<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
WYMAN-GORDON COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $1.00 per share, of Wyman-Gordon Company
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
601,314 shares of Common Stock
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$20.00 per share in cash-out merger
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$12,026,280
------------------------------------------------------------------------
(5) Total fee paid:
$2,405
------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / 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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
WYMAN-GORDON COMPANY
244 WORCESTER STREET
P.O. BOX 8001
NORTH GRAFTON, MASSACHUSETTS 01536-8001
December 23, 1999
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Wyman-Gordon Company (the "Company") at the offices of
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109, on
Wednesday, January 12, 2000, at 10:00 a.m., local time. At the Special Meeting,
you will be asked to consider and approve the merger of WGC Acquisition Corp.
(the "Purchaser"), a wholly owned subsidiary of Precision Castparts Corp.
("PCC"), with and into the Company (the "Merger"), pursuant to an Agreement and
Plan of Merger dated as of May 17, 1999 (the "Merger Agreement"). Upon
consummation of the Merger, each share of the Company's common stock will be
converted into the right to receive $20.00 in cash, without interest.
The Merger is the second and final step of the acquisition of the Company by
PCC. The first step was a tender offer by the Purchaser for all of the
outstanding shares of the Company's common stock at a price of $20.00 per share
(the "Offer"). The Purchaser purchased 35,385,078 shares pursuant to the Offer
and owns approximately 98.33% of the outstanding shares.
The affirmative vote of holders of two-thirds of the shares of the Company's
common stock outstanding and entitled to vote at the Special Meeting is
necessary to approve the Merger Agreement. The Purchaser owns a sufficient
number of shares to assure approval of the Merger Agreement at the Special
Meeting and intends to vote all of its shares in favor of the Merger Agreement.
As a result, the affirmative vote of any other stockholder will not be required
to approve the Merger Agreement.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE MERGER AND
DECLARED THE MERGER ADVISABLE AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS APPROVE THE MERGER AGREEMENT. Among the factors considered by the
Board in evaluating the Merger was the opinion dated May 17, 1999 of Goldman,
Sachs & Co., the Company's financial advisor, which provides that as of such
date, the cash consideration to be received by the stockholders of the Company
pursuant to the Offer and the Merger was fair from a financial point of view to
such stockholders. The written opinion of Goldman, Sachs & Co. is attached as
APPENDIX B to the enclosed Proxy Statement and should be read carefully and in
its entirety by stockholders.
The enclosed Proxy Statement provides you with a summary of the Merger and
additional information about the parties involved. If the Merger Agreement is
approved by the requisite holders of the Company's common stock, the closing of
the Merger will occur as soon after the Special Meeting as all of the other
conditions to the closing of the Merger are satisfied.
PLEASE GIVE ALL OF THIS INFORMATION YOUR CAREFUL ATTENTION. WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO PROMPTLY COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED.
THIS WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON IF YOU SUBSEQUENTLY
CHOOSE TO ATTEND THE SPECIAL MEETING.
Sincerely,
/s/ Wallace F. Whitney, Jr.
WALLACE F. WHITNEY, JR.
Vice President
<PAGE>
WYMAN-GORDON COMPANY
244 WORCESTER STREET
P.O. BOX 8001
NORTH GRAFTON, MASSACHUSETTS 01536-8001
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, JANUARY 12, 2000
To the Stockholders of
Wyman-Gordon Company:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Wyman-Gordon Company, a Massachusetts corporation (the "Company"),
will be held at the offices of Goodwin, Procter & Hoar LLP, Exchange Place, 53
State Street, Boston, Massachusetts 02109, on Wednesday, January 12, 2000, at
10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of May 17, 1999 (the "Merger Agreement"), by and among the
Company, Precision Castparts Corp., an Oregon corporation ("PCC"), and WGC
Acquisition Corp., a Massachusetts corporation and a wholly owned subsidiary of
PCC (the "Purchaser"), providing for the merger of the Purchaser with and into
the Company (the "Merger"), with the Company being the surviving corporation. As
a result of the Merger, the Company will become a wholly owned subsidiary of PCC
and each share of the Company's common stock, par value $1.00 per share (each a
"Share" and collectively, the "Shares"), other than Shares held by the Company,
its subsidiaries, the Purchaser and dissenting stockholders who perfect their
appraisal rights, will be converted automatically into the right to receive
$20.00 in cash, without interest. A copy of the Merger Agreement is attached as
APPENDIX A to the accompanying Proxy Statement; and
2. To transact such other business as may properly come before the Special
Meeting and any adjournments or postponements thereof.
The Company's Board of Directors has fixed the close of business on December
16, 1999 as the record date for the Special Meeting. Accordingly, only
stockholders of record on such date will be entitled to notice of and to vote at
the Special Meeting and any adjournment or postponement thereof. A form of proxy
and a Proxy Statement containing more detailed information with respect to
matters to be considered at the Special Meeting accompany and form a part of
this notice.
Approval of the Merger Agreement requires the affirmative vote of holders of
two-thirds of the Shares outstanding and entitled to vote at the Special
Meeting. The Purchaser owns a sufficient number of Shares to approve the Merger
Agreement without the affirmative vote of any other stockholder and intends to
vote all of its Shares in favor of the Merger Agreement. Nevertheless, whether
or not you plan to attend the Special Meeting, you are asked to promptly
complete, sign, date and return the enclosed proxy in order to assure
representation of your Shares.
If the Merger Agreement is approved and the Merger becomes effective, any
holder of Shares (i) who files with the Company, before the taking of the vote
on the approval of the Merger Agreement, written objection to the proposed
Merger stating that he or she intends to demand payment for his or her Shares if
the Merger Agreement is approved, and (ii) whose Shares are not voted in favor
of the Merger Agreement, has or may have the right to demand in writing from the
Company, within 20 days after the date of mailing to him or her of notice in
writing that the Merger has become effective, payment for his or her Shares and
an appraisal of the value thereof. The Company and any such stockholder shall in
such cases have the rights and duties and shall follow the procedures set forth
in Sections 85 to 98, inclusive, of Chapter 156B of the Massachusetts General
Laws. See "Appraisal Rights" in the accompanying Proxy Statement and the full
text of Sections 85 to
<PAGE>
98, inclusive, of Chapter 156B of the Massachusetts General Laws, which is
attached as APPENDIX C to the accompanying Proxy Statement, for a description of
the rights of dissenting stockholders and the procedure required to be followed
to perfect such rights.
BY ORDER OF THE BOARD OF DIRECTORS
WALLACE F. WHITNEY, JR.
Clerk
December 23, 1999
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED SELF-ADDRESSED ENVELOPE. NO POSTAGE IS REQUIRED IF THE PROXY IS
MAILED WITHIN THE UNITED STATES. PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR
SHARES AT THIS TIME.
THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
THE MERGER NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
WYMAN-GORDON COMPANY
244 WORCESTER STREET
P.O. BOX 8001
NORTH GRAFTON, MASSACHUSETTS 01536-8001
(508) 839-4441
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, JANUARY 12, 2000
INTRODUCTION
This Proxy Statement is being furnished to holders of shares of common
stock, par value $1.00 per share (the "Shares"), of Wyman-Gordon Company, a
Massachusetts corporation (the "Company"), in connection with the solicitation
of proxies by the Board of Directors of the Company for use at the Special
Meeting of Stockholders to be held at the offices of Goodwin, Procter & Hoar
LLP, Exchange Place, 53 State Street, Boston, Massachusetts 02109, on Wednesday,
January 12, 2000, at 10:00 a.m., local time, and any adjournments or
postponements thereof (the "Special Meeting"). The purpose of the Special
Meeting is for the Company's stockholders to consider and vote upon a proposal
to approve an Agreement and Plan of Merger, dated as of May 17, 1999, by and
among the Company, Precision Castparts Corp., an Oregon corporation ("PCC"), and
WGC Acquisition Corp., a Massachusetts corporation and a wholly owned subsidiary
of PCC (the "Purchaser"), providing for the merger of the Purchaser with and
into the Company (the "Merger"), with the Company being the surviving
corporation (the "Surviving Corporation"). The Board of Directors has fixed the
close of business on December 16, 1999 as the record date for the Special
Meeting. Accordingly, only stockholders of record on such date will be entitled
to notice of and to vote at the Special Meeting. This Proxy Statement is first
being mailed to the Company's stockholders on or about December 23, 1999.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: Upon consummation of the Merger, the Purchaser will be merged with and
into the Company and stockholders, other than the Company, its subsidiaries, the
Purchaser and dissenting stockholders who perfect their appraisal rights, will
receive a cash payment of $20.00, without interest, for each of their Shares.
Q: WHO WILL OWN THE COMPANY AFTER THE MERGER?
A: After the Merger, PCC will own all of the outstanding Shares of the
Company.
Q: WHY HAS THE MERGER BEEN PROPOSED?
A: The Merger is the second step in a two-part transaction, the purpose of
which is the acquisition by PCC of the entire equity interest in the Company.
The first step was a tender offer for all of the outstanding Shares which was
consummated by the Purchaser on November 24, 1999 (the "Offer"). Pursuant to the
Offer, the Purchaser purchased 35,385,078 Shares and owns approximately 98.33%
of the outstanding Shares.
<PAGE>
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER AGREEMENT?
A: Approval of the Merger Agreement requires the affirmative vote of holders
of two-thirds of the Shares outstanding and entitled to vote at the Special
Meeting. THE PURCHASER OWNS A SUFFICIENT NUMBER OF SHARES TO ASSURE APPROVAL OF
THE MERGER AGREEMENT AND INTENDS TO VOTE ALL OF ITS SHARES IN FAVOR OF THE
MERGER AGREEMENT. AS A RESULT, NO OTHER STOCKHOLDER WILL NEED TO VOTE "FOR" THE
PROPOSAL FOR THE MERGER AGREEMENT TO BE APPROVED. Nevertheless, we urge you to
complete the enclosed proxy card to assure the representation of your Shares at
the Special Meeting.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: As a stockholder of the Company, you will receive $20.00 in cash, without
interest, for each Share that you own. This is the "Merger Consideration." For
example, if you own 100 Shares, upon consummation of the Merger, you will
receive $2,000 in cash.
Q: IF THE MERGER IS CONSUMMATED, WHEN CAN I EXPECT TO RECEIVE THE MERGER
CONSIDERATION FOR MY SHARES?
A: Promptly after the Merger is consummated, you will receive detailed
instructions regarding the surrender of your Share certificates. You should not
send your Share certificates to the Company or anyone else until you receive
these instructions. PCC will send payment of the Merger Consideration to you as
promptly as practicable following receipt of your Share certificates and other
required documents.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect the Merger to be consummated during the first calendar quarter
of 2000.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The receipt of the Merger Consideration by you will be a taxable
transaction for federal income tax purposes. To review the tax consequences to
you in greater detail, see page 30. Your tax consequences will depend on your
personal situation. You should consult your tax advisors for a full
understanding of the tax consequences of the Merger to you.
