreement: (a) by
mutual consent of Cooper and the Company; (b) by Cooper or the Company, if the
transactions contemplated by the Stock Purchase Agreement have not been
consummated before June 30, 1994 (unless the failure to consummate the
transactions contemplated by the Stock Purchase Agreement by such date is due to
the breach of the Stock Purchase Agreement by the party seeking to terminate the
Stock Purchase Agreement); (c) by Cooper, if there has been a material violation
or breach by the Company of any agreement, representation or warranty contained
in the Stock Purchase Agreement which has rendered the satisfaction of any
condition to the obligations of Cooper impossible and such violation or breach
has not been waived by Cooper; (d) by the Company, if there has been a material
violation or breach by Cooper of any agreement, representation or warranty
contained in the Stock Purchase Agreement which has rendered the satisfaction of
any condition to the obligations of the Company impossible and such violation or
breach has not been waived by the Company; or (e) by either Cooper or the
Company if the Stock Purchase Agreement and the transactions contemplated hereby
are not duly approved by the shareholders of the Company at a meeting of
shareholders (or any adjournment thereof) duly called and held for such purpose.
If the Stock Purchase Agreement is terminated as provided in the Stock
Purchase Agreement, each party will bear its own expenses incurred in connection
with the Stock Purchase Agreement and the transactions contemplated thereby, and
neither party thereto will have other liability or further obligation to the
other party pursuant to the Stock Purchase Agreement except for a breach of the
confidentiality provisions of the Stock Purchase Agreement.
76
<PAGE> 80
ALTERNATIVE DISPUTE RESOLUTION
The Stock Purchase Agreement provides that the parties thereto will attempt
in good faith to resolve any dispute arising out of or relating to the Stock
Purchase Agreement promptly by negotiations between executives who have
authority to settle the controversy. If the parties fail to meet or the matter
has not been resolved within certain specified time periods, either party may
initiate mediation of the dispute. Thereupon, both parties will be obligated to
engage in a mediation. Efforts to reach a settlement will continue until the
conclusion of the mediation proceeding, which is deemed to occur when: (a) a
written settlement is reached, (b) the mediator concludes and informs the
parties in writing that further efforts would not be useful, or (c) after making
a good-faith effort to mediate, either party or both parties assert in writing
that an impasse has been reached. Neither party may withdraw before the
conclusion of the proceeding. Thereafter, if a settlement has not been reached,
the parties will be free to pursue such rights and remedies, at law or in
equity, as may be available to them. The Stock Purchase Agreement sets forth
certain procedures with respect to the foregoing.
NONCOMPETITION
Cooper has agreed in the Stock Purchase Agreement that, until the later to
occur of (1) Cooper's ceasing to own at least 10% of the outstanding shares of
Company Common Stock and (ii) the expiration of a period of three years
commencing on the Closing Date, Cooper will not, and Cooper will not permit any
of its subsidiaries (regardless of whether such person is a subsidiary of Cooper
on the date hereof) to, engage in the manufacturing or marketing of the Products
currently manufactured or marketed by Cameron or the U.K. Sub in competition
with the Company or any subsidiary of the Company (a "Competing Business"),
except that (i) Cooper or any affiliate of Cooper (other than Cameron and the
Cameron Subsidiaries) may continue any existing nonaerospace forging operations
and may make any reasonable maintenance, improvements and refinements thereto
and (ii) Cooper or any affiliate of Cooper may acquire any business which
includes ancillary forging operations in support of its main business. In
addition, this noncompetition provision will not prevent Cooper or its
affiliates from acquiring shares in or the business or assets of any company,
business or entity (the "Target") having a Competing Business (i) if no more
than $10,000,000 of the Target's sales revenue (as recorded in the then-latest
available audited accounts) arises from the Competing Business or (ii) if the
sales revenue of the Competing Business is greater than $10,000,000 of the
Target's sales revenue, if Cooper uses its reasonable commercial efforts to
dispose of the Competing Business within a two-year period from the date of
acquisition of the Target. If Cooper cannot dispose of the Competing Business on
terms reasonably acceptable to it during such two-year period, then Cooper will
be free to retain and operate the Competing Business without any restriction of
the Stock Purchase Agreement.
77
<PAGE> 81
DESCRIPTION OF THE INVESTMENT AGREEMENT
The following summary of the terms of the Investment Agreement is not
complete and is qualified in its entirety by reference to the full text of the
Investment Agreement attached to this Proxy Statement as Annex B. Shareholders
are urged to read carefully both this Proxy Statement and the Investment
Agreement.
RESTRICTIONS ON SALES OF SHARES BY COOPER
In the Investment Agreement, Cooper agrees that, so long as the Investment
Agreement remains in effect, Cooper will not sell or otherwise dispose of or
encumber any Company Voting Securities (as hereinafter defined), except: (a) to
any wholly-owned subsidiary of Cooper which agrees to be bound by the Investment
Agreement; (b) pursuant to a bona fide underwritten offering or other
distribution of such Company Voting Securities registered under the Securities
Act of 1933, as amended (the "Securities Act"); (c) pursuant to a bona fide
underwritten offering or other distribution of securities of Cooper convertible
into or exercisable or exchangeable for Company Voting Securities registered
under the Securities Act; (d) pursuant to Rule 144 of the General Rules and
Regulations under the Securities Act, or any successor rule of similar effect
("Rule 144"); or (e) pursuant to a tender offer or exchange offer if the Board
of Directors of the Company has (i) recommended that shareholders of the Company
accept such offer and such recommendation has not been withdrawn or (ii)
expressed no opinion and remains neutral toward such offer; (f) pursuant to a
merger or consolidation in which the Company is acquired, or a sale of all or
substantially all of the Company's assets to another corporation or any other
transaction approved by the Board of Directors of the Company. For purposes of
the Investment Agreement, "Company Voting Securities" means (i) the Shares, (ii)
any other Company securities entitled to vote generally for the election of
directors of the Company, or (iii) any securities of the Company convertible
into or exchangeable for or exercisable for Shares or any other Company
securities entitled to vote generally for the election of directors of the
Company.
In any registered offering or Rule 144 transaction, the seller of Company
Voting Securities or securities of Cooper convertible into or exercisable or
exchangeable for Company Voting Securities will be required under the Investment
Agreement to use its reasonable best efforts to effect the sale or transfer of
such securities in a manner which will effect the broadest possible
distribution. Such seller of Company Voting Securities will also be required to
use its reasonable best efforts to avoid making any sales or transfers of such
Company Voting Securities to any one person or group within the meaning of the
Exchange Act who or which after such transfer will own Company Voting Securities
representing more than 4% of the voting power for the election of directors
represented by all of the then-outstanding Company Voting Securities (whether
directly or indirectly).
VOTING, OWNERSHIP AND OTHER RESTRICTIONS ON COOPER
In the Investment Agreement, Cooper agrees to cause all Company Voting
Securities beneficially owned by it or any wholly-owned subsidiary to which it
has transferred any Company Voting Securities, and agrees to use reasonable
efforts to cause all Company Voting Securities known by Cooper to be
beneficially owned by "affiliates" (as defined in Rule 12b-2 promulgated under
the Exchange Act) of Cooper over which Cooper has control, to be present at all
shareholder meetings of the Company at which the vote of common shareholders is
sought so that they may be counted for the purpose of determining the presence
of a quorum at such meetings.
Cooper also agrees in the Investment Agreement to vote or cause to be voted
all Company Voting Securities beneficially owned by it or any wholly owned
subsidiary to which it has transferred any Company Voting Securities, and agrees
to use reasonable efforts to cause to be voted all Company Voting Securities
known by Cooper to be beneficially owned by its affiliates over which it has
control, on all matters (including the election of directors) either in the
manner recommended to shareholders by the Board of Directors of the Company, or,
at Cooper's election, in the same proportion as the vote of the other
shareholders of the Company. Notwithstanding the foregoing, Cooper, such wholly-
owned subsidiaries of Cooper and such affiliates of Cooper over which it has
control will not be
78
<PAGE> 82
obligated so to vote if the matter being voted on by the shareholders of the
Company would, if approved, result in a breach of the Investment Agreement.
Pursuant to the Investment Agreement, so long as the Investment Agreement
remains in effect, Cooper and its controlled affiliates will not, directly or
indirectly, acting alone or in concert with others, unless specifically
requested or approved in advance by the Board of Directors of the Company:
(a) in any manner acquire or agree, attempt, seek or propose to
acquire (or make any request for permission with respect thereto), by
purchase, merger, through the acquisition of control of another person, by
joining a partnership, limited partnership, syndicate or other "group"
(within the meaning of Section 13(d)(3) of the Exchange Act), or otherwise,
ownership (including, but not limited to, beneficial ownership as defined
in Rule 13d-3 under the Exchange Act) of any of the assets or businesses of
the Company or any securities issued by the Company (the "Company
Securities"), or any rights or options to acquire such ownership (including
from a third party), except (i) as expressly permitted by the Investment
Agreement or the Stock Purchase Agreement, or (ii) pursuant to customary
business transactions in the ordinary course of the Company's and Cooper's
business, or (iii) in the case of Company Securities, in connection with
(A) a stock split or reverse stock split or other reclassification
affecting outstanding Company Securities, or (B) a stock dividend or other
pro rata distribution by the Company to holders of outstanding Company
Securities;
(b) make, or cause to be made any proposal for the acquisition of the
Company or any assets or businesses of the Company or Company Securities or
for any other extraordinary transaction involving the Company, including,
without limitation, any merger, or other business combination,
restructuring, recapitalization, liquidation or similar transaction, except
(i) as expressly permitted by the Investment Agreement or the Stock
Purchase Agreement or (ii) proposals pursuant to customary business
transactions in the ordinary course of the Company's and Cooper's business;
(c) form, join or in any way participate in a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) with respect to any
Company Securities;
(d) make, or in any way cause or participate in, any "solicitation" of
"proxies" to vote (as such terms are defined in Regulation 14A under the
Exchange Act) with respect to the Company, or communicate with, seek to
advise, encourage or influence any person or entity, in any manner, with
respect to the voting of, any Company Securities, or become a "participant"
in any "election contest" (as such terms are defined or used in Rule 14a-11
under the Exchange Act) with respect to the Company, or execute any written
consent with respect to the Company;
(e) initiate, propose or otherwise solicit shareholders for the
approval of one or more shareholder proposals with respect to the Company
or induce or attempt to induce any other person to initiate any shareholder
proposal, or (except as expressly permitted by the Investment Agreement)
seek election to or seek to place a representative on the Board of
Directors of the Company or seek the removal of any member of the Board of
Directors of the Company;
(f) in any manner, agree, attempt, seek or propose (or make any
request for permission with respect thereto) to deposit any Company
Securities, directly or indirectly, in any voting trust or similar
arrangement or to subject any Company Voting Securities to any other voting
or proxy agreement, arrangement or understanding;
(g) disclose any intention, plan or arrangement, or make any public
announcement (or request permission to make any such announcement), or
induce any third party to take any action, inconsistent with the foregoing;
(h) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing;
or
(i) advise, assist or encourage or finance (or assist or arrange
financing to or for) any other person in connection with any of the
foregoing.
79
<PAGE> 83
ELECTION OF DIRECTORS
Pursuant to the Investment Agreement, the Company has agreed that it will
use its best efforts to cause two persons designated by Cooper and reasonably
acceptable to the Company to be elected to the Board of Directors of the Company
and to serve as directors of the Company until their successors are duly elected
and qualified. In the event that any such designee will cease to serve as a
director for any reason, the Company has agreed in the Investment Agreement that
it will use its best efforts to cause such vacancy resulting thereby to be
filled by a designee of Cooper reasonably acceptable to the Company. The
Investment Agreement provides that the Company will vote all shares for which
the Company's management or Board of Directors holds proxies or is otherwise
entitled to vote in favor of the election of the designees of Cooper except as
may otherwise be provided by shareholders submitting such proxies.
The Investment Agreement provides that any designees of Cooper who are
elected to serve on the Company's Board of Directors will be furnished with all
information generally provided to the Company's Board of Directors and will have
access to information regarding the Company on a basis equal to that of the
other outside or its inside directors. The Investment Agreement also provides
that Cooper's designees serving on the Company's Board of Directors will, in
connection with the performance of their duties as directors of the Company, be
(i) compensated at a level commensurate with the compensation of the Company's
other outside directors, (ii) reimbursed for all out-of-pocket charges and
expenses incurred, (iii) entitled to the benefit of insurance policies of the
Company which provide coverage to its other outside directors and (iv) furnished
with and entitled to the same perquisites as the Company's other outside
directors.
AMENDMENTS TO THE COMPANY'S ARTICLES OF ORGANIZATION AND BY-LAWS
The Investment Agreement provides that the Company will not amend (i) the
Fair Price Provision (except pursuant to the Fair Price Amendment) in any manner
which adversely affects Cooper or any other person to whom any of the Shares
have been transferred in accordance with the terms of the Investment Agreement
or (ii) the provision of the Company's By-Laws pursuant to which the Company has
opted out of Chapter 110D of the Massachusetts General Laws. See "Proposed
Amendments of the Company's Articles of Organization -- Increase in Authorized
Shares -- Potential Antitakeover Effects of Increase in Authorized Capital
Stock." The Investment Agreement also provides that the Company will not amend
the Rights Agreement or adopt any other rights or similar agreement, except that
following prior consultation with Cooper, the Company may amend the Rights
Agreement in accordance with the terms thereof if such amendment does not
adversely affect Cooper or any other person to whom any of the Shares have been
transferred in accordance with the terms of the Investment Agreement. See
"Description of the Company's Capital Stock -- Rights Agreement."
TERM AND EFFECTIVENESS OF AGREEMENT
The Investment Agreement will be effective only upon consummation of the
Acquisition. Neither party will have any obligation to the other pursuant to the
Investment Agreement until such consummation has occurred, and the Investment
Agreement will terminate simultaneously with any termination of the Stock
Purchase Agreement in accordance with its terms. If the Acquisition is
consummated, the Investment Agreement will terminate on the earlier of (i) the
tenth anniversary of the Closing Date, and (ii) the first date on which Cooper
beneficially owns less than 5% of the outstanding Company Voting Securities.
The Investment Agreement provides that, among others, the limitations on
Cooper and its affiliates described above in "--Restrictions on Sales of Shares
by Cooper" and "--Voting, Ownership and Other Restrictions on Cooper" and the
limitations on the Company described above in "-- Amendments to the Company's
Articles of Organization and By-Laws" will terminate immediately and be of no
further force and effect on the date that a Trigger Event (as defined below)
occurs. For
80
<PAGE> 84
these purposes, "Trigger Event" means the occurrence of one or more of the
following events, without Cooper's prior written consent:
(1) in connection with the issuance of Company Voting Securities
(other than (x) issuances pursuant to the Company's current employee
benefit plans or other customary employee benefit plans of the Company or
(y) issuances in connection with bona fide capital raising programs
pursuant to which the securities are sold for fair value, as approved by
the Board of Directors of the Company, and the proceeds of which are
invested in the businesses in which the Company or one or more of its
subsidiaries are then engaged or (z) issuances for fair value, as
determined by the Board of Directors of the Company, in connection with
acquisitions by the Company or one of its wholly-owned subsidiaries
primarily involving one or more Similar Businesses (as defined below)), the
failure to provide Cooper with the right to purchase, at the same price as
the Company Voting Securities are being issued, that number or amount of
Company Voting Securities which would enable Cooper to maintain its
proportionate interest in the Company following such issuance;
(2) a Change in Control of the Company (as defined below);
(3) a material acquisition or investment by the Company or one of its
subsidiaries, other than an acquisition or investment by the Company or one
of its wholly-owned subsidiaries primarily involving one or more Similar
Businesses;
(4) a decline of at least 35% in the Consolidated Net Worth of the
Company (as defined in the Investment Agreement) from the Consolidated Net
Worth of the Company immediately following the consummation of the
Acquisition after giving effect to the Acquisition (including the issuance
of 16,500,000 Shares to Cooper), but not taking into account (A) any
reduction in the Company's Consolidated Net Worth attributable to or taken
in connection with or as a result of the Acquisition or the combination of
the business acquired from Cooper with the Company's business and recorded
in the Company's financial statements for any period ending on (and
including) the end of the first full fiscal year of the Company after the
consummation of the Acquisition or (B) any adjustments following the date
of consummation of the Acquisition as a result of any changes in generally
accepted accounting principles (including the implementation of SFAS 106)
or any other regulatory changes or requirements applicable to the Company
or its financial statements or (C) any adjustment resulting from any
liability arising from or growing out of any matter or circumstance
existing as of the time of the consummation of the Acquisition and relating
to the business or assets acquired by the Company from Cooper but not
reflected on the balance sheet of such business and assets or (D) any
change in the translation component of shareholders' equity or (E)
adjustments as a result of sales of the Company's accounts receivables
pursuant to a bona fide receivables securitization program pursuant to
which fair value is received for receivables so sold (as determined by the
Company's Board of Directors, taking into account, among other things, any
discount or credit enhancement features required by any securities rating
agency) or (F) any adjustment resulting from a SFAS 109 valuation allowance
recorded or reserved by the Company with respect to deferred tax assets
that were included in or excluded from the Company's final APB No. 16
acquisition date balance sheet;
(5) any default or defaults by the Company or one of its subsidiaries
under any indebtedness of the Company or its subsidiaries for money
borrowed with a principal amount then outstanding, individually or in the
aggregate, in excess of $5 million, which default will constitute a failure
to pay any portion of the principal of each indebtedness at final maturity
or will have resulted in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise have become due
and payable without such indebtedness having been discharged, or such
acceleration having been rescinded or annulled within a period of 30 days
after maturity or acceleration;
(6) an Event of Bankruptcy (as defined in the Investment Agreement);
or
81
<PAGE> 85
(7) the failure of the Board of Directors of the Company to nominate
at least two of Cooper's representatives for election to the Company's
Board of Directors.
The Investment Agreement further provides that the Company may not issue
any securities having more than one vote per share (other than pursuant to the
Rights Agreement) without the prior written consent of Cooper.
For purposes of the Investment Agreement, (1) a "Change in Control of the
Company" means (A) a merger or consolidation involving the Company or a sale of
all or substantially all of the assets of the Company, in each case except for a
transaction in which the Company's shareholders receive at least 50% of the
stock of the surviving, resulting or acquiring corporation, (B) the acquisition
by an individual, entity or group (excluding the Company or an employee benefit
plan of the Company or a corporation controlled by the Company's shareholders)
of shares of capital stock of the Company entitled to cast a majority of the
votes entitled to be cast on matters submitted to the shareholders of the
Company, or (C) a change in a majority of the members of any class of the
Company's Board of Directors in connection with an "election contest" (as used
in Rule 14a-11 under the Exchange Act); and (2) "Similar Businesses" means (A)
businesses in which the Company or one or more of its subsidiaries are engaged,
(B) any businesses involving products related to or complementary to the
products of the Company or one or more of its subsidiaries or (C) any similar
businesses providing customers of the Company or one or more of its subsidiaries
with products or services similar to those provided by the Company or one or
more of its subsidiaries.
REGISTRATION RIGHTS
Pursuant to the Investment Agreement, Cooper and certain of its transferees
will have the right to require the Company to file under the Securities Act up
to three demand registrations of the Shares acquired by Cooper in the
Acquisition (and any other Company securities issued in respect thereof) at the
Company's expense (except that the Company will not be responsible for
underwriting discounts and commissions or transfer taxes). Cooper will also have
the right to an unlimited number of additional demand registrations under the
Securities Act at Cooper's expense. Cooper also has the right, under certain
circumstances, to "piggyback" registrations in the event that the Company
registers securities for its own account or for the account of third parties.
Cooper's demand and piggyback registration rights are subject to customary
restrictions and limitations. In connection with any registration statement
filed pursuant to these registration rights, Cooper and the Company will
indemnify each other against certain liabilities, including certain liabilities
under the Securities Act.
MISCELLANEOUS
Under the Investment Agreement, the Company is required to file reports
under the Exchange Act on a timely basis and to provide copies of such filings
and of certain financial statements and other information to Cooper.
PROPOSED AMENDMENTS OF THE COMPANY'S
ARTICLES OF ORGANIZATION
INCREASE IN AUTHORIZED SHARES
GENERAL
It is a condition to Cooper's obligation to consummate the Acquisition that
the Authorized Shares Amendment shall have been adopted. The Company is
currently authorized to issue 35,000,000 Shares. Of such number, 18,040,150
Shares were issued and outstanding at the Record Date. An additional 867,131
Shares are reserved for issuance pursuant to existing commitments and 619,500
Shares are available under the Company's employee benefit plans for future
awards. The Authorized Shares
82
<PAGE> 86
Amendment would amend and restate Article 3(a) of the Company's Articles of
Organization to read in its entirety as follows:
3(a). The total number of shares of common stock which the Company is
authorized to issue is Seventy Million (70,000,000) having a par value of
one dollar ($1.00) per share (the "Common Stock").
The effect of the Authorized Shares Amendment would be to increase the
number of authorized Shares from 35,000,000 to 70,000,000. The reason for the
proposed increase in the number of authorized Shares is to make 16,500,000
Shares available for issuance to Cooper in connection with the Acquisition and
to make 18,500,000 Shares available for other corporate purposes, including
future issuance as Share dividends, as restricted stock awards, upon exercise of
stock options, for cash, for acquisitions of property or stock of other
corporations, and for other purposes, as occasion may arise.
While the Company may from time to time consider various acquisitions, the
Company has not entered into any agreement regarding the issuance of a
significant number of additional Shares other than under the Stock Purchase
Agreement and does not have any other present intention to issue any of the
additional Shares to be authorized. The Board of Directors believes it is
desirable that the Company have such additional Shares available for situations
in which their issuance may be suitable without delay which would result from
holding a meeting of shareholders to authorize the issuance of additional
Shares.
If the Acquisition Proposal is adopted, the additional Shares may be issued
by the Board of Directors of the Company without further action by the
shareholders, except as may be required by law or pursuant to the rules of the
NASDAQ/NMS. Except for Cooper's rights with respect to the Shares under the
Investment Agreement (see "Description of Investment Agreement -- Term and
Effectiveness of Agreement"), no shareholder of the Company has, or will have,
any preemptive rights with respect to the Shares.
POTENTIAL ANTITAKEOVER EFFECTS OF INCREASE IN AUTHORIZED CAPITAL STOCK
The Board of Directors is not aware of any attempts to take over or effect
a change in control of the Company, except to the extent, if any, that the
Acquisition may be deemed to result in a change in control. As such, the
proposed amendment to the Company's Articles of Organization increasing the
authorized capital stock of the Company is not the result of a specific effort
by the Board to thwart any known takeover attempts. Nonetheless, the increase in
the authorized Shares could be used to impede a takeover attempt since new
Shares could be issued to dilute the stock ownership of a person attempting to
acquire control of the Company.
Any provision which discourages the acquisition of the Shares by a person
seeking control could be beneficial to the shareholders generally to the extent
that it (i) provides for greater stability and continuity of management, (ii)
protects shareholders against unfair or inequitable mergers or tender offers,
and (iii) helps discourage or prevent a takeover by an acquiror seeking to
obtain control in order to break up and auction off the Company's component
parts or otherwise act in non-beneficial ways with respect to the Company or its
assets. However, such provisions could also have the effect of discouraging,
making costlier or more difficult, or preventing a merger or a tender offer
which would be beneficial to the Company's shareholders. Moreover, the adoption
of the proposed amendments to the Company's Articles of Organization may have
the effect of assisting the Company's management in retaining its position, even
if removal would be beneficial to the shareholders generally. Consequently,
management would be in a better position to resist changes that might benefit
shareholders generally, but that might be disadvantageous to management.
Even without the adoption of the proposed amendment to the Company's
Articles of Organization, the Board of Directors has available to it a number of
ways to repel a takeover which it deems to be not in the best interests of the
Company and its shareholders. For example, the existing authorized and unissued
Shares are available to the Board for, among other purposes, issuance to deter
future
83
<PAGE> 87
attempts to gain control over the Company (if such issuance would be consistent
with the Board's fiduciary responsibilities). In addition, the present Company's
Articles of Organization authorize the issuance of Preferred Stock with any
designation of rights, preferences and in any series as the Board determines.
The Board could currently use this Preferred Stock in any or all of the
antitakeover methods described above in the discussion of the increase in the
Preferred Stock. Moreover, the Rights issued pursuant to the Rights Agreement
should encourage any potential acquiror to seek to negotiate with the Board
since the exercise of the rights can cause substantial dilution to a person
seeking to acquire the Company. See "Description of the Company's Capital Stock
- - -- Rights Agreement." Also, the Fair Price Provision may have certain
antitakeover effects. See "Proposed Amendment of the Company's Articles of
Organization -- Amendment of Fair Price Provision."
Chapter 110D of the Massachusetts General Laws (the "Control Share
Acquisition Law") limits the voting rights of shares of a Massachusetts
corporation held by persons who acquire certain percentages of the voting power
of the corporation. Under the Control Share Acquisition Law, shares acquired in
a "control share acquisition" are subject to certain limitations on their voting
rights unless otherwise authorized by a vote of a majority of all shares
entitled to vote generally in the election of directors, excluding such acquired
shares. In connection with the Acquisition, as permitted under the Control Share
Acquisition Law, the Board of Directors amended the By-Laws of the Company to
provide that the Control Share Acquisition Law does not apply to the Company.
The Company is also subject to Chapter 110F of the Massachusetts General
Laws (the "Business Combination Law"), which prohibits a business combination
with a holder of 5% or more of the voting stock of a Massachusetts corporation
(an "interested shareholder") for three years after the shareholder becomes an
interested shareholder, unless the acquiror receives prior approval of the board
of directors of the corporation, acquires 90% or more of the outstanding shares
(excluding shares controlled by management and certain employee stock plans) or
receives approval from two-thirds of the shareholders (other than the interested
shareholder). The Business Combination Law is not applicable to the Acquisition,
since the Acquisition has been approved by the Board of Directors of the
Company.
AMENDMENT OF FAIR PRICE PROVISION
GENERAL
It is a condition to Cooper's obligation to consummate the Acquisition that
the Fair Price Amendment shall have been adopted. The Fair Price Amendment would
amend Article 6(e)2 of the Company's Articles of Organization to add the
following sentence to the end thereof:
Notwithstanding the foregoing, Cooper Industries, Inc. ("Cooper") and its
Affiliates and Associates (together, the "Cooper Group") shall not be
deemed to be an Interested Stockholder for so long as (A) the Cooper Group
beneficially owns at least 10% or more of the outstanding shares of Common
Stock continuously from and after the Closing Date (as defined in the Stock
Purchase Agreement, dated as of January 10, 1994, between Cooper and the
Company) and (B) the Cooper Group does not acquire beneficial ownership of
any shares of Common Stock in breach of the Investment Agreement, dated as
of January 10, 1994, between Cooper and the Company (other than an
inadvertent breach which is remedied as promptly as practicable by a
transfer of the shares of Common Stock so acquired to a person or entity
which is not a member of the Cooper Group).
The effect of the Fair Price Amendment would be to exempt Cooper and its
affiliates and associates (the "Cooper Group") from the Fair Price Provision for
so long as the Cooper Group beneficially owns at least 10% or more of the
outstanding Shares continuously from and after the Closing Date, unless the
Cooper Group acquires beneficial ownership of additional Shares in breach of the
Investment Agreement (other than an inadvertent breach which is remedied as
promptly as practicable by a transfer of the Shares so acquired to a person
which is not a member of the Cooper Group).
84
<PAGE> 88
DESCRIPTION OF FAIR PRICE PROVISION
Under the Fair Price Provision, a Business Combination (as hereinafter
defined) between the Company, or a subsidiary of the Company, and an Interested
Stockholder would require the approval of the holders of at least 85% of the
outstanding voting stock of the Company, unless either (i) the Business
Combination has been approved by at least two-thirds of the Company's Continuing
Directors (as hereinafter defined) or (ii) certain minimum price requirements
are satisfied (the "Minimum Price Requirement"). In addition, the Fair Price
Provision requires compliance with certain procedures.
Under the Fair Price Provision, the term "Business Combination" includes
the following transactions: (i) any merger, consolidation or share exchange of
the Company, or any of its subsidiaries, with or into an Interested Stockholder
(regardless of the surviving entity), (ii) any sale, lease, transfer or other
disposition to or with an Interested Stockholder of all or a substantial part of
the assets of the Company or any subsidiaries of the Company (whether in a
single transaction or a series of related transactions), (iii) any sale, lease,
transfer or other disposition to or with the Company, or to or with any of its
subsidiaries, of all or a substantial part of the assets of an Interested
Stockholder (whether in a single transaction or series of related transactions),
(iv) the issuance or transfer by the Company or any of its subsidiaries of any
securities of the Company or any of its subsidiaries to an Interested
Stockholder (other than a pro-rata distribution to all stockholders), (v) any
acquisition by the Company or any of its subsidiaries of any securities issued
by an Interested Stockholder, (vi) any recapitalization or reclassification of
shares of any class of voting stock of the Company or any merger or
consolidation of the Company with any of its subsidiaries which would have the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of capital stock of the Company owned by any
Interested Stockholder, (vii) any merger or consolidation of the Company with
any of its subsidiaries after which the terms of the Fair Price Provision would
not be part of the articles of organization (or the equivalent charter
documents) of the surviving entity, (viii) any plan or proposal for the
liquidation or dissolution of the Company, and (ix) any agreement, contract or
other arrangement providing for any of the transactions described in this
definition of Business Combination.
An "Interested Stockholder" means any individual, corporation, partnership
or other entity that, in combination with such person's or entity's affiliates
and associates, is the beneficial owner of 10% or more of any class or series of
capital stock of the Company. The term "beneficial owner" includes persons who
directly or indirectly have the authority to vote or control the voting or the
right to dispose of or control the disposition of the capital stock in question.
The term "affiliate" means any person that directly, or indirectly through one
or more intermediaries, controls, is controlled by or is under common control
with, the person or entity specified. An "associate" of any person means (i) any
corporation or organization, of which such person is an officer or director or
is, directly or indirectly, a beneficial owner of 10% or more of any class of
equity securities, (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, or (iii) any relative or spouse of such person,
or any relative of such spouse, who has the same home as such person.
A "Continuing Director" is defined to mean a director who was a member of
the Board of Directors on February 22, 1989, or any person who became or becomes
a director thereafter and whose election as a director was or is recommended or
approved by a majority of the then Continuing Directors. The Fair Price
Provision confers upon the Continuing Directors the power and the duty to
interpret its provisions.
A Business Combination with an Interested Stockholder will not require the
approval of the holders of at least 85% of the outstanding voting stock if the
transaction is approved by a two-thirds vote of the Continuing Directors. This
exception is an alternative to the Minimum Price Requirement (as defined below).
In determining whether or not to approve a Business Combination, the Continuing
Directors may give due consideration to all factors they may consider relevant
in the exercise of their fiduciary duty, including without limitation (i) the
long-term and short-term effects on the profitability
85
<PAGE> 89
of the Company, (ii) the social, legal, environmental and economic effects, both
short-term and long-term, on the employees of the Company and its subsidiaries,
and on the communities and the geographic areas in which the Company and its
subsidiaries operate or are located, and on the businesses and properties of the
Company and its subsidiaries, and (iii) the adequacy of the consideration
offered in relation not only to the current market price of the Company's
outstanding securities, but also to the current value of the Company in a freely
negotiated transaction and to the estimate of the Continuing Directors of the
Company's future value (including the unrealized value of its properties and
assets) as an independent going concern.
A Business Combination with an Interested Stockholder will not require the
approval of the holders of at least 85% of the outstanding voting stock if the
transaction satisfies certain minimum price requirements (the "Minimum Price
Requirement"). This exception is an alternative to the approval of the Business
Combination by the Continuing Directors. A Business Combination will satisfy the
Minimum Price Requirement if the aggregate amount of cash and the Fair Market
Value (as hereinafter defined) of property, securities or other consideration
received by the stockholders for each share of Company stock in connection with
such Business Combination is the highest of (i) the highest price paid by the
Interested Stockholder (or any of its affiliates or associates) for any of its
holdings of capital stock of the Company within the five-year period preceding
the announcement of the Business Combination, (ii) a price that includes at
least the same premium over the market price immediately prior to the
announcement of such Business Combination as the greatest such premium paid by
the Interested Stockholder (or any of its affiliates or associates) for any
shares of capital stock of the Company within the five-year period preceding the
announcement of the Business Combination, or (iii) the highest price offered by
the Interested Stockholder (or any of its affiliates or associates) for any
shares of capital stock of the Company within the five-year period preceding the
announcement of the Business Combination.
In addition to the other requirements of the Fair Price Provision, prior to
the consummation of any Business Combination and prior to any vote of the
Company's stockholders, a proxy statement or information statement complying
with the requirements of the Securities Exchange Act of 1934, as amended, must
be mailed to all stockholders of the Company for the purpose of informing the
Company's stockholders about the proposed Business Combination and, if their
approval is required, for the purpose of soliciting stockholder approval. The
proxy statement or information statement must contain at the beginning of the
document, in a prominent place, a statement by the Continuing Directors of their
position on the advisability (or inadvisability) of the proposed Business
Combination.
The Fair Price Provision may not be amended or repealed except by the
affirmative vote of the holders of at least 85% of the outstanding voting stock
of the Company, unless such amendment or repeal is approved by at least
two-thirds of the Continuing Directors at a meeting at which a Continuing
Director Quorum was present, in which event the amendment or repeal would
require the approval of the Company's shareholders in accordance with applicable
provisions of the Company's Articles of Organization and Massachusetts law
(which at present would require approval by the affirmative vote of two-thirds
of the outstanding Shares).
The Fair Price Amendment has been approved by two-thirds of the Continuing
Directors at such a meeting. Accordingly, the affirmative vote of the holders of
two-thirds of the outstanding Shares is sufficient for the adoption of the Fair
Price Amendment.
ELECTION OF DIRECTORS
Four directors will be elected at the Meeting, each to hold office until
the 1997 annual meeting of shareholders and until his or her successor is
elected and qualified. All of the nominees are currently directors of the
Company. Unless authority to do so has been withheld or limited in the proxy, it
is the intention of the persons named as proxies to vote the Shares to which the
proxy relates for the election
86
<PAGE> 90
to the Board of Directors the four nominees listed below. The affirmative vote
of a majority of the Shares voting at the Meeting is required for election.
Edouard C. Thys, a director since 1988, retired from the Company in October
1993 and, in accordance with Company policy regarding employee directors, no
longer serves as a member of the Board of Directors.
NOMINEES FOR THREE-YEAR TERM
The following is certain information about the directors of the Company who
are standing for reelection at the Meeting.
Robert G. Foster, age 55, President and Director of Commonwealth
BioVentures, Inc., Worcester, Massachusetts (a venture capital company engaged
in biotechnology). Director of the Company since 1989. Member of the Management
Resources and Compensation Committee. Term expires in 1994. Mr. Foster was
President and Chairman of Ventrex Laboratories, Inc. from 1976 to 1987, when he
assumed his present position. He is also a Director of United Timber Corp.
Judith S. King, age 59, Community Volunteer, Personal Investments. Director
of the Company since 1990. Member of the Audit, Directors and Management
Resources and Compensation Committees. Term expires in 1994. Mrs. King is also a
Trustee and Treasurer of The Stoddard Charitable Trust.
Jon C. Strauss, age 54, President of Worcester Polytechnic Institute,
Worcester, Massachusetts. Director of the Company since 1989. Member of the
Audit and Finance Committees. Term expires in 1994. Prior to assuming his
current position in 1985, Dr. Strauss was Chief Administrative Officer at the
University of Southern California and, before that, Chief Financial Officer at
the University of Pennsylvania. He is a Director of Computervision Corporation,
a Regional Director of Shawmut Bank, a Trustee of the Massachusetts
Biotechnology Research Institute and a Trustee of The Medical Center of Central
Massachusetts.
Charles A. Zraket, age 70, Adjunct Research Scholar, Kennedy School of
Government, Harvard University. Trustee and Former President and Chief Executive
Officer of The MITRE Corporation, Bedford, Massachusetts (a not-for-profit
corporation engaged in systems engineering and research primarily for United
States government departments and agencies). Director of the Company since 1990.
Chairman of the Management Resources and Compensation Committee and member of
the Directors Committee. Term expires in 1994. Mr. Zraket was President and
Chief Executive Officer of The MITRE Corporation from 1986 to 1990 after having
served as Executive Vice President and Chief Operating Officer. He is a Director
of Bank of Boston, Boston Edison Company, Advanced Photovoltaics Systems, Inc.
and Aspect Medical Systems. Mr. Zraket also serves as a Trustee of Northeastern
University, Beth Israel Hospital and the Hudson Institute.
CONTINUING DIRECTORS
The following is certain information about the directors of the Company who
are continuing in office.
E. Paul Casey, age 64, Chairman and General Partner, Metapoint Partners,
Peabody, Massachusetts (an investment partnership). Director of the Company
since 1993. Member of the Audit and Management Resources and Compensation
Committees. Term expires in 1996. Mr. Casey established Metapoint Partners in
1988. He served as Vice Chairman of Textron, Inc. from 1986 to 1987 and as Chief
Executive Officer and President of Ex-Cell-O Corporation during 1978 to 1986.
Mr. Casey is a Director of Comerica, Inc. and Hood Enterprises, Inc. and is a
Trustee of The Henry Ford Health Care System.
Warner S. Fletcher, age 49, Attorney and Director of the law firm of
Fletcher, Tilton & Whipple, P.C., Worcester, Massachusetts. Director of the
Company since 1987. Chairman of the Finance Committee and member of the Audit
Committee. Term expires in 1996. Mr. Fletcher is a Director of Mechanics Bank.
He is also Chairman of The Stoddard Charitable Trust and a Trustee of the
Fletcher
87
<PAGE> 91
Foundation, the Worcester Foundation for Experimental Biology, the Bancroft
School and the Worcester Art Museum.
M Howard Jacobson, age 60, Senior Advisor, Bankers Trust, New York.
Director of the Company since 1993. Member of the Finance and Directors
Committees. Term expires in 1996. Mr. Jacobson was for many years Chief
Executive Officer, President, Treasurer and a Director of Idle Wild Foods, Inc.
until that company was sold in 1986. From 1989 to 1991 he was a Senior Advisor
to Prudential Bache Capital Funding. Mr. Jacobson is a Director of Allmerica
Property & Casualty Cos. Inc., Immulogic Pharmaceutical Corporation, Stoneyfield
Farm, Inc., Cyplex, and Boston Chicken, Inc. He is Chairman of the Board of
Trustees of Worcester Polytechnic Institute, Chairman of the Board of Directors
of the Foundation of The Medical Center of Central Massachusetts, an Overseer of
WGBH/National Public Broadcasting and a Trustee of the Worcester Foundation for
Experimental Biology.
George S. Mumford, Jr., age 65, Professor, Department of Physics and
Astronomy, Tufts University. Director of the Company since 1968. Chairman of the
Audit Committee and member of the Finance Committee. Term expires in 1996. Mr.
Mumford formerly served as Dean of the Graduate School of Arts and Sciences at
Tufts University. He was President and a Director of The Manufacturers Company
until 1986, and he is a former member of the Board of Directors of the Council
of Graduate Schools in the United States and Past President of the Northeast
Association of Graduate Schools.
Russell E. Fuller, age 67, Chairman of REFCO, INC., Boylston, Massachusetts
(a supplier of specialty industrial products). Director of the Company since
1988. Chairman of the Directors Committee and member of the Finance Committee.
Term expires in 1995. Mr. Fuller is Chairman and Treasurer of The George F. and
Sybil H. Fuller Foundation and a Trustee of The Medical Center of Central
Massachusetts. He is also a Trustee of the Massachusetts Biotechnology Research
Institute and the Worcester County Horticultural Society.
John M. Nelson, age 62, Chairman and Chief Executive Officer of the
Company. Director of the Company since 1991. Member (ex officio) of the Audit,
Finance and Directors Committees. Term expires in 1995. Mr. Nelson will become
Chairman of the Board of Directors of the Company on the date of the Meeting. He
was elected to his present position in May 1991. Prior to that time, he served
for many years in a series of executive positions with Norton Company (a
manufacturer of abrasives and ceramics) and was that company's Chairman and
Chief Executive Officer from 1988 to 1990 and its President and Chief Operating
Officer from 1986 to 1988. Mr. Nelson is also a Director of Brown & Sharpe
Manufacturing Company, Cambridge Biotechnology, Inc., TSI Corporation, Commerce
Holdings, Inc. and the TJX Companies, Inc. He is also President of the Greater
Worcester Community Foundation, Vice President of the Worcester Art Museum and
Chairman of the Worcester Area Chamber of Commerce. At the time of his election
to his present position, Mr. Nelson and the Company entered into an agreement
that provides for a five-year term of employment, defined pension benefits upon
completion of such term and certain other employee benefits. The agreement also
provides for accelerated vesting of stock options and pension benefits and
continuation of employee benefits in the event of termination of his employment
under specified conditions.
David P. Gruber, age 52, President and Chief Operating Officer of the
Company. Director of the Company since 1992. Term expires in 1995. In addition
to retaining his present office as President of the Company, Mr. Gruber will
become Chief Executive Officer of the Company on the date of the Meeting. He was
elected to his current position in October 1991. He was previously employed by
Norton Company since 1978 and served as its Vice President, Advanced Ceramics
from 1987 to 1991 and Vice President -- Coated Abrasives from 1986 to 1987.
Mr. Fletcher and Mrs. King are cousins. None of the other Directors has any
family relationship.
PERSONS DESIGNATED BY COOPER FOR APPOINTMENT AS DIRECTORS
Pursuant to the Investment Agreement, if the Acquisition is consummated,
the size of the Board of Directors will be expanded by two members and Dewain K.
Cross and H. John Riley, Jr., who have
88
<PAGE> 92
been designated by Cooper pursuant to the Investment Agreement, will be
appointed by the Board to fill the vacancies created by such expansion. See
"Description of the Investment Agreement -- Election of Directors." The
following is certain information about Messrs. Cross and Riley.
Dewain K. Cross, age 55, Senior Vice President, Finance of Cooper. Mr.
Cross has been employed by Cooper in a series of executive positions since 1966
and was named to his present position by Cooper in 1980. He is a former member
of the Financial Council II of the Manufacturers' Alliance for Productivity and
Innovation and a member of the American Institute of Certified Public
Accountants.
H. John Riley, Jr., age 53, President and Chief Operating Officer of
Cooper. Mr. Riley served for many years in a series of executive positions at
Crouse-Hinds Company. Following the acquisition of Crouse-Hinds Company by
Cooper in 1982, he was named Executive Vice President, Operations of Cooper. He
was named to his present position by Cooper in 1992. He is also Director and
Vice Chairman of Junior Achievement of Southeast Texas, a Director of Central
Houston, Inc., a Director of Harvard Business School Club of Houston and a
Director of the Houston Symphony, a Governor of the National Electrical
Manufacturers' Association, and a member of the Corporate Advisory Council of
Syracuse University School of Management.
COMMITTEES OF THE BOARD
The Board of Directors has standing Management Resources and Compensation,
Audit, Finance and Directors Committees.
The members of the Management Resources and Compensation Committee are Mr.
Zraket (Chairman), Mr. Casey, Mr. Foster and Mrs. King. Its principal functions
are to review and determine remuneration arrangements for senior management, to
administer awards under the Company's 1975 Executive Long-Term Incentive Program
and to grant and administer awards under the 1991 Long-Term Incentive Plan. The
Committee held four meetings in 1993.
The members of the Audit Committee are Mr. Mumford (Chairman), Mr. Casey,
Mr. Fletcher, Mrs. King, Mr. Strauss and Mr. Nelson (ex officio). The Committee
met three times in 1993. The principal functions of the Audit Committee are to
review with the independent auditors and with management the plan and results of
the audit, to review the systems of internal control, to recommend the engaging
or discharging of independent auditors and to consider the reasonableness of
audit and non-audit fees.
The members of the Finance Committee are Messrs. Fletcher (Chairman),
Fuller, Jacobson, Mumford, Strauss and Nelson (ex officio). The principal
functions of the Committee are to monitor the overall financial condition of the
Company, to review and approve capital spending plans and to provide oversight
of pension and employee savings plan investments. The Finance Committee met
twice in 1993.
The members of the Directors Committee are Mr. Fuller (Chairman), Mr.
Jacobson, Mrs. King, Mr. Zraket and Mr. Nelson (ex officio). Its principal
functions are to assist in the identification of nominees for vacancies on the
Board and to advise on the structure and operation of the Board. The Directors
Committee did not meet in 1993.
MEETINGS OF THE BOARD
The Board of Directors held nine meetings during 1993. Non-employee
directors of the Company received annual remuneration of $10,000 for their
services plus a fee of $600 for each Board meeting attended. Those non-employee
directors who are also members of the Audit, Finance, Management Resources and
Compensation or Directors Committees of the Board receive additional
compensation of $600 for each Committee meeting attended. Each director attended
at least seventy-five percent of the total number of Board and Committee
meetings held while he or she served as a director or member of a Committee.
89
<PAGE> 93
<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table set forth certain biographical information with respect
to executive officers of the Company who are not directors.
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Luis E. Leon............. Vice President, Finance and Treasurer 41
Sanjay N. Shah........... Vice President and Assistant General Manager, 43
Aerospace Forgings Division
Wallace F. Whitney, Vice President, General Counsel and Clerk 51
Jr. ...................
Frank J. Zugel........... Vice President, Investment Castings 49
</TABLE>
Luis E. Leon joined the Company as Vice President - Treasurer in May 1991.
In May, 1993 he was elected Vice President, Finance and Treasurer. Prior to that
time he had served since 1986 as Treasurer of Milton Roy Company, a manufacturer
of fluid control products. From 1983 to 1986 he served as Manager of Treasury
Operations of Kerr-McGee Corporation, a diversified energy company.
Sanjay N. Shah serves as Vice President and Assistant General Manager of
the Company's Aerospace Forgings Division. Previously he had served as Vice
President - Operations since 1990. He has held a number of research, engineering
and manufacturing positions at the Company since joining the Company in 1975.
Wallace F. Whitney, Jr. joined the Company in 1991. Prior to that time, he
had been Vice President, General Counsel and Secretary of Norton Company since
1988, where he had been employed in various legal capacities since 1973.
Frank J. Zugel joined the Company in June 1993 when he was elected Vice
President - General Manager, Investment Castings. Prior to that time he had
served as President of Stainless Steel Products, Inc., a metal fabricator for
aerospace applications, since 1992 and before then as Vice President of Pacific
Scientific Company, a supplier of components to the aerospace industry, since
1988.
None of the executive officers has any family relationship with any other
executive officer. All officers are elected annually.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company at December 31, 1991,
and for the year then ended, appearing in this Proxy Statement have been audited
by Coopers & Lybrand, independent auditors, as stated in their report appearing
elsewhere herein.
The consolidated financial statements of the Company at December 31, 1992
and 1993, and for the years then ended, appearing in this Proxy Statement have
been audited by Ernst & Young, independent auditors, as stated in their report
appearing elsewhere herein.
The combined financial statements of Cameron and its subsidiaries as of
December 31, 1991, 1992 and 1993 and for each of the years in the three-year
period ended December 31, 1993 included herein have been audited by Ernst &
Young, independent auditors, as stated in their report appearing elsewhere
herein.
SELECTION OF AUDITORS
The Board of Directors, on the advice of the Audit Committee, currently
comprised of Mr. Mumford, Mr. Casey, Mr. Fletcher, Mrs. King, Mr. Strauss and
Mr. Nelson (ex officio), unanimously recommends the selection of Ernst & Young
as auditors for the year 1994. That firm was appointed as the Company's auditors
in 1992, upon the recommendation of management and approval of the Audit
Committee.
90
<PAGE> 94
The affirmative vote of a majority of the Shares voting at the Meeting is
required for the selection of Ernst & Young as auditors. A representative of
Ernst & Young will be present at the Meeting to respond to questions and will
have an opportunity to make a statement if he desires to do so.
AMENDMENT OF BY-LAWS
The Board of Directors amended the Company's By-Laws during 1993 to permit
the removal of a director with or without cause upon a majority vote of the
Board.
SHAREHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
All proposals of shareholders to be presented at the annual meeting of the
Company that will be held in 1995 must be received by the Clerk of the Company
before November 18, 1994 in order to be included in the proxy statement and form
of proxy which will relate to that meeting.
AVAILABLE INFORMATION
SINGLE COPIES OF THE COMPANY'S 1993 ANNUAL REPORT ON SECURITIES AND
EXCHANGE COMMISSION FORM 10-K (WITHOUT EXHIBITS) WILL BE PROVIDED WITHOUT CHARGE
TO ANY SHAREHOLDER UPON WRITTEN REQUEST DIRECTED TO THE CLERK OF THE
CORPORATION, WYMAN-GORDON COMPANY, 244 WORCESTER STREET, BOX 8001, NORTH
GRAFTON, MASSACHUSETTS 01536-8001.
OTHER BUSINESS
The management of the Company knows of no other matters which may come
before the Meeting. As to any other business which may properly come before the
meeting, proxies will be voted in accordance with the best judgment of the
persons voting such proxies.
91
<PAGE> 95
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
Report of Independent Accountants.................................................. F-2
Report of Independent Auditors..................................................... F-3
Consolidated Statements of Operations and Retained Earnings for the Years Ended
December 31, 1991, 1992 and 1993................................................ F-4
Consolidated Balance Sheets as of December 31, 1992 and 1993....................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1991, 1992 and 1993................................................ F-6
Notes to Consolidated Financial Statements......................................... F-7
CAMERON FORGED PRODUCTS DIVISION
Report of Independent Auditors..................................................... F-21
Combined Results of Operations for the Years Ended December 31, 1991, 1992 and
1993............................................................................ F-22
Combined Balance Sheets as of December 31, 1992 and 1993........................... F-23
Combined Cash Flows for the Years Ended December 31, 1991, 1992 and 1993........... F-24
Notes to Combined Financial Statements............................................. F-25
</TABLE>
F-1
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Wyman-Gordon Company:
We have audited the accompanying consolidated balance sheet of Wyman-Gordon
Company and Subsidiaries as of December 31, 1991 and the related consolidated
statements of operations and retained earnings, and cash flows for the year then
ended. 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 audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wyman-Gordon
Company and Subsidiaries as of December 31, 1991, and the consolidated results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND
Boston, Massachusetts
February 19, 1992
F-2
<PAGE> 97
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Wyman-Gordon Company:
We have audited the accompanying consolidated balance sheet of Wyman-Gordon
Company and Subsidiaries as of December 31, 1992 and 1993, and the related
consolidated statements of operations and retained earnings and cash flows for
the years then ended. 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 consolidated financial position of Wyman-Gordon
Company and Subsidiaries at December 31, 1992 and 1993, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Notes E and I to the Consolidated Financial Statements, in
1993 the Company changed its method of accounting for post-retirement benefits
other than pensions and income taxes.
ERNST & YOUNG
Worcester, Massachusetts
February 11, 1994
F-3
<PAGE> 98
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1991 1992 1993
--------- -------- --------
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue..................................................... $ 355,390 $298,881 $239,761
--------- -------- --------
Less:
Cost of goods sold..................................... 310,456 234,577 210,069
Selling, general and administrative expenses........... 28,311 21,154 20,098
Depreciation and amortization.......................... 25,319 15,875 15,569
Restructuring charges.................................. 87,966 -- --
Disposition of production facilities................... 11,498 -- 2,453
Environmental charge................................... 7,000 -- --
--------- -------- --------
470,550 271,606 248,189
--------- -------- --------
Income (loss) from operations............................... (115,160) 27,275 (8,428)
--------- -------- --------
Other deductions (income):
Interest expense....................................... 8,035 5,762 9,897
Miscellaneous, net..................................... 2,556 (282) (1,321)
--------- -------- --------
10,591 5,480 8,576
--------- -------- --------
Income (loss) before income taxes and cumulative effect of
changes in accounting principles.......................... (125,751) 21,795 (17,004)
Income tax benefit.......................................... 26,070 -- --
--------- -------- --------
Net income (loss) before cumulative effect of changes in
accounting principles..................................... (99,681) 21,795 (17,004)
Cumulative effect of changes in accounting principles....... -- -- (43,000)
--------- -------- --------
Net income (loss)........................................... $ (99,681) $ 21,795 $(60,004)
========= ======== ========
Net income (loss) per share before cumulative effect of
changes in accounting principles.......................... $ (5.59) $ 1.21 $ (.95)
Cumulative effect of changes in accounting principles....... -- -- (2.39)
--------- -------- --------
Net income (loss) per share................................. $ (5.59) $ 1.21 $ (3.34)
========= ======== ========
Retained earnings, beginning of year........................ $ 240,521 $136,452 $157,712
Net income (loss)........................................... (99,681) 21,795 (60,004)
Pension equity adjustment................................... 961 (535) (1,700)
Dividends declared.......................................... (5,349) -- --
--------- -------- --------
Retained earnings, end of year.............................. $ 136,452 $157,712 $ 96,008
========= ======== ========
Dividends declared per share................................ $ .30 $ -- $ --
========= ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-4
<PAGE> 99
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
-------------------
1992 1993
-------- --------
(000'S OMITTED)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ -- $ 14,817
Accounts receivable................................................. 68,789 51,287
Inventories......................................................... 53,688 42,388
Prepaid expenses.................................................... 8,685 12,480
-------- --------
Total current assets...................................... 131,162 120,972
-------- --------
Property, plant and equipment:
Land, buildings and improvements............................... 69,089 70,563
Machinery and equipment........................................ 244,189 246,311
Under construction............................................. 8,746 8,545
-------- --------
322,024 325,419
Less accumulated depreciation.................................. 219,344 227,075
-------- --------
Net property, plant and equipment......................... 102,680 98,344
-------- --------
Intangible assets................................................... 21,483 20,738
Pension intangible.................................................. 10,617 8,368
Deferred program costs.............................................. 13,539 13,561
Other assets........................................................ 15,675 24,651
-------- --------
$295,156 $286,634
======== ========
LIABILITIES
Current maturities of long-term debt................................ $ 77 $ 77
Accounts payable:
Trade.......................................................... 14,874 15,177
Other.......................................................... 6,824 7,918
Accrued liabilities:
Taxes and other................................................ 535 --
Accrued payroll................................................ 2,948 2,559
Accrued restructuring, disposal and environmental.............. 9,847 4,556
-------- --------
Total current liabilities................................. 35,105 30,287
-------- --------
Restructuring, disposal and environmental........................... 17,711 14,515
Long-term debt...................................................... 70,538 90,461
Pension liability................................................... 14,615 14,065
Deferred income taxes and other..................................... 7,671 7,613
Postretirement benefits............................................. -- 41,344
STOCKHOLDERS' EQUITY
Preferred stock, no par value:
Authorized 5,000,000 shares; none issued....................... -- --
Common stock, par value $1.00 per share:
Authorized 35,000,000 shares; issued 20,402,720 shares......... 20,403 20,403
Capital in excess of par value...................................... 16,049 14,296
Retained earnings................................................... 157,712 96,008
Less treasury stock at cost:
2,529,675 at 1992 and 2,399,917 at 1993........................ 44,648 42,358
-------- --------
149,516 88,349
-------- --------
$295,156 $286,634
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-5
<PAGE> 100
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1991 1992 1993
-------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $(99,681) $ 21,795 $(60,004)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 25,319 15,875 15,569
Loss from disposal of production facilities............ -- -- 2,453
Restructuring, disposal and environmental charges...... 106,464 -- --
Deferred income taxes.................................. (23,196) -- (58)
Cumulative effect of changes in accounting
principles........................................... -- -- 43,000
Changes in assets and liabilities:
Accounts receivable.................................... 25,013 14,699 15,139
Inventories............................................ 645 16,345 8,474
Prepaid expenses and other assets...................... (16,777) 986 (7,114)
Accrued restructuring, disposal and environmental...... -- (25,735) (9,653)
Income and other taxes................................. (7,447) 2,789 (940)
Accounts payable and accrued liabilities............... 8,663 (15,951) 311
-------- -------- --------
Net cash provided (used) by operating activities....... 19,003 30,803 7,177
-------- -------- --------
INVESTING ACTIVITIES:
Investment in acquired subsidiaries.................... (770) (3,700) --
Capital expenditures................................... (10,192) (11,156) (13,866)
Deferred program costs................................. (9,145) (2,086) (22)
Proceeds from disposal of production facilities........ 17,268 451 4,345
Proceeds from sale of fixed assets..................... 1,066 2,282 393
Other, net............................................. (338) 962 2,187
-------- -------- --------
Net cash (used) by investing activities................ (2,111) (13,247) (6,963)
-------- -------- --------
FINANCING ACTIVITIES:
Payment of short-term borrowings....................... (26,500) -- --
Payment of debt........................................ (83,810) (22,077) (70,077)
Net proceeds from issuance of debt..................... 96,644 -- 84,680
Dividends paid......................................... (5,349) -- --
-------- -------- --------
Net cash provided (used) by financing activities....... (19,015) (22,077) 14,603
-------- -------- --------
Increase (decrease) in cash................................. (2,123) (4,521) 14,817
Cash, beginning of year..................................... 6,644 4,521 --
-------- -------- --------
Cash, end of year........................................... $ 4,521 $ -- $ 14,817
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-6
<PAGE> 101
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and all subsidiaries. All intercompany accounts and
transactions have been eliminated.
Revenue Recognition: Sales and income are recognized at the time products
are shipped.
Reclassifications: Where appropriate, prior year amounts have been
reclassified to permit comparison.
Cash and Cash Equivalents: Cash equivalents include short-term investments
with maturities of less than three months at the time of investment.
Inventories: Inventories are valued at the lower of cost market. For
forging and casting related inventories of raw material and work-in-process
costs are determined using the last-in, first-out (LIFO) method. For remaining
inventories costs are determined using an average cost method. Most of the
Company's products are produced to order and there is no finished product
inventory. On certain orders, usually involving lengthy raw material procurement
and production cycles, progress payments are reflected as a reduction of
inventories. Production scrap and product repair costs are expensed as incurred.
Long-Term, Fixed Price Contracts: A substantial portion of the Company's
revenues is derived from long-term, fixed price contracts with major engine and
aircraft manufacturers. These contracts are typically "requirements" contracts
under which the purchaser commits to purchase a given portion of its
requirements of a particular component from the Company. Actual purchase
quantities are typically not determined until shortly before the year in which
products are to be delivered. Losses on such contracts are provided when
purchase quantities of the components subject to the fixed price contract can be
reasonably determined and the estimated costs to produce such components exceed
the fixed price provided in the contract.
Depreciable Assets and Costs in Excess of Net Assets Acquired: Property,
plant and equipment, including significant renewals and betterments, are
capitalized at cost and are being depreciated on the straight-line method.
Generally, depreciable lives range from 10 to 20 years for land improvements, 20
to 40 years for buildings and 5 to 15 years for machinery and equipment. Tooling
production costs are primarily classified as machinery and equipment and are
capitalized at cost less associated revenue and depreciated over 5 years. Cost
of acquired businesses in excess of net assets acquired is amortized on a
straight-line basis over periods up to 35 years.
Deferred Costs: Deferred program costs are primarily inventory, production
and tooling, and other miscellaneous costs which are estimated to be recoverable
over future sales. Deferred program costs are classified as a long-term asset to
the extent they will not be recovered within one year and are being recovered
over projected production. Bank fees and related costs of obtaining credit
facilities are recorded as other assets and amortized over the term of the
facility.
Earnings Per Share: Per share data is computed based on the weighted
average number of common shares outstanding during each year. Common stock
equivalents, related to outstanding stock options and stock purchase rights of
the Company, are included in per share computations unless their inclusion would
not have a material effect or would be antidilutive.
Impact of Adopting New Accounting Standards: During 1992, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 112 "Employers Accounting for Post-employment Benefits." This
standard provides that the Company follow an accrual method of accounting for
benefits payable to employees when they leave the Company other than by reason
of retirement. The Company currently accounts for these costs on an as incurred
basis. The effect of
F-7
<PAGE> 102
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adopting the new rule is not expected to be material to the Company's financial
position or results of operations.
<TABLE>
B. INVENTORIES
Inventories consisted of the following:
<CAPTION>
DECEMBER 31,
-------------------
1992 1993
------- -------
(000'S OMITTED)
<S> <C> <C>
Raw material................................................... $ 8,967 $ 9,486
Work-in-process................................................ 43,886 34,476
Supplies....................................................... 1,592 1,603
------- -------
54,445 45,565
Less progress payments......................................... 757 3,177
------- -------
$53,688 $42,388
======= =======
</TABLE>
If all inventories valued at LIFO cost had been valued at first-in,
first-out (FIFO) cost or market which approximates current replacement cost,
inventories would have been $41,365,000 and $33,448,000 higher than reported at
December 31, 1992 and 1993, respectively.
Inventory quantities were reduced in 1991, 1992 and 1993 resulting in the
liquidation of LIFO inventories carried at lower costs prevailing in prior years
as compared with the cost of current purchases. The effect of lower quantities
decreased 1991 loss from operations by $1,529,000, increased 1992 income from
operations by $18,388,000 and decreased 1993 loss from operations by $5,469,000
while the effect of deflation had no impact on 1991 loss from operations, it
increased 1992 income from operations by $4,450,000 and decreased 1993 loss from
operations by $2,448,000.
<TABLE>
C. DEBT
Long-term debt consisted of the following:
<CAPTION>
DECEMBER 31,
-------------------
1992 1993
------- -------
(000'S OMITTED)
<S> <C> <C>
Current portion of long-term debt.............................. $ 77 $ 77
------- -------
Long-term debt
Revolving credit agreement................................ 70,000 --
Senior Notes.............................................. -- 90,000
Other..................................................... 538 461
------- -------
Total long-term debt........................................... 70,538 90,461
------- -------
Total.......................................................... $70,615 $90,538
======= =======
</TABLE>
From April 30, 1991 until March 16, 1993, the Company's principal credit
facility was a three year Revolving Credit Agreement (the "Prior Credit
Agreement") with seven institutions (the "Banks"). Under the terms of the Prior
Credit Agreement, the Company could borrow up to the extent of its borrowing
base comprised of eligible accounts receivable, inventory, and property, plant
and equipment. Outstanding borrowings were evidenced by revolving notes bearing
interest at rates based on either the Bank Base Rate (Prime) or the Eurodollar
Rate. The borrowing rate in effect at December 31, 1992 was approximately 6%.
The Prior Credit Agreement provided for the issuance of up to $15,000,000 of
irrevocable letters of credit. The Prior Credit Agreement was collateralized by
substantially all of the assets of the Company. The Prior Credit Agreement, as
amended on December 31, 1991, provided that available loans could not exceed
$90,000,000. The Company was obligated to pay a commitment fee of .5% on the
unused portion of the facility.
At December 31, 1992, there were approximately $10,970,000 of outstanding
Letters of Credit.
F-8
<PAGE> 103
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 16, 1993, the Company issued $90,000,000 of 10.75% Senior Notes
due March 2003 (the "Senior Notes") under an indenture between the Company and a
bank as trustee. The Senior Notes pay interest semi-annually commencing on
September 15, 1993. The Senior Notes are general unsecured obligations of the
Company, are non-callable for a five year period, and are senior to any future
subordinated indebtedness of the Company. The indenture contains certain
covenants including limitations on indebtedness, restrictive payments including
dividends, liens, and disposition of assets. The indenture, however, does not
include periodic maintenance covenants. The Company used approximately
$75,000,000 of the net proceeds from the sale of the Senior Notes, together with
its new working capital credit facility discussed below, to retire indebtedness,
replace outstanding letters of credit and terminate the amended Prior Credit
Agreement.
The estimated fair value of the Senior Notes was $94,050,000 at December
31, 1993 based on quoted market price.
In conjunction with the issuance of the Senior Notes, the Company entered
into a three year $40,000,000 Revolving Credit Agreement, (the "Credit
Agreement") with a lending institution. Under the terms of the Credit Agreement,
the Company may borrow or issue letters of credit to the extent of its borrowing
base primarily comprised of eligible accounts receivable and inventories.
Borrowings bear interest at rates based upon either the prime rate or the London
Interbank Offered Rate (LIBOR Rate). This Agreement is collateralized by
substantially all the current assets of the Company. The Company is obligated to
pay a commitment fee of .5% on the unused portion and is subject to various
covenants including financial covenants and limitations on the incurrence of
additional indebtedness, capital expenditures, and dividends. There were no
borrowings at December 31, 1993, but the Company had issued $5,505,000 of
letters of credit under the agreement.
Annual maturities of long-term debt in the next five years amount to
$77,000 per year. During 1992 the Company repaid $22,077,000 of debt,
representing borrowings under the Prior Credit Agreement.
Total interest cost incurred amounted to $8,519,000, $5,980,000 and
$10,441,000 in 1991, 1992 and 1993, respectively, and included capitalized
amounts of $484,000 in 1991, $218,000 in 1992 and $544,000 in 1993. Interest
paid approximates the amount of interest incurred during each year.
D. PENSION PLANS
The Company and its subsidiaries have pension plans covering substantially
all employees. Benefits are generally based on years of service and a fixed
monthly rate or average earnings during the last years of employment. Pension
plan assets are invested in equity and fixed income securities, pooled funds
including real estate funds and annuities. It is the Company's practice to fund
pension costs to the extent that such costs are tax deductible and as required
by ERISA. Contributions to the Company's pension plans were $4,593,000,
$2,728,000 and $1,897,000 for the years ended 1991, 1992 and 1993, respectively.
<TABLE>
Pension expense for 1991, 1992 and 1993 included the following components:
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1991 1992 1993
-------- ------- --------
(000'S OMITTED)
<S> <C> <C> <C>
Service cost............................ $ 2,409 $ 1,937 $ 1,720
Interest cost on projected benefit
obligation............................ 11,136 11,083 10,955
Actual loss (return) on assets.......... (22,207) (6,849) (18,107)
Net amortization and deferral........... 13,377 (3,403) 8,208
-------- ------- --------
Net pension expense..................... $ 4,715 $ 2,768 $ 2,776
======== ======= ========
Assumed long-term rate of return on plan
assets................................ 9.0% 9.0% 9.0%
</TABLE>
F-9
<PAGE> 104
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A minimum liability is recorded in connection with certain underfunded
pension plans whose liabilities exceed assets. The minimum liability is computed
each year and was $14,065,000 in 1993, offset by an intangible pension asset of
$8,368,000 and a corresponding $1,700,000 reduction to stockholders' equity. In
1992 the minimum liability was $14,615,000 offset by an intangible pension asset
of $10,617,000 and a corresponding $535,000 reduction to stockholders' equity.
The net balance of the cumulative reduction to stockholders' equity was
$2,415,000 and $4,115,000 as of December 31, 1992 and 1993, respectively.
During 1993, the Company recorded a loss of approximately $900,000 from the
curtailment of pension benefits resulting from reductions in employees during
1993. During 1992, the Company recorded a gain of approximately $600,000 from a
settlement of an over-funded pension plan terminated in a prior year.
<TABLE>
A reconciliation between the amounts recorded on the balance sheet and the
summary table of the funding status of the pension plans is as follows:
<CAPTION>
DECEMBER 31,
-------------------
1992 1993
-------- --------
(000'S OMITTED)
<S> <C> <C>
Pension liability per balance sheet.............................. $(14,615) $(14,065)
Prepaid pension expense included in prepaid expenses in the
balance sheet.................................................. 3,651 2,827
-------- --------
Net prepaid pension expense (pension liability).................. $(10,964) $(11,238)
======== ========
</TABLE>
<TABLE>
A summary of the funding status of the pension plans and a reconciliation
to the amounts recorded in the consolidated balance sheet are as follows:
<CAPTION>
DECEMBER 31, 1992
-------------------------------------
ASSETS ACCUMULATED
EXCEEDING BENEFITS
ACCUMULATED EXCEEDING
BENEFITS ASSETS TOTAL
----------- ----------- -----------
(000'S OMITTED)
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested................................... $ 86,023 $ 50,350 $ 136,373
Nonvested................................ 411 511 922
----------- ----------- -----------
Accumulated benefit obligation........... 86,434 50,861 137,295
Impact of forecasted salary increases
during future periods.................. 8,879 135 9,014
----------- ----------- -----------
Projected benefit obligation for employee
service to date........................ 95,313 50,996 146,309
Current fair market value of plan assets...... 101,354 31,726 133,080
----------- ----------- -----------
Excess (shortfall) of plan assets over (under)
projected benefit obligation................ 6,041 (19,270) (13,229)
Unrecognized net (gain) loss.................. (3,697) 3,168 (529)
Unrecognized net (asset) obligation at
transition.................................. (606) 8,074 7,468
Unrecognized prior service cost............... 6,433 3,508 9,941
Adjustment required to recognize minimum
liability................................... -- (14,615) (14,615)
----------- ----------- -----------
Net prepaid pension expense (pension
liability).................................. $ 8,171 $ (19,135) $ (10,964)
=========== =========== ===========
Estimated annual increase in future
salaries.................................... 5.0%
Weighted average discount rate................ 8.3%
</TABLE>
F-10
<PAGE> 105
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<CAPTION>
DECEMBER 31, 1993
-------------------------------------
ASSETS ACCUMULATED
EXCEEDING BENEFITS
ACCUMULATED EXCEEDING
BENEFITS ASSETS TOTAL
----------- ----------- -----------
(000'S OMITTED)
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested................................... $ 88,960 $ 52,337 $ 141,297
Nonvested................................ 491 426 917
----------- ----------- -----------
Accumulated benefit obligation........... 89,451 52,763 142,214
Impact of forecasted salary increases
during future periods.................. 7,346 62 7,408
----------- ----------- -----------
Projected benefit obligation for employee
service to date........................ 96,797 52,825 149,622
Current fair market value of plan assets...... 107,938 32,993 140,931
----------- ----------- -----------
Excess (shortfall) of plan assets over (under)
projected benefit obligation................ 11,141 (19,832) (8,691)
Unrecognized net (gain) loss.................. (7,880) 4,938 (2,942)
Unrecognized net (asset) obligation at
transition.................................. (539) 6,228 5,689
Unrecognized prior service costs.............. 5,810 2,961 8,771
Adjustment required to recognize minimum
liability................................... -- (14,065) (14,065)
----------- ----------- -----------
Net prepaid pension expense (pension
liability).................................. $ 8,532 $ (19,770) $ (11,238)
=========== =========== ===========
Estimated annual increase in future
salaries.................................... 3.0-5.0%
Weighted average discount rate................ 7.5%
</TABLE>
The Company and its subsidiaries also maintain savings/investment plans for
most full-time salaried employees. Employer contributions to these defined
contribution plans are made at the Company's discretion and are reviewed
periodically. Such contributions amounted to $290,000, $375,000 and $134,000
during 1991, 1992 and 1993, respectively. Additionally, the Company contributed
58,927 shares of stock from Treasury to one of its defined contribution plans.
E. OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company and its subsidiaries
provide most retired employees with health care and life insurance benefits. The
majority of these health care and life insurance benefits are provided through
insurance companies, some of whose premiums are computed on a cost plus basis.
The annual cost of these benefits on the expense-as-incurred basis amounted to
$5,208,000 in 1991 and $4,849,000 in 1992.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This standard
requires companies to accrue postretirement benefits during the years the
employees are working and earning benefits for retirement, as contrasted to the
expense-as-incurred basis that the Company followed in 1992 and prior years. The
Company elected to recognize the cumulative effect of the accounting change,
resulting in a non-cash reduction in earnings in 1993 of $43,000,000 or $2.39
per share.
Substantially all of the Aerospace Forgings Division and Corporate retirees
and full-time employees are or become eligible for these postretirement health
care and life insurance benefits if they meet minimum age and service
requirements. Increases in the health care trend rate were assumed at 12%, 10%
and 8% for 1993, 1994 and 1995, respectively. At that time, the Company
contribution level is frozen and unaffected by inflation. A 1% increase in the
health care trend rate over the next three years would increase the accumulated
postretirement benefit obligation by approximately $1,464,000 and the
F-11
<PAGE> 106
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ongoing service and interest cost by approximately $165,000 (both pre-tax). The
weighted average discount rate used in determining the amortization of the
accumulated postretirement benefit obligation was 9% and 7.5% at December 31,
1992 and 1993, respectively, and the average remaining service life was 20
years.
The postretirement benefit expense in 1993 was $3,830,000, the components
of which were service cost of $170,000 and interest cost on the benefit
obligation of $3,660,000. The expense was $1,116,000 or $.06 per share less than
what the Company would have recorded as expense under the expense as incurred
basis in 1993. During 1993, the Company recorded a gain of approximately
$540,000 from the curtailment of postretirement benefits resulting from
reductions in employees during 1993.
<TABLE>
The Company has no plans for funding the liability and will continue to pay
for retiree medical costs as they occur. The following cost components are
included in the accumulated postretirement benefit obligation calculation at
December 31, 1992 and 1993:
<CAPTION>
DECEMBER 31, DECEMBER 31,
1992 1993
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................... $(38,449,000) $(39,141,000)
Fully eligible active plan participants........... (2,165,000) (2,690,000)
Other active plan participants.................... (2,386,000) (2,967,000)
------------ ------------
(43,000,000) (44,798,000)
Plan assets at fair value.............................. -- --
------------ ------------
Accumulated postretirement benefit obligation in excess
of plan assets....................................... (43,000,000) (44,798,000)
Unrecognized net gain from past experience different
from that assumed and from changes in assumptions.... -- 3,454,000
Unrecognized transition obligation..................... 43,000,000 --
------------ ------------
Accrued postretirement benefit cost.................... $ -- $(41,344,000)
============ ============
</TABLE>
The accumulated postretirement benefit obligation for health insurance is
$39,381,000 and $40,768,000 and for life insurance is $3,619,000 and $4,030,000
at December 31, 1992 and 1993, respectively.
F. STOCK OPTION PLANS
On October 21, 1991, the Board of Directors adopted a Long-Term Incentive
Plan (the "Plan"). The Plan was approved by the stockholders of the Company in
April 1992 and is administered in all respects by the Management Resources and
Compensation Committee of the Board (the "Committee"), which has plenary
authority to interpret the Plan and to adopt rules relating thereto. The
Committee may also determine the number, frequency and timing of awards, as well
as the type of award and its exercise price, if any, prescribes any performance
criteria to be met and any restrictions on exercise and determines any other
terms or conditions, including schedules for vesting and exercisability and the
conditions under which vesting and exercisability may be accelerated, such as in
the event of a change in control of the Company.
The Committee may grant awards in the form of non-qualified stock options
or incentive stock options to those key employees of the Company and its
subsidiaries, including executive officers, it selects to purchase in the
aggregate up to 1,750,000 shares of newly-issued or treasury common stock. The
exercise price of non-qualified stock options may not be less than 50% of the
fair market value of such shares on the date of grant or, in the case of
incentive stock options, 100% of the fair market value on the date of grant.
Awards of stock appreciation rights ("SAR's") may also be granted, either in
F-12
<PAGE> 107
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tandem with grants of stock options (and exercisable as an alternative to the
exercise of stock options) or separately. SAR's allow the grantee to receive
without payment upon surrender of the SAR's, and tandem options, if any, an
amount payable in cash, shares or a combination thereof, at the Committee's
discretion, not exceeding the value on the exercise date of the number of shares
for which the SAR's are exercised over the exercise price of the SAR's. The
exercise price of an SAR may not be less than 50% of the fair market value of a
share on the date of grant or, in the case of an SAR related to an option, not
less than the option exercise price.
In addition, the Committee may grant other awards that consist of or are
denominated in or payable in shares or that are valued by reference to shares,
including, for example, restricted shares, phantom shares, performance units,
performance bonus awards or other awards payable in cash, shares or a
combination thereof at the Committee's discretion.
The 1975 Executive Long-Term Incentive Program (the "Program"), as amended,
provides for the granting of stock options, alternative common stock
appreciation rights and performance bonus award units to key employees of the
Company and its subsidiaries.
The 1975 Program expired on December 31, 1992, except as to outstanding
grants.
<TABLE>
Option activity under the 1975 Program and the 1991 Plan for the three
years ended December 31, 1993 was as follows:
<CAPTION>
OPTION
PRICE RANGE SHARES
---------------- --------
<S> <C> <C>
Outstanding at December 31, 1990...................... $6.25 - $29.00 674,248
1991:
Granted............................................. 3.75 - 6.63 1,263,325
Terminated.......................................... 6.25 - 29.00 (45,407)
Expired............................................. 19.00 (52,920)
--------
Outstanding at December 31, 1991...................... 3.75 - 29.00 1,839,246
1992:
Granted............................................. 5.00 321,502
Terminated.......................................... 3.75 (185,001)
Exercised........................................... 3.75 (16,666)
Cancelled........................................... 3.75 - 29.00 (65,895)
--------
Outstanding at December 31, 1992...................... 3.75 - 29.00 1,893,186
1993:
Granted............................................. 5.00 - 6.00 285,500
Terminated.......................................... 3.75 - 29.00 (370,275)
Exercised........................................... 3.75 (70,831)
--------
Outstanding at December 31, 1993...................... 1,737,580
========
</TABLE>
Options for 428,564, 676,527 and 867,131 shares, were exercisable at
December 31, 1991, 1992 and 1993, respectively. At December 31, 1993, 619,500
shares were available for future grants. There were no options granted at less
than fair value in the three years ended December 31, 1993.
G. STOCK PURCHASE RIGHTS
In August 1988, the Company adopted a Rights Agreement (the "Rights
Agreement"), and in October 1988, the Company declared a dividend distribution
of one common stock purchase Right on each outstanding share of common stock.
The Rights will become exercisable at a purchase price of $55
F-13
<PAGE> 108
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
each on the distribution date which occurs if a person or group acquires or
makes an offer to acquire 20% or more of the Company's common stock.
In the event that at any time following the distribution date, (i) a person
or group becomes the beneficial owner of 20% or more of the then outstanding
shares of common stock (except pursuant to an offer for all outstanding shares
of common stock which the continuing Directors determine to be fair to and
otherwise in the best interests of the Company and its stockholders), (ii) the
Company is the surviving corporation in a merger and its common stock is not
changed or exchanged, (iii) an acquiring person engages in one or more
self-dealing transactions as set forth in the Rights Agreement, or (iv) during
such time as there is an acquiring person, an event occurs which results in such
person's ownership interest being increased by more than 1%, each holder of a
Right will thereafter have the right to receive, upon exercise of the Right and
payment of the purchase price, common stock or a combination of common stock,
cash, preferred stock or debt having a value equal to two times the purchase
price of the Right. Alternatively, in such event and with the approval of the
continuing Directors, each holder of a Right will have the right, or may be
permitted only, to receive shares of common stock having a value equal to the
purchase price upon surrender of the Right to the Company and without payment of
the purchase price. Notwithstanding any of the foregoing, following the
occurrence of any of the events set forth in this paragraph, all Rights that are
beneficially owned by the acquiring person will be null and void. However,
Rights are not exercisable following the occurrence of any of the events set
forth above until such time as the Rights are no longer redeemable by the
Company.
In the event that, at any time following the date on which a person or
group acquires 20% or more of the Company's outstanding shares (i) the Company
is acquired in a merger or other business combination transaction in which the
Company is not the surviving corporation (other than certain exceptions
mentioned in the Rights agreement) or (ii) 50% or more of the Company's assets
or earning power is sold or transferred, each holder of a Right which has not
been previously voided shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the purchase price of the Right. The Rights may generally be redeemed by
the Company at a price of $.02 per Right and they expire in November 1998.
H. COMMITMENTS AND CONTINGENCIES
At December 31, 1993, certain lawsuits arising in the normal course of
business were pending. The Company denies all material allegations of these
complaints. In the opinion of management, the outcome of legal matters will not
have a material adverse effect on the Company's financial position, results of
operations or liquidity.
As of December 31, 1993, the Company had contributed $4.1 million in cash
towards its share of the capital requirements of its Australian joint venture
for the production of nickel-based superalloy. The Company is committed to
contribute an additional $3.4 million to the joint venture. However, the joint
venture has entered into a credit agreement with an Australian bank which the
Company expects will provide sufficient liquidity to meet the joint venture's
future cash requirements. The Company has guaranteed 25% of the joint venture's
obligations under the credit agreement totalling $17.5 million. This guarantee
expires at such time as the joint venture demonstrates its ability to produce
commercially acceptable products.
F-14
<PAGE> 109
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. FEDERAL, FOREIGN AND STATE INCOME TAXES
As of January 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109, ("SFAS 109"), Accounting for Income Taxes. Under SFAS
109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted marginal tax rates and laws that will be in effect
when the differences are expected to reverse. Prior to the adoption of SFAS 109,
income tax expense was determined using the liability method prescribed by
Financial Accounting Standards Board Statement No. 96, ("SFAS 96"), Accounting
for Income Taxes, which is superseded by SFAS 109. Among other changes, SFAS 109
relaxes the recognition and measurement criteria for deferred tax assets
required by SFAS 96, and requires the recognition of a valuation reserve in
those circumstances where it is more likely than not that some portion of the
deferred tax asset will not be realized.
As permitted under SFAS 109, the Company has elected not to restate the
financial statements of prior years. The impact of this change on the results of
operations for the year ended December 31, 1993 was immaterial.
<TABLE>
Income tax benefit (expense) is comprised of the following (000's omitted):
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Current:
Federal....................................... $ 3,725 $ -- $ --
State and foreign............................. (250) -- --
------- ------- -------
3,475 -- --
Deferred tax benefits........................... 22,595 -- --
------- ------- -------
$26,070 $ -- $ --
======= ======= =======
</TABLE>
The Company made income tax payments of $1,145,000 during 1991, and
received income tax refunds of $3,725,000 during 1992 and $282,000 during 1993.
The deferred income tax benefit reflects changes in the expected impact of
temporary differences between the amounts of assets and liabilities for
financial statement purposes and the corresponding amounts determined under the
applicable tax laws and regulations.
<TABLE>
The benefit (provision) for income taxes is at a rate other than the
federal statutory tax rate for the following reasons ($000's omitted):
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1991 1992 1993
----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
U.S. federal statutory tax rate.... $ 42,755 34.0% $(7,410) (34.0)% $ 5,781 34.0%
Recognition of previously unrecog-
nized deferred tax assets........ -- -- 7,410 34.0 -- --
Tax carryforwards without current
tax benefits..................... (16,520) (13.3) -- -- (5,781) (34.0)
State income taxes, net of federal
tax benefit...................... (165) -- -- -- -- --
-------- ----- ------- ----- ------- -----
Income tax (expense) benefit....... $ 26,070 20.7% $ -- -- % $ -- -- %
======== ===== ======= ===== ======= =====
</TABLE>
Tax net operating loss carryforwards of $57,200,000 and book net operating
loss carryforwards of $79,000,000 begin expiring in the year 2006.
F-15
<PAGE> 110
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The principal components of deferred tax assets and liabilities were as
follows (000's omitted):
<CAPTION>
AS ADJUSTED
DECEMBER 31, JANUARY 1,
1993 1993
------------ -------------
<S> <C> <C>
Deferred tax assets:
Provision for postretirement benefits................. $ 14,057 $ 14,620
Net operating loss carryforwards...................... 19,380 10,500
Restructuring provisions.............................. 6,134 10,841
------------ -------------
39,571 35,961
Valuation Allowance................................... (27,714) (25,120)
------------ -------------
11,857 10,841
------------ -------------
Deferred tax liabilities:
Accelerated depreciation.............................. 8,335 11,257
Other................................................. 6,145 2,207
------------ -------------
14,480 13,464
------------ -------------
Net deferred tax liability.............................. $ 2,623 $ 2,623
============ =============
</TABLE>
The net deferred tax liability is included in Deferred Income Taxes and
Other on the accompanying consolidated balance sheets and has not been disclosed
separately on the face of the balance sheet.
J. CONTRIBUTED CAPITAL AND OTHER INFORMATION
There have been no substantial changes in common stock for the two years
ended December 31, 1993. At December 31, 1993, the Company had reserved
2,357,080 shares of common stock for stock options related to the 1975 Executive
Long-Term Incentive Program and the 1991 Long-Term Incentive Plan.
Capital in excess of par value decreased $567,000 and $1,753,000 in 1992
and 1993, respectively. The decrease resulted from Treasury stock activity when
either stock options were exercised or when the Company matched employee
contributions to one of its defined contribution plans.
There were 17,831,000, 17,848,000 and 17,936,000 average shares outstanding
during the years ended December 31, 1991, 1992 and 1993, respectively.
Research and development expenses, including related depreciation, amounted
to $3,333,000, $3,013,000 and $2,778,000 for the years ended December 31, 1991
1992 and 1993, respectively.
There were $21,483,000 of intangible assets net of accumulated amortization
of $6,482,000, and $20,738,000 of intangible assets net of accumulated
amortization of $7,630,000, at December 31, 1992 and 1993, respectively.
Wyman-Gordon is engaged principally in the engineering, production and
marketing of high-strength, high-technology forged and cast metal components and
composite structures used for a wide variety of primarily aerospace applications
and the design and production of prototype products using composite
technologies. The Company's accounts receivable are concentrated with a small
number of Fortune 500 companies participating in the aerospace industry, with
whom the Company has long-standing relationships. Accordingly, management
considers credit risk to be low. Sales to the Company's two largest customers
amounted to $130,209,000, $111,660,000 and $92,465,000 during the years ended
December 31, 1991, 1992 and 1993, respectively.
F-16
<PAGE> 111
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. DISPOSAL OF OPERATIONS
During 1990 the Company decided to focus its resources upon aerospace
markets and to divest itself of the automotive crankshaft production facilities
which were no longer considered strategic. Accordingly, in 1991 the Company sold
its automotive crankshaft forging facility in Danville, Illinois for
approximately $16,000,000 and commenced liquidation of its automotive crankshaft
machining facility in Jackson, Michigan. The Company provided $7,198,000 and
$4,300,000 in the third and fourth quarters of 1991, respectively, for the
estimated pre-tax costs of exiting the automotive crankshaft businesses. The
provision included the write-down of assets to estimated realizable value,
estimated operating losses to the date of the planned closing of machining
operations, employee related costs, disposal, and other expenses. Proceeds from
the sale of certain fixed assets of the Jackson, Michigan production facility
approximated $1,000,000 in 1991 and $451,000 in 1992 and the remaining net
assets, primarily fixed assets, amounted to $3,281,000 and $2,216,000 at
December 31, 1992 and 1993, respectively, and are classified as Property, Plant
and Equipment on the accompanying consolidated balance sheets. Revenues of the
automotive crankshaft businesses were not significant in 1992 while revenues of
$48,800,000 in 1991 were included in consolidated revenues.
In November 1993, the Company sold substantially all of the net assets and
business operations of its Wyman-Gordon Composites, Inc. operations. The Company
recorded a non-cash charge on the sale in the fourth quarter of 1993 of
$2,453,000. In November and December 1993, the Company received approximately
$4,300,000 as the proceeds from the sale of its Wyman-Gordon Composites, Inc.
operations. Revenues of the Wyman-Gordon Composites, Inc. operations of
$18,016,000 in 1991, $12,847,000 in 1992 and $9,149,000 in 1993 were included in
consolidated revenues.
L. RESTRUCTURING OF OPERATIONS AND ENVIRONMENTAL MATTERS
During 1991, in response to the excess capacity in the forging industry and
resulting declines in current and anticipated customer demand, the Company
incurred a pre-tax charge of $87,966,000 and $11,498,000 in connection with a
restructuring program primarily at its forging operations and disposition of its
automotive crankshaft operations, respectively.