Q: UPON WHAT AM I BEING ASKED TO VOTE?
A: You are being asked to approve the Merger Agreement, which provides for,
among other things, the Merger. After the Merger, the Company, as the Surviving
Corporation, will be a wholly owned subsidiary of PCC, and you will no longer
own an equity interest in the Surviving Corporation. The Company's Board of
Directors has unanimously approved the Merger Agreement and recommends that you
vote "FOR" the approval of the Merger Agreement.
Q: WHAT DO I NEED TO DO NOW?
A: This Proxy Statement contains important information regarding the Merger
and the Merger Agreement, as well as information about the Company and PCC. It
also contains important information about what the Company's Board of Directors
considered in evaluating the Offer and the Merger. We urge you to read this
Proxy Statement carefully, including its Appendices and Exhibits. You may also
want to review the documents referenced under "Where You Can Find More
Information."
Q: HOW DO I VOTE?
A: Just indicate on your proxy card how you want to vote, and sign and mail
it in the enclosed envelope as soon as possible, so that your Shares will be
represented at the Special Meeting. The
<PAGE>
Special Meeting will take place at the offices of Goodwin, Procter & Hoar LLP,
Exchange Place, 53 State Street, Boston, Massachusetts 02109, on Wednesday,
January 12, 2000, at 10:00 a.m., local time. You may attend the Special Meeting
and vote your Shares in person, rather than voting by proxy. In addition, you
may withdraw your proxy up to and including the day of the Special Meeting and
either change your vote or attend the Special Meeting and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will vote your Shares only if you provide instructions on how
to vote. You should instruct your broker how to vote your Shares, following the
directions your broker provides. If you do not provide instructions to your
broker, your Shares will not be voted and they will be counted as votes against
the proposal to approve the Merger Agreement.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you would like additional copies of this document, or if you would like
to ask any additional questions about the Merger, you should contact:
WYMAN-GORDON COMPANY
244 Worcester Street
P.O. Box 8001
North Grafton, MA 01536-8001
(508) 839-4441
Attention: Clerk
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This Proxy Statement, including through the incorporation by reference of
certain documents in this Proxy Statement, and other statements made from time
to time by the Company, PCC, the Purchaser, or their affiliates or
representatives contain certain forward-looking statements. Those statements
include statements regarding the intent, belief or current expectations of the
Company, PCC and the Purchaser and members of their respective management teams,
as well as the assumptions on which such statements are based. Such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and actual results may differ materially from those
contemplated by such forward-looking statements. Important factors currently
known to management of the Company, PCC and the Purchaser that could cause
actual results to differ materially from those in forward-looking statements
include, but are not limited to, the risks discussed herein and: (i) the ability
to successfully negotiate long-term contracts with customers and raw materials
suppliers at favorable prices and other acceptable terms; (ii) the ability to
obtain required raw materials to supply customers on a timely basis; (iii) the
cyclical nature of the aerospace industry and general industrial cycles; (iv)
the relative success of entry into new markets; (v) competitive pricing; (vi)
relations with employees; (vii) the ability to manage operating costs and to
integrate acquired businesses in an effective manner; (viii) governmental
regulations and environmental matters; (ix) risks associated with international
operations and world economies; (x) timely, effective and cost-efficient
introduction of hardware and software to address the Year 2000 issue; and (xi)
implementation of new technologies. The Company, PCC and the Purchaser undertake
no obligation to update or revise forward-looking statements to reflect changes
in assumptions, the occurrence of unanticipated events, or changes in future
operating results over time.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY..................................................... 1
The Merger................................................ 1
Parties to the Merger..................................... 1
Background of the Merger.................................. 1
Recommendation of the Board of Directors.................. 2
Opinion of Financial Advisor.............................. 2
Method of Accounting...................................... 3
The Special Meeting....................................... 3
Record Date and Voting Power.............................. 3
Quorum and Vote Required.................................. 3
Proxies, Voting and Revocation............................ 3
Effective Time............................................ 3
Exchange of Certificates.................................. 4
Conditions to the Merger.................................. 4
Termination and Amendment of the Merger Agreement......... 4
Prohibition of Solicitation............................... 4
Appraisal Rights of Dissenting Stockholders............... 5
Federal Income Tax Consequences........................... 5
Regulatory and Other Approvals............................ 5
Source and Amount of Funds................................ 5
THE MERGER AND RELATED TRANSACTIONS......................... 6
General................................................... 6
Background of the Merger.................................. 6
Recommendation of the Board of Directors and Reasons for
the Merger.............................................. 9
Opinion of Financial Advisor.............................. 10
Structure of the Merger................................... 15
Method of Accounting...................................... 15
Amendment and Termination of Shareholder Rights
Agreement............................................... 15
Certain Effects of the Merger............................. 15
Conduct of Business Following the Merger.................. 15
Executive Severance Agreements............................ 15
THE SPECIAL MEETING......................................... 18
Date, Time and Place of the Special Meeting............... 18
Purpose of the Special Meeting............................ 18
Record Date and Voting Power.............................. 18
Quorum and Vote Required.................................. 18
Proxies, Voting and Revocation............................ 18
Solicitation of Proxies and Expenses...................... 19
TERMS OF THE MERGER......................................... 20
Effective Time............................................ 20
Conversion of Shares Pursuant to the Merger............... 20
Exchange of Certificates.................................. 20
Conditions to the Merger.................................. 21
Termination of the Merger Agreement....................... 21
Board of Directors........................................ 21
Prohibition of Solicitations.............................. 22
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Expenses; Liquidated Amount............................... 23
Treatment of Stock Options................................ 24
Termination of Employee Stock Purchase Plan............... 24
Certain Employee Benefits................................. 24
Indemnification........................................... 25
Representations and Warranties............................ 26
Waiver and Amendment...................................... 26
APPRAISAL RIGHTS............................................ 28
FEDERAL INCOME TAX CONSEQUENCES............................. 30
REGULATORY AND OTHER APPROVALS.............................. 30
INFORMATION CONCERNING THE COMPANY.......................... 31
INFORMATION CONCERNING THE PURCHASER AND PCC................ 31
SOURCE AND AMOUNT OF FUNDS.................................. 31
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS...................................................... 33
MARKET PRICES AND DIVIDENDS................................. 34
SELECTED FINANCIAL INFORMATION.............................. 35
INDEPENDENT ACCOUNTANTS..................................... 37
STOCKHOLDER PROPOSALS....................................... 37
OTHER MATTERS............................................... 37
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 37
WHERE YOU CAN FIND MORE INFORMATION......................... 38
APPENDICES
Appendix A-- Agreement and Plan of Merger
Appendix B-- Opinion of Financial Advisor
Appendix C-- Sections 85 to 98, inclusive, of Chapter
156B of the Massachusetts General Laws
EXHIBIT I Annual Report on Form 10-K of Wyman-Gordon
Company for the fiscal year ended May 31, 1999
EXHIBIT II Quarterly Report on Form 10-Q of Wyman-Gordon
Company for the quarterly period ended
August 31, 1999
</TABLE>
ii
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
UNDERSTANDING OF THE MERGER, AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL
TERMS OF THE MERGER, YOU SHOULD CAREFULLY READ THIS PROXY STATEMENT IN ITS
ENTIRETY, AS WELL AS THE ADDITIONAL DOCUMENTS TO WHICH WE REFER YOU, INCLUDING
THE MERGER AGREEMENT. SEE "WHERE YOU CAN FIND MORE INFORMATION" (PAGE 38).
THE MERGER (PAGE 6)
Pursuant to the Merger Agreement, the Purchaser will be merged with and into
the Company, with the Company being the Surviving Corporation. As a result of
the Merger, the Company will become a wholly owned subsidiary of PCC and each
then outstanding Share, other than Shares held by the Company, its subsidiaries,
the Purchaser and dissenting stockholders who perfect their appraisal rights,
will, by virtue of the Merger and without any further action on the part of the
holder thereof, be converted automatically into the right to receive $20.00 in
cash, without interest.
After the consummation of the Merger, holders of Shares will have no
continuing equity interest in, and will not share in future earnings, dividends
or growth, if any, of, the Surviving Corporation.
PARTIES TO THE MERGER (PAGE 31)
WYMAN-GORDON COMPANY. The Company, a Massachusetts corporation, is a
leading manufacturer of high-quality, technologically advanced forging and
investment casting components for the commercial aviation, commercial power and
defense industries. The principal executive offices of the Company are located
at 244 Worcester Street, P.O. Box 8001, North Grafton, Massachusetts 01536-8001
and the telephone number of such offices is (508) 839-4441.
WGC ACQUISITION CORP. The Purchaser is a Massachusetts corporation recently
formed by PCC for the purpose of facilitating the Offer and the Merger. The
principal executive offices of the Purchaser are located at 4650 SW Macadam
Avenue, Suite 440, Portland, Oregon 97201 and the telephone number of such
offices is (503) 417-4800.
PRECISION CASTPARTS CORP. PCC, an Oregon corporation, is a manufacturer of
complex metal components and products and the market leader in manufacturing
large, complex structural investment castings. The principal executive offices
of PCC are located at 4650 SW Macadam Avenue, Suite 440, Portland, Oregon 97201
and the telephone number of such offices is (503) 417-4800.
BACKGROUND OF THE MERGER (PAGE 6)
In January 1999, the Company began to actively consider strategic
alternatives, including a potential sale of the Company. On January 13, 1999,
PCC's financial advisor met with representatives of the Company to express PCC's
interest in discussing the possibility of a business combination with the
Company and to request a face-to-face meeting between PCC's and the Company's
executives, which meeting occurred later that month. On February 4, 1999, PCC
sent a letter to the Company indicating PCC's continued interest in pursuing a
possible business combination with the Company. Following the receipt of this
letter from PCC, the Company accelerated its review of various strategic
alternatives. At the March 17, 1999 meeting of the Company's Board of Directors,
the Board considered several strategic alternatives and authorized management to
pursue, among other things, a potential sale of the Company. Following the Board
Meeting, Goldman, Sachs & Co. ("Goldman Sachs"), the Company's financial
advisor, contacted six potential bidders, including PCC. Four of the potential
bidders, including PCC, entered into confidentiality agreements with the
Company. During April 1999, representatives from these companies conducted due
diligence and attended presentations by management of the Company concerning the
Company's business and operations.
1
<PAGE>
On April 28, 1999, Goldman Sachs invited three of the bidders to submit
final binding proposals to acquire the Company. On May 10, 1999, the Company
received responses from two bidders: (i) PCC, who proposed to acquire all of the
outstanding Shares at a price of $18.75 per Share in cash subject to a number of
conditions and (ii) another bidder, who indicated an interest in acquiring all
of the outstanding Shares at a price per Share in cash below PCC's bid.