A significant portion of this charge related to the consolidation of all
forging operations into a single facility. This facility is being reconfigured
to improve production efficiencies. This program also includes, among other
items, severance of employees, acceleration of certain employee benefit
programs, and streamlining of equipment and manufacturing processes. During 1991
and the years which followed, the Company made substantial progress in
implementing its 1991 restructuring plan. The consolidation and reconfiguration
of the Company's two Massachusetts forging facilities is substantially complete.
There are some retooling and relocation activities which still remain to be
completed in 1994 and thereafter. The process of divesting the Company's
automotive crankshaft operations is virtually complete with minor costs
remaining.
In 1991 the Company charged $52,600,000 against the newly established reserve,
$51,900,000 of non-cash charges to write assets down to their realizable value
and $700,000 of cash charges incurred from consolidation and reconfiguration of
existing facilities. In 1992 the Company charged $2,400,000 of non-cash charges
against the reserve in order to write-down certain assets after consolidation
and reconfiguration to their realizable value and cash charges were made against
the reserve for consolidation and reconfiguration of existing facilities of
$21,100,000 and for severance and related costs of $2,200,000. In 1993 the
Company made non-cash charges against the reserve of $1,700,000 due to a
write-off of inventory which had been on hand prior to December 31, 1991 and was
identified as excess or obsolete and cash charges were made against the reserve
for consolidation and reconfiguration of existing facilities of $4,800,000 and
for severance and related costs of $2,000,000.
F-17
<PAGE> 112
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
A summary of charges made or estimated against 1991 restructuring and
disposal reserves is as follows (000's omitted):
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1991 1992 1993 1994 THEREAFTER TOTAL
------- ------- ------ ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
CASH
Consolidation and
Reconfiguration of existing
facilities.................... $ 700 $21,100 $4,800 $3,000 $7,100 $36,700
Severance....................... -- 2,200 2,000 800 1,800 6,800
------- ------- ------ ------ ---------- -------
Total cash charges....... 700 23,300 6,800 3,800 8,900 43,500
NON-CASH
Asset Revaluation............... 51,900 2,400 1,700 -- -- 56,000
------- ------- ------ ------ ---------- -------
Total charges against
reserve............... $52,600 $25,700 $8,500 $3,800 $8,900 $99,500
======= ======= ====== ====== ========== =======
</TABLE>
The Company is subject to extensive, stringent and changing federal, state
and local environmental laws and regulations, including those regulating the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of alleged environmental contamination. Accordingly, the Company is
involved from time to time in administrative and judicial inquiries and
proceedings regarding environmental matters. Nevertheless, the Company believes
that compliance with these laws and regulations will not have a material adverse
effect on the Company's operations as a whole. The Company continues to design
and implement a system of programs and facilities for the management of its raw
materials, production processes and industrial waste to promote compliance with
environmental requirements. In 1991, the Company recorded a pre-tax charge of
$7,000,000 with respect to environmental investigation and remediation costs at
one of the Company's facilities. Additionally, a pre-tax charge of $5,000,000
against potential environmental remediation costs upon the eventual sale of
another facility is included in the 1991 restructuring charge discussed above.
Pursuant to an agreement entered into with the U.S. Air Force upon the
acquisition of a facility from the federal government in 1982, the Company has
agreed to make additional expenditures of approximately $10,100,000 for
environmental management and remediation projects at that site during the period
1992 through 1999, including $4,400,000 of planned costs in 1994 for new
wastewater treatment facilities to be constructed during 1993 and 1994 in
accordance with an administrative compliance order entered into with the United
States Environmental Protection Agency (the "EPA"). The Company, together with
numerous other parties, has also been alleged to be a potentially responsible
party at four federal or state Superfund sites. The Company does not believe
that liabilities related to such sites will be material in the aggregate.
The Company's Grafton, Massachusetts plant location is one of 46 sites
throughout the country included in the U.S. Nuclear Regulatory Commission's
("NRC") May 1992 Site Decommissioning Management Plan ("SDMP") for low-level
radioactive waste. The SDMP identifies the Company's site as a "Priority C"
(lowest priority) site. The NRC conducted a long range dose assessment in 1992
to determine what action, if any, it would order with respect to the site; its
draft report states that the site should be remediated. However, the Company
believes that the NRC's draft assessment was flawed and has retained an
environmental engineering firm to challenge that draft assessment. The Company
has submitted the environmental engineering firm's Dose Assessment Review to NRC
for consideration but has had no response from NRC to date.
F-18
<PAGE> 113
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has provided $1,500,000 for the estimated cost of the
remediation. The Company believes that it may have meritorious claims for
reimbursement from the U.S. Air Force in respect of any liabilities it may have
for such remediation.
<TABLE>
M. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1991, 1992 and 1993 were as follows:
<CAPTION>
QUARTER
--------------------------------------------
1ST 2ND 3RD 4TH
-------- -------- ------- ---------
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1991
Revenue............................................ $91,010 $102,566 $72,567 $ 89,247
Cost of goods sold................................. 82,968 93,115 68,985 88,284
Restructuring, disposal and environmental
charges.......................................... -- -- (7,198) (99,266)
Income (loss) from operations...................... 81 1,470 (9,711) (107,000)
Income (loss) before income taxes.................. (2,655) (1,153) (12,192) (109,751)
Net income (loss).................................. (1,593) (692) (7,315) (90,081)
Net income (loss) per share........................ (.09) (.04) (.41) (5.05)
1992
Revenue............................................ $82,401 $73,647 $65,960 $ 76,873
Cost of goods sold................................. 74,461 65,912 54,270 53,480(1)
Income (loss) from operations...................... 1,363 4,312 6,270 17,029
Income (loss) before income taxes.................. (1,032) 2,589 4,810 15,428
Net income (loss).................................. (1,032) 2,589 4,810 15,428
Net income (loss) per share........................ (.06) .15 .27 .85
1993
Revenue............................................ $62,916 $66,665 $56,330 $ 53,850
Cost of goods sold................................. 57,033 60,409 50,364 55,420
Income (loss) from operations...................... 520 2,072 815 (11,836)(2)
Net income (loss) before cumulative effect of
changes in accounting principles................. (3,068) (620) 1,253 (14,569)
Cumulative effect of changes in accounting
principles....................................... (43,000) -- -- --
Net income (loss).................................. (46,068) (620) 1,253 (14,569)
Net income (loss) per share before cumulative
effect of changes in accounting principles....... (.17) (.03) .07 (.82)
Cumulative effect of changes in accounting
principles....................................... (2.39) -- -- --
Net income (loss) per share........................ (2.56) (.03) .07 (.82)
- - ---------------
<FN>
(1) Cost of goods sold during the fourth quarter of 1992 reflects a $15,300 LIFO credit as a result of
higher year-end shipments.
(2) Income (loss) from operations during the fourth quarter of 1993 reflects charges of $2,453 on the
sale of substantially all of the net assets of Wyman-Gordon Composites, Inc. and $2,400 resulting
from a change in estimated insurance cash surrender values provided by the Company's insurance actuaries
on Company-owned life insurance policies.
</TABLE>
N. SUBSEQUENT EVENT
On January 14, 1994, the Company and Cooper Industries, Inc. ("Cooper")
entered into a Stock Purchase Agreement dated as of January 10, 1994 (the "Stock
Purchase Agreement") for the Company to acquire from Cooper all of the issued
and outstanding shares of Cameron Forged Products Company ("Cameron") common
stock, par value $.208 1/3 per share ("Cameron Common Stock"). Under the terms
of the Stock Purchase Agreement, the Company will pay a purchase price for the
Cameron
F-19
<PAGE> 114
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock equal to 16,500,000 shares of the Company's common stock, par value
$1.00 per share (the "Shares") and $5,000,000 in cash payable in installments as
provided in the Stock Purchase Agreement. The Purchase Price will be subject to
a cash adjustment to be paid by either Cooper or the Company based upon certain
changes in the balance sheet of Cameron between September 26, 1993 and the date
of the closing of the acquisition.
As of January 10, 1994, there were 18,002,803 Shares outstanding, and after
giving effect to the acquisition, Cooper will own approximately 48% of the
outstanding Shares. Pursuant to an Investment Agreement dated as of January 10,
1994, between the Company and Cooper (the "Investment Agreement"), the Shares to
be issued to Cooper pursuant to the Stock Purchase Agreement will be subject to
certain restrictions on voting and disposition as well as certain registration
rights.
The Investment Agreement provides that Cooper is entitled to designate two
persons to serve on the Board of Directors of the Company so long as Cooper owns
more than 5% of the outstanding Shares.
For a period of ten years after the Closing Date, so long as Cooper owns 5%
or more of the outstanding Shares, Cooper will be subject to certain limitations
on transfer of its Shares and will be required to vote its Shares either in the
manner recommended to shareholders by the Board of Directors of the Company, or,
at Cooper's election, in the same proportion as the vote of the other
shareholders of the Company, unless the matter being voted on by the
shareholders of the Company would, if approved, result in a breach of the
Investment Agreement. Furthermore, the limitations on Cooper's transfer of its
Shares and the voting restrictions on Cooper's shares will terminate upon the
occurrence of certain Trigger Events as defined in the Investment Agreement.
Consummation of the acquisition is subject to certain conditions,
including, among others, approval by the Company's shareholders and the
obtaining of consents from certain lenders of the Company.
F-20
<PAGE> 115
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cooper Industries, Inc.
We have audited the accompanying combined balance sheets of Cameron Forged
Products Division (a division of Cooper Industries, Inc.) as of December 31,
1992 and 1993, and the related statements of combined results of operations and
combined cash flows for each of the three years in the period ended December 31,
1993. 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.
Cameron Forged Products Division is a part of Cooper Industries, Inc. and
has no separate legal status or existence. Transactions with Cooper Industries,
Inc. are described in Note N.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Cameron Forged
Products Division at December 31, 1992 and 1993, and the combined results of
their operations and their cash flows for the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Note C, in 1992 the Company changed its methods of
accounting for postretirement benefits other than pensions, income taxes and
postemployment benefits.
ERNST & YOUNG
Houston, Texas
February 28, 1994
F-21
<PAGE> 116
<TABLE>
CAMERON FORGED PRODUCTS DIVISION
COMBINED RESULTS OF OPERATIONS
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1991 1992 1993
-------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C>
Revenues................................................... $198,937 $174,334 $149,534
-------- -------- --------
Costs and expenses
Cost of goods sold.................................... 164,134 149,222 135,686
Selling, general and administrative expenses.......... 13,498 12,893 11,904
Depreciation and amortization......................... 6,247 6,982 8,902
Loss on long-term contracts and agreements............ -- -- 15,200
Nonrecurring income................................... -- (2,300) --
-------- -------- --------
183,879 166,797 171,692
-------- -------- --------
Income (loss) before income taxes and cumulative effect of
changes in accounting principles......................... 15,058 7,537 (22,158)
Income tax (expense) benefit............................... (6,936) (2,995) 2,104
-------- -------- --------
Income (loss) before cumulative
effect of changes in accounting
principles............................................... 8,122 4,542 (20,054)
Cumulative effect on prior
years of changes in accounting
principles............................................... -- (14,097) --
-------- -------- --------
Net income (loss).......................................... $ 8,122 $ (9,555) $(20,054)
======== ======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these financial statements.
F-22
<PAGE> 117
<TABLE>
CAMERON FORGED PRODUCTS DIVISION
COMBINED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
-------- --------
(000'S OMITTED)
<S> <C> <C>
ASSETS
Current assets:
Receivables.......................................................... $ 23,489 $ 25,710
Inventories.......................................................... 64,584 54,493
Other................................................................ 350 58
-------- --------
Total current assets.............................................. 88,423 80,261
-------- --------
Plant and equipment, at cost less accumulated depreciation............. 62,976 60,687
Intangibles, less accumulated amortization............................. 2,330 1,998
Pension assets......................................................... 9,252 8,550
Other assets........................................................... 869 344
-------- --------
$163,850 $151,840
======== ========
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and accrued liabilities............................. $ 50,122 $ 35,442
Loss on long-term contracts and agreements........................... -- 15,200
Deferred income taxes................................................ 11,417 9,437
-------- --------
Total current liabilities......................................... 61,539 60,079
-------- --------
Postretirement benefits other than pensions............................ 11,424 12,241
Pension liability...................................................... -- 10,946
Deferred income taxes.................................................. 4,249 4,125
Other long-term liabilities............................................ 485 --
Net assets............................................................. 86,153 64,449
-------- --------
$163,850 $151,840
======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these financial statements.
F-23
<PAGE> 118
<TABLE>
CAMERON FORGED PRODUCTS DIVISION
COMBINED CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1991 1992 1993
-------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................................ $ 8,122 $ (9,555) $(20,054)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation.............................................. 5,670 6,278 7,779
Amortization.............................................. 577 704 1,123
LIFO provision............................................ 1,465 1,507 1,497
Loss on long-term contracts and agreements................ -- -- 15,200
Non-recurring income...................................... -- (2,300) --
Deferred income taxes..................................... 3,022 2,995 (2,104)
Cumulative effect of changes in accounting principles..... -- 14,097 --
Changes in assets and liabilities:(1)
Receivables............................................. 5,226 7,938 (2,351)
Inventories............................................. 11,449 7,006 8,399
Accounts payable and accrued liabilities................ (6,948) (16,080) (14,561)
Other assets and liabilities, net....................... (73) (785) 2,645
-------- -------- --------
Net cash provided by (used for) operating
activities......................................... 28,510 11,805 (2,427)
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures......................................... (20,846) (27,665) (9,201)
Proceeds from sales of plant and equipment................... 554 396 1,120
-------- -------- --------
Net cash used for investing activities............... (20,292) (27,269) (8,081)
-------- -------- --------
FINANCING ACTIVITIES:
Transferred (to) from Cooper................................. (8,243) 14,359 10,597
-------- -------- --------
Net cash provided by (used for) financing
activities......................................... (8,243) 14,359 10,597
-------- -------- --------
Effect of translation on cash.................................. 25 1,105 (89)
-------- -------- --------
Increase (decrease) in cash retained
by Cameron................................................... -- -- --
-------- -------- --------
Cash retained by Cameron, beginning of year.................... -- -- --
-------- -------- --------
Cash retained by Cameron, end of year.......................... $ -- $ -- $ --
======== ======== ========
<FN>
- - ---------------
(1) Net of the effects of translation, non-recurring income and the cumulative effect of changes in
accounting principles.
</TABLE>
The accompanying Notes to Combined Financial Statements
are an integral part of these financial statements.
F-24
<PAGE> 119
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS
A. CAMERON FORGED PRODUCTS DIVISION
The accompanying combined financial statements reflect the operations of
the Cameron Forged Products Division ("Cameron") of Cooper Industries, Inc.
("Cooper"). The combined operations include Cameron Forged Products Company, a
wholly owned U.S. subsidiary of Cooper, which owns and operates the U.S. forging
operations, the United Kingdom forging operations, which are owned and operated
by a Cooper subsidiary, Cooper Great Britain, and Cameron Pipeline, Inc., an
inactive U.S. subsidiary.
The Cameron Forged Products Division was acquired by Cooper as part of its
acquisition of Cameron Iron Works, Inc. in November 1989. This acquisition was
accounted for by Cooper as a purchase business combination with resulting
adjustment of historical asset and liability amounts to estimated fair market
values as of the acquisition date. Because at the time of acquisition it was
Cooper's intention to divest the acquired forging operations, the net assets,
primarily plant and equipment, were written-down to an anticipated sales value
and none of the goodwill recorded in connection with the overall acquisition of
Cameron Iron Works, Inc. was allocated to the Cameron Forged Products Division.
The Cameron Forged Products Division is hereinafter referred to as "Cameron."
Cameron operates in one business segment -- forged products.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The accompanying combined financial statements include
the accounts of Cameron as described above. These statements are presented as if
Cameron had existed as an entity separate from its parent, Cooper, during the
periods presented and include the assets, liabilities, revenues and expenses
that are directly related to Cameron's operations. All transactions between
Cameron U.S. and U.K. operations have been eliminated. Because Cameron's
operations were included in the consolidated financial statements of Cooper on a
divisional basis, there are no separate meaningful historical equity accounts
for Cameron. Additionally, amounts of general corporate accounting, tax, legal
and other administrative costs that are not directly attributable to the
operations of Cameron have been allocated to Cameron based on a ratio of
Cameron's revenues to the consolidated revenues of Cooper. Management believes
that this allocation method provides Cameron with a reasonable amount of such
expenses. The difference for each of the years presented between the general and
administrative expenses calculated utilizing the allocation method described
above and the actual cost of such expenses which Cameron anticipates it would
have incurred on a stand alone basis is not material. Cash and debt management
are totally centralized functions within Cooper's divisional management
structure. As a result, there is no practical or logical basis on which to
allocate debt and related interest expense to Cameron. The financial information
included herein may not necessarily be indicative of the financial position,
results of operations or cash flows of Cameron in the future or what statements
of financial position, results of operations or cash flows of Cameron would have
been if it was a separate, stand-alone company during the periods presented.
REVENUE RECOGNITION Sales, including sales under long-term contracts, are
recorded when the goods are shipped to the customer.
LONG-TERM CONTRACTS AND AGREEMENTS Anticipated losses with respect to
long-term contracts, including long-term pricing agreements, are recorded when
available information indicates that the sales price is less than a fully
allocated cost projection.
RESEARCH AND DEVELOPMENT Costs for research and development are expensed
as incurred and were $1,800,000, $2,900,000 and $1,800,000 for the years ended
December 31, 1991, 1992 and 1993, respectively.
F-25
<PAGE> 120
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES Inventories are carried at cost or, if lower, net realizable
value. On the basis of current costs, 70% of inventories in 1992 and 72% in 1993
are carried on the last-in, first-out (LIFO) method. The remaining inventories
are carried on the first-in, first-out (FIFO) method.
PLANT AND EQUIPMENT Depreciation is provided over the estimated useful
lives of the related assets using primarily the straight-line method. This
method is applied to group asset accounts which in general have the following
lives: buildings -- 10 to 40 years; machinery and equipment -- 8 to 12 years;
and tooling, dies, patterns, etc. -- 3 to 7 years.
INTANGIBLES Intangibles consist primarily of software which is being
amortized over its estimated useful life -- generally five years.
INCOME TAXES Income taxes are provided as if operations in all countries
including the U.S. were stand-alone businesses filing separate tax returns. For
the years 1992 and 1993, Cameron has determined tax expense and other deferred
tax information in compliance with Statement of Financial Accounting Standards
(SFAS) No. 109 (Accounting for Income Taxes). Prior years have not been restated
and accordingly reflect the procedures required by Accounting Principles Board
Opinion No. 11 -- Accounting for Income Taxes, as amended.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS For the years 1992 and 1993,
Cameron has determined the accounting effect of postretirement benefits other
than pensions (primarily retiree medical costs) in accordance with the
provisions of SFAS No. 106 (Employer's Accounting for Postretirement Benefits
Other Than Pensions). Such benefits in years prior to 1992 were accounted for on
a partial accrual method.
POSTEMPLOYMENT BENEFITS For the years 1992 and 1993, Cameron has accounted
for the benefits payable to employees when they leave Cameron other than by
reason of retirement in accordance with the provisions of SFAS No. 112
(Employers' Accounting for Postemployment Benefits). Except for an actuarial
determination of the termination benefits payable to domestic salaried
employees, Cameron's accounting in years prior to 1992 was the same as that
required by SFAS No. 112.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE Environmental remediation costs
are accrued, except to the extent costs can be capitalized, based on estimates
of known environmental remediation exposures. Environmental compliance costs
include maintenance and operating costs with respect to pollution control
facilities, cost of ongoing monitoring programs and similar costs. Such costs
are expensed as incurred. Capitalized environmental costs are depreciated
generally utilizing a 15-year life and had a net book value of $400,000 and
$300,000 at December 31, 1992 and 1993, respectively.
EARNINGS PER SHARE Earnings per share have been omitted from the combined
statement of results of operations since Cameron was an operating division of
Cooper with no meaningful equity securities outstanding.
FOREIGN CURRENCY TRANSLATION The local currency is the functional currency
for the foreign operation and, as such, assets and liabilities are translated
into U.S. dollars at year-end exchange rates. Income and expense items are
translated at average exchange rates during the year. Translation adjustments
resulting from changes in exchange rates are reported as a component of net
assets.
C. CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1992, Cameron adopted the following accounting
standards:
SFAS NO. 106 -- EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER
THAN PENSIONS This standard provides that Cameron follow an accrual method of
accounting for the benefits other
F-26
<PAGE> 121
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
C. CHANGES IN ACCOUNTING PRINCIPLES (CONTINUED)
than pensions (primarily health-care costs) provided to employees after
retirement. The results of operations for the first quarter of 1992 include a
charge of $9,922,000 for the immediate recognition of the net transition
obligation with respect to benefits earned by active and retired employees prior
to January 1, 1992. Additionally, 1992's ongoing postretirement costs have been
recorded based on the required actuarially determined accrual method as opposed
to Cameron's previous partial accrual method of accounting for such costs. The
effect, excluding the effect of a September 1992 curtailment gain, was to
decrease 1992 full-year earnings by $1,200,000. The remaining disclosure
information required by SFAS No. 106 is set forth in Note J of the Notes to
Combined Financial Statements.
SFAS NO. 109 -- ACCOUNTING FOR INCOME TAXES This standard requires a
liability as opposed to a deferred method of accounting for income taxes. The
results of operations for the first quarter of 1992 include a net tax charge of
$3,545,000 to reflect the cumulative effect of adopting this pronouncement. This
charge primarily resulted from the establishment of a valuation allowance for
the pre-adoption deferred tax assets.
Income tax expense and certain other adjustments for 1992 and 1993 have
been determined in accordance with the provisions of the new standard. The 1992
effect was to decrease pre-tax income by $400,000 for higher depreciation
expense on fixed asset values previously recorded net of tax and to increase tax
expense by $1,500,000 to reflect the absence of the tax benefits with respect to
fair market value depreciation reductions previously treated as permanent
differences. The remaining disclosure information required by SFAS No. 109 is
set forth in Note M of the Notes to Combined Financial Statements.
SFAS NO. 112 -- EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS This
standard provides that Cameron follow an accrual method of accounting for the
benefits payable to employees when they leave Cameron other than by reason of
retirement. Since most of these benefits were already accounted for by Cameron
on an accrual method, this new standard has a relatively small cumulative
effect -- $630,000 and a negligible effect on 1992's earnings.
In addition, in 1992, Cameron changed its accounting policy with respect to
the valuation of scrap. Certain of the forgings which Cameron produces utilize
nickel as a component material. When, during the normal production process,
Cameron produces scrap that includes nickel, the scrap is carefully controlled
so that the nickel may be recovered. In 1992, as management became aware of the
increasing amount of nickel on hand within the business, the accounting policy
of Cameron was changed to value instead of expense the nickel in order to
provide greater financial control over this asset. The financial statements for
prior years have been restated to reflect this change in the accounting policy.
D. NONRECURRING INCOME
Cameron's 1992 results include $2,300,000 of income resulting from the
reversal of vacation accruals due to a change in Cameron's vacation policy which
resulted in the elimination of carryover vacation rights. The change in the
vacation policy was announced in 1992. A portion of the income, $900,000,
related to salaried employees and was recorded in the second quarter of 1992.
The remainder, with respect to hourly employees, was recorded in the third
quarter of 1992 when the change was approved by the hourly union.
E. LOSS ON LONG-TERM CONTRACTS AND AGREEMENTS
Starting in the latter part of 1992 and continuing into 1993, Cameron has
experienced extreme pricing pressure from its major customers, who in turn have
been under pressure from their major airline customers as well as continuing
cutbacks from the U.S. military. This pressure, combined with
F-27
<PAGE> 122
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
E. LOSS ON LONG-TERM CONTRACTS AND AGREEMENTS (CONTINUED)
large amounts of industry-wide excess forging capacity have caused Cameron's
margins to decline faster than Cameron can adjust its fixed and semi-fixed
period costs. In an effort to keep its operations functioning with the highest
possible utilization and corresponding efficiency levels, Cameron has
increasingly accepted orders with lower gross profit levels and also in the
second quarter of 1993 entered into three-year pricing agreements with two of
its major customers. Since the time when the original terms of these agreements
were negotiated, the delivery dates have been steadily pushed into the future,
exacerbating the current utilization problem.
In accordance with Cameron's policy of accruing for losses on backlog and
long-term pricing agreements, when available information indicates that a
material loss will be incurred when the goods are delivered pursuant to the
commitments, a loss accrual of $15,200,000 was provided in connection with the
preparation of Cameron's financial statements for the third quarter ended
September 30, 1993.
Of the total accrual, approximately $10,000,000 relates to committed
backlog and $5,000,000 relates to the three-year pricing agreements. Virtually
all of the anticipated loss is with respect to Cameron's operations in the
United States as opposed to the United Kingdom. The calculations were based on
the anticipated revenues and fully allocated operating costs for Cameron for the
year 1994. Deliveries from the backlog extend into 1995, while the pricing
agreements continue until 1996. While some portion of the $15,200,000 may have
been calculable as of an earlier date in 1993, quantities under the long-term
agreements were not sufficiently quantifiable prior to the third quarter to
permit accrual at an earlier date. In addition, lower volume levels anticipated
during the budgeting process for 1994 have resulted in significant increases in
the anticipated losses with respect to the backlog compared to calculations
based on 1993 activity levels and costing structures. As a result, Cameron
believes that including the charge against the third quarter of 1993 is
appropriate from a timing perspective. The $15,200,000 accrual was unchanged at
December 31, 1993 since an updated calculation indicated that the amount
continued to be appropriate.
In years prior to 1993, although there were individual orders which would
have been at a loss calculated on a fully cost-allocated basis, the aggregate
amount of such backlog or pricing agreements that would have resulted in a loss
was not material to Cameron.
<TABLE>
F. INVENTORIES
Inventories consisted of the following:
<CAPTION>
DECEMBER 31,
-------------------
1992 1993
------- -------
(000'S OMITTED)
<S> <C> <C>
Raw materials.................................................... $19,544 $13,387
Work-in-process.................................................. 20,474 21,454
Finished goods................................................... 9,722 5,250
Perishable tooling and supplies.................................. 4,341 3,751
------- -------
54,081 43,842
Excess of historical LIFO costs over current standard costs...... 10,516 10,038
Other............................................................ (13) 613
------- -------
Net inventories................................................ $64,584 $54,493
======= =======
</TABLE>
During each year, reductions in inventory quantities resulted in
liquidations of LIFO inventory layers carried at higher costs prevailing in
prior years. The effect was to decrease net income by $1,465,000 in 1991,
$1,507,000 in 1992 and $1,497,000 in 1993.
F-28
<PAGE> 123
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
G. PLANT AND EQUIPMENT AND INTANGIBLES
Plant and equipment and intangibles consisted of the following:
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
-------- --------
(000'S OMITTED)
<S> <C> <C>
Plant and equipment:
Land, buildings and land improvements........................ $ 13,616 $ 12,807
Machinery and equipment...................................... 54,810 68,809
Under construction........................................... 11,608 3,101
-------- --------
80,034 84,717
Accumulated depreciation..................................... (17,058) (24,030)
-------- --------
$ 62,976 $ 60,687
======== ========
Intangibles:
Cost......................................................... $ 4,121 $ 4,199
Accumulated amortization..................................... (1,791) (2,201)
-------- --------
$ 2,330 $ 1,998
======== ========
</TABLE>
<TABLE>
H. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
<CAPTION>
DECEMBER 31,
----------------------
1992 1993
------- -------
(000'S OMITTED)
<S> <C> <C>
Trade accounts and accruals................................... $28,367 $22,702
Salaries, wages and related fringe benefits................... 3,417 3,017
Pension liability............................................. 5,345 2,009
Estimated costs of plant relocations and other nonrecurring
items....................................................... 7,070 2,604
Payroll and other taxes....................................... 3,239 3,996
Other (individual items less than 5% of total current
liabilities)................................................ 2,684 1,114
------- -------
$50,122 $35,442
======= =======
</TABLE>
<TABLE>
I. PENSION AND SAVINGS PLANS
In accordance with the Stock Purchase Agreement between Cooper and
Wyman-Gordon Company, under which Wyman-Gordon Company will purchase all of the
outstanding shares of Cameron Forged Products Company from Cooper, Cooper will
retain all obligations and benefits of the defined benefit pension plans
discussed below.
Pension expense for defined benefit pension plans included the following
components:
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Service cost-benefits earned during the year.................. $ 2,304 $ 2,364 $ 2,532
Interest cost on projected benefit obligation................. 5,930 6,559 6,420
Actual return on assets....................................... (8,490) (5,108) (9,362)
Net amortization and deferral................................. 2,564 (1,571) 3,132
------- ------- -------
Net pension cost.............................................. $ 2,308 $ 2,244 $ 2,722
======= ======= =======
</TABLE>
F-29
<PAGE> 124
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
I. PENSION AND SAVINGS PLANS (CONTINUED)
A summary of the funding status of the defined benefit pension plans is as
follows:
<CAPTION>
PLANS WITH ASSETS IN
EXCESS PLANS WITH
OF ACCUMULATED ACCUMULATED BENEFITS
BENEFITS IN EXCESS OF ASSETS
--------------------- ---------------------
DECEMBER 31, DECEMBER 31,
1992 1993 1992 1993
-------- -------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation..................... $(23,724) $(34,624) $(40,697) $(51,360)
======== ======== ======== ========
Accumulated benefit obligation................ $(24,572) $(35,634) $(40,720) $(51,393)
======== ======== ======== ========
Projected benefit obligation.................. $(31,122) $(38,118) $(45,064) $(51,478)
Plan assets at fair value....................... 35,425 43,350 35,349 38,337
-------- -------- -------- --------
Plan assets in excess of (less than) projected
benefit obligation............................ 4,303 5,232 (9,715) (13,141)
Unrecognized net loss........................... 5,321 3,724 4,287 11,031
Unrecognized net asset from adoption date....... (431) (399) -- --
Unrecognized prior service cost................. 142 94 -- --
Adjustment required to recognize minimum
liability..................................... -- -- -- (10,946)
-------- -------- -------- --------
Pension asset (liability) at end of year........ $ 9,335 $ 8,651 $ (5,428) $(13,056)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
COMPUTATIONAL ASSUMPTIONS
------------------------------------------
PROJECTED
BENEFIT
NET PENSION COST OBLIGATION
---------------------- -------------
1991 1992 1993 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Discount rate:
Domestic.............................................. 9% 9% 8 1/2% 8 1/2% 7%
International......................................... 10 9 9 9 7 3/4
Rate of increase in compensation levels:
Domestic.............................................. 6 6 5 1/2 5 1/2 5
International......................................... 7 6 6 6 5 1/2
Expected long-term rate of return on assets:
Domestic.............................................. 9 1/2 9 1/2 9 -- --
International......................................... 11 10 10 -- --
Benefit basis:
Salaried plans: earnings during career.
Hourly plans: dollar units, multiplied by years of service.
Funding policy: 5 to 30 years.
</TABLE>
As part of Cooper, the domestic salaried employees of Cameron participate
in the Salaried Employees' Retirement Plan of Cooper Industries, Inc. while the
United Kingdom (U.K.) salaried and hourly employees participate in a combined
plan along with certain other Cooper employees in the U.K. The domestic hourly
employees of Cameron participate in the Cameron Iron Works USA, Inc. Retirement
Plan for Hourly Employees as well as the Cameron Iron Works USA, Inc. Savings-
Investment Plan for Hourly Employees (the Cameron Hourly Savings Plan). Under
the Cameron Hourly Savings Plan employee savings deferrals are partially matched
with company contributions of
F-30
<PAGE> 125
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
I. PENSION AND SAVINGS PLANS (CONTINUED)
cash. The amounts shown in the preceding table reflect amounts allocated to
Cameron as its proportionate share of both the domestic and the combined U.K.
plans. Aggregate pension expense amounted to $2,680,000 in 1991, $2,612,000 in
1992 and $3,031,000 in 1993. Cameron's expense with respect to the defined
benefit pension plans is set forth in the table above. For 1994, primarily as a
result of the reduction in the domestic discount rate from 8.5% to 7%, Cameron's
domestic defined benefit pension plan expense is projected to increase by
approximately $1,400,000. Expense with respect to the domestic defined
contribution plan for the years ended December 31, 1991, 1992 and 1993 amounted
to $372,000, $368,000 and $309,000, respectively. Gains and losses on
curtailments and settlements were not material in any of the three years ended
December 31, 1993. The assets of the domestic and foreign plans are maintained
in various trusts and consist primarily of equity and fixed income securities.
At December 31, 1993, the $10,946,000 "minimum liability" with respect to
the domestic hourly pension plan has been recorded in the Combined Balance Sheet
as a long-term liability with an offsetting reduction in caption "Net Assets."
The remaining December 31, 1993 liability of $2,110,000 with respect to this
plan is included in accounts payable and accrued liabilities partially offset by
a $101,000 asset with respect to the domestic salaried plan. The remaining
pension asset of $8,550,000 relates to the United Kingdom pension plan and is
included in a long-term pension asset caption. At December 31, 1992 there was no
"minimum liability" with respect to the domestic hourly plan and the plan's
regular liability of $5,428,000 was recorded in accounts payable and accrued
liabilities partially offset by an $83,000 asset with respect to the domestic
salaried plan. The remaining asset of $9,252,000 which related to the United
Kingdom plan was recorded in a long-term pension asset caption.
Cameron's full-time domestic salaried employees are also eligible to
participate in the Cooper Savings and Stock Ownership Plan. Under the Cooper
Savings and Stock Ownership Plan, employee's savings deferrals are partially
matched with an allocation of shares in Cooper's Employee Stock Ownership Plan
(ESOP). No assets or liabilities with respect to Cooper's ESOP have been
included in Cameron's combined financial statements. Cameron's expense equals
the matching contribution under the Plan's formula adjusted to reflect Cameron's
proportionate participation in Cooper's ESOP. Expense for the years ended
December 31, 1991, 1992 and 1993 amounted to $367,000, $366,000 and $343,000,
respectively.
J. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
As part of Cooper, Cameron's salaried employees participate in various
domestic employee welfare benefit plans including for active employees medical,
dental and prescriptions, among other benefits. Salaried employees who retired
prior to 1989, as well as certain other employees who were near retirement and
elected to receive certain benefits, have retiree medical, prescription and life
insurance benefits while active salaried employees will not have postretirement
medical benefits.
The hourly employees have separate plans with varying benefit formulas. In
all cases, however, currently active employees, except for certain employees who
are near retirement and previously elected to receive certain benefits, will not
receive health care benefits after retirement. Cameron entered into a union
agreement in 1992 which reduced certain postretirement health care benefits and
resulted in a curtailment gain of $1,500,000. In addition, certain amendments
were made in 1992 which resulted in an additional $1,900,000 of accumulated
postretirement benefit obligation and additional expense of $300,000 in 1992 and
1993.
All of Cooper's plans and therefore Cameron's portion of such plans are
unfunded.
F-31
<PAGE> 126
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
J. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
As described in Note C of the Notes to the Combined Financial Statements,
Cooper, and therefore Cameron, elected for the year 1992 and future years to
follow the provisions of SFAS No. 106 (Employers' Accounting for Postretirement
Benefits Other Than Pensions). The amounts reflected in the table which follows
represent Cameron's portion of Cooper's overall salaried employee retiree
liability as well as Cameron's proportionate amounts in various plan groupings
which were actuarially evaluated in arriving at Cooper's overall expense in
accordance with SFAS No. 106.
<CAPTION>
ITEMS NOT YET
RECORDED AMOUNTS PER
IN FINANCIAL FINANCIAL STATEMENTS
STATEMENTS ----------------------------
ACCUMULATED ------------------- LIABILITY FOR NET
POSTRETIREMENT PRIOR ACTUARIAL POSTRETIREMENT ANNUAL
BENEFIT OBLIGATION SERVICE NET BENEFITS OTHER EXPENSE
(APBO) COST GAIN THAN PENSIONS (INCOME)
-------------------- --------- ------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Balance -- December 31, 1991....... $ (2,178) $ -- $ -- $ (2,178) $ --
Adoption of SFAS No. 106 effective
January 1, 1992.................. (9,922) -- -- (9,922) --
Plan activity:
Service cost..................... (200) -- -- -- 200
Interest cost.................... (900) -- -- -- 900
Benefit payments................. 576 -- -- 576 --
Plan amendments.................. (1,900) 1,900 -- --
Amortization of unrecognized
prior service cost............. -- (300) -- -- 300
Curtailment gain................. 1,500 -- -- -- (1,500)
Net annual expense................. -- -- -- 100 --
---------- --------- ------- ---------------- ---------
Balances -- December 31, 1992...... (13,024) 1,600 -- (11,424) $ (100)
=========
Plan activity:
Service cost..................... (100) -- -- -- $ 100
Interest cost.................... (800) -- -- -- 800
Benefit payments................. 383 -- -- 383 --
Actuarial net gain............... 4,400 -- (4,400) -- --
Amortization of unrecognized
prior service cost............. -- (300) -- -- 300
Net annual expense............... (1,200)
---------- --------- ------- ---------------- ---------
Balances -- December 31, 1993...... $ (9,141) $ 1,300 $(4,400) $(12,241) $ 1,200
========== ========= ======= ================ =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1992 1993
--------------------- ---------------------
<S> <C> <C>
Amount of APBO related to:
Retired employees................... $ (6,512) $(4,753)
Employees eligible to retire...... (2,214) (1,554)
Other employees................... (4,298) (2,834)
Actuarial assumptions:
Discount rate..................... 7.64% 7.58%
1993 to 2002 -- health-care cost
trend rate:..................... 20% Ratable 17% Ratable
to 5.5% to 5.5%
Effect of 1% change in health-care
cost trend rate:
Increase December 31, 1992
APBO.......................... 9% 9%
Increase 1992 expense........... 10% 10%
</TABLE>
F-32
<PAGE> 127
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
K. NET ASSETS
Changes in net assets during the three years ended December 31, 1993 were
as follows:
<CAPTION>
MINIMUM
TRANSLATION PENSION
TOTAL ADJUSTMENT LIABILITY(1) OTHER
-------- ----------- ---------- --------
<S> <C> <C> <C> <C>
(000'S OMITTED)
Balance at December 31, 1990................ $ 85,781 $ 2,800 $ -- $ 82,981
Translation adjustment...................... 598 598 -- --
Cash flow transferred to Cooper............. (8,243) -- -- (8,243)
Net income.................................. 8,122 -- -- 8,122
-------- ----------- ---------- --------
Balance at December 31, 1991................ 86,258 3,398 -- 82,860
Translation adjustment...................... (4,909) (4,909) -- --
Cash flow provided by Cooper................ 14,359 -- -- 14,359
Net (loss).................................. (9,555) -- -- (9,555)
-------- ----------- ---------- --------
Balance at December 31, 1992................ 86,153 (1,511) -- 87,664
Translation adjustment...................... (1,301) (1,301) -- --
Cash flow provided by Cooper................ 10,597 -- -- 10,597
Adjustment required to recognize minimum
pension liability......................... (10,946) -- (10,946) --
Net (loss).................................. (20,054) -- -- (20,054)
-------- ----------- ---------- --------
Balance at December 31, 1993................ $ 64,449 $(2,812) $(10,946) $ 78,207
======== =========== ========== ========
<FN>
- - ---------------
(1) See Note I of the Notes to Combined Financial Statements.
</TABLE>
Intercompany transactions are principally cash transfers between Cameron
and Cooper.
L. INDUSTRY SEGMENTS, DOMESTIC AND INTERNATIONAL OPERATIONS, AND MAJOR
CUSTOMERS
Cameron's operations are conducted within one business segment -- forged
products.
Translation and transaction gains and losses included in each year's
Combined Results of Operations were not significant.
<TABLE>
Net sales to major customers as a percentage of sales were as follows:
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
General Electric............................................... 25.4% 27.3% 29.6%
Rolls-Royce plc................................................ 9.8 11.7 10.5
United Technologies............................................ 9.0 10.6 10.2
</TABLE>
Domestic and International Operations -- Transfers between domestic and
international operations, principally inventory transfers, are charged to the
receiving organization at prices sufficient to recover manufacturing costs and
provide a reasonable return. Export sales to unaffiliated customers included in
domestic sales were $13,000,000 in 1991, $15,500,000 in 1992 and $14,900,000 in
1993. Of
F-33
<PAGE> 128
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
L. INDUSTRY SEGMENTS, DOMESTIC AND INTERNATIONAL OPERATIONS, AND MAJOR
CUSTOMERS
(CONTINUED)
total export sales, 25% (63% in 1992 and 24% in 1993) were to Europe, 38% (26%
in 1992 and 44% in 1993) were to Canada, and 37% (11% in 1992 and 32% in 1993)
were to Asia.
<CAPTION>
OPERATING EARNINGS (LOSS)(1)
REVENUES YEAR ENDED DECEMBER 31, IDENTIFIABLE ASSETS
YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------------------- ------------------------------ --------------------------------
1991 1992 1993 1991 1992(2) 1993 1991 1992 1993
-------- -------- -------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(000'S OMITTED)
Domestic............... $159,557 $132,306 $116,014 $14,276 $5,738 $(19,848) $105,900 $114,720 $108,348
Europe................. 41,677 42,158 33,585 550 1,799 (2,317) 50,837 49,130 43,485
Eliminations:
Transfers to
Europe............. (1,845) (130) (65) 242 -- 7 (242) -- 7
Transfers to
Domestic........... (452) -- -- (10) -- -- 10 -- --
-------- -------- -------- ------- ------- -------- -------- -------- --------
$198,937 $174,334 $149,534 $15,058 $7,537 $(22,158) $156,505 $163,850 $151,840
======== ======== ======== ======= ======= ======== ======== ======== ========
<FN>
- - ---------------
(1) Combined income before income taxes and the cumulative effect of changes in accounting principles in 1992.
(2) Domestic operating earnings include nonrecurring income as further described in Note D of the Notes to the Combined
Financial Statements.
</TABLE>
<TABLE>
M. INCOME TAXES
Income (loss) before income taxes and cumulative effect of changes in
accounting principles is comprised of the following:
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1991 1992 1993
------- ------ --------
<S> <C> <C> <C>
(000'S OMITTED)
Income (loss) before income taxes and cumulative effect of changes
in accounting principles:
U.S. operations.............................................. $14,518 $5,738 $(19,841)
Foreign operations........................................... 540 1,799 (2,317)
------- ------ --------
Income (loss) before income taxes and cumulative effect of
changes in accounting principles............................ $15,058 $7,537 $(22,158)
======= ====== ========
</TABLE>
F-34
<PAGE> 129
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
M. INCOME TAXES (CONTINUED)
Income tax expense (benefit) is comprised of the following:
<CAPTION>
DEFERRED LIABILITY
METHOD METHOD
--------- ------------------
1991 1992 1993
--------- ------
(000'S OMITTED)
<S> <C> <C> <C>
Income taxes:
Currently payable:
U.S. Federal................................................ $ 3,357 $ -- $ --
U.S. state and local........................................ -- -- --
Foreign..................................................... 557 -- --
--------- ------ -------
3,914 -- --
--------- ------ -------
Deferred:
U.S. Federal................................................ 3,317 2,861 (1,916)
U.S. state and local........................................ -- 6 (4)
Foreign..................................................... (295) 128 (184)
--------- ------ -------
3,022 2,995 (2,104)
--------- ------ -------
Income tax expense (benefit)........................ $ 6,936 $2,995 $(2,104)
========= ====== =======
Following is a summary of items giving rise to deferred income
taxes:
Excess of tax over book depreciation........................ $ 1,323 $ -- $ --
Capitalized for books and expensed for tax.................. 2,311 -- --
Reserves and accruals....................................... 330 -- --
LIFO inventory.............................................. (829) 3,222 (1,974)
Other....................................................... (113) (227) (130)
--------- ------ -------
Deferred income taxes............................... $ 3,022 $2,995 $(2,104)
========= ====== =======
The provision for income taxes is at a rate other than the
federal statutory tax rate for the following reasons:
U.S. Federal statutory rate................................. 34.0% 34.0% (34.0)%
Nontaxable permanent difference on book depreciation........ (10.1) -- --
Net domestic and foreign losses without tax benefits........ 22.2 5.7 24.5
--------- ------ -------
Indicated effective tax rate........................ 46.1% 39.7% (9.5)%
========= ====== =======
Following is the amount of income taxes refunded:
Total income taxes refunded*............................. $ (809) $ -- $ --
========= ====== =======
<FN>
- - ---------------
* Taxes are refunded by Cameron to Cooper who in turn receives the taxes from the various taxing
authorities.
</TABLE>
F-35
<PAGE> 130
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
M. INCOME TAXES (CONTINUED)
The components of deferred tax liabilities and assets were as follows:
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
-------- --------
(000'S OMITTED)
<S> <C> <C>
Deferred tax liabilities:
LIFO inventory.................................... $(11,411) $ (9,437)
Other............................................. (4,255) (4,125)
-------- --------
Total deferred tax liabilities............... (15,666) (13,562)
Deferred tax assets:
Reserves and accruals............................. 7,866 9,632
Plant and equipment............................... 5,622 2,959
Postretirement benefits other than pensions....... 3,889 4,168
Net operating loss carryforwards.................. 9,689 15,139
-------- --------
Total deferred tax assets.................... 27,066 31,898
-------- --------
Valuation allowances......................... (27,066) (31,898)
-------- --------
Net deferred tax liabilities................. $(15,666) $(13,562)
======== ========
</TABLE>
Although Cameron's U.S. operations were included in the consolidated U.S.
Federal and certain combined and separate state income tax returns of Cooper and
its foreign operations were included in the tax return of a Cooper subsidiary
doing business in the U.K., the above tax provisions and tax liabilities
presented have been determined as if Cameron's operations in all countries were
stand-alone businesses filing separate tax returns. Deferred income taxes have
been determined from temporary differences between financial statement income
and taxable income with appropriate valuation allowances based on Cameron's
stand-alone ability to utilize both net operating losses and other deferred tax
assets.
The balance of accrued taxes for Cameron's U.S. and foreign operations is
included in Cameron's intercompany/equity balance with Cooper, since Cooper pays
all taxes and receives all tax refunds on Cameron's behalf.
Income tax expense and the information shown above for 1992 and 1993 have
been determined in accordance with the provisions of SFAS No. 109 (Accounting
for Income Taxes) which basically provides for a "liability" approach to taxes.
Income taxes for years prior to 1992 have not been restated and are accordingly
reflected above based on a "deferred" approach to taxes. The major difference
between the two approaches as reflected in the information above is that (a)
acquisition date fair market value write-downs of plant and equipment which were
not tax effected and therefore treated as permanent differences have now been
tax effected and (b) items that were previously accounted for on a "net-of-tax"
basis (primarily acquisition date reserves and accruals of acquired businesses
and certain fair market value adjustments of inventories and fixed assets) are
now considered to be "temporary differences" that give rise to larger deferred
tax amounts in the provision disclosure. See Note C of the Notes to Combined
Financial Statements.
On a stand-alone basis, Cameron has pre-tax net operating loss
carryforwards of $44,526,471 ($0 net of the valuation allowance) at December 31,
1993 with the earliest expiration date being 2000. These net operating losses
have in fact been utilized by Cooper in its consolidated return, except for a
F-36
<PAGE> 131
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
M. INCOME TAXES (CONTINUED)
$8,165,000 net operating loss which existed at acquisition date and must be
utilized by Cameron on a separate return basis.
The adoption of SFAS No. 109 has not changed the actual amount of income
tax that Cameron pays nor, except for the $1,500,000 increase in income tax
expense described in Note C of the Notes to Combined Financial Statements, has
it changed Cameron's income tax expense.
The U.S. Federal portion of the above provision includes U.S. tax expected
to be payable on the foreign portion of Cameron's income before income taxes
when such earnings are remitted. Through December 31, 1993, essentially all
earnings of Cameron's foreign operations have been remitted.
N. RELATED PARTY TRANSACTIONS
Cameron receives services provided by Cooper which include employee
benefits administration, cash management, risk management, certain legal
services, public relations, domestic tax reporting and internal and domestic
external audit. The costs associated with these services have been allocated to
Cameron. See Note B of the Notes to Combined Financial Statements.
For purposes of Cameron's financial statements, the intercompany account
between Cameron and Cooper has been included as an element of Cameron's net
assets. All free cash flows and cash requirements of Cameron are considered to
be transferred to or provided by Cooper and are included in this intercompany
account.
Cameron sells products to Cooper on third party terms which amounted to
$10,000,000 in 1991, $6,400,000 in 1992 and $4,700,000 in 1993. In addition,
Cameron incurs expense for use of Cooper's mainframe computer and charges Cooper
for shared office space and administrative personnel in the U.K. The amounts
involved in these transactions are not material to Cameron.
O. OFF-BALANCE-SHEET ITEMS, CONCENTRATIONS OF CREDIT AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
OFF-BALANCE-SHEET ITEMS Cameron enters into forward exchange contracts to
hedge certain foreign currency transactions for periods consistent with the
terms of the underlying transactions. Cameron does not engage in speculation,
nor does Cameron typically hedge nontransaction-related balance sheet exposure.
While the forward contracts affect Cameron's results of operations, they do so
only in connection with the underlying transactions. As a result, they do not
subject Cameron to risk from exchange rate movements, because gains and losses
on these contracts offset losses and gains on the transactions being hedged. At
December 31, 1992 and 1993, Cameron had approximately $1,800,000 and $2,000,000,
respectively of foreign exchange contracts outstanding for the exchange of
British pounds for other European currencies, Canadian dollars, U.S. dollars or
Japanese yen. The forward exchange contracts have maturities that generally do
not exceed one year. Cameron's other off-balance-sheet risks are not material.
CONCENTRATIONS OF CREDIT Concentrations of credit with respect to trade
receivables are limited due to the wide variety of customers and markets into
which Cameron's products are sold, as well as their dispersion across many
different geographic areas. As a result, at December 31, 1993, Cameron does not
consider itself to have any significant concentrations of credit risk except for
receivables of $4,528,000, $3,701,000, and $4,903,000 from General Electric,
Rolls-Royce plc and United Technologies, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS Cameron's financial instruments
consist primarily of trade receivables, trade payables, and foreign currency
forward contracts. The book values of trade
F-37
<PAGE> 132
CAMERON FORGED PRODUCTS DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
O. OFF-BALANCE-SHEET ITEMS, CONCENTRATIONS OF CREDIT AND FAIR VALUE OF
FINANCIAL INSTRUMENTS (CONTINUED)
receivables and trade payables are considered to be representative of their
respective fair values. Based on year-end exchange rates and the various
maturity dates of the foreign currency forward contracts, Cameron estimates the
aggregate contract value to exceed the fair value by .3% at December 31, 1993.
<TABLE>
P. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
QUARTER
---------------------------------------------
1ST 2ND 3RD 4TH
-------- ------- -------- -------
(000'S OMITTED)
<S> <C> <C> <C> <C>
1992
Revenues.......................................... $ 46,903 $48,346 $ 43,821 $35,264
Gross margin(1)................................... 6,450 8,982 5,097 4,583
Income (loss) before cumulative effect of changes
in accounting principles(2)..................... 326 2,818 1,808 (410)
Cumulative effect on prior years of changes in
accounting principles........................... (14,097) -- -- --
Net income (loss)(2).............................. (13,771) 2,818 1,808 (410)
1993
Revenues.......................................... $ 37,371 $36,508 $ 39,975 $35,680
Gross margin (loss)(1)............................ 3,969 3,140 (13,674) 5,213
Net income (loss)................................. (782) (1,822) (17,289) (161)
<FN>
- - ---------------
(1) Gross margin equals sales less cost of goods sold (including loss on long-term contracts and
agreements) before depreciation and amortization.
(2) Includes nonrecurring income as further described in Note D of the Notes to Combined Financial
Statements.
</TABLE>
F-38
<PAGE> 133
ANNEX A
- - --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BETWEEN
COOPER INDUSTRIES, INC.
AND
WYMAN-GORDON COMPANY
------------------------------------
DATED AS OF JANUARY 10, 1994
- - --------------------------------------------------------------------------------
<PAGE> 134
<TABLE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
(NOT PART OF THE AGREEMENT)
<CAPTION>
PAGE
----
<S> <C> <C>
PARTIES................................................................................ A-1
PREAMBLES.............................................................................. A-1
ARTICLE I
SALE OF COMPANY COMMON STOCK........................................................... A-1
1.1 Purchase and Sale............................................................... A-1
1.2 Consideration................................................................... A-1
1.3 Closing Balance Sheet........................................................... A-1
1.4 Seller's Review of Preliminary Closing Balance Sheet............................ A-3
1.5 Buyer Response to Seller's Letter............................................... A-3
1.6 Meeting to Resolve Proposed Adjustments......................................... A-4
1.7 Resolution by Accounting Arbitrator............................................. A-4
1.8 Positive or Negative Purchase Price Adjustment.................................. A-4
1.9 Values.......................................................................... A-4
1.10 Place of Payment................................................................ A-5
ARTICLE II
CLOSING................................................................................ A-5
2.1 Time and Place of Closing....................................................... A-5
2.2 Deliveries by the Seller........................................................ A-5
2.3 Deliveries by the Buyer......................................................... A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER........................................... A-6
3.1 Organization.................................................................... A-6
3.2 Capitalization.................................................................. A-6
3.3 Authority Relative to This Agreement............................................ A-6
3.4 Consents and Approvals; No Violations........................................... A-7
3.5 Financial Statements............................................................ A-7
3.6 Absence of Certain Changes...................................................... A-8
3.7 No Undisclosed Liabilities...................................................... A-8
3.8 Information in Proxy Statement.................................................. A-8
3.9 Litigation...................................................................... A-8
3.10 Compliance With Applicable Law.................................................. A-8
3.11 Taxes........................................................................... A-9
3.12 ERISA; Employee Benefits........................................................ A-9
3.13 Intellectual Property........................................................... A-10
3.14 Material Contracts; No Defaults................................................. A-11
3.15 Environmental Compliance........................................................ A-11
3.16 Title to Real Property.......................................................... A-12
3.17 Company Assets.................................................................. A-12
3.18 Labor Matters................................................................... A-12
3.19 Purchase for Investment......................................................... A-12
3.20 No Beneficial Ownership of the Buyer's Stock.................................... A-12
3.21 Change in Control............................................................... A-13
</TABLE>
i
<PAGE> 135
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.22 Business of the Company......................................................... A-13
3.23 Representations Accurate........................................................ A-13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER............................................ A-13
4.1 Organization.................................................................... A-13
4.2 Capitalization.................................................................. A-13
4.3 Authority Relative to this Agreement............................................ A-14
4.4 Consents and Approvals; No Violations........................................... A-14
4.5 Reports......................................................................... A-15
4.6 Absence of Certain Changes...................................................... A-15
4.7 No Undisclosed Liabilities...................................................... A-15
4.8 Information in Proxy Statement.................................................. A-16
4.9 Litigation...................................................................... A-16
4.10 Compliance with Applicable Law.................................................. A-16
4.11 Taxes........................................................................... A-16
4.12 ERISA; Employee Benefits........................................................ A-16
4.13 Intellectual Property........................................................... A-17
4.14 No Defaults..................................................................... A-18
4.15 Environmental Compliance........................................................ A-18
4.16 Representations Accurate........................................................ A-18
4.17 Purchase for Investment......................................................... A-18
ARTICLE V
COVENANTS.............................................................................. A-19
5.1 Business Covenants of the Seller................................................ A-19
5.2 Business Covenants of the Buyer................................................. A-20
5.3 Current Information............................................................. A-21
5.4 Access to Information........................................................... A-21
5.5 Reasonable Best Efforts......................................................... A-22
5.6 Consents: Filings............................................................... A-22
5.7 Shareholder Meeting............................................................. A-23
5.8 Amendment to Articles of Organization and By-Laws............................... A-23
5.9 Rights Agreement................................................................ A-23
5.10 Brokers or Finders.............................................................. A-23
5.11 Fees and Expenses............................................................... A-23
5.12 Employee Benefits............................................................... A-24
5.13 Public Announcements............................................................ A-28
5.14 Use of the Company Name......................................................... A-28
5.15 Company Books and Records....................................................... A-28
5.16 Disclosure Supplements.......................................................... A-29
5.17 Ancillary Agreements............................................................ A-29
5.18 WARN Act........................................................................ A-29
5.19 Taxes........................................................................... A-30
5.20 Existing Insurance Coverage..................................................... A-33
5.21 Certain Obligations............................................................. A-34
5.22 Survival; Indemnification....................................................... A-34
5.23 Repurchase or Receivables....................................................... A-37
</TABLE>
ii
<PAGE> 136
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VI
CONDITIONS............................................................................. A-37
6.1 Conditions to Each Party's Obligation to Effect the Transactions Contemplated
by this Agreement............................................................... A-37
6.2 Conditions of Obligations of the Seller to Effect the Transactions Contemplated
by this Agreement............................................................... A-38
6.3 Conditions of Obligations of the Buyer to Effect the Transactions Contemplated
by this Agreement............................................................... A-38
ARTICLE VII
TERMINATION AND ABANDONMENT............................................................ A-38
7.1 Termination..................................................................... A-38
7.2 Procedure and Effect of Termination............................................. A-39
ARTICLE VIII
MISCELLANEOUS.......................................................................... A-39
8.1 Amendment and Modification...................................................... A-39
8.2 Waiver of Compliance; Consents.................................................. A-39
8.3 Investigations; Survival Upon Termination....................................... A-39
8.4 Notices......................................................................... A-40
8.5 Annexes, Schedules and Exhibits................................................. A-40
8.6 Descriptive Headings............................................................ A-40
8.7 Counterparts.................................................................... A-41
8.8 Entire Agreement; Assignment.................................................... A-41
8.9 Governing Law................................................................... A-41
8.10 Specific Performance............................................................ A-41
8.11 Alternative Dispute Resolution.................................................. A-41
8.12 Non-Competition................................................................. A-42
8.13 Further Assurances.............................................................. A-42
8.14 No Third-Party Beneficiaries.................................................... A-42
8.15 Remedies; Waiver................................................................ A-42
8.16 Severability.................................................................... A-42
</TABLE>
<TABLE>
<S> <C> <C>
Exhibit A -- Company Financial Statements
Annex I -- Investment Agreement
Annex II -- Commercial Term Note
Annex III -- Peg Balance Sheet
Annex IV -- Certain Pre-Closing Transactions
Annex V -- Fair Price Charter Amendment
Annex VI -- Control Share Acquisitions Amendment
Annex VII -- Rights Agreement
Annex VIII -- Ancillary Agreement Term Sheets
</TABLE>
iii
<PAGE> 137
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of January 10, 1994 (the "Agreement"),
between Cooper Industries, Inc., an Ohio corporation (the "Seller"), and
Wyman-Gordon Company, a Massachusetts corporation (the "Buyer").
WHEREAS, the Seller owns all of the issued and outstanding shares of common
stock, par value $.208 1/3 per share (the "Company Common Stock"), of Cameron
Forged Products Company, a Delaware corporation (the "Company"); and
WHEREAS, the Seller desires to sell and the Buyer desires to purchase the
Company Common Stock; and
WHEREAS, simultaneously with the execution and delivery of this Agreement
and as an inducement to enter into this Agreement, the Buyer and the Seller are
entering into the Investment Agreement dated as of the date hereof and in the
form attached hereto as Annex I (the "Investment Agreement"), providing for
certain arrangements with respect to their relationship following consummation
of the transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements hereinafter set forth, and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE OF COMPANY COMMON STOCK
1.1 Purchase and Sale Upon the terms and subject to the conditions of
this Agreement, at the Closing (as hereinafter defined) the Seller will sell,
assign, transfer and deliver to the Buyer, and the Buyer will accept and
purchase from the Seller, all of the Company Common Stock.
1.2 Consideration.
(a) Upon the terms and subject to the conditions of this Agreement, and in
consideration of the sale, assignment, transfer and delivery of the Company
Common Stock the Buyer will pay, issue, and deliver to the Seller the
Consideration. The Consideration consists of (i) the Cash Consideration, (ii)
the Balance Sheet Consideration Amount and (iii) the Equity Consideration.
(b) The "Cash Consideration" $5,000,000 payable as follows: (i) The Buyer
will pay to the Seller the sum of $400,000 at Closing and (ii) the Buyer will
execute and deliver to Seller, at Closing, Buyer's promissory note, dated as of
the Closing, in the form attached hereto as Annex II in the principal amount of
$4,600,000 (the "Note").
(c) The "Equity Consideration" is 16,500,000 shares, par value $1.00 per
share, of the Buyer's Common Stock. At Closing Buyer will issue and deliver to
Seller the Equity Consideration.
(d) The Balance Sheet Consideration Amount will be determined and paid as
set forth herein. Within five days following the date on which the Final Closing
Date Net Asset Value is determined pursuant to the provisions of Section 1.8,
either Seller shall pay to Buyer the Negative Net Asset Amount or Buyer shall
pay to Seller the Positive Net Asset Amount, in either case, together with
interest thereon at the annual rate of 4% per annum from the Closing Date (as
hereinafter defined) until the date paid (the "Balance Sheet Consideration
Amount").
1.3 Closing Balance Sheet. Within 60 days following the Closing Date, the
Buyer shall prepare and deliver to the Seller a consolidated balance sheet of
the Company and the Company Subsidiaries as of the close of business on the
Closing Date (the "Preliminary Closing Balance Sheet"). The Preliminary Closing
Balance Sheet and the final balance sheet determined in accordance with Sections
1.4, 1.5, 1.6 and 1.7 of this Article I (the "Final Closing Balance Sheet")
shall be prepared in
A-1
<PAGE> 138
accordance with principles, practices and procedures that are the same as those
which resulted in the asset and liability values reflected in the Balance Sheet
dated September 26, 1993, which is attached hereto as Annex III (the "Peg
Balance Sheet"). The Preliminary Closing Balance Sheet and the Final Closing
Balance Sheet are sometimes collectively referred to herein as the Preliminary
and Final Closing Balance Sheets. Notwithstanding the foregoing, the following
specific provisions shall take precedence over such principles, practices and
procedures in the preparation of the Preliminary and Final Closing Balance
Sheets:
(a) The asset and liability amounts included in the Preliminary and Final
Closing Balance Sheets will be the same as those included in the Peg Balance
Sheet except as necessary to reflect those changes in the asset and liability
values that result from new transactions and actual changes in facts and
circumstances occurring during the period after (but not including) September
26, 1993 (the "Peg Date") through and including the Closing Date (the "Change
Period"). (To illustrate, if an item of machinery and equipment was included in
the Peg Balance Sheet at a net book value of $1 million, but had not been used
for the past several years, or would no longer function, or would require major
repairs to put it in working condition, this item would be valued at $1 million
in the Preliminary and Final Closing Balance Sheets because no changes in facts
or circumstances occurred during the Change Period which would warrant a
reduction in the book value of that asset as of the Closing Date that would not
have been equally appropriate as of the Peg Date. However, if a change in facts
or circumstances occurred during the Change Period which would have warranted a
change in the book value of such item of machinery and equipment that would not
have been equally appropriate as of the Peg Date, then the book value of such
item would be changed on the Preliminary and Final Closing Balance Sheets. As
further examples, any liability which was underaccrued or over-accrued as of the
Peg Date, absent a change in facts and circumstances during the Change Period,
will be recorded so that it is equally under-accrued or over-accrued as of the
Closing Date, and the aging of accounts receivable may constitute a change in
facts and circumstances warranting a change in the bad debt reserve.)
(b) The quantities of inventory used to determine the inventory amount to
be included in the Preliminary and Final Closing Balance Sheets will be based on
the results of a physical inventory to be taken as of the opening of business on
the Closing Date in accordance with procedures to be mutually agreed to by the
parties. The physical inventory quantities will be priced utilizing the same
standard costs which were used in the determination of the inventory amount
reflected in the Peg Balance Sheet and in the case of items which were not on
hand as of the Peg Date in accordance with the normal procedures of the Company.
The Preliminary and Final Closing Balance Sheets will include a LIFO debit of
$8,226,129 which is the same amount as the LIFO debit included in the Peg
Balance Sheet. The Preliminary and Final Closing Balance Sheets will not include
any reserve or accrual with respect to inventory shrinkage but will include
reserves or accruals for any other inventory valuation matter that are equal in
amount to any such reserves or accruals that were included in the Peg Balance
Sheet, including without limitation, reserves and accruals for excess, obsolete
or slow moving inventory or for loss jobs.
(c) No depreciation or amortization expense shall be recorded for the
Change Period. As a result, the accumulated depreciation and amortization
balances reflected in the Preliminary and Final Closing Balance Sheets shall be
the same as the amounts included in the Peg Balance Sheet adjusted only for
asset sales or other dispositions in the ordinary course of business and in
accordance with the terms of this Agreement.
(d) The Peg Balance Sheet did not and the Preliminary and Final Closing
Balance Sheets will not include any payable or receivable for (i) federal income
tax or (ii) state and local income tax balances. The deferred tax balances on
the Preliminary and Final Closing Balance Sheets will be the same as the
deferred tax balances included in the Peg Balance Sheet adjusted only to reflect
changes in the book or tax basis of the underlying assets and liabilities which
occur during the Change Period.
A-2
<PAGE> 139
(e) The Peg Balance Sheet did not and the Preliminary and Final Closing
Balance Sheets will not include any cash either on-hand or in banks other than
cash equal to the "Receivables Purchase Price" paid by the Seller to the Company
pursuant to the Factoring Agreement (as hereinafter defined) and the Peg Balance
Sheet did not and the Preliminary and Final Closing Balance Sheets will not
include any payable or receivable between the Company and the Seller including
any of Seller's Affiliates.
(f) The Peg Balance Sheet did not and the Preliminary and Final Closing
Balance Sheets will not include any assets or liabilities with respect to the
Company's Domestic Retirement and Savings Plans or Seller U.K. Pension Plans (as
such terms are hereinafter defined).
(g) The Peg Balance Sheet did not and the Preliminary and Final Closing
Balance Sheets will not include any amounts as to land, land improvements or
buildings or environmental accruals with respect to the Katy Road Site (as
hereinafter defined).
(h) For purposes of this Agreement, a change in translation rates between
the U.S. dollar and various foreign currencies, including the U.K. pound, during
the Change Period will be considered to be a change in facts and circumstances.
(i) The deferred tax asset amount included in the Preliminary and Final
Closing Balance Sheets will be net of a deferred tax asset valuation allowance
of $2,776,000 which is the same as the deferred tax asset valuation allowance
included in the Peg Balance Sheet.
(j) The Peg Balance Sheet did not and the Preliminary and Final Closing
Balance Sheets will not include any amounts (assets or liabilities) with respect
to the Gulf Metals Site (as hereinafter defined).
(k) The Peg Balance Sheet did not and the Preliminary and Final Closing
Balance Sheets will not include any adjustments to asset or liability amounts,
including any adjustments for currency translation (increase or decrease) which
may occur in connection with a transfer as contemplated by this Agreement at
other than current book value of U.K. assets or other assets used in the
Business between (i) Seller and the Seller's Subsidiaries and (ii) the Company
and the Company's Subsidiaries.
(l) The Tech Mod accrual to be included in the Preliminary and Final
Closing Balance Sheets will be the same as the Tech Mod accrual included in the
Peg Balance Sheet.
(m) The Preliminary and Final Closing Balance Sheets will include a prepaid
asset equal to 1% of the trade and notes receivable of the Company sold to
Seller pursuant to the Factoring Agreement.
(n) The Peg Balance Sheet did not and the Preliminary and the Final Closing
Balance Sheets will not include any reserve or accrual with respect to any loss
or potential liability which the Company may have in connection with Item 1 in
Section 3.7 of the Seller Disclosure Schedule.
1.4 Seller's Review of Preliminary Closing Balance Sheet. Seller shall
have 30 days following receipt of the Preliminary Closing Balance Sheet to
review (the "Seller's Review") such balance sheet. If Seller determines, in
Seller's reasonable judgment, that it has not been prepared in accordance with
the provisions of Section 1.3 then within the said 30-day period allowed for
Seller's Review, Seller shall prepare and deliver a letter to Buyer (the
"Seller's Letter") setting forth in reasonable detail the adjustments that
Seller determines are appropriate. During the said 30-day period, Buyer shall
grant Seller reasonable access during normal business hours to the books and
records of the Company and its working papers pertaining to the Preliminary
Closing Balance Sheet and shall authorize the Company's auditors to grant
Seller's auditors access to any working papers or other documents prepared by
such auditors with respect to the Preliminary Closing Balance Sheet. If Seller
does not prepare and furnish Seller's Letter to Buyer within the said 30-day
period, then the Preliminary Balance Sheet as prepared by Buyer will become the
Final Closing Balance Sheet.
1.5 Buyer Response to Seller's Letter. Buyer will have 15 days following
receipt of Seller's Letter, if any, to review such letter and prepare a written
response (the "Buyer's Letter") setting forth Buyer's position with respect to
each adjustment proposed by Seller in Seller's Letter. If Buyer does not prepare
and furnish Buyer's Letter to Seller within the 15 days allowed, then all of the
adjustments set
A-3
<PAGE> 140
forth in Seller's Letter shall be deemed to have been accepted by Buyer, and the
Final Closing Balance Sheet shall be prepared by adjusting the Preliminary
Closing Balance Sheet for all of the adjustments set forth in Seller's Letter.
1.6 Meeting to Resolve Proposed Adjustments. As soon as practicable, but
not later than ten days following the receipt by Seller of Buyer's Letter, if
any, the parties shall meet and endeavor to mutually resolve any of Seller's
adjustments not agreed to in Buyer's Letter. If the parties reach agreement on
the remaining adjustments, if any, then the Final Closing Balance Sheet shall be
prepared by adjusting the Preliminary Closing Balance Sheet for the adjustments
agreed to in Buyer's Letter and those resolved by the parties.
1.7 Resolution by Accounting Arbitrator. If the parties do not meet
within the said ten-day period, or they fail to agree to meet at some later
date, or they meet but are unable to resolve all of the adjustments set forth in
Seller's Letter to the mutual satisfaction of both parties, then the parties,
jointly, or if one party is unwilling then the other party singly, shall engage
the New York office of the firm of Deloitte & Touche (the "Accounting
Arbitrator") to resolve any of Seller's adjustments which remain unresolved. The
Accounting Arbitrator shall be furnished with a copy of the Agreement, the Peg
Balance Sheet, the Preliminary Closing Balance Sheet, Seller's Letter, Buyer's
Letter and any other relevant correspondence between the parties. The Accounting
Arbitrator must, within 30 days from the date such documents are furnished,
complete his review and render a written report setting forth his conclusion
with respect to each of Seller's adjustments which were unresolved between the
parties. The Accounting Arbitrator shall be granted access to the books and
records of the Company as well as the working papers or other documents which
either party or its accountants may have which relate to the Preliminary Closing
Balance Sheet and any other documents or information which the Accounting
Arbitrator may deem appropriate. The Accounting Arbitrator's review shall be
limited to the purpose of determining whether, in respect of each disputed
adjustment, the Seller's proposed adjustment or the Buyer's position with
respect to the Seller's proposed adjustment is more nearly in accordance with
the terms of this Agreement. The parties shall have the right to submit written
materials to the Accounting Arbitrator and make oral presentations all in
accordance with procedures to be set forth in the engagement letter between the
parties and the Accounting Arbitrator. In arriving at his determination the
Accounting Arbitrator must select for each adjustment either the Seller's
proposed adjustment or Buyer's position with respect to the Seller's proposed
adjustment. The decision by the Accounting Arbitrator shall be in writing and
delivered to both Buyer and Seller. The Accounting Arbitrator's said decision
shall be conclusive and binding upon the parties and may be entered and enforced
in any court of competent jurisdiction. The parties agree to submit to the
jurisdiction of any such court for the enforcement of such award or decision.
Each party shall pay 50% of the fees and expenses of the Accounting Arbitrator.
If the Accounting Arbitrator is engaged, the Final Closing Balance Sheet will be
prepared by adjusting the Preliminary Closing Balance Sheet for any of Seller's
adjustments accepted by Buyer's Letter, those agreed to by the parties and those
determined by the Accounting Arbitrator.
1.8 Positive or Negative Purchase Price Adjustment. When the Final
Closing Balance Sheet is determined pursuant to the provisions of Sections 1.4,
1.5, 1.6 or 1.7, then the net asset/equity value set forth on such Final Closing
Balance Sheet will be the Final Net Asset Value and the Positive or Negative Net
Asset Amount shall be determined by comparing the Final Net Asset Value to the
net asset/equity amount set forth on the Peg Balance Sheet (the "Peg Value"). If
the Peg Value is more than the Final Net Asset Value, then the excess is the
Negative Net Asset Amount. If the Final Net Asset Value is more than the Peg
Value, then the excess is the Positive Net Asset Amount.
1.9 Values. On or about the date that the number of shares was fixed
between the parties the estimated value of the Equity Consideration was
$47,437,500. This amount added to the Cash Consideration of $5,000,000 is
$52,437,500. These values will be utilized by the Buyer for all relevant
financial accounting purposes.
A-4
<PAGE> 141
1.10 Place of Payment. All payments to Seller under this Agreement shall
be made by wire transfer in immediately available funds to Chase Manhattan Bank,
New York, for credit to Cooper Industries, Inc., account number 910-1-144781.
All payments to Buyer under this Agreement shall be made by wire transfer in
immediately available funds to Shawmut Bank, Boston, for the credit to
Wyman-Gordon Company, account number 030-03-92612.
ARTICLE II
CLOSING
2.1 Time and Place of Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices of
the Seller, at 10:00 A.M. (Houston time) on the fifth business day following the
date on which all of the conditions to each party's obligations hereunder have
been satisfied or waived; or at such other place or time or both as the parties
may agree. The date on which the Closing actually occurs is hereinafter referred
to as the "Closing Date." The Closing and the consummation of the transactions
contemplated hereby shall be deemed effective as of the close of business on the
Closing Date.
2.2 Deliveries by the Seller. At the Closing the Seller will deliver the
following to the Buyer:
(a) Stock certificates representing the Company Common Stock, issued to and
registered in the name or names of the Buyer or its designee or designees,
together with evidence of payment of any applicable stock transfer taxes.
(b) The resignations of those members of the Boards of Directors of the
Company, the U.K. Sub or the Pipeline Sub (as such terms are hereinafter
defined) who will continue after the Closing to be employees of the Seller.
(c) The stock books, stock ledgers, minute books and corporate seals of the
Company, the U.K. Sub and the Pipeline Sub; provided that any of the foregoing
items shall be deemed to have been delivered pursuant to this Section 2.2(c), if
delivered to or otherwise located at the offices of the Company, the U.K. Sub or
the Pipeline Sub.
(d) The officers' certificate and other documents contemplated by Sections
6.1 and 6.3.
(e) All other documents required to be delivered by the Seller on or prior
to the Closing Date pursuant to this Agreement.
2.3 Deliveries by the Buyer. At the Closing the Buyer will deliver the
following to the Seller:
(a) Stock certificates representing the Equity Consideration issued to and
registered in the name or names of the Seller or its designee or designees,
together with evidence of payment of any stock transfer taxes.
(b) $400,000 in cash.
(c) The Note duly executed by the Buyer.
(d) A letter from Wachtell, Lipton, Rosen & Katz addressed to the Seller
and dated the Closing Date stating that (without opining as to Massachusetts
law) neither the execution nor delivery of the Rights Agreement (as hereinafter
defined) will constitute a breach or violation of any of the provisions of the
Original Rights Agreement (as hereinafter defined).
(e) The officers' certificate and other documents contemplated by Sections
6.1 and 6.2.
(f) All other documents required to be delivered by the Buyer on or prior
to the Closing Date pursuant to this Agreement.
A-5
<PAGE> 142
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows:
3.1 Organization. Each of the Seller, the Company, CFPD, Ltd.,
incorporated under the laws of England and Scotland and a wholly owned
subsidiary of the Company (the "U.K. Sub"), and Cameron Pipeline, Inc., a Texas
corporation and a wholly owned subsidiary of the Company (the "Pipeline Sub"
and, together with the U.K. Sub, the "Company Subsidiaries"), is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of the Seller, the Company and the Company
Subsidiaries is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not have a Material Adverse
Effect. "Material Adverse Effect," as used in this Article III, means a material
adverse effect, on the business operations or financial condition of the Company
and the Company Subsidiaries, taken as a whole, or on the Business (as defined
below). The Seller has heretofore delivered to the Buyer accurate and complete
copies of the Certificate of Incorporation and By-laws (or similar
organizational documents), as currently in effect, of the Company and each
Company Subsidiary. The Company has no subsidiaries other than the Company
Subsidiaries and does not own, directly or indirectly, any capital stock or
other equity securities of any corporation or have any direct or indirect equity
ownership in any business other than the Company Subsidiaries. The Company
Subsidiaries have no subsidiaries and do not own, directly or indirectly, any
capital stock or other equity securities of any corporation or have any direct
or indirect equity ownership in any business.
3.2 Capitalization. (a) The authorized capital stock of the Company
consists of 5,000 shares of Company Common Stock, all of which are issued and
outstanding as of the date hereof. Except as listed in Section 3.2(a) of the
Seller's disclosure schedule (the "Seller Disclosure Schedule"), the authorized
capital stock of the U.K. Sub consists of 1,000,000 shares of common stock (the
"U.K. Stock"), one share of which is issued and outstanding as of the date
hereof. The authorized capital stock of the Pipeline Sub consists of 1,000
shares of common stock par value $1.00 per share (the "Pipeline Stock"), all of
which are issued and outstanding as of the date hereof. All of the shares of
Company Common Stock are owned by the Seller, and all of the shares of U.K.
Stock and Pipeline Stock are owned by the Company, and are in each case validly
issued, fully paid, nonassessable and free of preemptive rights. Except pursuant
to this Agreement, there are no subscriptions, options, warrants, convertible or
exchangeable securities, calls, rights or other agreements or commitments
obligating the Seller, the Company or the Company Subsidiaries to issue,
transfer or sell any securities of the Company or of the Company Subsidiaries.
(b) The Seller has good and marketable title to the shares of Company
Common Stock, and the Company has good and marketable title to the shares of
U.K. Stock and Pipeline Stock, free and clear of all pledges, security
interests, liens, charges, encumbrances, equities, claims and options of
whatever nature. Upon consummation of the transactions contemplated hereby, the
Buyer will acquire good and marketable title to the shares of Company Common
Stock, free and clear of all pledges, security interests, liens, charges,
encumbrances, equities, claims and options of whatever nature.
(c) Section 3.2(c) of the Seller Disclosure Schedule sets forth the name,
jurisdiction of incorporation and capitalization of each Company Subsidiary and
the jurisdictions in which the Company and each Company Subsidiary are qualified
to do business.
3.3 Authority Relative to This Agreement. The Seller has full corporate
power and authority to execute and deliver this Agreement, the Investment
Agreement and the other instruments, agreements and documents contemplated by
this Agreement and the Investment Agreement (the "Other Agree-
A-6
<PAGE> 143
ments") and to perform its obligations hereunder and thereunder. The execution
and delivery of this Agreement, the Investment Agreement and the Other
Agreements and the consummation of the transactions contemplated hereby or
thereby have been duly and validly authorized by the Board of Directors of the
Seller and no other corporate proceedings on the part of the Seller are
necessary to authorize this Agreement, the Investment Agreement and the other
Agreements or to consummate the transactions so contemplated. This Agreement and
the Investment Agreement have been duly and validly executed and delivered by
the Seller and (assuming they are duly and validly executed by the Buyer)
constitute, and the Other Agreements will when executed (assuming due and valid
execution by any other parties thereto) constitute, valid and binding agreements
of the Seller, enforceable against the Seller in accordance with their
respective terms, except as such enforceability may be limited by respective
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general equitable principles
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
3.4 Consents and Approvals; No Violations. Except for applicable
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and German pre-merger notification laws, no filing with, and no permit,
authorization, consent or approval of, any governmental body or authority,
including courts of competent jurisdiction, domestic or foreign ("Governmental
Entity"), is necessary for the consummation by the Seller of the transactions
contemplated by this Agreement and the Investment Agreement and the Other
Agreements. Except as set forth in Section 3.4 of the Seller Disclosure
Schedule, neither the execution and delivery of this Agreement, the Investment
Agreement and the Other Agreements by the Seller nor the consummation by the
Seller of the transactions contemplated hereby or thereby nor compliance by the
Seller with any of the provisions hereof or thereof will (i) conflict with or
breach any provision of the Certificate of Incorporation or By-laws (or similar
organizational documents) of the Seller, any Seller Subsidiary (as defined
below), the Company or any Company Subsidiary, (ii) violate or breach any
provision of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration or result in the creation of any lien) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which the Seller, the
Company or any Company Subsidiary is a party or by which the Seller, the Company
or any Company Subsidiary or any of their properties or assets may be bound, or
(iii) violate any order, judgment, writ, injunction, decree, statute, rule or
regulation applicable to the Seller, the Company or any Company Subsidiary or
any of their properties or assets, except in the case of clauses (ii) and (iii)
for violations, breaches or defaults which would not either have a Material
Adverse Effect or prevent or delay the consummation of the transactions
contemplated hereby. For purposes of this Agreement, the "Seller Subsidiaries"
means the subsidiaries of the Seller other than the Company and the Company
Subsidiaries.
3.5 Financial Statements. Attached hereto as Exhibit A are true and
complete copies of (i) the audited combined balance sheets of the Cameron Forged
Products Division of the Seller, which includes the Company, that portion of
Cooper (Great Britain) Ltd. to the extent that it previously conducted all or
part of the Business (as hereinafter defined) and the Pipeline Sub
(collectively, "Cameron"), as of December 31, 1992 and December 31, 1991 and the
unaudited combined balance sheet of Cameron as of September 30, 1993
(collectively the "Company Balance Sheets"), and (ii) the related audited
combined statements of operations and cash flows for each of the years ended
December 31, 1991 and 1992 and the related unaudited combined statements of
operations and cash flows for the year ended December 31, 1990, and the nine
months ended September 30, 1993 and September 30, 1992 (collectively with the
Company Balance Sheets, the "Company Financial Statements"), together with the
notes thereto and, in the case of the audited balance sheets and statements of
operations and cash flows, an opinion of E&Y relating thereto. The Company
Financial Statements and the Peg Balance Sheet have been prepared from, and are
in accordance with, the books and records of Cameron and the books and records
of Seller that pertain to Cameron. The Company Balance Sheets fairly present the
financial position of Cameron as of their respective dates, and the other
related statements included in the Company Financial Statements fairly present
the results of operations and
A-7
<PAGE> 144
changes in financial position of Cameron for the periods then ended, subject in
the case of the unaudited Company Financial Statements to normal year-end audit
adjustments. The Company Financial Statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis, except as otherwise disclosed in the notes thereto.
3.6 Absence of Certain Changes. Except as disclosed in Section 3.6 of the
Seller Disclosure Schedule or in Annex IV hereto, or as disclosed in the Company
Financial Statements, since September 30, 1993, none of the Company, the Company
Subsidiaries and the Business has (i) taken any of the actions set forth in
Section 5.1(a) through Section 5.1(o) of this Agreement, (ii) suffered a
Material Adverse Effect, or any change in circumstances that is reasonably
likely to have a Material Adverse Effect (other than any change generally
affecting the industry in which the Business is engaged), or (iii) entered into
any transaction, or conducted its business or operations, other than in the
ordinary course of business and consistent with past practice.
3.7 No Undisclosed Liabilities. Any reference in this Agreement to
Seller's Knowledge shall be a reference solely to the actual knowledge of
Kenneth L. Hardcastle and his direct reports, and Michael J. Sebastian, D.
Bradley McWilliams, Alan J. Hill, Robert W. Teets, Stephen V. O'Neill, Donald R.
Sheley, Jr. and Bruce E. Himmelreich. Seller's Knowledge shall not include any
constructive knowledge, imputed knowledge or any knowledge attributed to Seller
solely because Seller or its agents or employees should have known the matter in
question. Except as and to the extent set forth in Section 3.7 of the Seller
Disclosure Schedule, to Seller's Knowledge, neither the Company nor any Company
Subsidiary has any liabilities (absolute, accrued, contingent or otherwise) of a
kind required to be reflected in a balance sheet prepared in accordance with
GAAP, or required to be disclosed in the notes thereto, except (a) liabilities
which were reflected in the December 31, 1992, or the September 30, 1993,
Company Balance Sheets or disclosed in the notes thereto, (b) liabilities which
were incurred since September 30, 1993 in the ordinary course of business,
consistent with past practice and which would be reflected in a balance sheet
prepared in accordance with GAAP, (c) liabilities which have not had a Material
Adverse Effect, and are not reasonably likely to have a Material Adverse Effect,
and (d) liabilities incurred in connection with this Agreement. Except as
disclosed in Section 3.7 of the Seller Disclosure Schedule or the Exhibits or
Annexes hereto, there are no material obligations or liabilities of the Company
or the Company Subsidiaries to the Seller or any of the Seller Subsidiaries that
will exist after the Closing Date.
3.8 Information in Proxy Statement. None of the information supplied in
writing by the Seller, the Seller Subsidiaries, the Company or the Company
Subsidiaries (including without limitation the Company Financial Statements and
any other financial statements of the Company and the Company Subsidiaries) for
inclusion or incorporation by reference in the proxy statement relating to the
meeting of the Buyer's shareholders to be held with respect to the transactions
contemplated by this Agreement (the "Proxy Statement") will, at the time the
Proxy Statement is mailed to the shareholders of the Buyer or at the time of the
meeting of shareholders of the Buyer, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
3.9 Litigation. Except as disclosed in Section 3.9 of the Seller
Disclosure Schedule, (a) there are no existing orders, injunctions, judgments or
decrees of any Governmental Entity which apply to the Company or any Company
Subsidiary or any assets, properties or operations of the foregoing and (b)
there are no actions, suits or proceedings, at law or in equity, pending, or to
Seller's Knowledge, threatened, or to Seller's Knowledge, any investigations
pending or threatened involving the Company or the Company Subsidiaries by or
before any Governmental Entity which in the case of either Clause (a) or (b)
above are reasonably likely to have a Material Adverse Effect.
3.10 Compliance With Applicable Law. Except as set forth in Section 3.10
of the Seller Disclosure Schedule, and except with respect to environmental
matters, which are addressed in Section 3.15 hereof, (a) the Company and the
Company Subsidiaries are, and the Business has been conducted, in compliance
with all laws, ordinances, rules, regulations, decrees and orders of all
Governmental
A-8
<PAGE> 145
Entities ("Laws"), except where the failure to be in compliance is not
reasonably likely to have a Material Adverse Effect and (b) the Seller, the
Company, and the Company Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities necessary to
conduct the Business as currently conducted (the "Company Permits"), and such
Company Permits are in full force and effect, except for such failure to hold or
be in full force and effect which would not be reasonably likely to have a
Material Adverse Effect. To Seller's Knowledge, no suspension, cancellation or
termination of any of the Company Permits is threatened or imminent that would
be reasonably likely to have a Material Adverse Effect.