Following receipt of the bids, the Company's and PCC's legal and financial
advisors engaged in negotiations regarding the Merger Agreement and certain
related matters. As a result of these negotiations, PCC agreed to increase its
proposed purchase price to $20.00 per Share in cash. On May 13, 1999, the
Company's Board of Directors decided to pursue the potential acquisition with
PCC, and on May 15, 1999, the Board approved the Merger Agreement and the
transactions contemplated thereby. On May 17, 1999, PCC, the Purchaser and the
Company executed the Merger Agreement. Pursuant to the terms of the Merger
Agreement, on May 21, 1999, the Purchaser commenced its offer to purchase all of
the outstanding Shares at $20.00 per Share, net to the seller in cash.
In connection with the review by the Federal Trade Commission (the "FTC") of
the transactions contemplated by the Merger Agreement, the Company and PCC
entered into an Agreement Containing Consent Orders with the FTC pursuant to
which the Company and PCC agreed to divest the Company's large cast parts
operations located in Groton, Connecticut and its titanium casting operations
located in Albany, Oregon. Following its approval of the Agreement Containing
Consent Orders, the FTC permitted the Offer to proceed and, on November 24,
1999, at 12:00 midnight, New York City time, the Offer expired. Pursuant to the
Offer, the Purchaser accepted for payment and paid for 35,385,078 Shares.
Immediately following consummation of the Offer, PCC exercised its right
under the Merger Agreement to designate that number of directors of the
Company's Board of Directors that would cause the percentage of the Company's
directors designated by PCC to equal the percentage of outstanding Shares held
by the Purchaser. Until the consummation of the Merger, the Company will have
two directors, David P. Gruber and Warner S. Fletcher, who were directors of the
Company as of the date of the Merger Agreement (the "Independent Directors").
RECOMMENDATION OF THE BOARD OF DIRECTORS (PAGE 9)
After an evaluation of business, financial and market factors and
consultation with its legal and financial advisors, at a meeting of the
Company's Board of Directors held on May 15, 1999, prior to the commencement and
consummation of the Offer, the Board (all of whose members were unaffiliated
with PCC and the Purchaser on that date) determined that the Merger was fair to
and in the best interests of the Company and its stockholders, unanimously
approved and declared the advisability of the Merger Agreement and the
transactions contemplated thereby and unanimously voted to recommend that the
Company's stockholders approve the Merger Agreement.
OPINION OF FINANCIAL ADVISOR (PAGE 10)
On May 17, 1999, Goldman Sachs delivered its written opinion to the Board of
Directors of the Company that, as of the date of such opinion, the $20.00 per
Share in cash to be received by holders of Shares in the Offer and the Merger
was fair from a financial point of view to such holders.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED MAY 17, 1999,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX B AND
IS INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT. THE OPINION OF GOLDMAN
SACHS DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW ANY HOLDER OF SHARES SHOULD
VOTE WITH RESPECT TO THE MERGER. YOU SHOULD READ THE OPINION IN ITS ENTIRETY.
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METHOD OF ACCOUNTING (PAGE 15)
The Merger will be accounted for under the purchase method of accounting.
THE SPECIAL MEETING (PAGE 18)
The Special Meeting will be held at the offices of Goodwin, Procter & Hoar
LLP, Exchange Place, 53 State Street, Boston, Massachusetts 02109, on Wednesday,
January 12, 2000, at 10:00 a.m., local time. At the Special Meeting,
stockholders will be asked to consider and vote upon a proposal to approve the
Merger Agreement.
RECORD DATE AND VOTING POWER (PAGE 18)
The Board of Directors of the Company has fixed the close of business on
December 16, 1999 as the record date (the "Record Date") for determining
stockholders entitled to notice of and to vote at the Special Meeting. On the
Record Date, the Company had 35,986,392 outstanding Shares held by approximately
505 stockholders of record. The Company has no other class of voting securities
outstanding. Stockholders of record on the Record Date will be entitled to one
vote per Share on any matter that may properly come before the Special Meeting
and any adjournment or postponement thereof.
QUORUM AND VOTE REQUIRED (PAGE 18)
Massachusetts law and the Company's Restated Articles of Organization and
Amended and Restated Bylaws require (i) the presence, in person or by duly
executed proxy, of the holders of a majority of the Shares outstanding and
entitled to vote to constitute a quorum and (ii) the affirmative vote of the
holders of two-thirds of the Shares outstanding and entitled to vote to approve
the Merger Agreement. The Shares owned by the Purchaser represent more than
two-thirds of the Shares outstanding and entitled to vote and, therefore, are
sufficient to assure approval of the Merger Agreement without the vote of any
other stockholder.
PROXIES, VOTING AND REVOCATION (PAGE 18)
Shares represented at the Special Meeting by properly executed proxies
received prior to or at the Special Meeting, and not revoked, will be voted at
the Special Meeting, and at any adjournments or postponements thereof, in
accordance with the instructions on the proxies. IF A PROXY IS DULY EXECUTED AND
SUBMITTED WITHOUT INSTRUCTIONS, THE SHARES WILL BE VOTED "FOR" APPROVAL OF THE
MERGER AGREEMENT. PROXIES ARE BEING SOLICITED ON BEHALF OF THE COMPANY'S BOARD
OF DIRECTORS
A proxy may be revoked by the person who executed it at or before the
Special Meeting by: (i) delivering to the Clerk of the Company a written notice
of revocation bearing a later date than the proxy; (ii) duly executing a
subsequent proxy and delivering it to the Clerk; or (iii) attending the Special
Meeting and voting in person. Attendance at the Special Meeting will not, in and
of itself, constitute revocation of a proxy.
EFFECTIVE TIME (PAGE 20)
The Merger will become effective as of the date and time (the "Effective
Time") that Articles of Merger (the "Articles of Merger") are examined by and
receive the endorsed approval of the Secretary of State of the Commonwealth of
Massachusetts in accordance with the Massachusetts General Laws (the "MGL"),
which is expected to occur as soon as practicable after the Special Meeting.
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EXCHANGE OF CERTIFICATES (PAGE 20)
Pursuant to the Merger Agreement, from time to time before or after the
Effective Time, as necessary, the Purchaser will deposit with The Bank of New
York (the "Paying Agent"), the amount of cash equal to the product of the Shares
outstanding immediately prior to the Effective Time, other than Shares held by
the Company, its subsidiaries, the Purchaser and dissenting stockholders who
perfect their appraisal rights, and $20.00. Promptly after the Effective Time,
the Paying Agent will send to each stockholder of record, as of immediately
prior to the Effective Time, a letter of transmittal and detailed instructions
specifying the procedures to be followed in surrendering certificates. SHARE
CERTIFICATES SHOULD NOT BE FORWARDED TO THE PAYING AGENT UNTIL RECEIPT OF THE
LETTER OF TRANSMITTAL. Upon the surrender of a Share certificate, the Paying
Agent will issue to the surrendering holder the Merger Consideration.
CONDITIONS TO THE MERGER (PAGE 21)
The consummation of the Merger is subject to the prior approval of the
Merger Agreement by the holders of two-thirds of the Shares outstanding and
entitled to vote on the matter and certain other customary closing conditions,
including:
- antitrust regulatory approval and the expiration of applicable waiting
periods related thereto;
- receipt of necessary approvals, authorizations and consents of any
governmental or regulatory entity required to consummate the Merger; and
- no preliminary or permanent injunction or other order, decree or ruling
of, nor any statute, rule, regulation or executive order promulgated or
enacted by, any governmental authority which would make the consummation
of the Merger illegal, or otherwise restrict, prevent or prohibit the
consummation of the Merger.
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT (PAGES 21 AND 26)
The Merger Agreement may be terminated at any time prior to the Effective
Time by, among other things, the mutual agreement of the parties or, after the
occurrence of certain events or actions, by one of the parties acting
independently. The Merger Agreement may be amended by the parties at any time,
but after the Merger Agreement has been approved by the stockholders, no
amendment may be made which by law requires further approval of the stockholders
without obtaining such approval. Prior to the Effective Time, the affirmative
vote of a majority of the Independent Directors is required in addition to any
other applicable requirement to (a) amend the Merger Agreement in any material
respect in a manner adverse to any stockholder of the Company or any intended
third-party beneficiary of the Merger Agreement, (b) terminate the Merger
Agreement by the Company, (c) exercise or waive any of the Company's material
rights, benefits or remedies under the Merger Agreement, or (d) extend the time
for performance of PCC's or the Purchaser's respective obligations under the
Merger Agreement.
PROHIBITION OF SOLICITATIONS; LIQUIDATED AMOUNT (PAGES 22 AND 23)
Pursuant to the Merger Agreement, the Company has agreed that it will not,
and will not authorize or permit any of its officers, directors or employees or
any investment banker, financial advisor, attorney, accountant or other
representative to, directly or indirectly, (i) solicit, initiate or encourage,
or take any other action to facilitate, any inquiries or the making of any
proposal that constitutes an Acquisition Proposal (as such term is defined in
"Terms of the Merger--Prohibition of Solicitations"), or (ii) participate in any
discussions or negotiations regarding an Acquisition Proposal. However, if the
Company's Board of Directors determines in good faith, after consultation with
counsel, that such action is necessary to comply with its fiduciary duties to
the Company's stockholders
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under applicable law, the Company, in response to an Acquisition Proposal and
subject to certain other conditions as set forth in the Merger Agreement, may
(A) furnish non-public information with respect to the Company to the person who
made such Acquisition Proposal and (B) participate in negotiations regarding
such Acquisition Proposal. In addition, the Company has agreed that its Board of
Directors shall not (i) withdraw or modify in a manner adverse to PCC or the
Purchaser its approval or recommendation of the Merger Agreement, (ii) approve
or recommend an Acquisition Proposal to its stockholders or (iii) cause the
Company to enter into any definitive acquisition agreement with respect to an
Acquisition Proposal, unless the Board (1) has determined in good faith, after
consultation with counsel, that the Acquisition Proposal is a Superior Proposal
(as such term is defined in "Terms of the Merger--Prohibition of Solicitations")
and such action is necessary to comply with its fiduciary duties to the
Company's stockholders under applicable law and (2) in the case of clause
(iii) above, complies with certain other provisions of the Merger Agreement.
The Merger Agreement provides that if the Merger Agreement is terminated
under certain limited circumstances, PCC may be entitled to receive a liquidated
amount of $25,000,000 from the Company (the "Liquidated Amount").
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS (PAGE 28)
Under Massachusetts law, stockholders who do not vote in favor of the Merger
will be entitled to exercise appraisal rights in connection with the Merger.