3.11 Taxes. The Company has duly filed all returns of income Taxes (as
hereinafter defined) of the Company and the Company Subsidiaries and all
material returns of other Taxes of the Company and the Company Subsidiaries
required to be filed by them or such income or other returns have been included
in a return filed by an affiliated group or by a consolidated, unitary or
combined group of companies of which the Company is or has been a member, and
the Seller or the Company has duly paid, caused to be paid or made adequate
provision for the payment of all such Taxes required to be paid in respect of
the periods covered by such returns and has made adequate provision for payment
of all Taxes anticipated to be payable in respect of all calendar periods since
the periods covered by such returns. Except as disclosed in Section 3.11 of the
Seller Disclosure Schedule, no material deficiency or adjustment in respect of
any Taxes against the Company or any Company Subsidiary remains unpaid and no
material claim or assessment for any such deficiency or adjustment is pending
or, to Seller's Knowledge, threatened. There are no material claims for Taxes
(other than Taxes attributable to Seller or the Seller Subsidiaries) against the
Company or any Company Subsidiaries which might result in a lien, charge or
encumbrance on any of the assets of the Company or any Company Subsidiary.
3.12 ERISA; Employee Benefits. The Seller hereby represents and warrants
to Buyer that as of the date hereof and as of the Closing Date:
(a) Section 3.12(a) of the Seller Disclosure Schedule identifies each
Seller Employee Plan with an annual cost in excess of $100,000. The Seller has
furnished or made available to Buyer true and complete copies of such Seller
Employee Plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof together with (i) the most recent
annual report prepared in connection with any such Seller Employee Plan (Form
5500 or 5500-C including, if applicable, Schedules A and B thereto), (ii) the
summary plan description currently in effect for each such Seller Employee Plan
and all modifications thereof, (iii) for each such Seller Employee Plan with
respect to which there is no summary plan description in effect, a written
description of such Seller Employee Plan including all materials distributed or
made available to employees with respect to such Seller Employee Plan and (iv)
the most recent financial statements and actuarial reports (if any) for each
such Seller Employee Plan and its related trust (if any), (collectively, the
"Seller Employee Plan Documents").
(b) Neither the Company nor the Seller nor any subsidiary of either has
incurred, or reasonably expects to incur prior to the Closing Date, any
Controlled Group Liability that could become a material liability of Buyer or
any Buyer Subsidiary (including the Company) after the Closing Date. Except as
set forth on Section 3.12(b) of the Seller Disclosure Schedule, no Seller
Employee Plan with an annual cost in excess of $100,000 is a Title IV Plan. No
Seller Employee Plan is a Multiemployer Plan.
(c) Except as set forth in Section 3.12(c) of the Seller Disclosure
Schedule, each Seller Employee Plan with an annual cost in excess of $100,000
has been maintained in compliance in all material respects with its terms and
with the requirements prescribed by any and all applicable statutes, orders,
rules and regulations including but not limited to ERISA and the Code. Neither
the Seller nor any Related Person has engaged in, nor to Seller's Knowledge has
any other Person engaged in, any "prohibited transaction" (as defined in ERISA
and the Code) with respect to any such Seller Employee Plan.
(d) Section 3.12(d) of the Seller Disclosure Schedule identifies each
Seller Benefit Arrangement with an annual cost in excess of $100,000. The Seller
has furnished or made available to Buyer true and
A-9
<PAGE> 146
complete copies or, if no written document exists, descriptions of each such
Seller Benefit Arrangement. Each such Seller Benefit Arrangement has been
maintained in compliance in all material respects with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations.
(e) Section 3.12(e) of the Seller Disclosure Schedule identifies each
Seller International Plan with an annual cost in excess of $100,000. The Seller
has furnished or made available to Buyer true and complete copies or, if no
written document exists, descriptions of each such Seller International Plan.
Each such Seller International Plan has been maintained in all material respects
in compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations (including any special
provisions relating to qualified plans where such Seller International Plan was
intended to so qualify) and has been maintained in good standing with applicable
regulatory authorities.
(f) Except as set forth on Section 3.12(f) of the Seller Disclosure
Schedule, there are no actions, suits, arbitrations, inquiries, investigations
or other proceedings (other than routine claims for benefits), pending or, to
the Seller's Knowledge, threatened, with respect to any Seller Employee Plan,
Seller Benefit Arrangement or Seller International Plan which would be
reasonably likely to have a Material Adverse Effect.
(g) Except as set forth on Section 3.12(g) of the Seller Disclosure
Schedule, and except for coverage mandated by Section 4980B of the Code, no
Employees or Former Employees and no beneficiaries or dependents of Employees or
Former Employees are or may become entitled under any Seller Employee Plan,
Seller Benefit Arrangement or Seller International Plan to post-employment
welfare benefits of any kind, including without limitation death or medical
benefits, having an annual cost, in the aggregate, in excess of $100,000.
(h) Except as set forth on Section 3.12(h) of the Seller Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not result in any obligation to pay severance, separation pay or other
compensation in the aggregate in excess of $100,000 associated with the
termination of employment to any Employee or Former Employee, result in any
increase in the amount of compensation or benefits or accelerate the vesting or
timing of any payment of any compensation or benefits payable to or with respect
to any Employee or Former Employee, or cause any amounts paid or payable by the
Company, the Buyer or their subsidiaries to or with respect to any Employee or
Former Employee to fail to be deductible for U. S. federal income tax purposes
by reason of Section 280G of the Code.
(i) Except (i) as set forth on Section 3.12(i) of the Seller Disclosure
Schedule, (ii) pursuant to the terms of each Seller Employee Plan, Seller
International Plan and Seller Benefit Arrangement, respectively, (iii) pursuant
to any collective bargaining agreement or (iv) pursuant to applicable law, there
are no arrangements, understandings or agreements, written or unwritten, formal
or informal, which would prevent the termination of each Seller Employee Plan,
Seller International Plan and Seller Benefit Arrangement, respectively, in each
case, without any liability to the Company in excess of $100,000, other than for
accrued benefits thereunder.
3.13 Intellectual Property. Section 3.13 of the Seller Disclosure
Schedule sets forth a list of all of the Company's or any of the Company
Subsidiaries' domestic and foreign patents and patent applications currently
being used in the Business. "Company Intellectual Property" means all of the
Company's or any of the Company Subsidiaries' domestic and foreign letters
patent, patents, patent applications, patent licenses, trademark licenses,
software licenses and knowhow licenses, trade names, trademarks, copyrights,
service marks, trademark registrations and applications, service mark
registrations and applications and copyright registrations and applications
currently being used in the Business. Except as set forth in Section 3.13 of the
Seller Disclosure Schedule and except for any claim, infringement, act or
omission that would not be reasonably likely to have a Material Adverse Effect
(a) no claim is pending or, to Seller's Knowledge, threatened which alleges that
any of the Company Intellectual Property is invalid or unenforceable or which is
otherwise adverse to the right, title and
A-10
<PAGE> 147
interest of the Company and the Company Subsidiaries in and to the Company
Intellectual Property, (b) to Seller's Knowledge, no actions or operations of
any other person, association, corporation, individual, partnership, trust or
other entity or organization, including a Governmental Entity (a "Person")
infringe upon or conflict with the right, title or interest of the Company and
the Company Subsidiaries in and to the Company Intellectual Property, and (c) to
Seller's Knowledge, no Company Intellectual Property infringes on the rights
owned or held by any other Person. Except as set forth in Section 3.13 of the
Seller Disclosure Schedule, no existing contract, agreement or understanding
between the Seller, the Company or any Company Subsidiary and any other party
would impede or prevent the continued use by the Company and the Company
Subsidiaries of the entire right, title and interest of the Company and the
Company Subsidiaries in and to the Company Intellectual Property except such
contracts or understandings that would not be reasonably likely to have a
Material Adverse Effect.
3.14 Material Contracts; No Defaults. Except as set forth in Section 3.14
of the Seller Disclosure Schedule or in the notes to the Company Balance Sheets,
neither the Company nor any Company Subsidiary is a party to any written: (a)
material consulting agreement or collective bargaining agreement; (b) indenture,
mortgage, note or other agreement relating to the borrowing of money not in the
ordinary course of business by the Company or any Company Subsidiary or the
guaranty by the Company or any Company Subsidiary of an obligation of a third
party for the borrowing of money; (c) agreement which involves a certain (rather
than contingent) obligation of the Company or any Company Subsidiary of more
than $1,000,000 in any twelvemonth period; or (d) agreement containing covenants
limiting the ability of the Company or any Company Subsidiary to compete in any
line of business with any Person or in any area or territory (collectively, the
"Company Contracts"). Except as set forth in Section 3.14 of the Seller
Disclosure Schedule, (1) there is not, under any of the Company Contracts, any
existing default or event of default or event or condition which, with or
without due notice or lapse of time or both, would constitute a default or event
of default on the part of the Company or any Company Subsidiary, or, to the
Seller's Knowledge, the other parties thereto, except such defaults, events of
default and other events which would not be reasonably likely to have a Material
Adverse Effect, and (2) the Company Contracts are (i) valid and binding
obligations of the Company or the Company Subsidiaries and, to the Seller's
Knowledge, the other parties thereto, (ii) are in full force and effect and
(iii) are enforceable in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
by general equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at law).
3.15 Environmental Compliance.
(a) Except as set forth on Section 3.15 of the Seller Disclosure Schedule,
all operations, properties and business activities of the Company, the Company
Subsidiaries and the Business are in compliance with all Environmental Laws and
neither the Company nor any of the Company Subsidiaries has or is subject to any
claim, notice of investigation or liability based upon any Environmental Law or
arising from the disposal of any Regulated Materials except where such failure
to be in compliance or such claim, notice of investigation or liability would
not be reasonably likely to have a Material Adverse Effect.
(b) "Environmental Laws" means all Laws and Company Permits concerning,
relating to or controlling (i) the handling, transportation, sale, offering for
sale, storage, treatment, discharge, disposal, release, use, processing or
manufacture of any material or substance or (ii) the introduction of any
material, substance, radiation or other emission into the environment or
workplace, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Solid Waste Disposal
Act as amended by the Resource Conservation and Recovery Act, the Clean Air Act,
the Clean Water Act, the Toxic Substances Control Act, and the Occupational
Safety and Health Act.
A-11
<PAGE> 148
(c) "Regulated Material" means any material, substance, radiation or
emission which is regulated by or subject to any Environmental Law.
3.16 Title to Real Property. Section 3.16 of the Seller Disclosure
Schedule sets forth a list of all of the Owned Real Property reflected on the
September 30, 1993 Company Balance Sheet or acquired by the Company or any of
the Company Subsidiaries subsequent to the date thereof and conveyed hereby to
Buyer (the "Company Real Property"), together with all Company Leases (as
defined below). The Company or one of the Company Subsidiaries has good and
marketable title to the Company Real Property, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except for
current property taxes not yet payable or such encumbrances that would not be
reasonably likely to have a Material Adverse Effect. To Seller's Knowledge,
there is no appropriation, condemnation or like proceeding relating to the
Company Real Property. Each lease for any leased real property (a "Company
Lease") is a valid and binding lease under which the Company or one of the
Company Subsidiaries is entitled to occupy and use the parcel of real property
for its current use to which such Company Lease relates except for such failure
to be valid and binding as would not be reasonably likely to have a Material
Adverse Effect.
3.17 Company Assets. Except for those assets, properties, contract
rights, or licenses listed on Section 3.17 of the Seller Disclosure Schedule,
the Company and the Company Subsidiaries will own or have at Closing the right
to use all of the assets, properties, contract rights and licenses currently
used to operate the Business, or reflected on the September 30, 1993 Company
Balance Sheet (the "Company Assets"), except for cases in which the failure to
own or to have such right to use would not be reasonably likely to have a
Material Adverse Effect. To the Seller's Knowledge, the consummation of the
transactions contemplated by this Agreement will not, in and of itself,
adversely affect the ownership of or right to use the Company Assets, the
Company Intellectual Property and the Company Permits of the Company or the
Company Subsidiaries, except in cases where the failure to own or to have such
right to use would not be reasonably likely to have a Material Adverse Effect.
3.18 Labor Matters. Except as set forth on Section 3.18 of the Seller
Disclosure Schedule and except as would not constitute a Material Adverse
Effect:
(a) there is no unfair labor practice complaint against the Company or any
of the Company Subsidiaries pending or, to the Seller's Knowledge, threatened
before the National Labor Relations Board or the Ministry of Labor, as the case
may be;
(b) there is no labor strike, dispute, slowdown or stoppage pending or, to
the Seller's Knowledge, threatened against or affecting the Company, any of the
Company Subsidiaries or the Business; and
(c) there is no grievance or arbitration proceeding arising out of or under
collective bargaining agreements pending or, to the Seller's Knowledge,
threatened against or affecting the Company, any of the Company Subsidiaries or
the Business.
3.19 Purchase for Investment. The Seller is acquiring the Equity
Consideration for its own account as principal, with no view to any distribution
of any of the Equity Consideration or any beneficial interest in the Equity
Consideration to any third party, and the Seller has no agreement, understanding
or arrangement to sell, pledge or otherwise dispose of the Equity Consideration
or any beneficial interest in the Equity Consideration to any other Person. The
Seller understands and agrees that the Equity Consideration has not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or applicable state securities laws, and therefore may not be sold or otherwise
transferred, unless the Equity Consideration is registered under the Securities
Act and any applicable state securities laws or unless an exemption from such
registration is available.
3.20 No Beneficial Ownership of the Buyer's Stock. The Seller and its
Affiliates do not hold, have the right to vote or direct the voting of, or
otherwise beneficially own any shares of Common Stock, par value $1.00 per
share, of the Buyer (the "Buyer Common Stock").
A-12
<PAGE> 149
3.21 Change in Control. Except as set forth in Section 3.21 of the Seller
Disclosure Schedule or in cases which would not be reasonably likely to have a
Material Adverse Effect, neither the Company nor any Company Subsidiary is party
to any contract, agreement or understanding relating to employment which
contains a "change in control," "potential change in control" or similar
provision.
3.22 Business of the Company. To the Seller's Knowledge, the Company has
not engaged in any businesses other than the Business, and the Pipeline Sub has
not engaged in any businesses other than the transmission of natural gas.
3.23 Representations Accurate. To Seller's Knowledge, the representations
and warranties of the Seller set forth in this Agreement and qualified by
materiality or by Material Adverse Effects shall be true and correct (subject to
such qualification) as of the Closing Date (except for representations and
warranties that expressly speak only as of some other time), subject to the
disclosures in the Seller Disclosure Schedule as supplemented or amended through
the Closing Date and excluding those failures to be true and correct that do not
have a Material Adverse Effect. To Seller's Knowledge, the representations and
warranties of the Seller set forth in this Agreement and not qualified by
materiality or by Material Adverse Effects shall be true and correct in all
material respects as of the Closing Date (except for representations and
warranties that expressly speak only as of some other time), subject to the
disclosures in the Seller Disclosure Schedule as supplemented or amended through
the Closing Date and excluding those failures to be true and correct that do not
have a Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
4.1 Organization. Except as disclosed in Section 4.1 of the Buyer's
disclosure schedule attached hereto (the "Buyer Disclosure Schedule"), each of
the Buyer and its Subsidiaries (collectively, the "Buyer Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of the Buyer and the Buyer Subsidiaries is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" as used in this Article IV, means a material adverse
effect in the aggregate, on the business, operations or financial condition of
the Buyer and Buyer Subsidiaries taken as a whole. The Buyer has heretofore
delivered to the Seller accurate and complete copies of the Articles of
Organization and By-laws, as currently in effect, of the Buyer.
4.2 Capitalization.
(a) The authorized capital stock of the Buyer consists of (i) 35,000,000
shares of Buyer Common Stock, of which 17,984,249 shares are issued and
outstanding as of the date hereof, and (ii) 5,000,000 shares of preferred stock,
no par value, none of which are issued or outstanding as of the date hereof. All
of the issued and outstanding shares of Buyer Common Stock are (and the Equity
Consideration will upon issuance be) validly issued, fully paid, nonassessable
and free of preemptive rights. As of the date hereof, approximately 1,690,609
shares of Buyer Common Stock were issuable upon exercise of stock options
("Stock Options") granted under the Buyer's Long-Term Incentive Plan and
Executive Long-Term Incentive Program (collectively, the "Stock Plans") and an
indeterminate number of shares of Buyer Common Stock were reserved for issuance
in accordance with the Rights Agreement, dated as of October 19, 1988 by and
between the Buyer and State Street Bank & Trust Company, as Rights Agent (the
"Original Rights Agreement"). Except pursuant to this Agreement, the Stock
Plans, the Original Rights Agreement and the Buyer's Savings/Investment Plan or
as disclosed in Section 4.2 of the Buyer Disclosure Schedule, there are no
subscriptions, options, warrants, calls, rights or other agreements or
A-13
<PAGE> 150
commitments obligating the Buyer to issue, transfer or sell any of its
securities, including any right of conversion or exchange under any outstanding
security.
(b) Upon consummation of the transactions contemplated hereby, the Seller
will acquire good and marketable title to the Equity Consideration, free and
clear of all pledges, security interests, liens, charges, encumbrances,
equities, claims and options of whatever nature.
(c) Except as disclosed in Section 4.2 of the Buyer Disclosure Schedule,
the only direct or indirect subsidiaries of the Buyer are those named in the
Buyer SEC Reports. Except as disclosed in Section 4.2 of the Buyer Disclosure
Schedule, or in the Buyer SEC Reports, the Buyer does not own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have any direct or indirect equity ownership interest in any business. All of
the outstanding shares of capital stock of each of the Buyer Subsidiaries have
been validly issued and are fully paid, nonassessable and free of preemptive
rights and, except as set forth in Section 4.2 of the Buyer Disclosure Schedule
are owned by either the Buyer or another of the Buyer Subsidiaries free and
clear of all pledges, security interests, liens, charges, encumbrances,
equities, claims and options of whatever nature. Except as disclosed in Section
4.2 of the Buyer Disclosure Schedule there are no outstanding subscriptions,
options, warrants, calls, rights, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock or
other securities of any Buyer Subsidiary, or otherwise obligating the Buyer or
any Buyer Subsidiary to issue, transfer or sell any such securities. Except for
the Investment Agreement, there are not now, and at the Closing Date there will
not be, any voting trusts or other agreements or understandings to which the
Buyer or any Buyer Subsidiary is a party or is bound with respect of the voting
of the capital stock of the Buyer or any Buyer Subsidiary. Except as set forth
above or in Section 4.2 of the Buyer Disclosure Schedule, there are no persons
or entities (other than Buyer Subsidiaries) in which the Buyer or any Buyer
Subsidiary has any voting rights or equity interests.
4.3 Authority Relative to this Agreement. The Buyer has full corporate
power and authority to execute and deliver this Agreement, the Investment
Agreement and the Other Agreements and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement, the Investment
Agreement and the Other Agreements and the consummation of the transactions
contemplated hereby or thereby have been duly and validly authorized and
approved by the Board of Directors of the Buyer, including by a two-thirds vote
of the Continuing Directors at a meeting at which a Continuing Director Quorum
(as such terms are defined in the Buyer's Articles of Organization) was present
for purposes of approving the amendment to Article 6(c)2 of the Buyer's Articles
of Organization in the form attached hereto as Annex V (the "Fair Price Charter
Amendment")), and no other corporate proceedings on the part of the Buyer are
necessary to authorize this Agreement, the Investment Agreement and the Other
Agreements (other than the approval of the transactions contemplated hereby by
the requisite affirmative vote of the holders of Buyer Common Stock). This
Agreement and the Investment Agreement have been duly and validly executed and
delivered by the Buyer and (assuming they are duly and validly executed by the
Seller) constitute, and the Other Agreements will when executed constitute,
valid and binding agreements of the Buyer, enforceable against the Buyer in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general equitable principles
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
4.4 Consents and Approvals; No Violations. Except as disclosed in Section
4.4 of the Buyer Disclosure Schedule, and except for applicable requirements of
the Exchange Act and German pre-merger notification laws, no filing with, and no
permit, authorization, consent or approval of, any Governmental Entity, is
necessary for the consummation by the Buyer of the transactions contemplated by
this Agreement and the Investment Agreement. Except as set forth in Section 4.4
of the Buyer Disclosure Schedule, neither the execution and delivery of this
Agreement, the Investment Agreement and the Other Agreements by the Buyer nor
the consummation by the Buyer of the transactions contemplated hereby or thereby
nor compliance by the Buyer with any of the provisions hereof or
A-14
<PAGE> 151
thereof will (i) conflict with or breach any provision of the Articles of
Organization or By-Laws (or similar organizational documents) of the Buyer or
any Buyer Subsidiary, (ii) violate or breach any provision of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration or result in the creation
of any lien) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, agreement or other instrument or
obligation to which the Buyer or any Buyer Subsidiary is a party or by which any
of them or any of their properties or assets may be bound, or (iii) violate any
order, judgment, writ, injunction, decree, statute, rule or regulation
applicable to the Buyer, any Buyer Subsidiary or any of their properties or
assets, except in the case of clauses (ii) and (iii) for violations, breaches or
defaults which would not either have a Material Adverse Effect or prevent or
delay the consummation of the transactions contemplated hereby.
4.5 Reports. Except as disclosed in Section 4.5 of the Buyer Disclosure
Schedule, the Buyer has filed all required forms, reports and documents with the
Securities and Exchange Commission (the "SEC") since January 1, 1990
(collectively, the "Buyer SEC Reports"), each of which has complied in all
material respects with all applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act. Except as
disclosed in Section 4.5 of the Buyer Disclosure Schedule, as of their
respective dates, none of the Buyer SEC Reports, including without limitation,
any financial statements or schedules (including the related notes) included
therein, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. Each of the balance sheets (including the
related notes) included in the Buyer SEC Reports fairly presents the
consolidated financial position of the Buyer and the Buyer Subsidiaries as of
the date thereof, and the other related statements (including the related notes)
included therein fairly present the consolidated results of operations and cash
flows of the Buyer and the Buyer Subsidiaries for the respective periods
indicated. Each of the financial statements (including the related notes)
included in the Buyer SEC Reports has been prepared from and is in accordance
with the books and records of the Buyer and has been prepared in accordance with
GAAP consistently applied during the period involved, except as otherwise noted
therein and except for year-end audit adjustments, consisting of normal and
recurring adjustments. The Buyer has delivered to the Seller accurate and
complete copies of all Buyer SEC Reports filed since January 1, 1990.
4.6 Absence of Certain Changes. Except as disclosed in Section 4.6 of the
Buyer Disclosure Schedule or as disclosed in the Buyer SEC Reports, since
December 31, 1992, neither the Buyer nor any of the Buyer Subsidiaries has (i)
taken any actions set forth in Section 5.2(a) through Section 5.2(l) of this
Agreement, (ii) suffered a Material Adverse Effect, or (iii) entered into any
transaction, or conducted its business or operations, other than in the ordinary
course of business and consistent with past practice.
4.7 No Undisclosed Liabilities. Any reference in this Agreement to
Buyer's Knowledge shall be a reference solely to the actual knowledge of John M.
Nelson, David P. Gruber, and their direct reports. Buyer's Knowledge shall not
include any constructive knowledge, imputed knowledge or any knowledge
attributed to Buyer solely because Buyer or its agents or employees should have
known the matter in question. Except as and to the extent set forth in Section
4.7 of the Buyer Disclosure Schedule, to Buyer's Knowledge, neither the Buyer
nor any Buyer Subsidiary has any liabilities (absolute, accrued, contingent or
otherwise) of a kind required to be reflected in a balance sheet prepared in
accordance with GAAP, or required to be disclosed in the notes thereto, except
(a) liabilities which were reflected in the audited consolidated balance sheet
of the Buyer and the Buyer Subsidiaries as of December 31, 1992 incorporated in
the Buyer's Annual Report on Form 10-K for the fiscal year ended December 31,
1992 (the "Buyer Balance Sheet") or disclosed in the notes thereto, (b)
liabilities which were incurred since December 31, 1992 in the ordinary course
of business, consistent with past practice and which would be reflected in a
balance sheet prepared in accordance with GAAP, (c) liabilities which do not
constitute a Material Adverse Effect and would not be reasonably likely to
constitute a Material Adverse Effect and (d) liabilities incurred in connection
with this Agreement.
A-15
<PAGE> 152
4.8 Information in Proxy Statement. None of the information supplied in
writing by the Buyer for inclusion or incorporation by reference in the Proxy
Statement will, at the time the Proxy Statement is mailed to the shareholders of
the Buyer and at the time of the meeting of shareholders of the Buyer, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply in all material respects with the
provisions of the Exchange Act, and the rules and regulations thereunder, except
that no representation is made by the Buyer with respect to statements made
therein based on information supplied by the Seller or the Company in writing
for inclusion or incorporation by reference therein.
4.9 Litigation. Except as disclosed in Section 4.9 of the Buyer
Disclosure Schedule or in the Buyer SEC Reports, (a) there are no existing
orders, injunctions, judgments or decrees of any Governmental Entity which apply
to Buyer or any Buyer Subsidiary or to the assets, properties or operations of
the foregoing and (b) there are no actions, suits, proceedings, at law or in
equity, pending, or to Buyer's Knowledge, threatened or to Buyer's Knowledge any
investigations pending or threatened involving the Buyer or the Buyer
Subsidiaries, or before any Governmental Entity which in the case of either
clause (a) or (b) are reasonably likely to have a Material Adverse Effect.
4.10 Compliance with Applicable Law. Except as set forth in Section 4.10
of the Buyer Disclosure Schedule, or in the Buyer SEC Reports, and except with
respect to environmental matters, which are addressed in Section 4.15 hereof,
(a) the Buyer and the Buyer Subsidiaries are, and the business, operations or
financial condition of the Buyer and the Buyer Subsidiaries has been conducted,
and is, in compliance with all Laws, except where the failure to be in
compliance would not be reasonably likely to have a Material Adverse Effect, and
(b) the Buyer and Buyer Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities necessary to
conduct their respective businesses as currently conducted (the "Buyer
Permits"), and such Buyer Permits are in full force and effect, except for such
failures to hold or be in full force and effect which would not be reasonably
likely to have a Material Adverse Effect .
4.11 Taxes. The Buyer and each Buyer Subsidiary has duly filed all
returns of income Taxes (as hereinafter defined) and all material returns of
other Taxes required to be filed by it, and the Buyer has duly paid, caused to
be paid or made adequate provision for the payment of all Taxes required to be
paid in respect of the periods covered by such returns and has made adequate
provision for payment of all Taxes anticipated to be payable in respect of all
calendar periods since the periods covered by such returns. Except as set forth
in Section 4.11 of the Buyer Disclosure Schedule, the United States federal and
state income tax returns of the Buyer have been audited by the Internal Revenue
Service or relevant state tax authorities or are closed by the applicable
statute of limitations for all taxable years through 1986. All deficiencies and
assessments asserted as a result of such audits have been paid, fully settled or
adequately provided for in the financial statements contained in the Buyer SEC
Reports, or are being contested in good faith by appropriate proceedings. Except
as set forth in Section 4.11 of the Buyer Disclosure Schedule, there are no
outstanding agreements or waivers extending the statutory period of limitation
relating to the payment of Taxes of the Buyer or its subsidiaries for taxable
periods for which the applicable statute of limitations has not expired.
4.12 ERISA; Employee Benefits. The Buyer hereby represents and warrants
to Seller that as of the date hereof and as of the Closing Date:
(a) Section 4.12(a) of the Buyer's Disclosure Schedule identifies each
Buyer Employee Plan with an annual cost in excess of $100,000. The Buyer has
furnished or made available to Seller true and complete copies of such Buyer
Employee Plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof together with (i) the most recent
annual report prepared in connection with any such Buyer Employee Plan (Form
5500 or 5500-C including, if applicable, Schedules A and B thereto), (ii) the
summary plan description currently in effect for each such Buyer Employee Plan
and all modifications thereof, (iii) for each such Buyer Employee Plan with
respect to which there is no summary plan description in effect, a written
description of such Buyer
A-16
<PAGE> 153
Employee Plan including all materials distributed or made available to employees
with respect to such Buyer Employee Plan and (iv) the most recent financial
statements and actuarial reports (if any) for each such Buyer Employee Plan and
its related trust (if any) (collectively, the Buyer Employee Plan Documents").
(b) Except as set forth in Section 4.12(b) of the Buyer Disclosure
Schedule, no Buyer Employee Plan with an annual cost in excess of $100,000 is a
Title IV Plan or a Multiemployer Plan.
(c) Each Buyer Employee Plan with an annual cost in excess of $100,000 that
is intended to be qualified under Section 401(a) of the Code has been determined
by the Internal Revenue Service to be so qualified and no event has occurred
since the date of such determination that would adversely affect such
qualification; each trust created under any such Buyer Employee Plan has been
determined by the Internal Revenue Service to be exempt from tax under Section
501(a) of the Code and no event has occurred since the date of such
determination that would adversely affect such exemption. The Buyer has
furnished to Seller the most recent determination letter of the Internal Revenue
Service relating to each such Buyer Employee Plan. Each such Buyer Employee Plan
has been maintained in compliance in all material respects with its terms and
with the requirements prescribed by any and all applicable statutes, orders,
rules and regulations, including but not limited to ERISA and the Code. Neither
the Buyer nor any Related Person engaged in, nor to Buyer's Knowledge has any
other Person has engaged in, any "prohibited transaction" (as defined in ERISA
and the Code) with respect to any such Buyer Employee Plan.
(d) Section 4.12(d) of the Buyer's Disclosure Schedule identifies each
Buyer Benefit Arrangement with an annual cost in excess of $100,000. The Buyer
has furnished or made available to Seller true and complete copies or, if no
written document exists, descriptions of each such Buyer Benefit Arrangement.
Each such Buyer Benefit Arrangement has been maintained in compliance in all
material respects with its terms and with the requirements prescribed by any and
all applicable statutes, orders, rules and regulations.
(e) Section 4.12(e) of the Buyer Disclosure Schedule identifies each Buyer
International Plan with an annual cost in excess of $100,000. The Buyer has
furnished or made available to Seller true and complete copies or, if no written
document exists, descriptions of each such Buyer International Plan. Each such
Buyer International Plan has been maintained in compliance in all material
respects with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations (including any special
provisions relating to qualified plans where such Buyer International Plan was
intended to so qualify) and has been maintained in good standing with applicable
regulatory authorities.
(f) Except as set forth on Section 4.12(f) of the Buyer Disclosure
Schedule, there are no actions, suits, arbitrations, inquiries, investigations
or other proceedings (other than routine claims for benefits) pending or, to the
Buyer's Knowledge, threatened, with respect to any Buyer Employee Plan, Buyer
Benefit Arrangement or Buyer International Plan which would be reasonably likely
to have a Material Adverse Effect.
(g) Except as set forth on Section 4.12(g) of the Buyer Disclosure
Schedule, and except for coverage mandated by Section 4980B of the Code, no
Employees or Former Employees and no beneficiaries or dependents of Employees or
Former Employees are or may become entitled under any Buyer Employee Plan, Buyer
Benefit Arrangement or Buyer International Plan to post-employment welfare
benefits of any kind, including without limitation death or medical benefits,
having an annual cost, in the aggregate, in excess of $100,000.
4.13 Intellectual Property. "Buyer Intellectual Property" means all of
the Buyer's or any of the Buyer Subsidiaries' domestic and foreign letters
patent, patents, patent applications, patent licenses, trademark licenses,
software licenses and know-how licenses, trade names, trademarks, copyrights,
service marks, trademark registrations and applications, service mark
registrations and applications and copyright registrations and applications
currently being used by the Buyer or any Buyer Subsidiary.
A-17
<PAGE> 154
Except as set forth in Section 4.13 of the Buyer Disclosure Schedule or Buyer's
SEC Reports and except for any claim, infringement, act or omission that would
not be reasonably likely to have a Material Adverse Effect (a) no claim is
pending or, to the knowledge of the Buyer, threatened to the effect that any of
the Buyer Intellectual Property is invalid or unenforceable or which is
otherwise adverse to the right, title and interest of the Buyer and the Buyer
Subsidiaries in and to the Buyer Intellectual Property; (b) to the knowledge of
the Buyer, no actions or operations of any Person infringe upon or conflict with
the right, title or interest of the Buyer and the Buyer Subsidiaries in and to
the Buyer Intellectual Property; and (c) to the knowledge of the Buyer, no Buyer
Intellectual Property infringes on the rights owned or held by any other Person.
Except as set forth in Section 4.13 of the Buyer Disclosure Schedule, no
contract, agreement or understanding between the Buyer or any Buyer Subsidiary
and any other party exists which would impede or prevent the continued use by
the Buyer and the Buyer Subsidiaries of the entire right, title and interest of
the Buyer and the Buyer Subsidiaries in and to the Buyer Intellectual Property.
4.14 No Defaults. Except as set forth in Section 4.14 of the Buyer
Disclosure Schedule or in the Buyer SEC Reports, to Buyer's Knowledge, Buyer and
the Buyer Subsidiaries are not in default under, and no condition exists that
with notice or lapse of time or both would constitute a default under, (i) any
mortgage, loan agreement, indenture, evidence of indebtedness or other
instrument evidencing borrowed money, Buyer and Buyer Subsidiaries'
organizational documents, any other material agreement, contract, lease, license
to which Buyer or Buyer Subsidiaries are a party or by which they or their
properties are bound, or (ii) any judgment, order or injunction of any court,
arbitrator or Governmental Entity, except in the case of clause (i) and (ii)
above those that will not be reasonably likely to have a Material Adverse
Effect.
4.15 Environmental Compliance. Except as set forth in Section 4.15 of the
Buyer Disclosure Schedule, all operations, properties and business activities of
the Buyer and the Buyer Subsidiaries are in compliance with all Environmental
Laws, and neither the Buyer nor any of the Buyer Subsidiaries has or is subject
to any claim, notice of investigation or liability based upon any Environmental
Law or arising from the disposal of any Regulated Material except where such
failure to be in compliance or such claim, notice of investigation or liability
would not be reasonably likely to have a Material Adverse Effect.
4.16 Representations Accurate. To Buyer's Knowledge, the representations
and warranties of the Buyer set forth in this Agreement and qualified by
materiality or by Material Adverse Effects shall be true and correct (subject to
such qualification) as of the Closing Date (except for representations and
warranties that expressly speak only as of some other time), subject to the
disclosures in the Buyer Disclosure Schedule as supplemented or amended through
the Closing Date and excluding those failures to be true and correct that do not
have a Material Adverse Effect. To Buyer's Knowledge, the representations and
warranties of the Buyer set forth in this Agreement and not qualified by
materiality or by Material Adverse Effects shall be true and correct in all
material respects as of the Closing Date (except for representations and
warranties that expressly speak only as of some other time), subject to the
disclosures in the Buyer Disclosure Schedule as supplemented or amended through
the Closing Date and excluding those failures to be true and correct that do not
have a Material Adverse Effect.
4.17 Purchase for Investment. The Buyer is acquiring the Company Common
Stock for its own account as principal, with no view to any distribution of any
of the Company Common Stock or any beneficial interest in the Company Common
Stock to any third party, and the Buyer has no agreement, understanding or
arrangement to sell, pledge or otherwise dispose of the Company Common Stock or
any beneficial interest in the Company Common Stock to any other Person. The
Buyer understands and agrees that the Company Common Stock has not been
registered under the Securities Act, or applicable state securities laws, and
neither the Seller nor the Company has any obligation hereunder to so register
and, therefore, the Company Common Stock may not be sold or otherwise
transferred so as to cause the sale of the shares hereunder by the Seller to be
unlawful or violative of any law or regulation, unless the Company Common Stock
is registered under the Securities Act and any applicable state securities laws
or unless an exemption from such registration is available.
A-18
<PAGE> 155
ARTICLE V
COVENANTS
5.1 Business Covenants of the Seller. Except as expressly contemplated by
this Agreement, the Ancillary Agreements (as hereinafter defined) and except for
the pre-Closing transactions described in Annex IV hereto between the Seller and
its Affiliates, on the one hand, and the Company and the Company Subsidiaries,
on the other hand, during the period from the date of this Agreement and
continuing until the Closing Date, the Seller will cause the Company and the
Company Subsidiaries to carry on their respective businesses in the ordinary
course, consistent with past practice, and to use their respective reasonable
best efforts to preserve intact their present business organizations, to keep
available the services of their present officers and key employees and to
preserve their relationships with customers, suppliers, licensors, licensees,
contractors, distributors and others having business dealings with them. Without
limiting the generality of the foregoing, and except as provided herein, the
Seller will not, without the prior consent of the Buyer, cause or permit the
Company and the Company Subsidiaries to:
(a) (i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that the Company Subsidiaries may declare and
pay a dividend to the Company, (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) amend the terms of, repurchase, redeem or otherwise
acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire,
any of its securities or any securities of its subsidiaries, or propose to do
any of the foregoing;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities (including indebtedness having the right to
vote) or equity equivalents (including, without limitation, stock appreciation
rights), except pursuant to any Company Benefit Plan, or amend in any material
respect any of the terms of any such agreements, commitments, stock, securities
or equity equivalents outstanding on the date hereof;
(c) amend or propose to amend its charter or by-laws;
(d) acquire, sell, lease, encumber, transfer or dispose of any assets other
than in the ordinary course of business consistent with past practice;
(e) make any capital expenditures which in the aggregate exceed $100,000;
(f) create, incur or assume any long-term debt (including obligations in
respect of capital leases);
(g) except in the ordinary course of business consistent with past
practice, create, incur, assume, maintain or permit to exist any short-term debt
(including obligations in respect of capital leases) or assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person, except that
such debt or obligations which are set forth on the Seller Disclosure Schedule
may be maintained and permitted to exist;
(h) permit any of its current insurance policies to be cancelled or
terminated or any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies providing
coverage equal to or greater than coverage remaining under those cancelled,
terminated or lapsed are in full force and effect;
(i) change any of the accounting principles or practices used by it (except
as required by GAAP);
(j) except as required by law, or pursuant to the terms of any collective
bargaining agreement, (i) enter into, adopt, amend or terminate any Company
Benefit Plan or any agreement, arrangement, plan or policy between itself and
one or more of its directors, executive officers, or other employees, or (ii)
increase in any manner the compensation or fringe benefits of any director,
officer or other
A-19
<PAGE> 156
employee or pay any benefit not required by any plan or arrangement as in effect
as of the date hereof, except such increases as are granted in the ordinary
course of business consistent with past practice (which shall include normal
periodic performance reviews and related compensation and benefit increases but
not any general across-the-board increases);
(k) amend or terminate any material agreements, commitments or contracts,
or enter into other material agreements, commitments or contracts, except in the
ordinary course of business consistent with past practice and not in excess of
current requirements;
(l) lend any money in excess of $100,000 to any Person other than an
Affiliate or trade creditor;
(m) merge or consolidate with or into any other Person; or
(n) enter into any agreement with any Person for the purchase of inventory
for to the Company in excess of $500,000 if such purchase would cause the
Company's inventory to exceed substantially the amount of inventory required to
fill outstanding contracts with customers of the Company; or
(o) agree to take any of the foregoing actions.
Notwithstanding the provisions of this Section 5.1, nothing in this
Agreement shall be construed or interpreted to prevent the Seller, the Company
and the Company Subsidiaries from making, accepting or settling intercompany
advances to, from or with one another, or engaging in any other transaction
incidental to their normal cash management procedures, including without
limitation, short-term investments in time deposits, certificates of deposit and
bankers acceptances made in the ordinary course of business.
5.2 Business Covenants of the Buyer. Except as expressly contemplated by
this Agreement, during the period from the date of this Agreement and continuing
until the Closing Date, the Buyer will, and will cause the Buyer Subsidiaries
to, carry on their respective businesses in the ordinary course, consistent with
past practice, and to use their respective reasonable best efforts to preserve
intact their present business organizations, to keep available the services of
their present officers and key employees and to preserve their relationships
with customers, suppliers, licensors, licensees, contractors, distributors and
others having business dealings with them. Without limiting the generality of
the foregoing, and except as provided herein, the Buyer will not, and will cause
the Buyer Subsidiaries not, without the prior consent of the Seller, to:
(a) (i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or
(iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any
subsidiary to repurchase, redeem or otherwise acquire, any of its securities or
any securities of its subsidiaries, or propose to do any of the foregoing;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities (including indebtedness having the right to
vote) or equity equivalents (including, without limitation, stock appreciation
rights) except in accordance with Buyer's Stock Plans, or amend in any material
respect any of the terms of any such agreements, commitments, stock, securities
or equity equivalents outstanding on the date hereof;
(c) amend or propose to amend its charter or by-laws in any manner adverse
to the interests of the Seller;
(d) make any capital expenditures which in the aggregate exceed the amounts
contemplated by the Buyer's most recent annual operating budget, unless the
Buyer notifies and consults with the Seller prior to taking any such action;
(e) create, incur or assume any long-term debt (including obligations in
respect of capital leases) in excess of $1,000,000;
A-20
<PAGE> 157
(f) except in connection with draws made pursuant to the Financing
Agreement dated March 8, 1993 by and between The CIT Group/Business Credit, Inc.
and the Buyer, among others, or otherwise in the ordinary course of business
consistent with past practice, create, incur, assume, maintain or permit to
exist any short-term debt (including obligations in respect of capital leases)
in excess of $1,000,000 or assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other Person (except that any such debt or obligations set forth in
Section 5.2(f) of the Buyer Disclosure Schedule may be maintained and permitted
to exist);
(g) lend any money in excess of $100,000, unless the Buyer notifies and
consults with the Seller prior to taking any such action;
(h) except as required by law, (i) enter into, adopt, amend or terminate
any agreement, arrangement, plan or policy between itself and one or more of its
directors or executive officers, or (ii) increase in any manner the compensation
or fringe benefits of any director or executive officer or pay any benefit to
any director or executive officer not required by any plan or arrangement as in
effect as of the date hereof;
(i) enter into any material agreements, commitments or contracts relating
to the acquisition or divestiture of any businesses;
(j) amend or terminate any material agreements, commitments or contracts,
or enter into, other material agreements, commitments or contracts, except in
the ordinary course of business consistent with past practice and not in excess
of current requirements, unless the Buyer notifies and consults with the Seller
prior to taking any such action;
(k) merge or consolidate with or into any other Person; or
(l) agree to take any of the foregoing actions.
5.3 Current Information. During the period from the date of this
Agreement to the Closing Date, the Buyer will notify the Seller and the Seller
will notify the Buyer of any material change (or any event which might
reasonably be expected to cause a material change) in the normal course of
business or operations of the Buyer and the Buyer Subsidiaries or of the Company
and the Company Subsidiaries, as the case may be, and of any complaints,
investigations or hearings by any Governmental Entity (or communications
indicating that the same may be contemplated), or the institution or threat or
settlement of significant litigation, in each case involving the Buyer or the
Buyer Subsidiaries or the Company or the Company Subsidiaries, as the case may
be, and to keep each other fully informed of such events.
5.4 Access to Information.
(a) Between the date of this Agreement and the Closing Date the Buyer will
and will cause the Buyer Subsidiaries to, (i) give the Seller and the Company
and their authorized representatives reasonable access to all books, records,
plants, offices, warehouses and other facilities and properties of the Buyer and
the Buyer Subsidiaries, (ii) permit the Seller and the Company and their
authorized representatives to make such inspections thereof, during regular
business hours, as they may reasonably request, and (iii) cause their officers
to furnish the Seller and the Company and their authorized representatives with
such financial and operating data and other information with respect to the
business, operations and properties of the Buyer and the Buyer Subsidiaries as
the Seller and the Company may from time to time reasonably request; provided,
however, that any such investigation shall be conducted in such a manner as not
to interfere unreasonably with the operation of the business of the Buyer and
the Buyer Subsidiaries.
(b) Between the date of this Agreement and the Closing Date the Seller will
and will cause the Company and the Company Subsidiaries to, (i) give the Buyer
and the Buyer Subsidiaries and their authorized representatives reasonable
access to all books, records, plants, offices, warehouses and other facilities
and properties of the Company, the Company Subsidiaries and the Business, and to
A-21
<PAGE> 158
reasonably permit the Buyer to make copies of such books and records, (ii)
permit the Buyer and the Buyer Subsidiaries and their authorized representatives
to make such inspections thereof, during regular business hours, as they may
reasonably request, and (iii) cause its officers to furnish the Buyer and the
Buyer Subsidiaries and their authorized representatives with the monthly
financial reporting package of the Company that is prepared for the Seller in
its ordinary practice and with such other financial and operating data and other
information with respect to the business, operations and properties of the
Company, the Company Subsidiaries and the Business as the Buyer and the Buyer
Subsidiaries may from time to time reasonably request; provided, however, that
any such investigation shall be conducted in such manner as not to interfere
unreasonably with the operation of the business of the Seller, the Company and
the Company Subsidiaries.
(c) Notwithstanding (a) and (b) above, the Buyer, the Buyer Subsidiaries,
the Seller, the Seller Subsidiaries, the Company and the Company Subsidiaries
shall not be obligated to furnish information if, in the opinion of counsel,
such furnishing of information would be reasonably likely to violate the law.
(d) Between the date of this Agreement and the Closing Date (or, if this
Agreement terminates pursuant to Section 7.1 or otherwise, for three years from
the date hereof), the Buyer will hold and will cause the Buyer Subsidiaries and
their respective officers, directors, employees, representatives, consultants
and advisors to hold and the Seller will hold and will cause the Seller
Subsidiaries, the Company and the Company Subsidiaries and their respective
officers, directors, employees, representatives, consultants and advisors to
hold in strict confidence in accordance with the terms of the Confidentiality
Agreement, dated January 29, 1992, between the Buyer and the Seller (the
"Confidentiality Agreement"), all documents and information furnished to each
other and their representatives, consultants or advisors in connection with the
transactions contemplated by this Agreement; provided, however, that the Buyer
shall not be required hereunder to hold in strict confidence such documents and
information that relate solely to the operation of the Company, the Company
Subsidiaries or the Business. The Confidentiality Agreement will terminate on
the Closing Date.
5.5 Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Without limiting the foregoing, the Buyer agrees to use its reasonable best
efforts to, as promptly as practicable, (a) prepare and file with the SEC the
Proxy Statement, respond to the comments (if any) of the staff of the SEC with
respect thereto, and mail to the shareholders of the Buyer the definitive Proxy
Statement, which Proxy Statement shall contain the recommendation of the Board
of Directors of the Buyer to the Buyer's shareholders regarding the transactions
contemplated by this Agreement, and (b) take such actions as may be required to
cause, prior to the Closing Date, the Equity Consideration to be received by the
Seller pursuant to this Agreement to be eligible for quotation on the NASDAQ
National Market System (subject to official notice of issuance). The Seller
shall use its reasonable best efforts (i) to provide to the Buyer all
information about the Seller, the Seller Subsidiaries, the Company or the
Company Subsidiaries (including without limitation the Company Financial
Statements and any other financial statements of the Company and the Company
Subsidiaries) required to be included or incorporated by reference in the Proxy
Statement and (ii) otherwise to cooperate with the Buyer in taking the actions
described in the preceding sentence.
5.6 Consents; Filings.
(a) Each of the parties hereto will use its reasonable best efforts to
obtain consents of all Persons necessary for the consummation of the
transactions contemplated by this Agreement.
(b) Each of the parties hereto will use its reasonable best efforts to file
expeditiously the appropriate German pre-merger filings. The Buyer and the
Seller will make all such other filings, notifications and requests for consent,
approval or permission that may be required by statute, regulation or judicial
decree in connection with the transactions contemplated by this Agreement and
A-22
<PAGE> 159
will cooperate in providing each other or their respective outside counsel any
information, including reasonable access to knowledgeable individuals, necessary
in connection therewith. The Buyer and the Seller shall, upon the request of any
Governmental Entity, supply such agency with any additional requested
information as expeditiously as is reasonably possible, and shall use their
reasonable best efforts to cause the satisfaction or termination of the
applicable waiting period under German pre-merger notification laws. The Buyer
and the Seller shall use their reasonable best efforts to resolve as promptly as
practicable any concern on the part of any Governmental Entity regarding the
legality of the transactions contemplated hereby, but shall not be required to
divest any assets, significantly change the conduct of the business currently
conducted by the Buyer, the Seller or the Company or otherwise materially
restrict the future business activities of the Buyer, the Seller or the Company.
5.7 Shareholder Meeting. The Buyer shall duly call, give notice of,
convene and hold a meeting of its shareholders as promptly as practicable for
the purpose of adopting and approving this Agreement and the transactions
contemplated hereby (including, without limitation, adopting and approving (i)
an amendment to the Buyer's Articles of Organization providing that the number
of authorized shares of Buyer Common Stock be increased to 70,000,000 (the
"Authorized Shares Amendment"), (ii) the issuance of the Equity Consideration,
and (iii) the Fair Price Charter Amendment and for such other purposes as may be
necessary or desirable to effectuate the transactions contemplated by this
Agreement. The Buyer shall use its reasonable best efforts to obtain the
agreement of its Affiliates to vote all shares of Buyer Common Stock
beneficially owned by each such Affiliate in favor of the matters presented to
the Buyer's shareholders in connection with the transactions contemplated by
this Agreement.
5.8 Amendment to Articles of Organization and By-Laws. As promptly as
practicable following adoption of the Authorized Shares Amendment and the Fair
Price Charter Amendment by the requisite affirmative vote of the Buyer's
shareholders but prior to Closing, the Buyer shall file with the Secretary of
the Commonwealth of Massachusetts articles of amendment, duly signed in
accordance with the Massachusetts Business Corporation Law setting forth the
Authorized Shares Amendment, the Fair Price Charter Amendment, and the due
adoption thereof. Prior to Closing, the Board of Directors shall adopt and
approve the amendment to the Buyer's By-laws in the form attached hereto as
Annex VI (the "Control Share Acquisitions Amendment").
5.9 Rights Agreement.. As promptly as practicable following the approval
and adoption of the Amended and Restated Rights Agreement in the form attached
hereto as Annex VII (the "Rights Agreement") by the Buyer's Board of Directors
but prior to the Closing, the Buyer shall execute and deliver the Rights
Agreement.
5.10 Brokers or Finders. Each of the Buyer and the Seller represents, as
to itself, its subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or Person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement,
except Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and Shearson
Lehman Brothers, Inc. ("Shearson"), whose fees and expenses, if any, will be
paid by the Buyer in accordance with the Buyer's agreement with DLJ or Shearson,
and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and The
First Boston Corporation ("First Boston"), whose fees and expenses, if any, will
be paid by the Seller in accordance with the Seller's agreement with Merrill
Lynch or First Boston; and the Buyer and the Seller each agree to indemnify and
hold the other harmless from and against any and all claims, liabilities or
obligations with respect to any other fees, commissions or expenses asserted by
any Person on the basis of any act or statement alleged to have been made by or
on behalf of such party.
5.11 Fees and Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses; provided, however, that in no event shall
such expenses be paid by the Company or the Company Subsidiaries.
A-23
<PAGE> 160
5.12 Employee Benefits.
(a) The following terms, as used in this Agreement, have the following
meanings:
"Buyer Benefit Arrangement" means any employment, severance or similar
contract, arrangement or policy, or any plan or arrangement (whether or not
written) providing for severance benefits, insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, fringe benefits, perquisites or other forms of compensation
or post-retirement insurance, compensation benefits that (i) is not a Buyer
Employee Plan, (ii) is entered into or maintained, as the case may be, by the
Buyer or any of its Affiliates, and (iii) covers any individual employed or
formerly employed, as the case may be, by the Buyer or a subsidiary or Affiliate
of the Buyer.
"Buyer Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Buyer or any of its
Affiliates, and (iii) covers any individual employed or formerly employed by the
Buyer or a subsidiary or Affiliate of the Buyer.
"Buyer International Plan" means any employment, severance or similar
contract, arrangement or policy (exclusive of any such contract which is
terminable within thirty days without liability of the Buyer or any of its
Affiliates), or any plan or arrangement providing for severance, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
pension or retirement benefits or for deferred compensation, profit sharing,
bonuses, stock options, stock appreciation rights, fringe benefits, perquisites
or other forms of compensation or post-retirement insurance, compensation or
benefits that (i) is not a Buyer Employee Plan or a Buyer Benefit Arrangement,
(ii) is maintained or contributed to by the Buyer or any of its Affiliates, and
(iii) covers any individual employed or formerly employed or by the Buyer or a
subsidiary or Affiliate of the Buyer outside the United States.
"COBRA" means Part 6 of Title I of ERISA and Section 4980B of the Code.
"Company Domestic Retirement and Savings Plans" shall mean the Seller
Employee Plans which are included in the definition of "employee pension benefit
plan" as defined in Section 3(2) of ERISA.
"Controlled Group Liability" means any and all liabilities under (i) Title
IV of ERISA, (ii) section 302 of ERISA, (iii) sections 412 and 4971 of the Code,
(iv) the continuation coverage requirements of section 601 et seq. of ERISA and
section 4980B of the Code and (v) corresponding or similar provisions of foreign
laws or regulations.
"Employee" means any individual who, on the Closing Date, is employed in
the Business in any active or inactive status and whose current employment in
the Business has not been terminated and, if applicable, any beneficiary
thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto, and the rules and regulations
promulgated thereunder.
"Former Employee" means any individual employed in the Business by the
Seller or any of its Affiliates and whose employment has been terminated prior
to the Closing Date (and, if applicable, any beneficiary thereof), excluding any
individuals subsequently employed by the Seller or any of its Affiliates outside
of the Business.
"Multiemployer Plan" means each Employee Plan that is a multiemployer plan,
as defined in Section 3(37) of ERISA.
"Related Person" of any Person means any other Person which, together with
such Person, would or at any time has been treated as a single employer with
either the Buyer or the Seller (as appropriate), the Company or any Affiliate
under Section 414 of the Code.
A-24
<PAGE> 161
"Seller Benefit Arrangement" means any employment, severance or similar
contract, arrangement or policy, or any plan or arrangement (whether or not
written) providing for severance benefits, insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, fringe benefits, perquisites or other forms of compensation
or post-retirement insurance, compensation benefits that (i) is not a Seller
Employee Plan, (ii) is entered into or maintained, as the case may be, by the
Seller or any of its Affiliates, and (iii) covers any individual employed or
formerly employed, as the case may be, in the Business in the United States.
"Seller Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Seller or any of its
Affiliates, and (iii) covers any individual employed or formerly employed in the
Business.
"Seller International Plan" means any employment, severance or similar
contract, arrangement or policy (exclusive of any such contract which is
terminable within thirty days without liability of the Seller or any of its
Affiliates), or any plan or arrangement providing for severance, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
pension or retirement benefits or for deferred compensation, profit sharing,
bonuses, stock options, stock appreciation rights, fringe benefits, perquisites
or other forms of compensation or post-retirement insurance, compensation or
benefits that (i) is not a Seller Employee Plan or a Seller Benefit Arrangement,
(ii) is maintained or contributed to by the Seller or any of its Affiliates and
(iii) covers any individual employed or formerly employed outside the United
States in the Business.
"Seller U.K. Pension Plan" shall mean the Cameron Iron Works Retirement
Benefits Scheme (1974).
"Title IV Plan" means an Employee Plan, other than any Multiemployer Plan,
subject to Title IV of ERISA.
(b) As of the Closing Date each Employee will continue as an employee of
the Company in the same status and at the same salary or wage and benefit levels
as provided to such Employee on the Closing Date by the Company; provided that,
nothing herein shall prevent the Buyer from altering such salary, wage and
benefit levels or terminating the employment of any Employee after the Closing
Date.
(c) Prior to the Closing Date, the Buyer shall establish a plan or plans
which are substantially similar in all material respects to the Company Domestic
Retirement and Savings Plans. The Buyer reserves the right to amend or terminate
such plans at any time after the Closing Date. Such plan or plans shall provide
credit for the service earned in each of the Company Domestic Retirement and
Savings Plans for purposes of eligibility (including for early retirement
subsidies and disability benefits) and vesting. Such plan or plans shall also
provide credit for benefit accrual purposes from the Closing Date forward.
Benefit accruals shall cease under the Company Domestic Retirement and Savings
Plans as of the Closing Date for all Employees. Service on and after the Closing
Date with the Buyer or any Affiliate, subsidiary or successor of the Buyer shall
be credited under each Company Domestic Retirement and Savings Plan which is not
a Section 401(k) plan solely for the purposes of eligibility (including for
early retirement subsidies and disability benefits) and vesting. Employees shall
not be considered terminated or retired by the Seller under the Domestic
Retirement and Savings Plans until they are no longer being credited with
service for purposes of eligibility (including for early retirement subsidies
and disability benefits) and vesting. The Seller shall take all necessary steps
to remove the Company as sponsoring employer or a participating employer of the
Domestic Retirement and Savings Plans as of the Closing Date. The Seller shall
retain all assets and liabilities associated with each Domestic Retirement and
Savings Plan which is not a Section 401(k) plan. As soon as practicable after
the Closing Date, Seller shall cause the trustee of each of the Domestic
Retirement and Savings Plans which are Section 401 (k) plans (each, a "401 (k)
Plan") to segregate or otherwise
A-25
<PAGE> 162
identify the assets of such 401 (k) plan and related trust agreements and make
any and all filings and submissions to the appropriate governmental agencies
arising in connection with the transfer of assets as described below. The manner
in which the account balances of Employees under each 401 (k) Plan are invested
shall not be affected by such segregation or identification of assets. As soon
as practicable after the Closing Date, Buyer shall establish or designate profit
sharing plans with a salary reduction 401 (k) feature for the benefit of
Employees (such Buyer plans, the "Successor Individual Account Plans"), shall
take all necessary action, if any, to qualify the Successor Individual Account
Plans under the applicable provisions of the Code and shall make any and all
filings and submissions to the appropriate governmental agencies required to be
made by it in connection with the transfer of assets described below. The
successor Individual Account Plans shall include loan and in-service withdrawal
provisions substantially similar to those of such 401 (k) Plans. As soon as
practicable after the Closing Date, but not earlier than (i) thirty (30) days
after the filing of all necessary governmental forms and (ii) the receipt of a
favorable determination letter with respect to the qualification of each of the
Successor Individual Account Plans or the receipt of an opinion of counsel
acceptable to the Buyer and the Seller regarding such qualified status, Seller
shall cause the transfer of the entire account balance (which account balances
will have been credited with any employer contribution for the current Plan year
to which the applicable Employee is entitled under the terms of such 401 (k)
Plan) to the appropriate trustee as designated by Buyer under the trust
agreement forming a part of the Successor Individual Account Plans. The assets
to be transferred shall be in the form of cash, common stock of the Seller or
preferred stock of the Seller, as determined by Seller. The transfer of assets
to the Successor Individual Account Plans described herein shall each satisfy
the requirements of the Code. In consideration for the transfer of assets
described herein, Buyer shall, effective as of the date of transfer described
herein, assume all of the obligations of Seller and any of its Affiliates in
respect of the transferred account balances for the Employees under the 401 (k)
Plans (exclusive of any portion of such account balances which are paid or
otherwise withdrawn prior to the date of transfer described herein). Neither
Buyer nor any of its Affiliates shall assume any other obligations or
liabilities arising under or attributable to the 401 (k) Plans. The Buyer, the
Company and their Affiliates shall indemnify and hold the Seller and its
Affiliates harmless against all obligations and liabilities arising out of or
relating to the maintenance of any plan it establishes pursuant to the
provisions of this Section 5.12(c). Notwithstanding any other provision
contained in this Agreement to the contrary, in the event the Buyer, the
Company, or their Affiliates modify or terminate any plan it establishes
pursuant to the provisions of this Section 5.12(c), the Buyer, the Company and
their Affiliates indemnify and shall hold the Seller and its Affiliates harmless
against any increase in the obligations or liabilities of the Seller and its
Affiliates that arise out of or relating to such modification or termination.
(d) The Buyer shall procure (or shall procure that the U.K. Sub procures)
that:
(i) on or before the Closing Date it establishes a retirement benefit
scheme which is approved or is capable of exempt approval under Chapter I
of Part XIV of the Income and Corporation Taxes Act 1988 ("the New Plan")
for the benefit of the employees of the U.K. Sub and that such employees
are offered membership of the New Plan with effect from the Closing Date;
(ii) the benefits to be provided by the New Plan for the employees of
the U.K. Sub shall be substantially similar in all material respects to
those provided under the Seller U.K. Pension Plan (details of which have
been disclosed) as of the Closing Date (for purposes of this paragraph
5.12(d)(ii), "substantially similar" shall mean that any differences
between the New Plan and the Seller U.K. Pension Plan shall not constitute
a change to any Employee's contract of employment); and
(iii) for the purpose of vesting benefits in the New Plan in respect
of those employees of the U.K. Sub who have not at the Closing Date
qualified for preserved benefits under the Seller U.K. Pension Plan, the
New Plan will recognize the period of pensionable service such employees
have accrued under the Seller U.K. Pension Plan to the intent that they
shall qualify for preserved benefits on the date that they would have done
had their pensionable service under the Seller U.K. Pension Plan not ceased
as a consequence of this Agreement. In the case of those employees of
A-26
<PAGE> 163
the U.K. Sub who already qualify for preserved benefits under the Seller
U.K. Pension Plan the New Plan shall contain provisions which immediately
vest the accrual of their benefits after the Closing Date in the New Plan.
Buyer reserves the right to modify or terminate the New Plan at any time or
from time to time after Closing Date.
(e) The Seller shall procure that in respect of those employees of the U.K.
Sub who have not at the Closing Date qualified for preserved benefits under the
Seller's UK pension Plan such persons will each be offered the opportunity of
electing for a deferred vested benefit in accordance with the provisions of
Rules 12(b) of the Consolidating Trust Deed and rules of the Seller's UK Pension
Plan dated 13 December 1993 (therein described "Discretionary award of Short
Service Benefit in relation to Non Qualifying Members") as an alternative to
receiving a refund of member contributions to which he or she may be entitled
under the terms of the Seller UK Pension Plan as at the Closing Date.
(f) Except for liabilities or obligations arising under the Company
Domestic Retirement and Savings Plans (but not including liabilities or
obligations transferred to plans designated by Buyer in accordance with
paragraph 5.12(c)), the Seller U.K. Pension Plan, the 1993 ESPP and any Seller
Benefit Arrangement providing for the issuance of Seller Stock ("Seller Stock
Plans") as of the Closing Date the Company shall retain, or the Buyer shall
assume, all liabilities or other obligations associated with the Seller Employee
Plans, the Seller Benefit Arrangements and the Seller International Plan for or
attributable to any Employee or Former Employee.
(g) Except for liabilities or obligations arising under the Company
Domestic Retirement and Savings Plans, the Seller U.K. Pension Plan, the 1993
ESPP and the Seller Stock Plans (i) the Buyer, the Company and their Affiliates
shall indemnify and hold the Seller and its Affiliates harmless against
liabilities or obligations arising under the Seller Employee Plans, Seller
Benefit Arrangements and Seller International Plans in respect of any Employee
or Former Employee (including any beneficiary or dependent thereof) and all
obligations and liabilities arising out of or relating to the employment of any
Employee or Former Employee by the Company before or after the Closing other
than obligations and liabilities expressly retained by the Seller pursuant to
this Section 5.12 and (ii) without limiting the generality of the foregoing, the
Company, the Buyer and their Affiliates shall assume, be solely responsible for,
and shall hold the Seller and its Affiliates harmless against, any claims for
workers compensation, medical benefits, life insurance, or other insured or
uninsured welfare benefits of any kind incurred by any Employee or Former
Employee or beneficiary thereof. The Company shall, as of the Closing Date,
assume and retain, and hold the Seller and its Affiliates harmless against, all
obligations and liabilities of the Company and its Affiliates to provide
post-retirement health benefits to any Employee or Former Employee. Seller
hereby indemnifies Buyer and its Affiliates against and agrees to hold each of
them harmless from any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and reasonable attorney
fees and expenses) incurred or suffered by Buyer or any of its Affiliates
(including the Company) as a result of, arising out of or relating to (I) the
imposition of any Controlled Group Liability with respect to any employee
benefit plan (as that term is defined in Section 3(3) of ERISA (whether or not
such plan is subject to ERISA)) or arrangement currently or previously
maintained or contributed to by Seller, the Company or any ERISA Affiliate of
Seller or the Company at any time or to which Seller or any Related Person had
or has an obligation to contribute at any time, other than any Seller Employee
Plan, Seller Benefit Arrangement or Seller International Plan to the extent
maintained for the benefit of Employees or Former Employees of the Company and
its Subsidiaries or (II) the Company Domestic Retirement and Savings Plans and
the Seller U.K. Pension Plan.
(h) The Company shall be responsible for continuation coverage requirements
under Section 4980B of the Code for "qualifying events" (within the meaning of
4980B(f)(3) of the Code) with respect to any Employee or Former Employee.
(i) After the Closing, the Buyer shall cause the Company and the Company
Subsidiaries to comply with their collective bargaining obligations.
A-27
<PAGE> 164
(j) Certain Employees as of July 1, 1993 (including certain Former
Employees who became so since July 1, 1993) are participating in the 1993
Offering to the Seller's employees ("ESPP Participants") under the Seller's
Employee Stock Purchase Plan (the "1993 ESPP"), a payroll deduction stock
purchase plan under which options were granted on July 1, 1993, to purchase
shares of Seller common stock on September 8, 1995, and the related payroll
administration is being conducted by the Company in accordance with the Seller's
1993 ESPP standard administration manual. On or before the Closing Date, the
Seller will cause the 1993 ESPP to be continued subsequent to the Closing Date
for all ESPP Participants who become employed by the Buyer on the Closing Date
and the Seller undertakes to cause shares to be issued, and to pay interest on
payroll deposits from and after the Closing Date, all in accordance with the
1993 ESPP, to the ESPP Participants who continue in the 1993 ESPP. The Buyer
agrees to continue, or cause to be continued, the payroll administration related
to such continued participation in the 1993 ESPP, promptly forwarding all cash
withholdings to the Seller with appropriate records. The Seller has the right to
refrain from issuing any of the shares under the 1993 ESPP to any
then-participating ESPP Participant until the Buyer has remitted to the Seller
the amount of any payroll deduction due on behalf of such participant. Except as
provided in this Section , the Buyer shall not have any obligation to continue
the 1993 ESPP after the Closing Date and shall have no obligation to offer any
other stock purchase plan to Employees. Except for any damage, loss, liability
or expense (including, without limitation, reasonable expenses of investigation
and reasonable attorney fees and expenses) which is the result of, arises from
or relates to the gross negligence or willful misconduct of Buyer or the
Company, or their affiliates and subsidiaries, with respect to their compliance
with the provisions of this Section 5.12(j), Seller hereby indemnifies Buyer and
its Affiliates against and agrees to hold each of them harmless from any and all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorney fees and expenses) incurred or
suffered by Buyer or any of its Affiliates (including the Company) as a result
of, arising out of or relating to the 1993 ESPP and the Seller Stock Plans.
5.13 Public Announcements. Neither the Buyer nor the Seller will issue
any press release or otherwise make any public statement with respect to the
transactions contemplated hereby without the other party's prior consent, except
as required by law or stock exchange or NASDAQ rules or regulations.
5.14 Use of the Company Name.
(a) Except as provided in this Section 5.14, no interest in or right to use
the "Cameron" name is being conveyed pursuant to this Agreement, and following
the Closing Date the Buyer, the Company and the Company Subsidiaries shall not
use the "Cameron" name in any manner in connection with their businesses or
operations, provided, however, the Buyer, the Company and the Company
Subsidiaries shall have the right (i) to use the name "Cameron Forged Products"
in conjunction with the name "Wyman-Gordon Company" for three years following
the Closing Date, and (ii) to dispose of or consume existing inventory,
stationery, promotional or advertising literature, labels, office forms and
packaging materials (other than that which relates to oil field equipment
forgings) which may be labeled with the "Cameron" name for up to six months
following the Closing Date.
(b) Immediately following the Closing, the Buyer shall cause the Company to
file with the office of the Secretary of State of the State of Delaware all
documents necessary to change the name of the Company to a name reasonably
satisfactory to the Seller. Pending the effectiveness of the Company's name
change, the Buyer shall file all necessary documentation with the appropriate
Governmental Entities to evidence its doing business as an entity using a name
other than "Cameron Forged Products Company". The Buyer shall take the
equivalent action with respect to such name in any other jurisdiction where it
has been or is used.
5.15 Company Books and Records. For a period of eight years after the
Closing Date, the Buyer shall, or shall cause the Company, the Company
Subsidiaries and their successors and assigns, to (i) retain and, as reasonably
requested, permit the Seller and its employees or agents to inspect and copy all
books and records of the Company or any Company Subsidiary which relate to the
period
A-28
<PAGE> 165
prior to the Closing Date and (ii) cooperate in arranging discussions with (and
the calling as witnesses) officers, directors, employees and agents of the
Company, the Company Subsidiaries and their successors and assigns, on matters
which relate to the Company or the Company Subsidiaries with respect to the
period prior to the Closing Date.
5.16 Disclosure Supplements. Prior to the Closing Date, the Buyer will,
by giving written notice to the Seller, supplement or amend the Buyer Disclosure
Schedule with respect to any matters hereinafter arising which, if existing or
occurring at or prior to the date of this Agreement, would have been required to
be set forth or described in the Buyer Disclosure Schedule or which is necessary
to correct any information in the Buyer Disclosure Schedule or in any
representation and warranty of the Buyer which has been rendered inaccurate
thereby. Prior to the Closing Date, the Seller will, by giving written notice to
the Buyer, supplement or amend the Seller Disclosure Schedule with respect to
any matters hereafter arising which, if existing or occurring at or prior to the
date of this Agreement, would have been required to be set forth or described in
the Seller Disclosure Schedule or which is necessary to correct any information
in the Seller Disclosure Schedule or in any representation and warranty of the
Seller which has been rendered inaccurate thereby. For purposes of determining
the accuracy of the representations and warranties of the Seller contained in
Article III and the accuracy of the representations and warranties of the Buyer
contained in Article IV in order to determine the fulfillment of the conditions
set forth in Sections 6.2 and 6.3 , respectively, the Buyer Disclosure Schedule
and the Seller Disclosure Schedule shall be deemed to include only that
information contained therein on the date of this Agreement and shall be deemed
to exclude any information contained in any subsequent supplement or amendment
thereto.
5.17 Ancillary Agreements.
(a) As promptly as practicable after the date hereof, the Buyer and the
Seller will negotiate in good faith the terms of the following agreements
(collectively the "Ancillary Agreements"):
(i) a lease agreement pursuant to which the Buyer or the U.K. Sub will
lease space and certain oil tool equipment to the Seller or an Affiliate of
the Seller at the Livingston, Scotland facility;
(ii) a lease agreement pursuant to which the Seller or a Seller
Subsidiary will lease space and certain equipment to the Company or an
Affiliate of the Buyer at the Katy Road Site;
(iii) a supply agreement pursuant to which the Buyer will cause the
Company to supply forgings to the Seller or an Affiliate of the Seller;
(iv) a license agreement pursuant to which the Seller will grant to
the Company a non-exclusive license to make and sell certain products
covered by the Seller's hot isostatic pressing patents;
(v) a license agreement pursuant to which the Seller will grant to the
Company a non-exclusive license to make and sell to RMI Titanium Company
certain forgings to be used in a titanium riser covered by the Seller's
patent therefor;
(vi) a computer services agreement pursuant to which the Seller will
permit the Company to continue to use the Seller's Cooper Oil Tool
computer; and
(vii) an agreement providing for the Seller to factor the Company's
receivables (the "Factoring Agreement").
(b) The Ancillary Agreements will include the terms set forth in the term
sheets appearing as Annex VIII hereto, and such other terms to which the parties
may agree in writing.
5.18 WARN Act. The Buyer agrees to indemnify, defend and hold harmless
the Seller, its present or former officers and directors, agents and Affiliates,
against any claims, damages, wages, fines, penalties and expenses, including
attorneys' fees, arising from the failure to comply with the Worker Adjustment
and Retraining Notification Act (the "WARN Act") arising from or relating to a
"plant
A-29
<PAGE> 166
closing" or "mass layoff" (as those terms are defined in the WARN Act) by the
Company occurring on or after the Closing Date.
5.19 Taxes.
(a) With respect to Seller's sale of the Company Common Stock hereunder, if
Seller gives Buyer written notice within 30 days after the Closing Date
("Seller's Notice"), Seller and Buyer shall jointly make each available Section
338(h)(10) Election in accordance with applicable Tax Laws and as set forth
herein, provided that Seller does not own, and is not deemed to own, and as a
result of the transactions contemplated by this Agreement will not own and will
not be deemed to own, fifty percent (50%) or more of Buyer's issued and
outstanding common stock. If the Section 338(h)(10) Election is to be made,
Seller and Buyer will supply in advance to one another copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) to be sent or made by Buyer or Seller or their respective
representatives to or with the Internal Revenue Service relating to such
election. Buyer and Seller agree to report the transfers under this Agreement
consistent with such Section 338(h)(10) Election, and shall take no position or
action contrary thereto (unless required to do so by applicable Tax Laws or an
administrative settlement with Tax Authorities), including but not limited to
any dissolution, merger, consolidation, or liquidation of the Company into the
Buyer for a period of two years following the Closing Date without the prior
written consent of the Seller, which consent may be withheld in its sole
discretion. If the Section 338(h)(10) Election is to be made, Seller agrees to
cause the Company and the Company Subsidiaries to recognize the gain, and to pay
all tax on such gain, with respect to any intangible asset deemed sold pursuant
to such election to the extent necessary to enable Buyer, the Company and the
Company Subsidiaries to amortize such intangible asset pursuant to the
provisions of Section 197 of the Code.
(b) Buyer and Seller shall be jointly responsible for the preparation and
filing of all Section 338 Forms in accordance with applicable Tax Laws and the
terms of this Agreement, and each party shall deliver to the other party such
Forms and related documents at least 30 days prior to the date such Section 338
Forms as are required to be filed under applicable Tax Laws.
(c) The parties hereby agree that, for purposes of the allocation of the
Aggregate Deemed Sale Price ("ADSP") (as defined under applicable Treasury
Regulations), the fair market value of the machinery and equipment, dies, land
and buildings of the U.K. Sub is $24,415,000, and the fair market value of the
remaining assets of the U.K. Sub is at net book value.
(d) Seller shall be liable for, shall pay and shall indemnify and hold
Buyer and the Company and the Company Subsidiaries harmless against all Taxes of
the Company and the Company Subsidiaries for any taxable year or taxable period
ending on or before the Closing Date, including, without limitation, any Taxes
resulting from the making of the Section 338(h)(10) Election and any liability
for Taxes pursuant to Treasury Regulation sec. 1.1502-6. All liabilities and
obligations between the Company and the Company Subsidiaries on the one hand,
and the Seller and any of Seller's Affiliates on the other hand, under any tax
allocation agreement or arrangement in effect on or prior to the Closing Date
(other than this Agreement or as set forth herein) shall cease to exist as of
the date hereof.
(e) Buyer shall be liable for, shall pay and shall indemnify and hold
Seller harmless against, any and all Taxes of the Company and the Company
Subsidiaries for any taxable year or taxable period commencing after the Closing
Date.
(f) Any Taxes for a taxable period beginning before the Closing Date and
ending after the Closing Date (the "Straddle Period") with respect to the
Company or any Company Subsidiary shall be apportioned between Seller and Buyer
based on the actual operations of the Company or the Company Subsidiary, as the
case may be, during the portion of such period ending on the Closing Date (the
"Pre-Closing Straddle Period") and the portion of such period beginning on the
date following the Closing Date, and for purposes of Sections 5.19(d) and
5.19(e), each portion of such period shall be deemed to be a taxable period.
With respect to any Taxes for the Straddle Period, at least thirty days prior to
the due date for the payment of such Taxes, Buyer shall present Seller with a
schedule detailing the
A-30
<PAGE> 167
computation of the Pre-Closing Straddle Period Tax; and within ten days after
Buyer presents Seller with such schedule, Seller shall pay the Company the
amount of the Pre-Closing Straddle Period Tax as computed by Buyer. In the event
Seller disputes Buyer's computation of the Pre-Closing Straddle Period Tax,
Seller shall not be relieved of its obligation to pay, in the first instance,
any such disputed amount. Whether any such disputed amount was in fact due from
Seller shall be resolved in accordance with Section 5.19(m). If upon such
resolution it is determined that any of such disputed amount was not payable to
Buyer and such amount has been paid to Buyer, then Buyer shall refund to Seller
such amount, plus interest at the rate required to be paid under Section 6621 of
the Code.
(g) Seller shall (x) prepare and file all Federal income Tax and unitary
state Tax returns for the Company and the Company Subsidiaries with respect to
all periods, or partial periods, ending on or prior to the Closing Date
(including all tax returns, reports and forms relating thereto which are due
after the Closing Date) and (y) prepare and file or cause the Company and the
Company Subsidiaries to prepare and file all other Tax returns, reports and
forms for the Company which are due prior to the Closing Date, and shall pay all
Taxes with respect to clause (x) and at the time of such filing shall pay or
shall cause the Company or the Company Subsidiaries to pay all Taxes with
respect to clause (y). To the extent requested by Seller, the Company and the
Company Subsidiaries shall participate in the filing of and shall file any
required Tax returns with respect to any period ending on or prior to the
Closing Date. Buyer shall prepare or cause to be prepared the schedules in
respect of the Company and the Company Subsidiaries containing the information
necessary for Seller to prepare any consolidated or combined returns.
(h) Buyer or the Company and the Company Subsidiaries shall prepare and
file all state and local Tax returns, forms and reports, other than returns with
respect to unitary state Taxes, for the Company and the Company Subsidiaries
with respect to any tax period for which such return, form or report is due
after the Closing Date, and shall remit all Taxes with respect thereto and shall
be free to make, or cause to be made, any tax elections in respect of such Taxes
and to claim any deductions or credits, in connection therewith; provided that
all returns filed by Buyer or the Company and the Company Subsidiaries for any
period beginning prior to the Closing Date shall be prepared by Buyer, or the
Company and the Company Subsidiaries, in a manner consistent with the Company's
and the Company's Subsidiaries prior practices, except for changes necessary to
comply with changes in Law.
(i) Seller shall have exclusive control over any dispute relating to any
Tax liability or return of Seller or any Affiliate of Seller (including the
Company and the Company Subsidiaries for periods prior to the Closing Date)
filed by Seller for or with respect to any period, or partial period, ending on
or prior to the Closing Date, provided that Seller shall keep Buyer currently
informed of the progress of any such dispute. In the event that the Section
338(h)(10) Election is not made, Buyer shall be entitled to participate in any
such dispute at its own expense to the extent the same relate to the Company or
any Company Subsidiary; and Seller, with the consent of Buyer, which will not be
unreasonably withheld, may settle any or all such disputes, accept any
determination as final, pay any Tax claim or take such other action to contest
or concede any Tax claimed. If Buyer shall withhold its consent to any action
desired to be taken by Seller in connection with any such dispute, (x) Buyer
shall be responsible for, and shall indemnify and hold Seller and its Affiliates
harmless from and against, any Taxes required to be paid by Seller in connection
therewith in excess of the amount which Seller would otherwise have paid if
Buyer's consent had not been so withheld, (y) Buyer shall thereafter control the
content of all submissions made by Seller to any administrative or judicial
authority to the extent they relate to the Company and (z) (i) if such dispute
involves issues other than those relating solely to the Company or the Company
Subsidiaries, Seller shall control all other aspects of such dispute, or (ii) if
such dispute involves only issues relating solely to the Company or the Company
Subsidiaries, Buyer shall thereafter control such dispute. Buyer shall cooperate
and shall cause its Affiliates to cooperate with Seller and its Affiliates in
connection with any and all such disputes and will execute all lawful, true and
correct powers-of-attorney, affidavits, and other papers necessary in connection
therewith, and will provide Seller reasonable access during normal business
hours to the employees and business,
A-31
<PAGE> 168
financial and Tax records or other similar information of the Company and the
Company Subsidiaries to the extent relating to such dispute.
(j) Buyer and the Company shall have exclusive control over any dispute
relating to any Tax liability or return of Buyer or the Company or any Company
Subsidiary filed for or with respect to any tax period for which a return is due
after the Closing Date (other than Federal income Taxes and unitary state Taxes
relating to periods or partial periods ending on or prior to the Closing Date).
Seller and its Affiliates shall cooperate with Buyer and its Affiliates in
connection with any and all such disputes and will execute all lawful, true and
correct powers-of-attorney, affidavits, and other papers necessary in connection
therewith, and will provide Buyer, the Company and the Company Subsidiaries
reasonable access during normal business hours to the employees and business,
financial and Tax records or other similar information of Seller and its
Affiliates to the extent relating to such dispute.
(k) Buyer shall cause the Company and the Company Subsidiaries to elect,
where permitted by law, to carryforward any net operating loss, net capital
loss, charitable contribution or other item arising after the Closing Date that
could, in the absence of such an election (collectively, "Carrybacks"), be
carried back to a taxable period of the Company or the Company Subsidiaries
ending on or before the Closing Date in which the Company or the Company
Subsidiaries filed a consolidated, combined or unitary tax return with Seller or
any of Seller's Affiliates. Buyer, on its own behalf and on behalf of its tax
Affiliates, hereby waives any right to use or apply any net operating loss, net
capital loss, charitable contribution or other item of the Company for any tax
year ending on any date following the Closing Date to part or all of the period
prior to the Closing Date.
(l) As soon as practicable, but in any event within 15 days after Seller's
or Buyer's request, as the case may be, Buyer shall deliver to Seller, or Seller
shall deliver to Buyer, as the case may be, such information and other data
relating to the Tax returns and Taxes of the Company and shall make available
such knowledgeable employees of Seller, Buyer, the Company or any of their
Affiliates, as the case may be, as Seller or Buyer, as the case may be, may
reasonably request, including providing the information and other data
customarily required by Seller or Buyer, as the case may be, to cause the
completion and filing of all Tax returns for which it has responsibility or
liability under this Agreement or to respond to audits by any Taxing Authority
with respect to any Tax returns or Taxes for which it has any responsibility or
liability under this Agreement or to otherwise enable Seller or Buyer, as the
case may be, to satisfy its accounting or tax requirements.
(m) If Seller and Buyer disagree as to the amount of Taxes for which either
of them is liable to the other under this Section 5.19, Seller and Buyer shall
promptly consult each other in an effort to resolve such dispute. If any such
point of disagreement cannot be resolved within 15 days of the date of
consultation, Seller and Buyer shall within ten days after such 15-day period
jointly select a firm of nationally recognized independent public accountants
who has not represented either Buyer or Seller for three years prior to the date
of the dispute (the "Neutral Auditors") to act as an arbitrator to resolve all
points of disagreement concerning tax accounting matters with respect to this
Agreement. If the parties cannot agree on the selection of the Neutral Auditors
within such ten-day period, then such Neutral Auditors shall be selected by the
American Arbitration Association. All fees and expenses relating to the work
performed by the arbitrator in accordance with this Section 5.19(m) shall be
borne equally by Seller and Buyer.
(n) Seller and Buyer shall (x) each give the other prompt written notice of
the receipt of any claim by any taxing authority that, if successful, may result
in an indemnity payment pursuant to this Section 5.19 and (y) each transmit to
the other a written description reasonably detailing the nature of the claim, a
copy of all papers served with respect to such claim and the basis of its claim
for indemnification under this Section 5.19.
(o) Seller will not allow the Company or any Company Subsidiary to elect to
be excluded from any consolidated federal income tax return of the Seller and
its Affiliates with respect to which it is otherwise includible on account of
any taxable period, whether of 30 days or less or otherwise.
A-32
<PAGE> 169
(p) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Code" means the Internal Revenue Code of 1986, as amended.
(ii) "Returns" means any and all returns, declarations, reports,
statements and other documents required to be filed in respect of any Tax.
(iii) "Section 338 Forms" means all returns, documents, statements,
and other forms that are required to be submitted to any Federal, state,
county, or other local Taxing Authority in connection with a Code Section
338(h)(10) Election. Section 338 Forms shall include, without limitation,
any "statement of section 338 election" and United States Internal Revenue
Service Form 8023 (together with any schedules or attachments thereto) that
are required pursuant to relevant Treasury Regulations and any
substantially similar forms under a state or local statute corresponding to
Federal laws.
(iv) "Section 338(h)(10) Election" means an election described in
Section 338(h)(10) of the Code with respect to Seller's sale of the Company
Common Stock to Buyer pursuant to this Agreement. "Section 338(h)(10)
Election" shall also include any substantially similar election under a
state or local statute corresponding to Federal laws.
(v) "Tax" means any of the Taxes.
(vi) "Taxes" means all federal, state, local and foreign income,
profits, franchise, unincorporated business, withholding, capital, general
corporate, customs duties, environmental (including taxes under Section 59A
of the Code), disability, registration, alternative, add-on, minimum,
estimated, sales, goods and services, use, occupation, property, severance,
production, excise, recording, ad valorem, gains, transfer, value-added,
unemployment compensation, social security premium, privilege and any and
all other taxes (including interest, additions to tax and penalties
thereon, and interest on such additions to tax and penalties);
(vii) "Tax Laws" means the Code, Federal, state, county, local, or
foreign laws relating to Taxes and any regulations or official
administrative pronouncements released thereunder.
(viii) "Taxing Authority" means any Governmental Entity having
jurisdiction over the assessment, determination, collection, or other
imposition of Tax.
5.20 Existing Insurance Coverage. As of the Closing Date, the Seller or
its Affiliates will cancel insurance coverage applicable to the Company or the
Company Subsidiaries for occurrences (with respect to any "occurrence" policies)
or claims made (with respect to any "claims-made" policies) after the Closing
Date (other than insurance policies in the name of the Company Subsidiaries);
provided, however, that the remaining insurance coverage shall be available to
the Buyer, the Company and the Company Subsidiaries with respect to insured
occurrences or series of occurrences relating to the Company, the Company
Subsidiaries or the Business on or prior to the Closing Date, if and only to the
extent that the Buyer or the Company has assumed or paid the loss or liability
attributed to such occurrences. If after the Closing, the Seller actually
receives from an insurer cash proceeds (excluding any return of premium or
reimbursed attorneys or investigation or other fees) attributable to such
insurance coverage with respect to any insured occurrences or any series of
occurrences on or prior to the Closing Date or any claims that were asserted on
or prior to the Closing Date, then such cash proceeds shall be paid to the Buyer
net of any deductible, co-payment, retro fees, self-insured premiums, defense
costs or other charges paid or payable to the insurance carrier or obligations
to reimburse the insurance carrier for which the Seller (or any of its
Affiliates) is liable, to the extent that the Buyer or the Company has assumed
or paid the loss or liability attributed to such occurrence or series of
occurrences. The Buyer shall reimburse the Seller for any administrative costs,
retro fees, premiums, self-insured or deductible loss costs or other expenses
that the Seller is charged after the Closing by such insurance carrier relating
to insurance coverage applicable to the Company or the Company Subsidiaries
prior to Closing.