Stockholders desiring to exercise such appraisal rights will have the rights and
duties and must follow the procedures set forth in Sections 85 through 98,
inclusive, of Chapter 156B of the MGL, the full text of which is attached to
this Proxy Statement as APPENDIX C. Stockholders who wish to exercise appraisal
rights must carefully follow the procedures described therein and are urged to
read APPENDIX C in its entirety.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 30)
If the Merger is consummated, the exchange of Shares by a holder for the
Merger Consideration will be a taxable transaction under the Internal Revenue
Code of 1986, as amended (the "Code"). Because of the complexities of the tax
laws, stockholders are advised to consult their own tax advisors concerning the
applicable federal, state, local, foreign and other tax consequences resulting
from the Merger.
REGULATORY AND OTHER APPROVALS (PAGE 30)
There are no federal or state regulatory requirements which remain to be
complied with in order to consummate the Merger (other than the filing of the
Articles of Merger with the Secretary of State of the Commonwealth of
Massachusetts).
SOURCE AND AMOUNT OF FUNDS (PAGE 31)
The total amount of funds required by the Purchaser to purchase all of the
Shares tendered pursuant to the Offer and to make all payments to participants
in the Company's Stock Option Plans pursuant to the Merger Agreement was
approximately $719 million. The total amount of funds necessary to consummate
the Merger is estimated to be approximately $12 million. The total amount of
funds necessary to pay all related fees and expenses in connection with the
Offer and the Merger is estimated to be approximately $24 million. The Purchaser
will obtain the necessary funds to consummate the Merger and to pay related fees
and expenses from PCC, which in turn will obtain such funds from its general
corporate funds and borrowings under existing credit facilities.
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THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Merger Agreement provides for the merger of the Purchaser with and into
the Company, with the Company being the Surviving Corporation. As a result of
the Merger, the Company will become a wholly owned subsidiary of PCC. The Merger
Agreement provides that as promptly as practicable after the satisfaction of the
conditions to the Merger, the Merger will be consummated when the Articles of
Merger have been filed with, and have been examined by and received the endorsed
approval of, the Secretary of State of the Commonwealth of Massachusetts. It is
currently anticipated that the filing of the Articles of Merger will occur as
promptly as practicable following the Special Meeting.
As of the Effective Time, holders of Shares will have no further ownership
interest in the Surviving Corporation. In connection with the Merger, the
holders of Shares issued and outstanding immediately prior to the Effective
Time, other than Shares held by the Company, its subsidiaries, the Purchaser and
dissenting stockholders who perfect their appraisal rights, will be entitled to
receive $20.00 in cash per Share, without interest. The Merger Consideration is
the same consideration per Share that was paid to stockholders who tendered
their Shares pursuant to the Offer.
BACKGROUND OF THE MERGER
The Company's stock price has recently been adversely affected by several
factors. In the fiscal year ended May 31, 1998 ("Fiscal 1998"), the Company's
29,000-ton press was taken out of service for six months to repair structural
cracking. The impact of this downtime was to reduce net income by $11.1 million
in Fiscal 1998 and the negative impact continued into the fiscal year ending
May 31, 1999. In late 1998, the Boeing Company, a major customer of the Company,
announced it would reduce its projected aircraft build rate on account of
softening demand for its products. These announcements had a negative impact on
most aerospace stocks including the Company's. As a result of the foregoing and
an announcement in February 1999 that the Company was taking an $11 million
restructuring charge, on February 17, 1999, the Company's stock price closed at
$7.375, a four-year low, down from a high of $30.00 on September 18, 1997.
In addition to the weakness of its stock price, the Company has been
concerned about the evolving competitive dynamics of the aerospace markets it
serves. In recent years there has been a continuing consolidation of both the
Company's customers and its suppliers. This consolidation will put increasing
pressure on the Company's operating margins, particularly as the commercial
aerospace industry enters the down phase of its cycle.
In light of these factors, the Company has, from time to time, considered
various strategic transactions with a view to enhancing shareholder value. In
this regard, the Company entered into preliminary discussions with another
company ("Company X") in March 1998 concerning a potential business combination,
which were eventually abandoned. In connection with these negotiations, the
Company engaged Goldman Sachs to act as its financial advisor. In January 1999,
the Company began to consider more actively its strategic alternatives,
including a potential sale of the Company.
On January 13, 1999, PCC's financial advisor, Schroder & Co. Inc., met with
representatives of the Company to express PCC's interest in discussing the
possibility of a business combination with the Company and to request a
face-to-face meeting between PCC's and the Company's executives. On January 29,
1999, William C. McCormick, Chairman and Chief Executive Officer of PCC, and
William D. Larsson, Chief Financial Officer of PCC, met with David P. Gruber,
the Chairman and Chief Executive Officer of the Company, and Edward J. Davis,
the Chief Financial Officer of the Company at that time, and discussed the
possibility of a business combination between the two companies. PCC did not
receive non-public information with respect to the Company at that time, and no
specific terms were discussed at this meeting.
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On February 4, 1999, PCC sent a letter to the Company indicating PCC's
continued interest in pursuing a possible business combination with the Company.
In this letter, PCC proposed acquiring the Company at a price per Share within
the range of $16.00 to $18.00 in cash, subject to due diligence and a number of
other conditions. PCC also proposed entering into a 45 day exclusivity/due
diligence period during which the parties could negotiate the definitive terms
of a transaction.
Following the receipt of this letter from PCC, the Company accelerated its
review of its various strategic alternatives. In connection with the foregoing,
the Company requested that Goldman Sachs make a presentation concerning these
alternatives at the Company's next Board meeting which was scheduled for
March 17, 1999. At the March 17, 1999 meeting, the Board considered several
potential strategic alternatives, including: (i) maintaining its existing
business strategy, either alone or in conjunction with a large stock repurchase
program; (ii) a leveraged buy-out or a leveraged recapitalization transaction;
(iii) pursuing a large acquisition which would, among other things, reduce the
Company's reliance on the aerospace industry and increase its presence in
Europe; and (iv) a sale of the Company in either a stock or cash transaction.
Goldman Sachs' presentation described the advantages of each of these
alternatives and the issues which the Board should consider in connection with
these transactions. Following this discussion, the Board concluded that, given
the current environment in the commercial aerospace industry, the Company would
have difficulty in enhancing shareholder value if it maintained its STATUS QUO
operations, even if this strategy was combined with a large stock repurchase
program. Therefore, the Board authorized management to pursue two alternatives:
(i) a potential acquisition of a company ("Target") with whom the Company had
engaged in acquisition discussions during the past year and (ii) a potential
sale of the Company.
With respect to the potential sale of the Company, the Board authorized
Goldman Sachs to solicit potential bids to acquire the Company. Following the
Board meeting, Goldman Sachs contacted six potential bidders, including PCC and
Company X. Of these six parties, four (including PCC and Company X) entered into
confidentiality agreements with the Company. During April 1999, these companies
conducted due diligence and attended presentations by the Company's management
concerning its business and operations. On April 28, 1999, on behalf of the
Company, Goldman Sachs invited three of the bidders to submit final binding
proposals to acquire the Company. These proposals were required to include all
material terms including all proposed revisions to the form of merger agreement
prepared by the Company's counsel.
On May 10, 1999, the Company received responses from two bidders. In its
bid, PCC proposed to acquire all of the outstanding Shares at a price of $18.75
per Share in cash subject to a number of conditions. The other bid indicated an
interest in acquiring all of the outstanding Shares at a price per Share in cash
below PCC's bid. This bid did not identify the source of financing for the
transaction and was viewed by the Company as preliminary in nature. Following
receipt of the bids, the Company's and PCC's legal and financial advisors
engaged in negotiations which focused on, among other things, the scope of the
representations, warranties and covenants contained in the Merger Agreement,
issues relating to PCC's financing arrangements, the obligations of the parties
with respect to obtaining antitrust approval, the conditions under which PCC
would be obligated to close the tender offer, the ability of the Company to
terminate the Merger Agreement and to enter into an agreement with a party who
made a Superior Proposal (as defined in "Terms of the Merger--Prohibition of
Solicitations"), and the amount of the termination fee to be paid to PCC in such
circumstances. As a result of these negotiations, PCC agreed to increase its
proposed purchase price to $20.00 per Share in cash.
On May 13, 1999, the Company's Board of Directors held a meeting to consider
the Company's two potential alternatives. At that meeting, Goldman Sachs
provided the Board with a financial analysis of the proposed transaction with
PCC. The other financial advisor provided the Board with a financial analysis of
the potential transaction with Target, including the potential benefits of the
transaction to the Company and its stockholders. The Board then engaged in
extensive discussions concerning the
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potential benefits of these two transactions to the Company and its
stockholders. After these discussions, for the reasons described below, the
Board decided to pursue the potential transaction with PCC provided that the
outstanding issues concerning the Merger Agreement could be resolved in a manner
satisfactory to the Board. Following the Board meeting, the legal and financial
advisors for the two parties engaged in extensive negotiations concerning the
unresolved issues in the Merger Agreement.
On May 15, 1999, the Company's Board met to approve the Merger Agreement and
the transactions contemplated thereby. At that meeting, Goldman Sachs indicated
that, if requested, it was prepared to render an opinion on the fairness of the
transactions. The Company's Board of Directors then, by a unanimous vote,
determined that the Offer and the Merger were fair to and in the best interests
of the Company and its stockholders, approved and declared the advisability of
the Merger Agreement and the transactions contemplated thereby, and unanimously
voted to recommend that the Company's stockholders tender their Shares pursuant
to the Offer and approve the Merger Agreement. On May 17, 1999, PCC, the
Purchaser and the Company then executed the Merger Agreement, pursuant to which
the Purchaser agreed to make the Offer and consummate the Merger. On that date,
Goldman Sachs delivered its written opinion to the effect that the consideration
to be received by the Company's stockholders in the Offer and the Merger was
fair from a financial point of view to the Company's stockholders. A copy of
such opinion describing the assumptions made, matters considered and review
undertaken by Goldman Sachs is attached hereto as APPENDIX B and is incorporated
herein by reference. See "--Opinion of Financial Advisor." The parties then
publicly announced the transaction.
Prior to the execution of the Merger Agreement, the Company amended the
Shareholder Rights Agreement, dated as of October 21, 1998 (the "Rights
Agreement"), by and between the Company and State Street Bank and Trust Company,
as Rights Agent, (i) so that neither the execution nor the delivery of the
Merger Agreement would trigger or otherwise affect any rights or obligations
under the Rights Agreement, including causing the occurrence of a "Distribution
Date" or "Stock Acquisition Date" (both as defined in the Rights Agreement) and
(ii) to terminate the Rights Agreement immediately upon the Effective Time.
Pursuant to the terms of the Merger Agreement, on May 21, 1999, the
Purchaser commenced its offer to purchase all of the outstanding Shares at
$20.00 per Share, net to each selling holder in cash. In connection with the
review by the FTC of the transactions contemplated by the Merger Agreement, the
Company and PCC entered into an Agreement Containing Consent Orders with the FTC
pursuant to which the Company and PCC agreed to divest the Company's large cast
parts operations located in Groton, Connecticut and its titanium casting
operations located in Albany, Oregon. Following its approval of the Agreement
Containing Consent Orders, the FTC permitted the Offer to proceed and, on
November 24, 1999, at 12:00 midnight, New York City time, the Offer expired.
Pursuant to the Offer, the Purchaser purchased 35,385,078 Shares at a price of
$20.00 per Share. As a result of these purchases, the Purchaser owns
approximately 98.33% of the outstanding Shares.
Immediately following consummation of the Offer, PCC exercised its right
under the Merger Agreement to designate that number of directors of the
Company's Board of Directors that would cause the percentage of the Company's
directors designated by PCC to equal the percentage of outstanding Shares held
by the Purchaser. Accordingly, the following individuals resigned from the
Company's Board of Directors: E. Paul Casey, Robert G. Foster, Charles W. Grigg,
M Howard Jacobson, Robert L. Leibensperger, Andrew E. Lietz, J. Douglas Whelan
and David A. White, Jr. Effective November 25, 1999, the Board of Directors of
the Company was reduced to five directors, and three designees of PCC, Mark
Donegan, William C. McCormick and William D. Larsson, were appointed to fill the
vacancies on the Board. Until the consummation of the Merger, the Company will
have two directors, David P. Gruber and Warner S. Fletcher, who were directors
of the Company as of the date of the Merger Agreement. See "Terms of the
Merger--Board of Directors."
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Effective as of December 1, 1999, the Company sold its large cast parts
operations located in Groton, Connecticut to DONCASTERS, Inc. in accordance with
the terms of the Agreement Containing Consent Orders. The Company has entered
into an agreement with a subsidiary of Ladish Co., Inc. to sell its titanium
castings operations located in Albany, Oregon. The closing of the transaction is
subject to customary closing conditions and FTC approval.
RECOMMENDATION OF THE BOARD OF DIRECTORS AND REASONS FOR THE MERGER
At a meeting of the Company's Board of Directors held on May 15, 1999, prior
to the commencement and consummation of the Offer, the Board (all of whose
members were unaffiliated with PCC and the Purchaser on that date) determined
that the Merger was fair to and in the best interests of the Company and its
stockholders, unanimously approved and declared the advisability of the Merger
Agreement and the transactions contemplated thereby and unanimously voted to
recommend that the Company's stockholders tender their Shares pursuant to the
Offer and approve the Merger Agreement.
In reaching its determination regarding the transactions contemplated by the
Merger Agreement, the Company's Board of Directors considered a number of
factors, including, without limitation, the following:
(1) The Company's business, assets, management, strategic objectives,
competitive position and prospects.
(2) The Company's historical financial information and projected
financial results, including those set forth in the strategic plans
developed annually by the Company and management's most recent projections.
(3) Historical market prices and trading information with respect to the
Shares and a comparison of these market prices and trading information with
those of selected publicly-held companies of similar sizes operating in
industries similar to that of the Company and the various price to earning
multiples at which the Shares and the securities of these other companies
trade.
(4) A financial analysis of the valuation of the Company under various
methodologies, including a discounted cash flow analysis, a leveraged
buy-out analysis, and pro forma merger analysis.
(5) The then current ownership of the Shares.
(6) The prices and forms of consideration paid in selected recent
comparable acquisition transactions, and the fact that the price to be paid
under the Merger Agreement to holders of the Shares compares favorably to
the prices paid in other recent acquisition transactions of comparable size.
(7) The fact that the $20.00 per Share price paid in the Offer and to be
paid in the Merger represents (A) a premium of 50.9% over $13.25, the
closing price of the Shares on the New York Stock Exchange ("NYSE") on
May 14, 1999, (B) a premium of 102.6% over $9.875, the 60 day average of the
closing price of the Shares as of May 14, 1999, and (C) a premium of 127.0%
over $8.8125, the closing price of the Shares on March 16, 1999, the date
prior to the meeting of the Board of Directors at which pursuit of strategic
alternatives was authorized, and the fact that these premiums compare
favorably to premiums paid in other recent acquisition transactions of
comparable size.
(8) The terms and conditions of the Merger Agreement, including the "all
cash" nature of the transaction and the facts that (A) the Offer and Merger
are not subject to a financing condition, (B) PCC and the Purchaser agreed
that Shares not purchased in the Offer will receive pursuant to the Merger
the same form and amount of consideration as the Shares purchased in
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the Offer, and (C) the Company, under certain circumstances and subject to
certain conditions (including the payment of the Liquidated Amount) may
terminate the Merger Agreement in order to execute an agreement with a third
party providing for the acquisition of the Company on terms more favorable
to the Company's stockholders than the Offer and the Merger.
(9) The strategic alternatives to the Merger and the Offer that might be
available to the Company, including (A) maintaining its existing business
strategy, either alone or in conjunction with a large stock repurchase
program, (B) a leveraged buy-out or a leveraged recapitalization
transaction, and (C) pursuing a large acquisition which would, among other
things, reduce the Company's reliance on the aerospace industry and increase
its presence in Europe.
(10) The opinion of Goldman Sachs, delivered to the Company's Board of
Directors on May 17, 1999, that as of such date, and based upon and subject
to various considerations set forth therein, the consideration to be
received by the Company's stockholders in the Offer and the Merger was fair
from a financial point of view to such stockholders (a copy of such opinion
is attached hereto as APPENDIX B and is incorporated herein by reference).
In view of the wide variety of factors considered by the Company's Board of
Directors, the Board did not find it practicable to, and did not, assign
relative weights to the factors set forth above. Rather, the Company's Board of
Directors reached its determination based on the totality of the circumstances
and the advice presented to it by its financial and legal advisors.
In analyzing the Offer and the Merger, the Company's management and Board of
Directors were assisted and advised by representatives of Goldman Sachs and the
Company's counsel, who reviewed various financial, legal and other
considerations in addition to the terms of the Merger Agreement.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS A VOTE "FOR"
THE APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
On May 17, 1999, Goldman Sachs delivered its written opinion to the Board of
Directors of the Company that, as of the date of such opinion, the $20 per Share
in cash to be received by holders of Shares in the Offer and the Merger was fair
from a financial point of view to such holders.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED MAY 17, 1999,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX B AND
IS INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT. YOU SHOULD READ THE
OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
- the Merger Agreement;
- annual reports to stockholders and annual reports on Form 10-K of the
Company for the five fiscal years ended May 31, 1998;
- interim reports to stockholders and quarterly reports on Form 10-Q of the
Company;
- other communications from the Company to its stockholders; and
- internal financial analyses and forecasts for the Company prepared by its
management.
Goldman Sachs also held discussions with members of the senior management of
the Company regarding its past and current business operations, financial
condition and future prospects. In addition, Goldman Sachs:
- reviewed the reported price and trading activity for the Shares;
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- compared financial and stock market information for the Company with
similar information for certain other companies the securities of which
are publicly traded;
- reviewed the financial terms of certain recent business combinations in
the aerospace components industry specifically and in other industries
generally; and
- performed other studies and analyses Goldman Sachs considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. Goldman Sachs did not make
an independent evaluation or appraisal of the assets and liabilities of the
Company or any of its subsidiaries and was not furnished with any such
evaluation or appraisal. The advisory services and opinion of Goldman Sachs were
provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transactions contemplated by
the Merger Agreement, and the opinion does not constitute a recommendation as to
how any holder of Shares should vote with respect to the Merger.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its opinion to the Company's Board of
Directors on May 18, 1999.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
(i) HISTORICAL STOCK TRADING ANALYSIS. Goldman Sachs reviewed the
historical trading prices and volumes for the Shares. In addition, Goldman
Sachs analyzed the $20.00 per Share consideration to be received by holders
of the Company's common stock pursuant to the Offer and the Merger, in
relation to the market price of the Company's common stock at specific
dates. This analysis indicated that per Share consideration of $20.00 would
represent the following premiums to recent market prices:
<TABLE>
<CAPTION>
RECENT PRICES PREMIUM
- ------------------------------------------------------------ --------
<S> <C>
Market price as of May 14, 1999............................. 50.9%
Market price as of March 16, 1998........................... 127.0%
Average for the 60 day period prior to May 14, 1999......... 102.6%
</TABLE>
(ii) DISCOUNTED CASH FLOW ANALYSIS. Goldman Sachs performed a discounted
cash flow analysis under the following two scenarios: (a) using the Company
management's projections (the "Base Case") and (b) using the Company
management's projections, assuming flat earnings before interest, taxes,
depreciation and amortization, or EBITDA, margins of 13.8% in the years
2000-2004 (the "Flat Margin Case"). Goldman Sachs calculated a net present
value of free cash flows for the years 1999 through 2004 using discount
rates ranging from 11% to 15%, discounted to the beginning of fiscal year
2000. Goldman Sachs calculated the Company's terminal values in the year
2004 based on multiples ranging from 5x EBITDA to 8x EBITDA. The terminal
values were then discounted to present value using discount rates from 11%
to 15%. The implied per Share values derived from such analysis, which
ranged from $14.69 to $25.03 in the Base Case and from $11.48 to $20.14 in
the Flat Margin Case, are set forth in the chart below.
<TABLE>
<CAPTION>
BASE CASE FLAT MARGIN CASE
DISCOUNT RATE DISCOUNT RATE
------------------------------ ------------------------------
11.0% 13.0% 15.0% 11.0% 13.0% 15.0%
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Terminal 5.0x $17.41 $15.99 $14.69 $13.80 $12.58 $11.48
Value 6.0x $19.94 $18.23 $16.87 $16.07 $14.65 $13.38
Multiple 7.0x $22.53 $20.71 $18.98 $18.15 $16.64 $15.27
of EBITDA 8.0x $25.03 $23.08 $21.21 $20.14 $18.39 $17.08
</TABLE>
11
<PAGE>
(iii) SELECTED COMPANIES ANALYSIS. In order to assess how the public
market values shares of similar publicly-traded companies, Goldman Sachs
reviewed and compared selected financial information for the Company to
corresponding financial information, ratios and public market multiples for
the following nine publicly-traded aerospace subsystems companies:
- BF Goodrich Co.;
- Crane Co.;
- Cordant Technologies Inc.;
- Curtiss-Wright Corporation;
- Doncasters plc;
- Howmet International Inc.;
- Hexcel Corporation;
- Ladish Inc.; and
- Precision Castparts Corp.
and for the following four publicly-traded specialty metals companies:
- Allegheny Teledyne Incorporated;
- Carpenter Technology Corporation;
- Rti International Metals Inc.; and
- Titanium Metals Corporation, Inc.
The selected companies were chosen because they are publicly-traded
companies with operations that for purposes of analysis may be considered
similar to the Company. The multiples and ratios were calculated using the
closing price for the common stock of the Company and each of the selected
companies on May 12, 1999 and, except as otherwise indicated below, were based
on the most recent publicly available information. Goldman Sachs' analyses of
the selected companies compared the following to the results for the Company:
- closing share price on May 12, 1999 as a percentage of 52-week high share
price;
- levered market capitalization, which is the market value of common equity
PLUS the book value of debt LESS the book amount of cash, as a multiple of
latest 12 months sales;
- levered market capitalization as a multiple of latest 12 months EBITDA;
- levered market capitalization as a multiple of latest 12 months earnings
before interest and taxation, or EBIT;
- multiple of price to estimated calendar year 1999 and 2000 earnings, or
P/E Multiples (estimated by Institutional Brokers Estimate System, or
IBES);
- IBES estimated five year annualized growth rate of earnings per share;
- ratio of 1999 P/E Multiple to IBES estimated five year growth rate of
earnings per share; and
- ratio of net debt to total capitalization, expressed as a percentage.
12
<PAGE>
The results of these analyses are summarized as follows:
<TABLE>
<CAPTION>
SELECTED PUBLICLY-TRADED
AEROSPACE SELECTED PUBLICLY-TRADED
SUBSYSTEMS COMPANIES SPECIALTY METAL COMPANIES
----------------------------------- ---------------------------------------------
RANGE MEDIAN MEAN RANGE MEDIAN MEAN COMPANY
------------- -------- -------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
May 12, 1999 Closing
Share Price as a
Percentage of 52-Week
High Share Price....... 38.6%-100% 72.8% 69.3% 29.2%-87.1% 56.4% 57.3% 60.6%
Levered Market
Capitalization as a
Multiple of Latest 12
Month Sales............ 0.4x-1.3x 1.1x 1.0x 0.8x-1.2x 1.0x 1.0x 0.7x
Levered Market
Capitalization as a
Multiple of Latest 12
Month EBITDA........... 2.8x-8.5x 6.7x 6.1x 4.0x-8.4x 4.9x 5.6x 6.0x
Levered Market
Capitalization as a
Multiple of Latest 12
Month EBIT............. 4.0x-10.7x 8.9x 8.1x 4.5x-10.3x 6.7x 7.1x 8.5x
IBES 1999 P/E Multiple... 6.3x-14.0x 11.6x 11.0x 10.8x-15.1x 13.6x 13.2x 10.0x
IBES 2000 P/E Multiple... 4.9x-12.5x 9.9x 9.5x 8.8x-11.3x 10.7x 10.4x 9.3x
IBES Estimated 5-Year
Annualized Growth Rate
of Earnings per
Share.................. 8.0%-17.7% 13.8% 13.4% 1.0%-15.0% 13.9% 13.2% 8.0%
Ratio of IBES 1999 P/E
Multiple to IBES
Estimated 5-Year
Annualized Growth Rate
of Earnings per
Share.................. 0.5x-1.2x 0.8x 0.8x 0.7x-1.2x 0.9x 0.9x 1.3x
Ratio of Net Debt to
Total Capitalization... (11.7)%-72.6% 38.6% 32.9% 7.6%-44.2 % 31.9% 28.9% 27.5%
</TABLE>
(iv) SELECTED TRANSACTIONS ANALYSIS. Goldman Sachs compared certain
information for 23 selected transactions in the aerospace industry that were
announced since 1996 to similar information for the proposed Merger,
including:
- aggregate consideration as a multiple of last 12 months sales;
- aggregate consideration as a multiple of last 12 months EBIT;
- aggregate consideration as a multiple of last 12 months EBITDA;
- aggregate consideration as a multiple of next year sales; and
- aggregate consideration as a multiple of next year EBIT.
13
<PAGE>
The results of the analyses are summarized as follows:
<TABLE>
<CAPTION>
SELECTED TRANSACTIONS IN
THE AEROSPACE COMPONENTS INDUSTRY
- ---------------------------------------------------------------------------------
RATIO/MULTIPLE MEDIAN COMPANY
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Aggregate Consideration as a Multiple of Last 12 Months
Sales..................................................... 1.3x 0.99x
Aggregate Consideration as a Multiple of Last 12 Months
EBIT...................................................... 11.1x 16.0x
Aggregate Consideration as a Multiple of Last 12 Months
EBITDA.................................................... 9.3x 10.5x
Aggregate Consideration as a Multiple of Next Year Sales.... 1.3x 1.12x*
Aggregate Consideration as a Multiple of Next Year EBIT..... 9.4x 11.2*
</TABLE>
- ------------------------
* Fiscal year 2000 estimate, using Base Case.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
the Company or the contemplated Merger.
The analyses were prepared solely for purposes of providing an opinion to
the Board of Directors of the Company as to the fairness from a financial point
of view of the consideration to be received by holders of Shares in the Offer
and the Merger. The analyses do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of the Company, PCC, Goldman
Sachs or any other person assumes responsibility if future results are
materially different from those forecast.
As described above, Goldman Sachs' opinion to the Board of Directors of the
Company was one of many factors taken into consideration by the Board of
Directors of the Company in making its determination to approve the Offer and
the Merger. The foregoing summary does not purport to be a complete description
of the analyses performed by Goldman Sachs and is qualified by reference to the
opinion of Goldman Sachs set forth in APPENDIX B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as its financial advisor
in connection with, and having participated in certain of the negotiations
leading to, the Merger Agreement. Goldman Sachs also has provided investment
banking services to PCC from time to time, including having acted as managing
underwriter of a public offering of $150,000,000 aggregate principal amount of
6 1/8% Senior Notes of PCC due December 15, 2007 in December 1997, and may
provide investment banking services to PCC and its subsidiaries in the future.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of the Company or PCC for its own account and for the accounts of customers.
Pursuant to a letter agreement dated May 13, 1998, as amended on April 5,
1999, the Company engaged Goldman Sachs to act as its financial advisor in
connection with the possible sale of all or a portion of the Company. Pursuant
to the terms of this letter agreement, as amended, the Company paid Goldman
Sachs a transaction fee of $8,858,156 upon completion of the Offer. The Company
also
14
<PAGE>
has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including attorneys' fees, and to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
STRUCTURE OF THE MERGER
In the Merger, each Share issued and outstanding immediately prior to the
Effective Time, other than Shares held by the Company, its subsidiaries, the
Purchaser and dissenting stockholders who perfect their appraisal rights, will
be cancelled and retired and be converted into the right to receive the Merger
Consideration.
The acquisition of Shares is structured as a cash merger with the Company as
the Surviving Corporation to ensure that PCC will acquire the outstanding
ownership of the Company from all public stockholders and at the same time not
materially disrupt the Company's operations.
METHOD OF ACCOUNTING
The Merger will be accounted for under the purchase method of accounting.
AMENDMENT AND TERMINATION OF SHAREHOLDER RIGHTS AGREEMENT
Prior to the execution of the Merger Agreement, the Board of Directors of
the Company amended the Rights Agreement (i) so that neither the execution nor
the delivery of the Merger Agreement would trigger or otherwise affect any
rights or obligations under the Rights Agreement, including causing the
occurrence of a "Distribution Date" or "Stock Acquisition Date" (both as defined
in the Rights Agreement) and (ii) to terminate the Rights Agreement immediately
upon the Effective Time.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, holders of Shares will not have an opportunity
to continue their equity interest in the Surviving Corporation as an ongoing
corporation and, therefore, will not have the opportunity to share in its future
earnings, dividends or growth, if any. At the Effective Time, all of the
outstanding Shares will be held by PCC.
CONDUCT OF BUSINESS FOLLOWING THE MERGER
Following consummation of the Merger, the Company will be a wholly owned
subsidiary of PCC. To the Company's knowledge, PCC has no definitive plans to
make material changes in the business or operations of the Company and intends
to continue to operate the Company under the name Wyman-Gordon Company. Based on
its review of the operations of the Company following the Merger, however, PCC
may make changes to the Company's assets, capitalization, organizational
structure and management.
EXECUTIVE SEVERANCE AGREEMENTS
The Company has entered into executive severance agreements with the
following officers of the Company: David P. Gruber, J. Douglas Whelan, Sanjay N.
Shah, J. Stewart Smith, Colin Stead, Wallace F. Whitney, Jr., Frank J. Zugel,
David J. Sulzbach and William T. McGovern. Each severance agreement provides
that in the event of the Qualifying Termination (as defined in the agreement) of
the officer's employment within three years following a change in control (as
defined in the agreement) of the Company, the officer is entitled to the
following severance benefits: (i) a payment equal to a maximum of 250% of the
officer's total annual compensation (as defined in the agreement); (ii)
continuation of medical, accident, disability, life and any other insurance
coverages for up to 24 months following termination; (iii) accelerated vesting
of existing options and stock appreciation rights; and
15
<PAGE>
(iv) two years of additional accrual under the Company's Supplemental Retirement
Plan for Senior Executives. No benefits are payable under the severance
agreements in the event of the 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
officer to benefits. The consummation of the transactions contemplated by the
Merger Agreement constitutes a change in control under each officer's severance
agreement. The following events, among others, are deemed "Qualifying
Terminations" under each officer's severance agreement that would entitle him to
receive severance benefits: (i) a change in the officer's status or position
with the Company that, in the officer's reasonable judgment, represents an
adverse change from his status or position in effect immediately before the
change of control; (ii) the assignment to the officer of any duties or
responsibilities that, in his reasonable judgment, are inconsistent with his
status or position in effect immediately before the change of control;
(iii) the layoff or involuntary termination of the officer's employment, except
in connection with the termination of the officer's employment for cause (as
defined in the agreement) or as a result of his death, retirement or disability
(as defined in the agreement); (iv) a reduction by the Company in the officer's
total compensation as in effect at the time of the change of control or as the
same may be increased from time to time; (v) the failure by the Company to
continue in effect any Plan (as defined in the agreement) in which the officer
is participating at the time of the change of control; (vi) any action or
inaction by the Company that would adversely affect the officer's continued
participation in any Plan (as defined in the agreement) on at least as favorable
a basis as was the case at the time of the change of control, or that would
materially reduce the officer's benefits in the future under the Plan (as
defined in the agreement) or deprive him of any material benefits that he
enjoyed at the time of the change of control, except to the extent that such
action or inaction by the Company is required by the terms of the Plan (as
defined in the agreement) as in effect immediately before the change of control,
or is necessary to comply with applicable law or to preserve the qualification
of the Plan under Section 401(a) of the Code, and except to the extent that the
Company provides the officer with substantially equivalent benefits; (vii) the
Company's failure to obtain the express assumption of the agreement by any
successor to the Company as provided in the agreement; (viii) any material
violation by the Company of any agreement between it and the officer; and
(ix) the failure by the Company, without the officer's consent, to pay him any
portion of his current compensation, or to pay him any portion of any deferred
compensation, within 30 days of the date the officer notifies the Company that
such compensation is due. The severance agreements also provide that in the
event the receipt of the severance payments causes the officer to become subject
to the 20 percent excise tax imposed by Section 280G of the Code, the severance
payments will be reduced to a level at which no excise tax will be imposed only
if the officer's net after-tax benefit is greater with the reduction. The
officer's severance payments will not be reduced if the officer's net after-tax
benefit is greater without the reduction. In this case, the Company's tax
deductions with respect to the officer's severance benefit will be limited to an
amount that does not exceed the officer's average taxable compensation in the
last five years.
16
<PAGE>
As a result of the Purchaser's acceptance and payment for shares pursuant to
the Offer, the performance shares and options set forth in the following table
held by the officers became fully vested.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF OPTION SHARES
NAME PERFORMANCE SHARES OPTION SHARES EXERCISE PRICE($)
- ---- ------------------ ------------- -----------------
<S> <C> <C> <C>
David P. Gruber................................. 5,700 29,250 16.625
J. Douglas Whelan............................... 3,800 19,750 16.625
William T. McGovern............................. -- 15,000 9.875
Sanjay N. Shah.................................. 2,800 14,625 16.625
J. Stewart Smith................................ 1,820 11,539 16.75
Colin Stead..................................... 1,820 11,539 16.75
David J. Sulzbach............................... 1,820 11,539 16.75
Wallace F. Whitney, Jr.......................... 2,800 14,625 16.625
Frank J. Zugel.................................. 3,800 19,750 16.625
</TABLE>
17
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held at the offices of Goodwin, Procter & Hoar
LLP, Exchange Place, 53 State Street, Boston, Massachusetts 02109, on Wednesday,
January 12, 2000, at 10:00 a.m., local time.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, stockholders will be asked to consider and vote upon
a proposal to approve the Merger Agreement. The Merger Agreement provides for
the merger of the Purchaser with and into the Company, with the Company being
the Surviving Corporation. See "The Merger and Related Transactions."
RECORD DATE AND VOTING POWER
The Board of Directors of the Company has fixed the close of business on
December 16, 1999 as the record date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were 35,986,392 outstanding Shares held by approximately 505 holders of
record. The Shares constitute the Company's only outstanding class of stock.
Stockholders of record on the Record Date will be entitled to one vote per Share
on any matter that properly comes before the Special Meeting and any adjournment
or postponement thereof.
QUORUM AND VOTE REQUIRED
Massachusetts law and the Company's Restated Articles of Organization and
Amended and Restated Bylaws require (i) the presence, in person or by duly
executed proxy, of the holders of a majority of the Shares outstanding and
entitled to vote to constitute a quorum and (ii) the affirmative vote of the
holders of two-thirds of the Shares outstanding and entitled to vote to approve
the Merger Agreement. For purposes only of determining the presence or absence
of a quorum for the transaction of business, the Company intends to count
abstentions and broker non-votes as present at the Special Meeting. Abstentions
and broker non-votes are not counted as favorable votes and, therefore, have the
same effect as a vote against the proposal. Broker non-votes are proxies from
brokers or other nominees indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote the
shares which are the subject of the proxy on a particular matter with respect to
which the broker or other nominee does not have discretionary voting power.
The Purchaser owns 35,385,078, or approximately 98.33%, of the outstanding
Shares and intends to vote all of its Shares in favor of the Merger Agreement.
Accordingly, approval of the Merger Agreement is assured without the vote of any
other stockholder.
PROXIES, VOTING AND REVOCATION
Shares represented at the Special Meeting by properly executed proxies
received prior to or at the Special Meeting, and not revoked, will be voted at
the Special Meeting, and at any adjournments or postponements thereof, in
accordance with the instructions on the proxies. IF A PROXY IS DULY EXECUTED AND
SUBMITTED WITHOUT INSTRUCTIONS, THE SHARES WILL BE VOTED "FOR" APPROVAL OF THE
MERGER AGREEMENT. PROXIES ARE BEING SOLICITED ON BEHALF OF THE COMPANY'S BOARD
OF DIRECTORS.
A proxy may be revoked at any time before it is voted. Proxies may be
revoked by the person who executed it at or before the Special Meeting by: (i)
delivering to the Clerk of the Company a written notice of revocation bearing a
later date than the proxy; (ii) duly executing a subsequent proxy and delivering
it to the Clerk; or (iii) attending the Special Meeting and voting in person.
Attendance at the Special Meeting will not, in and of itself, constitute
revocation of a proxy. Any written notice revoking
18
<PAGE>
a proxy should be delivered to Wyman-Gordon Company, 244 Worcester Street,
P.O. Box 8001, North Grafton, Massachusetts 01536-8001, Attention: Clerk.
SOLICITATION OF PROXIES AND EXPENSES
The Company will bear the entire cost of solicitation of proxies from its
stockholders. 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 will reimburse
persons representing beneficial owners of Shares for their expenses in
forwarding solicitation material to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
19
<PAGE>
TERMS OF THE MERGER
THE TERMS OF AND CONDITIONS TO THE MERGER ARE CONTAINED IN THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A AND
INCORPORATED HEREIN BY REFERENCE. SET FORTH BELOW IS A DESCRIPTION OF THE
MATERIAL TERMS AND CONDITIONS OF THE MERGER. THIS DESCRIPTION IS QUALIFIED IN
ITS ENTIRETY BY, AND MADE SUBJECT TO, THE MORE COMPLETE INFORMATION SET FORTH IN
THE MERGER AGREEMENT.
EFFECTIVE TIME
If the Merger Agreement is adopted by the requisite vote of the holders of
Shares and the other conditions to the Merger are satisfied, the Merger will be
consummated and become effective on the date on which Articles of Merger are
examined by, and receive the endorsed approval of, the Secretary of State of the
Commonwealth of Massachusetts. The Company is required to file the Articles of
Merger with the Secretary of State of the Commonwealth of Massachusetts as
promptly as practicable after all of the conditions to the Merger have been
satisfied. Under the terms of the Merger Agreement, the closing of the Merger
(the "Closing") will take place at such time and on a date to be specified by
PCC, the Purchaser and the Company (the "Closing Date"), which, pursuant to the
Merger Agreement, will be no later than the second business day after
satisfaction of all of the conditions to the Merger, or as otherwise agreed to
by the parties.
CONVERSION OF SHARES PURSUANT TO THE MERGER
At the Effective Time, each Share issued and outstanding immediately prior
to the Effective Time, other than Shares held by the Company, its subsidiaries,
the Purchaser and dissenting stockholders who perfect their appraisal rights,
will be converted into the right to receive the Merger Consideration.
EXCHANGE OF CERTIFICATES
The Purchaser has designated The Bank of New York to act as Paying Agent in
the Merger. Promptly after the Effective Time, the Paying Agent will mail to
each record holder of an outstanding certificate or certificates which
immediately prior to the Effective Time represented Shares (each, a
"Certificate"), whose Shares were converted into the right to receive the Merger
Consideration, a letter of transmittal (which will specify that delivery will be
effected and risk of loss and title to Certificates will pass, only upon proper
delivery of the Certificate to the Paying Agent) and instructions for use
thereof in effecting the surrender of a Certificate for payment therefor.
STOCKHOLDERS ARE URGED NOT TO SURRENDER THEIR CERTIFICATES UNTIL SUCH LETTER OF
TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED.
Upon the surrender to the Paying Agent of a Certificate, together with the
duly executed letter of transmittal and any other required documents, and
subject to any required withholding of taxes, the holder of such Certificate
will be paid the Merger Consideration for each Share previously represented by
such Certificate, and the Certificate will then be cancelled.
No interest will be paid or accrued on the cash payable upon the surrender
of a Certificate. If payment is to be made to a holder other than the registered
holder of the Certificate surrendered, it will be a condition of payment that
the Certificate so surrendered be properly endorsed or otherwise in proper form
for transfer and that the person requesting such exchange pay transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered in accordance with the aforementioned provisions, each Certificate
will, after the Effective Time, represent solely the right to receive the Merger
Consideration.
After the Effective Time, there will be no transfers on the stock books of
the Company. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Paying Agent, they will be cancelled and exchanged
for the Merger Consideration, without interest. However, no holder of
20
<PAGE>
a Certificate will have any greater rights against the Surviving Corporation
than may be accorded to general creditors of the Surviving Corporation under
applicable law.
CONDITIONS TO THE MERGER
The Merger Agreement provides that the obligations of the Company, PCC and
the Purchaser to effect the Merger are subject to the fulfillment or waiver, at
or prior to the Closing Date, of each of the following conditions: (i) the
Merger Agreement and the transactions contemplated thereby shall have been
approved and adopted by the affirmative vote of the stockholders of the Company
to the extent required by the MGL and the Restated Articles of Organization of
the Company; (ii) any waiting period (and any extension thereof) applicable to
the consummation of the Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 shall have expired or been terminated; (iii) all
necessary approvals, authorizations and consents of any governmental or
regulatory entity required to consummate the Merger shall have been obtained and
remain in full force and effect, and all waiting periods relating to such
approvals, authorizations and consents shall have expired or been terminated,
except where such failure would not have a material adverse effect on either the
Company or PCC, as the case may be, or would not be reasonably likely to affect
adversely the ability of the Company or the Purchaser, as the case may be, to
consummate the Merger; (iv) no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission nor any statute,
rule, regulation or executive order promulgated or enacted by any governmental
authority shall be in effect which would (A) make the consummation of the Merger
illegal, or (B) otherwise restrict, prevent or prohibit the consummation of the
Merger; and (v) PCC, the Purchaser or their affiliates shall have purchased
Shares pursuant to the Offer.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after stockholder approval thereof: (i) by the mutual
written consent of PCC or the Purchaser and the Company; (ii) by either of the
Company or PCC or the Purchaser, if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action (which order, decree, ruling
or other action the parties hereto shall use their best efforts to lift), which
permanently restrains, enjoins or otherwise prohibits the acceptance for payment
of, or payment for, Shares pursuant to the Merger; or (iii) by the Company
(A) in connection with entering into a definitive agreement to effect a Superior
Proposal in accordance with the provisions of the Merger Agreement or
(B) subject to certain conditions, PCC or Purchaser shall have breached in any
material respect any of their respective representations, warranties, covenants
or other agreements contained in the Merger Agreement. The Merger Agreement
further provides that (x) in the event of the termination of the Merger
Agreement, the Merger Agreement shall forthwith become null and void and have no
effect, without any liability on the part of any party thereto or its
affiliates, trustees, directors, officers or stockholders and all rights and
obligations of PCC, the Purchaser or the Company, shall cease except for certain
agreements as set forth in the Merger Agreement; provided, however, that nothing
in the Merger Agreement shall relieve any party from liability for any fraud or
willful breach of the Merger Agreement, and (y) if the Company terminates the
Merger Agreement under certain conditions, then the Company shall concurrently
pay to PCC the Liquidated Amount. See "--Expenses; Liquidated Amount." The
affirmative vote of a majority of the Independent Directors is required to cause
the Company to terminate the Merger Agreement. See "--Board of Directors."
BOARD OF DIRECTORS
The Merger Agreement provides that, promptly upon the purchase of Shares
pursuant to the Offer, PCC shall be entitled to designate such number of
directors, rounded up to the next whole
21
<PAGE>
number, on the Company's Board of Directors as is equal to the product of
(a) the total number of directors on the Company's Board of Directors (after
giving effect to the directors designated by PCC pursuant to this sentence) and
(b) the percentage that the total votes represented by such number of Shares in
the election of directors of the Company so purchased bears to the total votes
represented by the number of Shares outstanding. In furtherance thereof, the
Company agreed, upon request by PCC, to promptly increase the size of the
Company's Board of Directors and/or exercise its commercially reasonable best
efforts to secure the resignations of such number of its directors as necessary
to enable PCC's designees to be elected to the Company's Board of Directors and
shall take all actions to cause PCC's designees to be so elected to the
Company's Board of Directors. At such time, the Company also agreed to cause
persons designated by PCC to constitute at least the same percentage (rounded up
to the next whole number) as is on the Company's Board of Directors of (i) each
committee of the Company's Board of Directors, (ii) each board of directors (or
similar body) of each subsidiary of the Company and (iii) each committee (or
similar body) of each such board. The foregoing provisions are in addition to
and shall not limit any rights which the Purchaser, PCC or any of their
affiliates may have as a holder or beneficial owner of Shares as a matter of law
with respect to the election of directors or otherwise. In the event that PCC's
designees are elected to the Company's Board of Directors, until the Effective
Time, the Company's Board of Directors shall have at least two Independent
Directors; provided that, in such event, if the number of Independent Directors
shall be reduced below two for any reason whatsoever, the remaining Independent
Director shall be entitled to designate the person to fill such vacancy who
shall be deemed to be an Independent Director for purposes of the Merger
Agreement or, if no Independent Director then remains, the other directors shall
designate two persons to fill such vacancies who shall not be stockholders,
affiliates or associates of PCC or the Purchaser and such persons shall be
deemed to be Independent Directors for purposes of the Merger Agreement.
In accordance with the foregoing, on November 25, 1999, eight individuals
resigned from the Company's Board of Directors and the size of the Board of
Directors was reduced to five directors. Effective November 25, 1999, PCC
designated three individuals to fill the vacancies. See "The Merger and Related
Transactions--Background of the Merger." The two Independent Directors on the
Company's Board are David P. Gruber and Warner S. Fletcher. Prior to the
Effective Time, the affirmative vote of a majority of the Independent Directors
is required in addition to any other applicable requirement to (a) amend the
Merger Agreement in any material respect in a manner adverse to any stockholder
of the Company or any intended third-party beneficiary of the Merger Agreement,
(b) terminate the Merger Agreement by the Company, (c) exercise or waive any of
the Company's material rights, benefits or remedies under the Merger Agreement,
or (d) extend the time for performance of PCC's or the Purchaser's respective
obligations under the Merger Agreement.
PROHIBITION OF SOLICITATIONS
The Company agreed that it shall not, and shall not authorize or permit any
of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
non-public information), or take any other action to facilitate, any inquiries
or the making of any proposal that constitutes an Acquisition Proposal (as
defined below), or (ii) participate in any discussions or negotiations regarding
an Acquisition Proposal; provided, however, that if the Company's Board of
Directors determines in good faith, after consultation with counsel, that such
action is necessary to comply with its fiduciary duties to the Company's
stockholders under applicable law, the Company, in response to an Acquisition
Proposal and subject to certain other conditions as set forth in the Merger
Agreement, may (A) furnish non-public information with respect to the Company to
the person who made such Acquisition Proposal pursuant to a confidentiality
agreement on terms no more favorable to such person than the confidentiality
agreement between PCC and the Company dated March 26, 1999 (the "Confidentiality
Agreement"); provided that such confidentiality agreement need
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not include the same standstill provisions as those contained in the
Confidentiality Agreement, it being understood that if there are no standstill
provisions in such confidentiality agreement or if such provisions are more
favorable to the person who made such Acquisition Proposal than those in the
Confidentiality Agreement, the Confidentiality Agreement shall be deemed amended
to exclude the existing standstill provision or include such more favorable
provisions, as the case may be, and (B) participate in negotiations regarding
such Acquisition Proposal. In addition, the Company has agreed that its Board of
Directors shall not (i) withdraw or modify in a manner adverse to PCC or the
Purchaser its approval or recommendation of the Merger Agreement or the Merger,
(ii) approve or recommend an Acquisition Proposal to its stockholders or (iii)
cause the Company to enter into any definitive acquisition agreement with
respect to an Acquisition Proposal, unless the Company's Board of Directors (A)
shall have determined in good faith, after consultation with counsel, that the
Acquisition Proposal is a Superior Proposal (as defined below) and such action
is necessary to comply with its fiduciary duties to the Company's stockholders
under applicable law and (B) in the case of clause (iii) above, complies with
certain other provisions of the Merger Agreement. The Merger Agreement further
provides that the Company will within 24 hours notify PCC of its receipt of an
Acquisition Proposal; provided that, subject to certain conditions as set forth
in the Merger Agreement, the Company has no duty to notify or update PCC or the
Purchaser on the status of discussions or negotiations (including the status of
such Acquisition Proposal or any amendments or proposed amendments thereto)
between the Company and the person making the Acquisition Proposal.
For purposes of the preceding paragraph, the Merger Agreement provides the
following definitions of the indicated terms:
"Acquisition Proposal" means any proposed or actual (i) acquisition,
merger, consolidation or similar transaction involving the Company,
(ii) sale, lease or other disposition, directly or indirectly, by merger,
consolidation, share exchange or otherwise, of any assets of the Company or
the Company's subsidiaries representing 15% or more of the consolidated
assets of the Company and the Company's subsidiaries, (iii) issue, sale or
other disposition of (including by way of merger, consolidation, share
exchange or any similar transaction) securities (or options, rights or
warrants to purchase, or securities convertible into, such securities)
representing 15% or more of the votes associated with the outstanding
securities of the Company, (iv) transaction in which any person shall
acquire beneficial ownership (as such term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), or
the right to acquire beneficial ownership, or any "group" (as such term is
defined under the Exchange Act) shall have been formed which beneficially
owns or has the right to acquire beneficial ownership of, 15% or more of the
outstanding Shares, (v) recapitalization, restructuring, liquidation,
dissolution or other similar type of transaction with respect to the Company
or (vi) transaction which is similar in form, substance or purpose to any of
the foregoing transactions; provided, however, that the term "Acquisition
Proposal" shall not include the Offer, the Merger and the other transactions
contemplated by the Merger Agreement.
"Superior Proposal" means a bona fide Acquisition Proposal to acquire
two-thirds or more of the Shares then outstanding or all or substantially all of
the assets of the Company and the Company's subsidiaries on terms which the
Company's Board of Directors determines in its good faith judgment (after
consultation with Goldman Sachs or another financial advisor of nationally
recognized reputation) to be more favorable to the Company's stockholders than
the Offer and the Merger.
EXPENSES; LIQUIDATED AMOUNT
Except as otherwise provided in the Merger Agreement, whether or not the
Merger is consummated, all fees, costs and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring such fees, costs or expenses. The
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Merger Agreement provides that if the Merger Agreement is terminated under
certain limited circumstances, PCC may be entitled to receive a liquidated
amount of $25,000,000 from the Company.
TREATMENT OF STOCK OPTIONS
The Merger Agreement provides that each stock option and stock appreciation
right under any of the Company's Executive Long-Term Incentive Plan; the 1991
Long-Term Incentive Plan; the 1995 Long-Term Incentive Plan; the 1997 Long-Term
Incentive Plan; or the Non-Employee Director Stock Option Plan (collectively,
the "Stock Option Plans"), which was outstanding immediately prior to the date
on which the Purchaser accepted for payment Shares pursuant to the Offer (the
"Acceptance Date") whether or not then exercisable, which had not been exercised
or canceled prior thereto was entitled to receive a cash payment from PCC equal
to the product of (x) the excess, if any, of the offer price of $20.00 over the
per Share exercise price of such stock option and (y) the number of Shares
subject to such stock option, which cash payment shall be treated as
compensation and shall be net of any applicable federal or state withholding
tax. All such payments were made by PCC to the holders of such stock options and
stock appreciation rights on or prior to November 26, 1999. In addition, the
Company agreed to take all actions necessary to ensure that (i) all options and
stock appreciation rights, to the extent not exercised prior to the Acceptance
Date, were terminated and canceled as of the Acceptance Date and thereafter were
of no further force or effect, (ii) no options or stock appreciation rights were
granted after the date of the Merger Agreement, and (iii) as of the Acceptance
Date, the Stock Option Plans and all options and stock appreciation rights
issued thereunder were terminated.
TERMINATION OF EMPLOYEE STOCK PURCHASE PLAN
Pursuant to the Merger Agreement, (i) the current offering period under the
Company's Employee Stock Purchase Plan (the "Stock Purchase Plan") was
terminated as of May 17, 1999, (ii) each participant in the Stock Purchase Plan
on May 17, 1999 was deemed to have exercised his or her Option (as defined in
the Stock Purchase Plan) on such date and acquired from the Company (A) such
number of whole Shares as his or her accumulated payroll deductions on such date
could purchase at the Option Price (as defined in the Stock Purchase Plan)
(treating May 14, 1999 as the "Exercise Date" for all purposes of the Stock
Purchase Plan) and (B) cash in the amount of any remaining balance in such
participant's account, and (iii) the Stock Purchase Plan was terminated as of
May 17, 1999.
CERTAIN EMPLOYEE BENEFITS
The Merger Agreement provides that (i) after the Closing, PCC shall cause
the Surviving Corporation to honor all obligations under (A) the existing terms
of the employment and severance agreements to which the Company or any
subsidiary of the Company is presently a party, except as may otherwise be
agreed to by the parties thereto, and (B) the Company's general severance policy
and any general severance policy of any subsidiary of the Company. In addition,
for a period of six months following the Effective