A-33
<PAGE> 170
5.21 Certain Obligations. "Seller's Company Obligations" shall mean any
obligation, commitment, liability or responsibility of the Seller, its
Affiliates or their Predecessors (whether or not also an obligation, commitment,
liability, or responsibility of or claim against, in whole or in part, the
Company, the U.K. Sub or the Pipeline Sub), arising, undertaken or created
before the Closing Date in connection with, on behalf of or for the benefit of
any Cameron Entity, or arising from the conduct of the Business, including
without limitation (i) any consulting, employment or severance agreements,
guarantees, letters of credit, performance bonds, or indemnities, or obligations
or indemnities to officers or directors of any Cameron Entity, (ii) any
agreements with any transferors to the Seller, its Affiliates, or their
Predecessors, of any assets of any Cameron Entity or of the Business, (iii) any
labor or collective bargaining agreements relating to any Cameron Entity, (iv)
any contracts with any Governmental Entity relating to any Cameron Entity, (v)
any sales or purchase agreements relating to any Cameron Entity, (vi) any leases
of real or personal property relating to any Cameron Entity, and (vii) any other
agreements or commitments relating to any Cameron Entity under which the Seller,
its Affiliates or Predecessors will have any liability after the Closing Date;
provided, however, that the Seller's Company Obligations shall exclude the
matters that the Seller is required to indemnify pursuant to Section 5.22(b) or
Section 5.22(f). The Company expressly agrees that it shall assume the Seller's
Company Obligations, effective on the Closing Date, and shall thereafter
discharge the same in accordance with their terms.
5.22 Survival; Indemnification.
(a) Survival of Representations, Warranties and Covenants. Except for the
representation and warranty of the Seller in Section 3.23 hereof and the Buyer
in Section 4.16 hereof which will survive the Closing and remain in full force
and effect thereafter until 18 months after the Closing, the representations and
warranties of the parties contained in this Agreement shall expire with, and be
terminated and extinguished by, the Closing of the transactions contemplated
hereby and shall not survive the Closing Date. Any claim for indemnification
with respect to the representation and warranty of the Seller in Section 3.23
hereof and the Buyer in Section 4.16 hereof that is not asserted by notice given
as herein provided within the 18-month period may not be pursued and hereby is
irrevocably waived and released after such time. Subject to the preceding
18-month limitation on the indemnity with respect to Sections 3.23 and 4.16, the
covenants of the parties in Article V hereof (including without limitation the
indemnities contained therein) will survive the Closing and remain in full force
and effect thereafter without limitation as to time, except in connection with
(i) any applicable statute of limitations or (ii) any such covenant that, by its
terms, is otherwise limited with respect to time.
(b) Cross Indemnity. Subject to the terms and conditions of this Section
5.22, the Seller hereby agrees to indemnify and hold the Buyer, its Affiliates,
and their directors, officers or employees (collectively, "Buyer's Group")
harmless from and against all demands, claims, causes of action, assessments,
losses, damages (including without limitation fines, penalties and punitive
damages), liabilities and costs and expenses, including without limitation
attorneys' fees and any expenses incident to the enforcement of this Section
5.22 (collectively, "Losses"), which the Buyer's Group may suffer, sustain or
become subject to by reason of or resulting from (i) any inaccuracy in the
representation or warranty of the Seller contained in Section 3.23 of this
Agreement, or (ii) any breach of any covenant by the Seller in Article V of this
Agreement. Subject to the terms and conditions of this Section 5.22, the Buyer
hereby agrees to indemnify and hold the Seller, its Affiliates, and their
directors, officers or employees (collectively, "Seller's Group") harmless from
and against all Losses which the Seller's Group may suffer, sustain or become
subject to by reason of or resulting from (i) any inaccuracy in the
representation or warranty of the Buyer contained in Section 4.16 of this
Agreement, (ii) any breach of any covenant by the Buyer in Article V of this
Agreement, or (iii) the Seller's Company Obligations. The party seeking
indemnification pursuant to this Section 5.22 is hereinafter referred to as an
"Indemnified Party" and the party from whom indemnification is sought is
hereinafter referred to as an "Indemnifying Party."
A-34
<PAGE> 171
(c) Limitation of Indemnification. Notwithstanding any contrary provision,
no claim by either party against the other for indemnification arising under
this Article V shall be valid and assertible unless the aggregate amount of
Losses associated with such claim shall exceed $100,000. Further, any claims by
the Indemnified Party against the Indemnifying Party shall be determined net of
any tax benefit actually recognized and utilized to offset or reduce the tax
liability of the Indemnified Party or the other members of its group. All
payments pursuant to this Section 5.22 shall be treated as adjustments to the
purchase price of the Company Common Stock.
(d) Sole Remedy. Other than the rights, obligations, and remedies provided
for in Article I, Article V, Article VII and Article VIII hereof, the Buyer and
the Seller agree that the rights to indemnification provided in this Section
5.22 and elsewhere in this Article V will be the exclusive rights, obligations
and remedies with respect to all provisions of this Agreement. Each party, on
behalf of itself and its Affiliates, irrevocably waives any claim, cause of
action or theory of liability it might otherwise be entitled to assert in
respect of such provisions except for the right to seek indemnification on the
terms and subject to the conditions set forth in this Section 5.22 and elsewhere
in this Article V.
(e) Additional Indemnification by the Buyer. Subject to the terms and
conditions of this Section 5.22 and in addition to the indemnification provided
for in Section 5.22(b), the Buyer agrees, other than the Losses that the Seller
is required to indemnify pursuant to Section 5.22(b) or Section 5.22(f), the
employee benefit matters addressed in Section 5.12 and the tax matters addressed
in Section 5.19, to indemnify and hold the Seller's Group harmless from and
against all Losses which the Seller's Group may suffer, sustain or become
subject to by reason of or resulting from any liabilities or obligations of or
relating to, or claims against, any Cameron Entity or the Business on, before or
after the Closing Date, including without limitation (i) to indemnify and hold
the Seller's Group harmless from and against all Losses which the Seller's Group
may suffer, sustain or become subject to by reason of or resulting from any
Product Liability Claims arising out of or resulting from Products sold or
furnished by the Seller, any of its Affiliates or any Cameron Entity (including
without limitation any product liability assumed in connection with the
acquisition of any business or product line) on, before or after the Closing
Date; (ii) to indemnify and hold the Seller's Group harmless from and against
all Losses which the Seller's Group may suffer, sustain or become subject to by
reason of or resulting from (A) any noncompliance of the operations, properties
or business activities of any Cameron Entity or the Business with any
Environmental Law on, before or after the Closing Date or (B) any liabilities or
obligations of or relating to, or claims against, any Cameron Entity or the
Business based upon any Environmental Law, or arising from the disposal of any
Regulated Materials, on, before, or after the Closing Date; and (iii) to
indemnify and hold the Seller's Group harmless from and against all Losses which
the Seller's Group may suffer, sustain or become subject to by reason of or
resulting from (A) any workers' compensation claim filed against any Cameron
Entity on, before or after the Closing Date, and (B) any employment or severance
agreements entered into by the Seller or the Company relating to employees of
the Company on, before or after the Closing Date, other than severance payments
under the Employment Agreement listed on Section 5.22(e) of the Seller
Disclosure Schedule. It is the intention of the parties that the indemnity
provided herein shall survive the Closing and shall, with respect to
environmental claims under CERCLA, be an agreement expressly not barred by 42
U.S.C.sec.9607(e)(1).
(f) Additional Indemnification by the Seller. Subject to the terms and
provisions of this Section 5.22 and in addition to the indemnification provided
for in Section 5.22(b), the Seller agrees, other than the Losses that the Buyer
is required to indemnify pursuant to Section 5.22(b), the employee benefit
matters addressed in Section 5.12 and the tax matters addressed in Section 5.19,
(i) to indemnify and hold the Buyer's Group harmless from and against all Losses
which the Buyer's Group may suffer, sustain or become subject to by reason of or
resulting from any liabilities or obligations of or relating to, or claims
against, the Seller or the Seller Subsidiaries on, before or after the Closing
Date to the extent that such liabilities, obligations or claims (x) do not
relate to the Business and (y) arise from the activity of (a) any Cameron Entity
(other than the Company or the Pipeline Sub) before the Closing Date, or (b) the
Seller or any of the Seller's subsidiaries (other than the Cameron Entities),
(ii) except
A-35
<PAGE> 172
to the extent the actions of the Buyer, the Company or their Affiliates may
cause or increase any such Losses after the Closing Date, to indemnify and hold
the Buyer's Group harmless from and against all Losses which the Buyer's Group
may suffer, sustain or become subject to by reason of or resulting from any
Regulated Materials disposed of on, or discharged into the environment at, the
Katy Road Site or the Gulf Metals Site on or before the Closing Date; and (iii)
to indemnify and hold the Buyer's Group harmless from and against all Losses
which the Buyer's Group may suffer, sustain or become subject to by reason of or
resulting from severance payments under the Employment Agreement listed on
Section 5.22(e) of the Seller Disclosure Schedule. It is the intention of the
parties that the indemnity provided herein shall survive the Closing and shall,
with respect to environmental claims under CERCLA, be an agreement expressly not
barred by 42 U.S.C.sec.9607(e)(1).
(g) Conditions of Indemnification of Third Party Claims. The obligations
and liabilities of the parties under this Article V with respect to claims of
Losses resulting from the assertion of liability by third parties ("Third-Party
Claim") shall be subject to the following terms and conditions:
(i) The Indemnified Party shall give written notice to the
Indemnifying Party of any such Claim promptly after the Indemnified Party
receives notice thereof, which written notice shall state the nature and
basis of such Claim and, if determinable, the amount thereof, provided that
failure to so notify the Indemnifying Party shall in no case prejudice the
rights of the Indemnified Party under this Agreement unless the
Indemnifying Party shall actually be prejudiced by such failure and then
only to the extent of such actual prejudice. Upon receipt of notice of any
such Claim from the Indemnified Party, the Indemnifying Party will
undertake the defense thereof by representatives of its own choosing.
(ii) In the event that the Indemnifying Party, within a reasonable
time after notice of any such Claim, fails to defend the same, the
Indemnified Party shall (upon further notice to the Indemnifying Party)
have the right to undertake the defense, compromise or settlement of such
Claim on behalf of and for the account and risk of the Indemnifying Party,
subject to the right of the Indemnifying Party to assume the defense of
such Claim at any time prior to settlement, compromise or final
determination thereof.
(iii) Anything in this Section 5.22 to the contrary notwithstanding,
the Indemnifying Party shall have the right, at its own cost and expense,
to defend, compromise or settle such Claim; provided, however, that the
Indemnifying Party shall not, without the Indemnified Party's written
consent, settle or compromise any Claim or consent to entry of any judgment
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to the Indemnified Party a release from all liability
in respect of such Claim. The Indemnified Party shall have the right at its
own expense to participate in the defense of the Claim.
(h) Certain Definitions. As used in this Agreement:
(i) "Product Liability Claim" means any claim or cause of action,
regardless of form and whether absolute, accrued, contingent or otherwise,
arising out of injury to persons or damage to property, relating to the
design or manufacture of or the introduction into commerce by sale,
exchange or assignment of the Products.
(ii) "Business" means research, development, engineering, melting,
refining, remelting, forging, extrusion, machining, manufacturing,
distribution, sales, marketing, service or repair operations associated
with the Products.
(iii) "Products" means closed die forgings (including rotating parts
for aircraft engines or industrial turbines, aircraft landing gear,
structural airframe parts, ordnances and related parts, military and power
plant nuclear forgings, valves, heavy wall pipe and fittings, power
generation forgings and oilfield equipment forgings), extrusions (including
for aircraft engines, pipe, oilfield equipment, bar stock and ordnances),
super alloy powder products, thermal rail products for steel support member
in push slab furnaces and custom-shaped insulators, other forged products,
skid rail reheat systems, and high velocity burners.
A-36
<PAGE> 173
(iv) "Cameron Entities" means (x) the Company, (y) the Pipeline Sub
and (z) that portion of each of the following companies to the extent that
it presently conducts or previously conducted all or part of the Business:
(i) the U.K. Sub, (ii) the forged products division of Cameron Iron Works,
Inc., (iii) the forged products division of Cameron Iron Works USA, Inc.,
(iv) Cameron Forge Company, (v) the forged products division of Cameron
Iron Works Limited, (vi) Cooper Industries, Inc., (vii) Cooper (Great
Britain) Ltd., (viii) Cameron Iron Works, Inc., (ix) Cameron Iron Works
USA, Inc., and (x) Cameron Iron Works Limited, and (xi) any direct or
indirect Predecessor or successor to any of the foregoing that conducted or
conducts all or part of the Business.
(v) "Predecessor" means an entity which has previously held an
interest to which the entity to whom the reference is made has succeeded,
including without limitation an entity which conveyed, transferred or
assigned all or substantially all of its assets to the entity to whom the
reference is made or an entity which was merged or amalgamated into or
consolidated with the entity to whom the reference is made.
(vi) "Katy Road Site" means the former Cameron Iron Works, Katy Road
Facility located at 1000 Silber Road, Houston (Harris County), Texas.
(vii) "Gulf Metals Site" means the Gulf Metals State Superfund Site in
Houston (Harris County), Texas, located northeast of the intersection of
Mykawa Road and Almeda-Genoa Road.
(viii) "Affiliate" shall mean any person or entity that directly or
indirectly controls or is controlled by or is under the common control of
the party referred to.
5.23 Repurchase of Receivables. Pursuant to the Factoring Agreement, the
Company has agreed to assign to the Seller prior to Closing its trade and notes
receivables (the "Receivables"). The Buyer agrees to purchase from the Seller
all Receivables that are outstanding 90 days after the Closing Date. Within five
business days following the 90th day after the Closing Date, the Seller will
prepare a statement listing the balance of the outstanding Receivables on such
date, deducting the same reserve amount previously deducted in determining the
Receivables Purchase Price. Within five business days after receipt of such
statement, subject to the terms of the Factoring Agreement, the Company shall
pay to the Seller such amount at its bank account designated in this Agreement.
ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Transactions
Contemplated by this Agreement. The respective obligations of each party to
effect the transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing Date of the following conditions:
(a) Each of the Seller and the Buyer shall have executed and delivered the
Investment Agreement.
(b) The transactions contemplated by this Agreement shall have been
approved by the requisite affirmative vote of the holders of the Buyer Common
Stock and the requisite consent to the transactions contemplated by this
Agreement shall have been obtained from the holders of the 10 3/4% Senior Notes
due 2003 issued pursuant to the Indenture, dated as of March 16, 1993, by and
among the Company, certain subsidiaries of the Company and State Street Bank and
Trust Company, as Trustee, and by The CIT Group/Business Credit, Inc.
(c) Articles of amendment, signed in accordance with the Massachusetts
Business Corporation Law and setting forth the Authorized Shares Amendment, the
Fair Price Charter Amendment, and the due adoption thereof, shall have been
filed with the Secretary of the Commonwealth of Massachusetts and shall be in
full force and effect.
A-37
<PAGE> 174
(d) The Buyer's Board of Directors shall have adopted and approved the
Control Share Acquisitions Amendment and it shall be in full force and effect.
(e) The Rights Agreement shall have been executed and delivered by the
Buyer and the other party thereto and shall be in full force and effect.
(f) No statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated or enforced, and no action, suit
or proceeding shall be pending or threatened, by any Governmental Entity of
competent jurisdiction which prohibits or challenges the consummation of the
transactions contemplated by this Agreement, or conditions such consummation on
the matters referred to in the last sentence of Section 5.6(b) hereof, and is in
effect.
(g) The Ancillary Agreements shall have been negotiated on terms mutually
satisfactory to the Buyer and the Seller and executed and delivered by each of
the parties thereto.
6.2 Conditions of Obligations of the Seller to Effect the Transactions
Contemplated by this Agreement. The obligations of the Seller to effect the
transactions contemplated by this Agreement are further subject to the
satisfaction at or prior to the Closing Date of the condition that the
representations and warranties of the Buyer set forth in this Agreement and
qualified as to materiality or Material Adverse Effects shall be true and
correct and those not so qualified shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date, as if made
at and as of the Closing Date (except for representations and warranties that
expressly speak only as of some other time), the Buyer shall have delivered the
documents and other items to be delivered pursuant to Section 2.3, and the Buyer
shall have performed and complied, in all material respects, with all
obligations and covenants required to be performed or complied with by it under
this Agreement at or prior to the Closing Date.
6.3 Conditions of Obligations of the Buyer to Effect the Transactions
Contemplated by this Agreement. The obligations of the Buyer to effect the
transactions contemplated by this Agreement are further subject to the
satisfaction at or prior to the Closing Date of the condition that the
representations and warranties of the Seller set forth in this Agreement and
qualified as to materiality or Material Adverse Effects shall be true and
correct and those not so qualified shall be true and correct in all material
respects as of the date of this Agreement (except to the extent that the
transactions set forth on Annex IV have not been consummated as of such date)
and as of the Closing Date, as if made at and as of the Closing Date (except for
representations and warranties that expressly speak only as of some other time),
the Seller shall have delivered the documents and other items to be delivered
pursuant to Section 2.2, and the Seller shall have performed and complied, in
all material respects, with all obligations and covenants required to be
performed or complied with by them under this Agreement at or prior to the
Closing Date.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date, whether before or after approval by the shareholders of the Buyer
of the transactions contemplated by this Agreement:
(a) by mutual consent of the parties hereto;
(b) by the Seller or the Buyer, if the transactions contemplated by this
Agreement shall not have been consummated before June 30, 1994 (unless the
failure to consummate the transactions contemplated by this Agreement by such
date shall be due to the breach of this Agreement by the party seeking to
terminate this Agreement);
(c) by the Seller, if there has been a material violation or breach by the
Buyer of any agreement, representation or warranty contained in this Agreement
which has rendered the satisfaction of any
A-38
<PAGE> 175
condition to the obligations of the Seller impossible and such violation or
breach has not been waived by the Seller;
(d) by the Buyer, if there has been a material violation or breach by the
Seller of any agreement, representation or warranty contained in this Agreement
which has rendered the satisfaction of any condition to the obligations of the
Buyer impossible and such violation or breach has not been waived by the Buyer;
or
(e) by either of the parties hereto if this Agreement and the transactions
contemplated hereby are not duly approved by the shareholders of the Buyer at a
meeting of shareholders (or any adjournment thereof) duly called and held for
such purpose.
7.2 Procedure and Effect of Termination. In the event of termination of
this Agreement and abandonment of the transactions contemplated hereby by either
or both of the parties pursuant to Section 7.1, written notice thereof shall
forthwith be given to the other party hereto and this Agreement shall terminate
and the transactions contemplated hereby shall be abandoned, without further
action by either of the parties hereto. If this Agreement is terminated as
provided herein:
(a) upon request therefor, each party will redeliver all documents, work
papers and other material of the other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing the same or will destroy such documents;
(b) all information received by the Seller and the Company with respect to
the business of the Buyer or by the Buyer with respect to the business of the
Company (other than information which is a matter of public knowledge or which
has heretofore been or is hereafter published in any publication for public
distribution or filed as public information with any Governmental Entity) shall
not at any time be used for the advantage of the Person receiving the
information or to the detriment of the Person furnishing such information; and
each of the Seller and the Buyer will use its reasonable best efforts to prevent
the disclosure thereof to third Persons except as may be required by law;
(c) neither party hereto shall have any liability or further obligation to
the other party hereto pursuant to this Agreement except as stated in this
Section 7.2 and in Sections 5.4(d), 5.10 and 5.11; and
(d) all filings, applications and other submissions made pursuant to
Sections 5.6, 5.7 and 5.8 shall, to the extent practicable, be withdrawn from
the agency or other Person to which made.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of each of
the parties.
8.2 Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party or parties
entitled to the benefits thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
8.2
8.3 Investigations; Survival Upon Termination. Subject to Section
5.22(a), the respective representations and warranties of the parties contained
herein or in any certificates, schedules, exhibits or other documents delivered
prior to or at the Closing shall not be deemed waived or otherwise affected by
any investigation made by any party hereto. Each and every such representation
and warranty shall expire with, and be terminated and extinguished by, the
termination of this Agreement pursuant to
A-39
<PAGE> 176
Section 8.1 or otherwise; and thereafter none of the parties hereto or any of
their respective officers or directors shall be under any liability whatsoever
with respect to any such representations or warranties. This Section 8.3 shall
have no effect upon any other obligation of the parties hereto, whether to be
performed before or after the Closing Date.
8.4 Notices. All notices and other communications hereunder shall be
validly given, made or served, if in writing and delivered personally, sent by
facsimile transmission (receipt of which is confirmed) or mailed by registered
or certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) if to Seller or the Company, to:
Cooper Industries, Inc.
First City Tower, Suite 4000
1001 Fannin Street
Houston, Texas 77002
Attention: General Counsel
Facsimile No.: 713-739-5882
(b) if to the Buyer, to:
Wyman-Gordon Company
244 Worcester Street
Box 8001
North Grafton, Massachusetts 01536-8001
Attention: Wallace F. Whitney, Jr., Esq.
Facsimile No.: (508) 839-7500
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Adam O. Emmerich, Esq.
Facsimile No.: (212) 403-2000
Notice given by facsimile shall be deemed delivered on the business day
after it is sent to the recipient. Notice given by mail as set out above shall
be deemed delivered five calendar days after the same is mailed.
8.5 Annexes, Schedules and Exhibits. All annexes, schedules and exhibits
attached hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. All references to "this
Agreement" shall be deemed to include all annexes, schedules and exhibits to
this Agreement. Information set forth in any section to the Seller Disclosure
Schedule or the Buyer Disclosure Schedule is deemed set forth in all other
sections of such Disclosure Schedule. Disclosure of any fact or item in any
annex, schedule or exhibit hereto referenced by a particular paragraph or
section in this Agreement shall, should the existence of the fact or item or its
contents be relevant to any other paragraph or section, be deemed to be
disclosed with respect to that other paragraph or section whether or not a
specific cross reference appears. Disclosure of any fact or item in any annex,
schedule or exhibit hereto shall not necessarily mean that such item or fact
individually is material to (i) the Seller or the Company individually or the
Seller and the Company taken as a whole or (ii) the Buyer or its subsidiaries
individually or the Buyer and its subsidiaries taken as a whole.
8.6 Descriptive Headings. The descriptive headings herein are inserted
for convenience only and are not intended to be part of or to affect the meaning
or interpretation of this Agreement.
A-40
<PAGE> 177
8.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
be considered one and the same agreement.
8.8 Entire Agreement; Assignment. The Confidentiality Agreement, the
Investment Agreement, this Agreement, including the annexes, schedules and
exhibits hereto and thereto, and the other instruments, agreements, documents,
schedules and certificates referred to herein and therein, embody the entire
agreement and understanding of the parties hereto and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
either of the parties hereto without the prior written consent of the other
party.
8.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York without regard to any
applicable principles of conflicts of law.
8.10 Specific Performance. The parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
8.11 Alternative Dispute Resolution.
(a) The parties shall attempt in good faith to resolve any dispute arising
out of or relating to this Agreement promptly by negotiations between executives
who have authority to settle the controversy. Any party may give the other party
written notice of any dispute not resolved in the normal course of business.
Within 20 days after delivery of said notice, executives of both parties shall
meet at a mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, to exchange relevant information and to attempt to
resolve the dispute. If the matter has not been resolved within 60 days of the
disputing party's notice, or if the parties fail to meet within 20 days, either
party may initiate mediation of the controversy or claims as provided in Section
8.11(c).
(b) If a negotiator intends to be accompanied at a meeting by an attorney,
the other negotiator shall be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations pursuant
to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
(c) If negotiation fails within the time limits provided in Section
8.11(a), either party may initiate a mediation proceeding by a request in
writing to the other party. Thereupon, both parties will be obligated to engage
in a mediation. The proceeding will be conducted in accordance with the
presently effective CPR Model Procedure for Mediation of Business Disputes, with
the following exceptions;
(i) The mediator shall be an attorney experienced in mediating large
commercial disputes, who shall be compensated at his normal hourly or per
diem rates for all time spent by him in connection with the proceedings,
and whose fees shall be borne equally by the parties. If the parties have
not agreed within 30 days of the request for mediation on the selection of
a mediator willing to serve, the Center for Public Resources, upon the
request of either party, shall appoint a member of the CPR Panels of
Neutrals who meets the above qualifications as the mediator.
(ii) Efforts to reach a settlement will continue until the conclusion
of the proceeding, which is deemed to occur when: (a) a written settlement
is reached, (b) the mediator concludes and informs the parties in writing
that further efforts would not be useful, or (c) after making a good faith
effort to mediate, either party or both parties assert in writing that an
impasse has been reached. Neither party may withdraw before the conclusion
of the proceeding. Thereafter, if a settlement has not been reached, the
parties shall be free to pursue such rights and remedies, at law or in a
equity, as may be available to them.
A-41
<PAGE> 178
(d) The parties regard the obligations in this Section 8.11 as an essential
provision of this Agreement and one that is legally binding on them. In case of
a violation of such obligation by either party, the other may bring an action to
seek enforcement of such obligation in any court of law having jurisdiction
thereof. This Section 8.11 shall in no way affect the arbitration procedures set
forth in Article I or Article V of this Agreement.
8.12 Non-Competition.
(a) The Seller agrees that, until the later to occur of (i) the Seller's
ceasing to own at least 10% of the outstanding shares of Buyer Common Stock and
(ii) the expiration of a period of three years commencing on the Closing Date,
the Seller will not, and the Seller will not permit any of its subsidiaries
(regardless of whether such Person is a subsidiary of the Seller on the date
hereof) to, engage in the manufacturing or marketing of the Products currently
manufactured or marketed by the Company or the U.K. Sub in competition with the
Buyer or any subsidiary of the Buyer (a "Competing Business"); provided,
however, that (i) the Seller or any Affiliate of the Seller (other than the
Company and the Company Subsidiaries) may continue any existing non-aerospace
forging operations and may make any reasonable maintenance, improvements and
refinements thereto; and (ii) the Seller or any Affiliate of the Seller may
acquire any business which includes ancillary forging operations in support of
its main business; provided further that this covenant shall not prevent the
Seller or its Affiliates from acquiring shares in or the business or assets of
any company, business or entity (the "Target") having a Competing Business (i)
if no more than $10,000,000 of the Target's sales revenue (as recorded in the
then latest available audited accounts) arises from the Competing Business or
(ii) if the sales revenue of the Competing Business is greater than $10,000,000
of the Target's sales revenue, if the Seller uses its reasonable commercial
efforts to dispose of the Competing Business within a two-year period from the
date of acquisition of the Target. If the Seller cannot dispose of the Competing
Business on terms reasonably acceptable to it during such two-year period, then
the Seller shall be free to retain and operate the Competing Business without
any restriction of this Agreement. The Seller acknowledges and agrees that the
foregoing restrictions are reasonably designed to protect the Buyer's
substantial investment and are reasonable with respect to duration, geographical
area and scope.
(b) In the event of breach by the Seller or any subsidiary of the Seller of
any of the provisions of Section 8.12(a), the Buyer may, in addition to any
other rights or remedies existing in its favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce or prevent any violations of the provisions of Section 8.12(a).
8.13 Further Assurances. Each party shall execute and deliver both before
and after the Closing such instruments, agreements and other documents and take
such other actions as the other party may reasonably request to consummate or
implement the transactions contemplated hereby or to evidence such events or
matters.
8.14 No Third-Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended to confer upon any other Person, other than the Buyer's
Group and the Seller's Group in connection with Section 5.22, any rights or
remedies of any nature whatsoever under or by reason of this Agreement. Nothing
in this Agreement is intended to relieve or discharge the obligation of any
third Person to (or to confer any right of subrogation or action over against)
any party to this Agreement.
8.15 Remedies; Waiver. All rights and remedies existing under this
Agreement and any related agreements or documents are cumulative to and not
exclusive of, any rights or remedies otherwise available under applicable law.
No failure on the part of any party to exercise or delay in exercising any right
hereunder shall be deemed a waiver thereof, nor shall any single or partial
exercise preclude any further or other exercise of such or any other right.
8.16 Severability. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement to the extent permitted by Law shall remain in full
force and effect, provided that the economic and legal substance of the
transactions contemplated by this Agreement are not affected in any manner
materially adverse to any party. In the event of any such determination, the
parties agree to negotiate in good faith to modify this Agreement to fulfill as
closely as possible the original intents and purposes hereof.
A-42
<PAGE> 179
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
COOPER INDUSTRIES, INC.
H. JOHN RILEY, JR.
By:__________________________________
H. John Riley, Jr.
President and Chief
Operating Officer
WYMAN-GORDON COMPANY
JOHN M. NELSON
By:__________________________________
John M. Nelson
Chairman and Chief
Executive Officer
A-43
<PAGE> 180
ANNEX B
- - --------------------------------------------------------------------------------
EXECUTION COPY
INVESTMENT AGREEMENT
BETWEEN
COOPER INDUSTRIES, INC.
AND
WYMAN-GORDON COMPANY
------------------------------------
DATED AS OF JANUARY 10, 1994
- - --------------------------------------------------------------------------------
<PAGE> 181
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- - ---------- ----
<S> <C> <C>
Parties.............................................................................. B-1
Preambles............................................................................ B-1
ARTICLE I CERTAIN COVENANTS....................................................... B-1
Section 1.1 Restrictions on Resale or Other Dispositions............................ B-1
Section 1.2 Distribution of Shares.................................................. B-2
Section 1.3 Undertaking to File Reports and Cooperate in Rule 144 Transactions...... B-2
Section 1.4 Delivery of Financial Statements........................................ B-2
Section 1.5 Amendments to the Company's Articles of Organization and By-Laws........ B-3
ARTICLE II VOTING, OWNERSHIP AND OTHER RESTRICTIONS................................ B-3
Section 2.1 Obligation to be Counted for Quorum..................................... B-3
Section 2.2 Voting by Cooper........................................................ B-3
Section 2.3 Cooper Standstill Agreements............................................ B-3
Section 2.4 Legend and Stop Transfer Order.......................................... B-4
ARTICLE III REGISTRATION RIGHTS..................................................... B-5
Section 3.1 Certain Definitions..................................................... B-5
Section 3.2 Demand Registration..................................................... B-5
Section 3.3 Piggyback Registration.................................................. B-7
Section 3.4 Expenses................................................................ B-8
Section 3.5 Registration and Qualification.......................................... B-8
Section 3.6 Conversion of other Securities, etc..................................... B-10
Section 3.7 Underwriting; Due Diligence............................................. B-10
Section 3.8 Restrictions on Public Sale; Inconsistent Agreements.................... B-10
Section 3.9 Indemnification and Contribution........................................ B-11
ARTICLE IV TERM AND EFFECTIVENESS OF AGREEMENT..................................... B-13
Section 4.1 Effectiveness of Agreement.............................................. B-13
Section 4.2 Term of Agreement....................................................... B-13
Section 4.3 Certain Provisions Regarding Termination................................ B-13
ARTICLE V ELECTION OF DIRECTORS................................................... B-15
Section 5.1 ........................................................................ B-15
ARTICLE VI GENERAL................................................................. B-16
Section 6.1 Specific Enforcement; Other Remedies.................................... B-16
Section 6.2 Severability............................................................ B-16
Section 6.3 Definitions............................................................. B-16
Section 6.4 Amendment and Modifications............................................. B-16
Section 6.5 Descriptive Headings.................................................... B-16
Section 6.6 Counterparts............................................................ B-16
Section 6.7 Successors and Assigns.................................................. B-16
Section 6.8 Accounting Matters...................................................... B-17
Section 6.9 Notices................................................................. B-17
Section 6.10 Governing Law........................................................... B-18
SIGNATURES........................................................................... B-18
</TABLE>
i
<PAGE> 182
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT, dated as of January 10, 1994 (the "Agreement"),
between Cooper Industries, Inc., an Ohio corporation ("Cooper"), and
Wyman-Gordon Company, a Massachusetts corporation (the "Company").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Cooper and the Company are entering into the Stock Purchase Agreement, dated as
of the date hereof (the "Acquisition Agreement"); and
WHEREAS, the Acquisition Agreement provides, among other things, for the
sale by Cooper of all of the outstanding shares of stock of Cameron Forged
Products Company to the Company (the "Sale Transaction"); and
WHEREAS, pursuant to the Acquisition Agreement, as consideration for the
sale of the stock of Cameron Forged Products Company, Cooper will receive $5
million, payable as provided in the Acquisition Agreement, and 16,500,000 shares
(the "Shares") of common stock, par value $1.00 per share, of the Company (the
"Company Common Stock"); and
WHEREAS, the Shares will represent approximately 48% of the total number of
shares of Company Common Stock that will be outstanding following consummation
of the Sale Transaction; and
WHEREAS, Cooper and the Company wish to provide certain arrangements with
respect to their relationship following consummation of the Sale Transaction and
each of them requires that the other enter into this Agreement as an inducement
to its entering into the Acquisition Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
CERTAIN COVENANTS
Section 1.1 Restrictions on Resale or Other Dispositions. So long as this
Agreement remains in effect, Cooper covenants and agrees that it will not sell,
transfer any beneficial interest in, pledge, hypothecate or otherwise dispose of
or encumber any Company Voting Securities (as hereinafter defined); provided,
that Cooper or any of its wholly-owned subsidiaries which hold Company Voting
Securities may sell, transfer, pledge, hypothecate or otherwise dispose of or
encumber Company Voting Securities:
(a) to any direct or indirect wholly-owned subsidiary of Cooper which
agrees to be bound by this Agreement; provided, that such subsidiary shall
remain a direct or indirect wholly-owned subsidiary of Cooper for so long as it
holds any Company Voting Securities or any beneficial interest therein; or
(b) pursuant to a bona fide underwritten offering or other distribution of
such Company Voting Securities registered under the Securities Act of 1933, as
amended (the "Securities Act"); or
(c) pursuant to a bona fide underwritten offering or other distribution of
securities of Cooper convertible into or exercisable or exchangeable for Company
Voting Securities registered under the Securities Act; or
(d) pursuant to Rule 144 of the General Rules and Regulations under the
Securities Act, or any successor rule of similar effect ("Rule 144"); provided,
that Cooper shall notify the Company at least two days prior to the date of
entering any sale or transfer order or agreement with respect to Company Voting
Securities pursuant to Rule 144; provided, further that, if the Company shall
thereupon notify
B-1
<PAGE> 183
Cooper of the pendency of a sale under any public offering by it of Company
Common Stock or any other Company Voting Securities, neither Cooper nor any of
its affiliates shall effect any sales under Rule 144 within 10 days prior to the
commencement of or during such offering; or
(e) pursuant to a tender offer or exchange offer if the Board of Directors
of the Company has (i) recommended that shareholders of the Company accept such
offer and such recommendation has not been withdrawn or (ii) expressed no
opinion and remains neutral toward such offer; or
(f) pursuant to a merger or consolidation in which the Company is acquired,
or a sale of all or substantially all of the Company's assets to another
corporation or any other transaction approved by the Board of Directors of the
Company.
For purposes of this Agreement, "Company Voting Securities" shall mean (i)
the Company Common Stock, (ii) any other Company securities entitled to vote
generally for the election of directors of the Company, or (iii) any securities
of the Company convertible into or exchangeable for or exercisable for Company
Common Stock or any other Company securities entitled to vote generally for the
election of directors of the Company.
Section 1.2 Distribution of Shares. In any transaction or transactions
described in Section 1.1(b), 1.1(c) or 1.1(d), the seller of Company Voting
Securities or securities of Cooper convertible into or exercisable or
exchangeable for Company Voting Securities will use its reasonable best efforts
to effect the sale or transfer of such securities in a manner which will effect
the broadest possible distribution and such seller of Company Voting Securities
will use its reasonable best efforts to make no sales or transfers of such
Company Voting Securities to any one person or group within the meaning of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), who or which
after such transfer shall own Company Voting Securities representing more than
4% of the voting power for the election of directors represented by all of the
then-outstanding Company Voting Securities (whether directly or indirectly).
Such seller shall use its reasonable best efforts to cause any underwriters with
respect to any transaction or transactions described in Section 1.1(b) or 1.1(c)
to comply with the distribution restrictions set forth in the preceding
sentence.
Section 1.3 Undertaking to File Reports and Cooperate in Rule 144
Transactions. The Company shall file, on a timely basis, all annual, quarterly
and other reports required to be filed under Sections 13 and 15(d) of the
Exchange Act, and the Rules and Regulations of the Securities and Exchange
Commission (the "Commission") promulgated thereunder, as amended from time to
time. In the event of any proposed sale of Company Voting Securities by Cooper
or its affiliates pursuant to Section 1.1(d) above, the Company shall cooperate
with Cooper so as to enable such sales to be made in accordance with applicable
laws, rules and regulations, the requirements of the Company's transfer agent,
and the reasonable requirements of the broker, if any, through which the sales
are proposed to be executed, and shall, upon request, furnish unlegended
certificates representing Company Voting Securities in such numbers and
denominations as Cooper shall reasonably require for delivery pursuant to such
sales.
Section 1.4 Delivery of Financial Statements. The Company will deliver to
Cooper:
(a) the quarterly consolidated financial statements of the Company,
including any notes thereto, for the first three quarterly periods of each
fiscal year, as soon as available but no later than the date such quarterly
financial information is filed with the Commission;
(b) the audited year-end consolidated financial statements of the Company,
including any notes thereto and the report of the Company's independent
certified public accountants thereon, as soon as available but no later than the
date such audited financial statements are filed with the Commission; and
(c) a written statement of the Consolidated Net Worth (as hereinafter
defined and calculated in accordance with Section 4.3(a)(iv) hereof) of the
Company (the "Net Worth Statement") each time that financial statements are
delivered to Cooper pursuant to Section 1.4(a) or 1.4(b). The principal
B-2
<PAGE> 184
financial officer of the Company shall certify that the Net Worth Statement was
prepared by him or under his direction and that it shows the Consolidated Net
Worth of the Company as of immediately following the consummation of the Sale
Transaction and the Consolidated Net Worth of the Company as of the end of the
most recent fiscal quarter or fiscal year, as the case may be, based on the
financial statements of the Company then being delivered to Cooper.
Section 1.5 Amendments to the Company's Articles of Organization and
By-Laws. The Company shall not amend, alter or otherwise modify (i) Article 6
of the Company's Articles of Organization in any manner which adversely affects
Cooper or any other person to whom any of the Shares have been transferred in
accordance with the terms of this Agreement; (ii) Article VI, Section 14 of the
Company's By-Laws pursuant to which the Company shall have opted-out of Chapter
110D of the Massachusetts General Laws; and (iii) the Amended and Restated
Rights Agreement in the form attached as an Annex to the Acquisition Agreement
(the "Amended and Restated Rights Agreement") and the Company shall not adopt
any other rights or similar agreement; provided, however, following prior
consultation with Cooper, the Company may amend the Amended and Restated Rights
Agreement in accordance with the terms thereof provided such amendment does not
adversely affect Cooper or any other person to whom any of the Shares have been
transferred in accordance with the terms of this Agreement.
ARTICLE II
VOTING, OWNERSHIP AND OTHER RESTRICTIONS
Section 2.1 Obligation to be Counted for Quorum. Cooper agrees to cause
all Company Voting Securities beneficially owned by it or any wholly-owned
subsidiary to which it has transferred any Company Voting Securities, and agrees
to use reasonable efforts to cause all Company Voting Securities known by Cooper
to be beneficially owned by "affiliates" (as defined in Rule 12b-2 promulgated
under the Exchange Act) of Cooper over which Cooper has control, to be present
at all shareholder meetings of the Company at which the vote of common
shareholders is sought so that they may be counted for the purpose of
determining the presence of a quorum at such meetings.
Section 2.2 Voting by Cooper. Cooper agrees to vote or cause to be voted
all Company Voting Securities beneficially owned by it or any wholly-owned
subsidiary to which it has transferred any Company Voting Securities, and agrees
to use reasonable efforts to cause to be voted all Company Voting Securities
known by Cooper to be beneficially owned by its affiliates over which it has
control on all matters (including the election of directors) either in the
manner recommended to shareholders by the Board of Directors of the Company, or,
at Cooper's election, in the same proportion as the vote of the other
shareholders of the Company. Notwithstanding the foregoing, Cooper, such
wholly-owned subsidiaries of Cooper and such affiliates of Cooper over which it
has control will not be obligated to vote as provided in this Section 2.2 if the
matter being voted on by the shareholders of the Company would, if approved,
result in a breach of this Agreement.
Section 2.3 Cooper Standstill Agreements. So long as this Agreement
remains in effect, Cooper and its controlled affiliates shall not, directly or
indirectly, acting alone or in concert with others, unless specifically
requested or approved in advance by the Board of Directors of the Company:
(a) in any manner acquire or agree, attempt, seek or propose to acquire (or
make any request for permission with respect thereto), by purchase, merger,
through the acquisition of control of another person, by joining a partnership,
limited partnership, syndicate or other "group" (within the meaning of Section
13(d)(3) of the Exchange Act), or otherwise, ownership (including, but not
limited to, beneficial ownership as defined in Rule 13d-3 under the Exchange
Act) of any of the assets or businesses of the Company or any securities issued
by the Company (the "Company Securities"), or any rights or options to acquire
such ownership (including from a third party), except (i) as expressly permitted
by this Agreement or the Acquisition Agreement, or (ii) pursuant to customary
business transactions in the ordinary course of the Company's and Cooper's
business, or (iii) in the case of Company Securities, in connection with (A) a
stock split or reverse stock split or other reclassification
B-3
<PAGE> 185
affecting outstanding Company Securities, or (B) a stock dividend or other pro
rata distribution by the Company to holders of outstanding Company Securities;
(b) make or cause to be made any proposal for the acquisition of the
Company or any assets or businesses of the Company or Company Securities or for
any other extraordinary transaction involving the Company, including, without
limitation, any merger, or other business combination, restructuring,
recapitalization, liquidation or similar transaction, except (i) as expressly
permitted by this Agreement or the Acquisition Agreement or (ii) proposals
pursuant to customary business transactions in the ordinary course of the
Company's and Cooper's business;
(c) form, join or in any way participate in a "group" (within the meaning
of Section 13(d)(3) of the Exchange Act) with respect to any Company Securities;
(d) make, or in any way cause or participate in, any "solicitation" of
"proxies" to vote (as such terms are defined in Regulation 14A under the
Exchange Act) with respect to the Company, or communicate with, seek to advise,
encourage or influence any person or entity, in any manner, with respect to the
voting of, any Company Securities, or become a "participant" in any "election
contest" (as such terms are defined or used in Rule 14a-11 under the Exchange
Act) with respect to the Company, or execute any written consent with respect to
the Company;
(e) initiate, propose or otherwise solicit shareholders for the approval of
one or more shareholder proposals with respect to the Company or induce or
attempt to induce any other person to initiate any shareholder proposal, or
(except as expressly permitted by this Agreement) seek election to or seek to
place a representative on the Board of Directors of the Company or seek the
removal of any member of the Board of Directors of the Company;
(f) in any manner, agree, attempt, seek or propose (or make any request for
permission with respect thereto) to deposit any Company Securities, directly or
indirectly, in any voting trust or similar arrangement or to subject any Company
Voting Securities to any other voting or proxy agreement, arrangement or
understanding;
(g) disclose any intention, plan or arrangement, or make any public
announcement (or request permission to make any such announcement), or induce
any third party to take any action, inconsistent with the foregoing;
(h) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing; or
(i) advise, assist or encourage or finance (or assist or arrange financing
to or for) any other person in connection with any of the foregoing.
Section 2.4 Legend and Stop Transfer Order. To assist in effectuating the
provisions of this Agreement, Cooper hereby consents:
(a) to the placement, if appropriate, of the following legend on all
certificates representing the Company Voting Securities beneficially owned by it
until such shares have been sold, transferred or disposed of:
The securities represented by this certificate are subject to the
provisions of an Agreement between Cooper Industries, Inc. and the issuer
of such securities, and may not be sold, transferred, pledged, hypothecated
or otherwise disposed of except in accordance therewith. A copy of such
Agreement is on file at the office of the clerk of the issuer.
(b) to the entry of a stop transfer order with the transfer agent or agents
of Company Voting Securities against the transfer of the Company Voting
Securities held by Cooper except in compliance with the requirements of this
Agreement, or if the Company is its own transfer agent with respect to any
Company Voting Securities, to the refusal by the Company to transfer any such
securities except in compliance with the requirements of this Agreement.
B-4
<PAGE> 186
ARTICLE III
REGISTRATION RIGHTS
Section 3.1 Certain Definitions. As used in this Article III the
following capitalized terms shall have the following meanings:
(a) "Holder" means Cooper and any permitted transferee pursuant to Section
1.1(a).
(b) "Registrable Securities" means the Shares and any securities issued in
respect of or in exchange for any of the Shares, including, without limitation,
by way of any stock split or reverse stock split or other reclassification or
any stock dividend or other pro rata distribution; provided, that any such
Shares or other securities shall not be Registrable Securities with respect to a
proposed offer or sale thereof when a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with the plan of
distribution set forth in such registration statement.
(c) "Registration Expenses" means all expenses in connection with any
registration of securities pursuant to this Agreement including, without
limitation, the following: (i) the reasonable fees, disbursements and expenses
of the Company's and Cooper's counsel(s) (United States and foreign) and
accountants in connection with the registration of the Registrable Securities to
be disposed of under the Securities Act; (ii) all expenses in connection with
the preparation, printing and filing of the registration statement, any
preliminary prospectus or final prospectus, any other offering document and
amendments and supplements thereto and the mailing and delivering of copies
thereof to any underwriters and dealers; (iii) the cost of printing or producing
any agreement(s) among underwriters, underwriting agreement(s), and blue sky or
legal investment memoranda, any selling agreements and any other documents in
connection with the offering, sale or delivery of the Registrable Securities to
be disposed of; (iv) all expenses in connection with the qualification of the
Registrable Securities to be disposed of for offering and sale under state
securities laws, including the reasonable fees and disbursements of counsel for
the Holders of Registrable Securities in connection with such qualification and
in connection with any blue sky and legal investment surveys; (v) the filing
fees incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Registrable Securities
to be disposed of; (vi) transfer agents', depositaries' and registrars' fees and
the fees of any other agent appointed in connection with such offering; (vii)
all security engraving and security printing expenses; and (viii) all fees and
expenses payable in connection with the listing of the Registrable Securities on
each securities exchange or inter-dealer quotation system on which any class of
Company Voting Securities is then listed.
Section 3.2 Demand Registration. (a) Upon written notice from a Holder of
Registrable Securities in the manner set forth in Section 6.9 hereof requesting
that the Company effect the registration under the Securities Act of any or all
of the Registrable Securities held by such Holder, which notice shall state that
the Holder has a bona fide intent to dispose of such Registrable Securities and
shall specify the intended method or methods of disposition, the Company will
use its reasonable best efforts to effect (at the earliest possible date) the
registration under the Securities Act of such Registrable Securities for
disposition in accordance with the intended method or methods of disposition
stated in such request (but not including any offering on a delayed or
continuous basis pursuant to Rule 415 (or any successor rule to similar effect)
promulgated under the Securities Act); provided, that:
(i) if, upon receipt of a registration request pursuant to this
Section 3.2(a), the Company and the Holder(s) requesting registration are
advised by a nationally recognized investment banking firm selected by the
Company that, in such firm's opinion, a registration at the time and on the
terms requested would materially and adversely affect any immediately
planned underwritten public offering by the Company of its equity
securities or debt securities which are convertible into equity securities
of the Company, which offering had been contemplated by the Company prior
to receipt of notice requesting registration pursuant to this Section
3.2(a) (a "Transaction Blackout"), the Company, upon giving written notice
of a Transaction Blackout to such Holder(s), shall not be
B-5
<PAGE> 187
required to effect a registration pursuant to this Section 3.2(a) until the
earliest of (A) the abandonment of such financing, (B) 90 days after the
completion of such financing, (C) the termination of any "hold back" period
obtained by the underwriter(s) from any person in connection with such
financing, and (D) 60 days after receipt by the Holder(s) of written notice
from the Company of such Transaction Blackout if by such 60th day the
Company shall not have filed a registration statement relating to such
financing with the Commission;
(ii) if, while a registration request is pending pursuant to this
Section 3.2(a), the general counsel of the Company has determined in good
faith that (A) the filing of a registration statement would require the
disclosure of material information which the Company has a bona fide
business purpose for preserving as confidential or (B) the Company is
unable to comply with the Commission's registration requirements, the
Company, upon giving written notice of any such event to the Holder(s)
requesting registration, shall not be required to effect a registration
pursuant to this Section 3.2(a) until the earlier of (1) the date upon
which such material information is disclosed to the public or ceases to be
material or the Company is able to so comply with the Commission's
requirements, as the case may be, and (2) 30 days after the general counsel
of the Company makes such good faith determination; and
(iii) a Holder shall have the right to exercise registration rights
pursuant to this Section 3.2 an unlimited number of times; provided, each
demand will be subject to the following conditions: (A) each registration
will include a minimum of 10% of the Company Voting Securities initially
issued to Cooper in the Sale Transaction (except that this minimum
condition will not be applicable to the Holders' last demand to sell all
remaining Registrable Securities held by the Holders); and (B) the Holders
will not demand more than two registrations in any twelve-month period and
there will be at least 120 days between the effective date of a prior
registration statement of the Company and the Holders' demand for a
subsequent registration.
(b) Notwithstanding any other provision of this Agreement to the contrary,
a registration requested by a Holder of Registrable Securities pursuant to this
Section 3.2 shall not be deemed to have been effected (and, therefore, not
requested for purposes of subsection 3.2(a)), (i) if it is not declared
effective by order of the Commission for any reason other than a
misrepresentation or an omission by such Holder, (ii) if after it has become
effective such registration is interfered with by any stop order, injunction or
other order or requirement of the Commission or other governmental agency or
court for any reason other than a misrepresentation or an omission by such
Holder and, as a result thereof, the Registrable Securities requested to be
registered cannot be completely distributed in accordance with the plan of
distribution set forth in the related registration statement, or (iii) if the
conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied or
waived other than by reason of some act or omission by such Holder.
(c) Notwithstanding clause (i) of subsection 3.2(a), the Company may not
impose a Transaction Blackout during any offering of Registrable Securities
requested by a Holder pursuant to this Section 3.2.
(d) In the event that any registration pursuant to this Section 3.2 shall
involve, in whole or in part, an underwritten offering, (i) the Company shall
have the right to designate one nationally recognized investment banking firm,
reasonably satisfactory to Cooper and the Holder(s) requesting registration, as
the lead managing underwriter of such underwritten offering, (ii) the Holder(s)
requesting registration shall have the right to designate one nationally
recognized investment banking firm, reasonably satisfactory to the Company, as
co-managing underwriter of such underwritten offering and (iii) any other
co-managing underwriters of such underwritten offering shall be designated
jointly by the Company and the Holder(s) requesting registration.
(e) The Company shall have the right to cause the registration of
additional securities for sale for the account of any person in any registration
of Registrable Securities requested by a Holder pursuant to this Section 3.2;
provided, that the Company shall not have the right to cause the registration of
such additional securities if such Holder and the Company are advised by a
nationally recognized
B-6
<PAGE> 188
investment banking firm selected by such Holder that, in such firm's opinion,
registration of such additional securities would materially and adversely affect
the offering and sale of the Registrable Securities then contemplated by such
Holder. In the event that any such registration shall involve, in whole or in
part, an underwritten offering, the Holder may require that any such additional
securities be included in the offering proposed by such Holder on the same terms
and conditions as the Registrable Securities are included therein.
Section 3.3 Piggyback Registration. If the Company at any time proposes
to register any of its Common Stock or any other of its common equity securities
(collectively, "Other Securities") under the Securities Act (other than a
registration on Form S-4 or S-8 or any successor or similar forms), whether or
not for sale for its own account, in a manner which would permit registration of
Registrable Securities for sale to the public under the Securities Act, it will
give prompt written notice to the Holders of its intention to do so and of the
rights of the Holders under this Section 3.3 at least 45 days (or, in the case
of a registration on Form S-3 or any successor or similar form, 10 days) prior
to the anticipated filing date of the registration statement relating to such
registration (such notice shall also specify the anticipated filing date of such
registration statement). Upon the written request of any Holder made within 15
days (or, in the case of a registration on Form S-3 or any successor or similar
form, 5 days) after the receipt of the Company's notice (which request shall
specify the number of Registrable Securities intended to be disposed of and the
intended method of disposition thereof), the Company will use its reasonable
best efforts to effect, in connection with such registration of the Other
Securities, the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register, to the extent
required to permit the disposition (in accordance with such intended methods
thereof) of the Registrable Securities so requested to be registered; provided,
that:
(a) if, at any time after giving such written notice of its intention to
register any Other Securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register the Other Securities, the Company
may, at its election, give written notice of such determination to the Holders
and thereupon the Company shall be relieved of its obligation to register such
Registrable Securities in connection with the registration of such Other
Securities (but not from its obligation to pay Registration Expenses to the
extent incurred in connection therewith as provided in Section 3.4 hereof),
without prejudice, however, to the rights of the Holders immediately to request
that such registration be effected as a registration under Section 3.2 hereof;
(b) (i) if the registration referred to in the first sentence of this
Section 3.3 is to be an underwritten primary registration on behalf of the
Company, and the managing underwriter(s) advise(s) the Company in writing that
in their good faith opinion such offering would be materially and adversely
affected by the inclusion therein of the Registrable Securities requested to be
included therein, the Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own account ("Company
Registrable Securities"), (2) second, up to the full number of Registrable
Securities held by the Holders and requested to be included in such registration
in excess of the number or amount of Company Registrable Securities which, in
the good faith opinion of such underwriter(s), can be sold without materially
and adversely affecting such offering, and (3) third, the number or amount of
other securities, if any, requested to be included therein in excess of the
number or amount of Company Registrable Securities and such Registrable
Securities which, in the opinion of such underwriter(s), can be sold without
materially and adversely affecting such offering; and (ii) if the registration
referred to in the first sentence of this Section 3.3 is to be an underwritten
secondary registration on behalf of holders of securities(other than Registrable
Securities) of the Company (the "Other Holders"), and the managing
underwriter(s) advise(s) the Company in writing that in their good faith opinion
such offering would be materially and adversely affected by the inclusion
therein of the Registrable Securities requested to be included therein, the
Company shall include in such registration: (1) first, all securities the Other
Holders propose to sell for their own account (the "Secondary Securities") and
(2) second, up to the full number of Registrable Securities held by Holders and
requested to be included in such registration in excess of the number or amount
of
B-7
<PAGE> 189
Secondary Securities which, in the good faith opinion of such underwriter(s),
can be sold without materially and adversely affecting such offering and (3)
third, the number or amount of other securities, if any, requested to be
included therein in excess of the number or amount of Secondary Securities and
such Registrable Securities which, in the good faith opinion of such
underwriter(s), can be sold without materially and adversely affecting such
offering; and
(c) no registration of Registrable Securities effected under this Section
3.3 shall relieve the Company of its obligation to effect a registration of
Registrable Securities pursuant to Section 3.2 hereof.
Section 3.4 Expenses. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities pursuant to this
Agreement, except that after the third demand registration pursuant to Section
3.2, the Holders will pay all Registration Expenses in connection with each
demand registration of Registrable Securities held by the Holders. The Holders
shall pay all underwriting discounts or commissions or transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by the Holders.
Section 3.5 Registration and Qualification. If and whenever the Company
is required to use its reasonable best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Section 3.2 or
3.3 hereof, the Company will as promptly as is practicable:
(a) prepare, file and use its reasonable best efforts to cause to become
effective a registration statement under the Securities Act relating to the
Registrable Securities to be offered;
(b) prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities until the earlier of (A) such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition set forth in such registration statement and (B) the
expiration of 90 days after such registration statement becomes effective;
provided, that such 90-day period shall be extended for such number of days that
equals the number of days elapsing from (x) the date the written notice
contemplated by Section 3.5(f) hereof is given by the Company to (y) the date on
which the Company delivers to the Holders the supplement or amendment
contemplated by Section 3.5(f) hereof; and provided, further, if such
registration is in connection with an offering by the Holders, pursuant to
Section 3.6 hereof, such registration statement shall be kept effective until
the earlier of (A) above or (B) the expiration of the exercise, exchange or
conversion period;
(c) furnish to the Holders and to any underwriter of such Registrable
Securities such number of conformed copies of such registration statement and of
each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or prospectus, and such
other documents, as the Holders or such underwriter may reasonably request, and
a copy of any and all transmittal letters or other correspondence to, or
received from, the Commission or any other governmental agency or
self-regulatory body or other body having jurisdiction (including any domestic
or foreign securities exchange) relating to such offering;
(d) use its reasonable best efforts to register or qualify all Registrable
Securities covered by such registration statement under the securities or blue
sky laws of such jurisdictions (domestic or foreign) as the Holders or any
underwriter of such Registrable Securities shall reasonably request, and use its
reasonable best efforts to obtain all appropriate registrations, permits and
consents required in connection therewith, and do any and all other acts and
things which may be necessary or advisable to enable the Holders or any such
underwriter to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement; provided, that
the Company shall not for
B-8
<PAGE> 190
any such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, or to subject
itself to taxation in any such jurisdiction, or to consent to general service of
process in any such jurisdiction; provided, further, that, in the case of any
such registration or qualification in any non-United States jurisdiction, (i)
the Company shall have no obligation to use its reasonable best efforts to so
register or qualify Registrable Securities if in the good faith opinion of the
general counsel of the Company such registration or qualification shall impose
on the Company an on-going material compliance obligation and (ii) the Company
shall not be obligated to keep any such registration or qualification in effect
except for so long as is necessary or appropriate in order to dispose of
Registrable Securities in such jurisdiction;
(e) furnish to the Holders included in such registration (i) on the date
that the Registrable Securities are delivered to any underwriters for sale
pursuant to such registration statement, an opinion of counsel representing the
Company dated as of such date for the purposes of such registration, addressed
to the underwriters and to the Holders, stating that such registration statement
has become effective under the Securities Act and that (A) to the best knowledge
of such counsel, no stop order suspending the effectiveness hereof has been
issued and no proceedings for that purpose have been instituted or are pending
or contemplated under the Securities Act, (B) the registration statement, the
related prospectus, and each amendment or supplement thereof, comply as to form
in all material respects with the requirements of the Securities Act and the
applicable rules and regulations thereunder (except that such counsel need
express no opinion as to the financial statements or any other financial or
statistical data or any engineering report contained or incorporated therein)
and (C) to such other effects as may reasonably be requested by counsel for the
underwriters or by the Holders or their counsel, and (ii) on the effective date
of the registration statement, the date that the Registrable Securities are
delivered to any underwriters for sale pursuant to such registration statement
and on the effective date of each post-effective amendment to the registration
statement, a "comfort" letter dated such date from the regular independent
public accountants retained by the Company, addressed to the underwriters and to
the Holders registering Registrable Securities thereunder, stating that they are
independent public accountants within the meaning of the Securities Act and
that, in the opinion of such accountants, the financial statements of the
Company included or incorporated by reference in the registration statement or
the prospectus, or any amendment or supplement thereto, comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act and the published rules and regulations thereunder, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
included in the registration statement in respect of which such letter is being
given as the underwriters or the Holders registering Registrable Securities
thereunder may reasonably request;
(f) immediately notify the Holders in writing (i) at any time when a
prospectus relating to a registration pursuant to Section 3.2 or 3.3 hereof is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) of any request by the Commission or any other
regulatory body or other body having jurisdiction for any amendment of or
supplement to any registration statement or other document relating to such
offering, and in either such case (i) or (ii) at the request of any Holder
prepare and furnish to such Holder a reasonable number of copies of an amendment
of or a supplement to such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading;
(g) if requested by the underwriters of any underwritten offering of
Registrable Securities, use its reasonable best efforts to list all such
Registrable Securities covered by such registration on each securities exchange
and inter-dealer quotation system (in each case, domestic or foreign) on which a
B-9
<PAGE> 191
class of Company Voting Securities is then listed, and use its reasonable best
efforts to obtain all appropriate registrations, permits and consents required
in connection therewith, and do any and all other acts and things which may be
necessary or advisable to effect such listing; and
(h) furnish unlegended certificates representing ownership of the
Registrable Securities being sold in such denominations as shall be requested by
the Holders registering Registrable Securities thereunder or the underwriters.
Section 3.6 Conversion of Other Securities, etc. If Cooper offers any
options, rights, warrants or other securities issued by it that are offered
with, convertible into or exercisable or exchangeable for any Registrable
Securities, the Registrable Securities underlying such options, rights, warrants
or other securities shall be eligible for registration pursuant to Section 3.2
and Section 3.3 of this Agreement.
Section 3.7 Underwriting; Due Diligence. (a) If requested by the
underwriters for any underwritten offering of Registrable Securities pursuant to
a registration requested under this Agreement, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to contain such representations and warranties by the Company and such other
terms and provisions as are customarily contained in underwriting agreements
with respect to secondary distributions, including, without limitation,
indemnities and contribution substantially to the effect and to the extent
provided in Section 3.9 hereof and the provision of opinions of counsel and
accountants' letters to the effect and to the extent provided in Section 3.5(e)
hereof. The representations and warranties in such underwriting agreement by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters, shall also be made to and for the benefit of the Holders on
whose behalf the Registrable Securities are to be distributed by such
underwriters.
(b) In the event that any registration pursuant to Section 3.3 shall
involve, in whole or in part, an underwritten offering, the Company may require
the Registrable Securities requested to be registered pursuant to Section 3.3 to
be included in such underwriting on the same terms and conditions as shall be
applicable to the other securities being sold through underwriters under such
registration. If requested by the underwriters for any underwritten offering
requested under this Agreement, the Holders on whose behalf the Registrable
Securities are to be distributed by such underwriters will enter into an
underwriting agreement with such underwriters, such agreement to contain such
representations and warranties by such Holders and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, indemnities and
contribution substantially to the effect and to the extent provided in Section
3.9 thereof. The representations and warranties in such underwriting agreement
by, and the other agreements on the part of, such Holders to and for the benefit
of such underwriters, shall also be made to and for the benefit of the Company.
(c) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act, the
Company will give the Holders of such Registrable Securities and the
underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such opportunities
to discuss the business of the Company with its officers and the independent
public accountants who have certified the Company's financial statements as
shall be necessary, in the reasonable opinion of such Holders and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
Section 3.8 Restrictions on Public Sale; Inconsistent Agreements. (a) If
any registration of Registrable Securities pursuant to Section 3.2 shall be in
connection with an underwritten public offering, the Company agrees and agrees
to cause any controlled affiliates of the Company not to effect any public sale
or distribution of any of its securities of the same class or series as such
Registrable Securities or any securities convertible into or exchangeable or
exercisable for any securities of the same class or series as such Registrable
Securities (other than any such sale or distribution of such securities in
connection with any exchange offer, merger or consolidation by the Company or a
subsidiary of the Company or in connection with the purchase of all or
substantially all the assets of any other person or
B-10
<PAGE> 192
in connection with an employee stock option plan, employee stock ownership plan
or other benefit plan) during the 30-day period prior to, and during the 90-day
period beginning on, the effective date of such registration statement (except
as part of such registration), or for such shorter period acceptable to the
underwriters of such offering.
(b) The Company agrees that any agreement entered into after the date of
this Agreement pursuant to which the Company issues or agrees to issue any
equity securities or any securities convertible into or ex changeable or
exercisable for any equity securities of the Company which will be privately
placed shall contain (i) a provision under which holders of such securities
agree not to effect any public sale or distribution of any such securities
during the period referred to in Section 3.8(a), including any sale pursuant to
Rule 144 under the Securities Act (except as part of such registration, if
permitted) and (ii) no terms or provisions inconsistent with any term or
provision of this Agreement.
Section 3.9 Indemnification and Contribution. (a) In the case of each
offering of Registrable Securities made pursuant to this Agreement (whether
pursuant to Section 3.2 or Section 3.3), the Company agrees to indemnify and
hold harmless the Holders of Registrable Securities, its officers and directors,
each underwriter of Registrable Securities so offered and each person, if any,
who controls any of the foregoing persons within the meaning of the Securities
Act, from and against any and all claims, liabilities, losses, damages, expenses
and judgments, joint or several, to which they or any of them may become
subject, under the Securities Act or otherwise, including any amount paid in
settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any reasonable legal fees (including
disbursements and related expenses) or other reasonable out-of-pocket expenses
incurred by them in connection with investigating any claims and defending any
actions, insofar as such losses, claims, damages, liabilities or actions shall
arise out of, or shall be based upon, any untrue statement or alleged untrue
statement of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein), or any amendment thereof or
supplement thereto, or in any document incorporated by reference therein, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
shall arise out of or be based upon any violation or alleged violation by the
Company of the Securities Act, any blue sky laws, securities laws or other
applicable laws of any state or country in which the Registrable Securities are
offered and relating to action or inaction required of the Company in connection
with such offering; provided, that the Company shall not be liable to any Holder
of Registrable Securities in any such case to the extent that any such loss,
claim, damage, liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement, or any omission, if such statement or
omission shall have been made in reliance upon and in conformity with
information relating to such Holder furnished to the Company in writing by or on
behalf of such Holder specifically for use in the preparation of the
registration statement (or in any preliminary or final prospectus included
therein), or any amendment thereof or supplement thereto. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Holders of Registrable Securities and shall survive the transfer
of such securities. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to the Holders of Registrable
Securities, its officers and directors, underwriters of the Registrable
Securities, or any controlling person of the foregoing; provided, further, that,
in the case of an offering with respect to which any Holder has designated the
lead managing underwriter(s), this indemnity does not apply to any loss,
liability, claim, damage or expense arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus if a copy of a prospectus was not sent or given by or on
behalf of an underwriter to such person asserting such loss, claim, damage,
liability or action at or prior to the written confirmation of the sale of the
Registrable Securities as required by the Securities Act and such untrue
statement or omission had been corrected in such prospectus.
(b) In the case of each offering made pursuant to this Agreement (whether
pursuant to Section 3.2 or Section 3.3), each Holder of Registrable Securities
included in such offering, by exercising its registration rights hereunder,
agrees to indemnify and hold harmless the Company, its officers and
B-11
<PAGE> 193
directors and each person, if any, who controls any of the foregoing within the
meaning of the Securities Act (and if requested by the underwriters, each
underwriter who participates in the offering and each person, if any, who
controls any such underwriter within the meaning of the Securities Act), from
and against any and all claims, liabilities, losses, damages, expenses and
judgments, joint or several, to which they or any of them may become subject,
under the Securities Act or otherwise, including any amount paid in settlement
of any litigation commenced or threatened, and shall promptly reimburse them, as
and when incurred, for any reasonable legal fees (including disbursements and
related expenses) or other reasonable out-of-pocket expenses incurred by them in
connection with investigating any claims and defending any actions, insofar as
any such losses, claims, damages, liabilities or actions shall arise out of, or
shall be based upon, any untrue statement or alleged untrue statement of a
material fact contained in the registration statement (or in any preliminary or
final prospectus included therein) or any amendment thereof or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that such untrue statement of a
material fact is contained in, or such material fact is omitted from,
information relating to such Holder furnished in writing to the Company by or on
behalf of such Holder specifically for use in the preparation of such
registration statement (or any preliminary or final prospectus included
therein), or any amendment thereof or supplement thereto. The foregoing
indemnity is in addition to any liability which such Holder may otherwise have
to the Company, or any of its directors, officers or controlling persons;
provided, that, in the case of an offering with respect to which the Company has
designated the lead managing underwriter(s), this indemnity does not apply to
any loss, liability, claim, damage or expense arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged omission in
any preliminary prospectus if a copy of a prospectus was not sent or given by or
on behalf of an underwriter to such person asserting such loss, claim, damage,
liability or action at or prior to the written confirmation of the sale of the
Registrable Securities as required by the Securities Act and such untrue
statement or omission had been corrected in such prospectus.
(c) Procedure for Indemnification. Each party indemnified under paragraph
(a) or (b) of this Section 3.9 shall, promptly after receipt of notice of any
claim or the commencement of any action against such indemnified party in
respect of which indemnity may be sought, notify the indemnifying party in
writing of the claim or the commencement thereof; provided, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party on account of the indemnity agreement contained
in paragraph (a) or (b) of this Section 3.9, unless the indemnifying party was
prejudiced by such failure, and in no event shall relieve the indemnifying party
from any other liability which it may have to such indemnified party. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein, and, to the extent that it wishes, jointly with any
other similarly notified indemnifying party, to assume the defense thereof with
counsel satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 3.9 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, that the
indemnified parties, shall have the right, as a group, to employ one law firm as
separate counsel to represent them if, in the reasonable judgment of the
indemnified parties, it is advisable for them to be represented by separate
counsel, and in that event the fees and expenses of such separate counsel shall
be paid by the indemnifying party. If the indemnified parties employ such
separate counsel they will not agree to any settlement of any such claim or
action without the prior written consent of the indemnifying party, such consent
not to be unreasonably withheld. If the indemnifying party so assumes the
defense thereof, it may not agree to any settlement of any such claim or action
as the result of which any remedy or relief, other than monetary damages for
which the indemnifying party shall be responsible hereunder, shall be applied to
or against the indemnified parties, without the prior written consent of the
indemnified parties, such consent not to be unreasonably withheld. If the
indemnifying party does not assume the defense thereof, it shall be bound by any
B-12
<PAGE> 194
settlement to which the indemnified parties agree, irrespective of whether the
indemnifying party consents thereto. In any action hereunder as to which the
indemnifying party has assumed the defense thereof with counsel satisfactory to
the indemnified party, the indemnified party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but, except
as set forth above, the indemnifying party shall not be obligated hereunder to
reimburse the indemnified party for the costs thereof.
If the indemnification provided for in this Section 3.9 shall for any
reason be unavailable to an indemnified party in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party on the one hand or the indemnified party on the other, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission, but not solely by
reference to any indemnified party's stock ownership in the Company. The amount
paid or payable by an indemnified party as a result of the loss, claim, damage
or liability, or action in respect thereof, referred to above in this paragraph
shall be deemed to include, for purposes of this paragraph, any reasonable legal
fees (including disbursements and related expenses) or other reasonable
out-of-pocket expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
ARTICLE IV
TERM AND EFFECTIVENESS OF AGREEMENT
Section 4.1 Effectiveness of Agreement. This Agreement shall be effective
only upon consummation of the Sale Transaction contemplated by the Acquisition
Agreement. Neither party shall have any obligation to the other pursuant to this
Agreement until such consummation has occurred, and this Agreement shall
terminate simultaneously with any termination of the Acquisition Agreement in
accordance with its terms.
Section 4.2 Term of Agreement. Except as otherwise provided in Section
4.3, the respective covenants and agreements of Cooper and the Company contained
in Article I and Article II of this Agreement will continue in full force and
effect from the date of effectiveness of this Agreement pursuant to Section 4.1
until the earlier of (i) the tenth anniversary of such date, and (ii) the first
date on which Cooper beneficially owns less than 5% of the outstanding Company
Voting Securities.
Section 4.3 Certain Provisions Regarding Termination. (a) The limitations
on Cooper and its affiliates set forth in Articles I and II will terminate
immediately and be of no further force and effect on the date that a "Trigger
Event" shall have occurred. For these purposes, "Trigger Event" shall mean the
occurrence of one or more of the following events, without Cooper's prior
written consent:
(i) in connection with the issuance of Company Voting Securities
(other than (x) issuances pursuant to the Company's current employee
benefit plans or other customary employee benefit plans of the Company or
(y) issuances in connection with bona fide capital raising programs
pursuant to which the securities are sold for fair value, as approved by
the Board of Directors of the Company, and the proceeds of which are
invested in the businesses in which the Company or one or more of its
subsidiaries are then engaged or (z) issuances for fair value, as
determined by the
B-13
<PAGE> 195
Board of Directors of the Company, in connection with acquisitions by the
Company or one of its wholly-owned subsidiaries primarily involving one or
more Similar Businesses (as hereinafter defined)) the failure to provide
Cooper with the right to purchase, at the same price as the Company Voting
Securities are being issued, that number or amount of Company Voting
Securities which would enable Cooper to maintain its proportionate interest
in the Company following such issuance;
(ii) a "Change in Control" of the Company (as hereinafter defined);
(iii) a material acquisition or investment by the Company or one of
its subsidiaries, other than an acquisition or investment by the Company or
one of its wholly-owned subsidiaries primarily involving one or more
Similar Businesses;
(iv) a decline of at least 35% in the "Consolidated Net Worth" of the
Company from the Consolidated Net Worth of the Company immediately
following the consummation of the Sale Transaction after giving effect to
the Sale Transaction (including the issuance of the Shares to Cooper), but
not taking into account (A) any reduction in the Company's Consolidated Net
Worth attributable to or taken in connection with or as a result of the
Sale Transaction or the combination of the business acquired from Cooper
with the Company's business and recorded in the Company's financial
statements for any period ending on (and including) the end of the first
full fiscal year of the Company after the consummation of the Sale
Transaction or (B) any adjustments following the date of consummation of
the Sale Transaction as a result of any changes in generally accepted
accounting principles ("GAAP") (including the implementation of Statement
of Financial Accounting Standards ("SFAS") No. 106) or any other regulatory
changes or requirements applicable to the Company or its financial
statements or (C) any adjustment resulting from any liability arising from
or growing out of any matter or circumstance existing as of the time of the
consummation of the Sale Transaction and relating to the business or assets
acquired by the Company from Cooper but not reflected on the balance sheet
of such business and assets or (D) any change in the translation component
of shareholders' equity or (E) adjustments as a result of sales of the
Company's accounts receivables pursuant to a bona fide receivables
securitization program pursuant to which fair value is received for
receivables so sold (as determined by the Company's Board of Directors,
taking into account, among other things, any discount or credit enhancement
features required by any securities rating agency) or (F) any adjustment
resulting from a SFAS No. 109 valuation allowance recorded or reserved by
the Company with respect to deferred tax assets that were included in or
excluded from the Company's final Accounting Practice Bulletin No. 16
acquisition date balance sheet;
(v) any default or defaults by the Company or one of its subsidiaries
under any indebtedness of the Company or its subsidiaries for money
borrowed with a principal amount then outstanding, individually or in the
aggregate, in excess of $5 million, which default shall constitute a
failure to pay any portion of the principal of each indebtedness at final
maturity or shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable without such indebtedness having been discharged, or
such acceleration having been rescinded or annulled within a period of 30
days after maturity or acceleration;
(vi) an "Event of Bankruptcy" (as hereinafter defined); or
(vii) the failure of the Board of Directors of the Company to nominate
at least two of Cooper's representatives for election to the Company's
Board of Directors.
Notwithstanding clause (i) above, the Company may not issue any securities
having more than one vote per share (other than pursuant to the Amended and
Restated Rights Agreement) without the prior written consent of Cooper.
(b) For purposes of this Section 4.3:
B-14
<PAGE> 196
(i) A "Change in Control" shall mean a merger or consolidation
involving the Company or a sale of all or substantially all of the assets
of the Company, in each case except for a transaction in which the
Company's shareholders receive at least 50% of the stock of the surviving,
resulting or acquiring corporation; the acquisition by an individual,
entity or group (excluding the Company or an employee benefit plan of the
Company or a corporation controlled by the Company's shareholders) of
shares of capital stock of the Company entitled to cast a majority of the
votes entitled to be cast on matters submitted to the shareholders of the
Company; or a change in a majority of the members of any class of the
Company's Board of Directors in connection with an "election contest" (as
used in Rule 14a-11 under the Exchange Act).
(ii) "Consolidated Net Worth" shall mean, as at any date of
determination, the consolidated shareholders' equity of the Company and
those of its subsidiaries that would be accounted for as consolidated
subsidiaries in the Company's financial statements in accordance with GAAP
(as in effect from time to time), as determined on a consolidated basis in
accordance with GAAP (as in effect from time to time); provided, that the
Consolidated Net Worth of the Company immediately following the
consummation of the Sale Transaction shall include 60% of the "LIFO
reserve" as of that date, and thereafter for purposes of calculating
Consolidated Net Worth the earnings or loss of the Company shall be
computed utilizing the FIFO (first-in, first-out) method of accounting for
inventory.
(iii) An "Event of Bankruptcy" shall mean (A) the commencement by the
Company of a voluntary proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by the
Company to the entry of a decree or order for relief in respect of the
Company in an involuntary case or proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against the
Company, or the admission by the Company in writing of its inability to pay
its debts generally as they become due; or (B) the entry by a court having
jurisdiction in the premises of (1) a decree or order for relief in respect
of the Company in an involuntary case or proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law or (2) a decree
or order adjudging the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company under any applicable law, or
ordering the winding up or liquidation of the affairs of the Company, and
the continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 60 consecutive days.
(iv) "Similar Businesses" shall mean businesses in which the Company
or one or more of its subsidiaries are engaged and any businesses involving
products related to or complementary to the products of the Company or one
or more of its subsidiaries or any similar businesses providing customers
of the Company or one or more of its subsidiaries with products or services
similar to those provided by the Company or one or more of its
subsidiaries.
ARTICLE V
ELECTION OF DIRECTORS
Section 5.1 (a) The Company agrees that it will use its best efforts to
cause two persons designated by Cooper and reasonably acceptable to the Company
to be elected to the Board of Directors of the Company and to serve as directors
of the Company until their successors are duly elected and qualified. In the
event that any such designee shall cease to serve as a director for any reason,
the Company will use its best efforts to cause such vacancy resulting thereby to
be filled by a designee of Cooper reasonably acceptable to the Company. In order
to effect the purposes and intent of this Section 5.1, the Company, among other
things, shall vote all shares for which the Company's management or Board of
Directors holds proxies or is otherwise entitled to vote in favor of the
election
B-15
<PAGE> 197
of the designees of Cooper except as may otherwise be provided by shareholders
submitting such proxies.
(b) The Company agrees that any designees of Cooper who are elected to
serve on the Company's Board of Directors shall be furnished with all
information generally provided to the Company's Board of Directors and shall
have access to information regarding the Company on a basis equal to that of the
other outside or its inside directors. The Company agrees that Cooper's
designees serving on the Company's Board of Directors shall, in connection with
the performance of their duties as directors of the Company, be (i) compensated
at a level commensurate with the compensation of the Company's other outside
directors, (ii) reimbursed for all out-of-pocket charges and expenses incurred,
(iii) entitled to the benefit of insurance policies of the Company which provide
coverage to its other outside directors and (iv) furnished with and entitled to
the same perquisites as the Company's other outside directors.
ARTICLE VI
GENERAL
Section 6.1 Specific Enforcement; Other Remedies. (a) Cooper acknowledges
and agrees that the Company would be irreparably damaged in the event any of the
provisions of this Agreement were not performed by Cooper in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the Company shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, in addition to any other remedy to which the
Company may be entitled at law or equity.
(b) The Company acknowledges and agrees that Cooper would be irreparably
damaged in the event any of the provisions of this Agreement were not performed
by the Company in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that Cooper shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof or seek
recovery of money damages in any court of the United States or any state thereof
having jurisdiction, in addition to any other remedy to which Cooper may be
entitled at law or equity.
Section 6.2 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
Section 6.3 Definitions. As used herein the term "affiliate" shall have
the meaning set forth in Rule 12b-2 under the Exchange Act and the term "person"
shall mean any individual, partnership, joint venture, corporation, trust or
other entity.
Section 6.4 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by an agreement in writing signed by both of the
parties hereto.
Section 6.5 Descriptive Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
Section 6.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
Section 6.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the successors and permitted
assigns of the parties hereto, but neither
B-16
<PAGE> 198
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by either of the parties hereto without the prior written consent of
the other party. Notwithstanding the foregoing, Cooper may assign its rights
under this Agreement to any of its direct or indirect wholly-owned subsidiaries
as long as such subsidiary remains a direct or indirect wholly-owned subsidiary
of Cooper, but no such assignment shall relieve Cooper of its obligations
hereunder.
Section 6.8 Accounting Matters. The Company will furnish to Cooper all
information that is required by GAAP to enable Cooper to account for its
investment in the Company in whatever manner it shall deem appropriate. To the
extent reasonably requested by Cooper, the Company will, and will cause its
employees, independent public accountants and other representatives to provide
information regarding the Company to, and otherwise cooperate with, Cooper so as
to enable Cooper to prepare financial statements in accordance with generally
accepted accounting principles and to comply with its reporting requirements and
other disclosure obligations under applicable United States securities laws and
regulations.
Section 6.9 Notices. All notices and other communications provided for
herein shall be validly given, made or served, if in writing and delivered
personally, sent by facsimile transmission (receipt of which is confirmed) or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice; provided that notices of a change
of address shall be effective only upon receipt thereof):
(i) if to Cooper or a Holder of Registrable Securities, to
Cooper Industries, Inc.
First City Tower, Suite 4000
1001 Fannin
Houston, Texas 77002
Attention: General Counsel
Telephone No.: (713) 739-5902
Facsimile No.: (713) 735-5882
(ii) if to the Company, to
Wyman-Gordon Company
224 Worcester Street
Box 8001
Grafton, Massachusetts 01536
Attention: Wallace F. Whitney, Jr.
Telephone No.: (508) 839-4441
Facsimile No.: (508) 839-7500
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Adam O. Emmerich
Telephone No.: (212) 403-1000
Facsimile No.: (212) 403-2000
(iii) if to a Holder of Registrable Securities, to the name and address as
the same appear in the security transfer books of the Company.
Notice given by facsimile shall be deemed delivered on the business day after it
is sent to the recipient. Notice given by mail as set out above shall be deemed
delivered five calendar days after the date the same is mailed.
B-17
<PAGE> 199
Section 6.10 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without regard to
any applicable principles of conflicts of law.
IN WITNESS WHEREOF, Cooper and the Company have caused this Agreement to be
duly executed by their respective officers, each of whom is duly and validly
authorized and empowered, all as of the day and year first above written.
COOPER INDUSTRIES, INC.
By: H. JOHN RILEY, JR.
----------------------------------
Name: H. John Riley, Jr.
Title: President and Chief
Operating Officer
WYMAN-GORDON COMPANY
By: JOHN M. NELSON
----------------------------------
Name: John M. Nelson
Title: Chairman and Chief
Executive Officer
B-18
<PAGE> 200
ANNEX C
[DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION LETTERHEAD]
January 10, 1994
Board of Directors
Wyman-Gordon Company
244 Worcester Street
Box 8001
North Grafton, MA 01536
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to Wyman-Gordon Company (the "Company") of the consideration to be paid by
the Company for Cameron Forged Products Company ("Cameron"), a subsidiary of
Cooper Industries, Inc. ("Cooper"), pursuant to the terms of the Stock Purchase
Agreement dated as of January 10, 1994, between the Company and Cooper (the
"Agreement").
Pursuant to the Agreement, the Company will issue to Cooper 16,500,000
shares of the Company's common stock, $1.00 par value per share plus pay Cooper
(i) $400,000 of cash at closing and (ii) a promissory note for $4.6 million
payable in annual installments beginning in 1997 equal to the least of (a) $2.3
million, (b) 25% of free cash flow or (c) the unpaid principal balance of such
promissory note as consideration for all the outstanding shares of stock of
Cameron (the "Transaction").
In arriving at our opinion, we have reviewed the Agreement, the
Investment Agreement, dated as of January 10, 1994, between the Company and
Cooper and the Company's Proxy Statement for Special Meeting of Shareholders
dated April 5, 1994. We also have reviewed financial and other information that
was publicly available or furnished to us by the Company and Cameron including
information provided during discussions with their respective managements.
Included in the information provided during discussions with the respective
managements were certain financial projections of the Company prepared by the
management of the Company, certain financial projections of Cameron prepared by
the Company in conjunction with the management of Cameron and certain financial
projections of the Company and Cameron on a combined basis prepared by the
Company. In addition, we have compared certain financial and securities data
of the Company and Cameron with various other companies whose securities are
traded in public markets, reviewed the historical stock prices and trading
volumes of the common stock of the Company, reviewed prices and premiums paid
in other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy, completeness and fairness of all of the
financial and other information that was available to us from public sources,
that was provided to us by the Company, Cameron and Cooper and their respective
representatives, or that was otherwise reviewed by us. In particular, we have
relied, without independent investigation, upon the estimates of the managements
of the Company and Cameron of the operating synergies achievable as a result of
the Transaction and upon our discussion of such synergies with the managements
of the Company and Cameron. With respect to the financial
C-1
<PAGE> 201
projections supplied to us, we have assumed that they have been reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the management of the Company and Cameron as to the future
operating and financial performance of the Company and Cameron. We did not
make any independent evaluation of assets or liabilities of the Company or
Cameron nor did we verify any of the information reviewed by us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. DLJ has performed
investment banking and other services for the Company in the past and has
received customary compensation for such services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be paid by the Company for Cameron
pursuant to the Agreement is fair to the Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
C-2
<PAGE> 202
PRELIMINARY PROXY MATERIAL FOR INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
WYMAN-GORDON COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 24, 1994
The undersigned hereby authorizes and appoints John M. Nelson, David P. Gruber,
Wallace F. Whitney, Jr. and Luis E. Leon, and each of them, as proxies with full
power of substitution in each, to vote all shares of common stock, par value
$1.00 per share ("Shares"), of Wyman-Gordon Company (the "Company") held of
record on March 28, 1994 by the undersigned at the Special Meeting in Lieu of
Annual Meeting of Shareholders (the "Meeting") to be held at Mechanics Hall, 321
Main Street, Worcester, Massachusetts on Tuesday, May 24, 1994 at 10:00 a.m.,
local time and at any adjournments or postponements thereof, on all matters that
may properly come before said meeting.
This proxy when properly executed will be voted (i) as directed on the reverse
side, or in the absence of such direction, this proxy will be voted FOR Proposal
1, FOR each of the nominees named in Proposal 2 and FOR Proposal 3 and (ii) in
accordance with the best judgment of the persons voting such proxies.
PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
PROPOSAL 1 -- Approval of a single, integrated proposal that contains three
elements: (a) approval of the issuance of 16,500,000 Shares pursuant to a Stock
Purchase Agreement, dated as of January 10, 1994, between Cooper Industries,
Inc., an Ohio corporation ("Cooper"), and the Company, providing for the
purchase by the Company of all of the outstanding shares of common stock, par
value $.208 1/3 per share, of Cameron Forged Products Company, a Delaware
corporation, and in connection therewith, (b) approval of an amendment to the
Articles of Organization of the Company increasing the number of authorized
Shares from 35,000,000 to 70,000,000 and (c) approval of a further amendment to
the Articles of Organization of the Company exempting Cooper from the fair price
provisions of the Company's Articles of Organization.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR Proposal 1.
PROPOSAL 2 -- Election of each of the following four persons to the Board of
Directors, each for a three-year term expiring in 1997 and until his or her
successor is elected and qualified:
<TABLE>
<S> <C> <C> <C> <C>
Robert G. Foster / / FOR / / WITHHOLD AUTHORITY Jon C. Strauss / / FOR
Judith S. King / / FOR / / WITHHOLD AUTHORITY Charles A. Zraket / / FOR
Robert G. Foster / / WITHHOLD AUTHORITY
Judith S. King / / WITHHOLD AUTHORITY
</TABLE>
The Board of Directors recommends a vote FOR each of the nominees named in
Proposal 2.
PROPOSAL 3 -- Approval of the selection of Ernst & Young as independent auditors
for the Company for the year 1994.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR Proposal 3.
Signature(s) must correspond exactly with the name(s) as shown above. Where
stock is registered jointly in the names of two or more persons, ALL must sign.
If this proxy is submitted by a corporation or partnership, it must be executed
in the full corporate or partnership name by a duly authorized person. When
signing in a fiduciary or representative capacity (as attorney, trustee,
corporate officer, etc.), give your full title as such.
Execution of this proxy by a shareholder will revoke any and all prior proxies
given by such shareholder with respect to the Meeting.
Dated:
------------------------------
Signature(s) of Shareholder(s)
------------------------------
Signature(s) of Shareholder(s)
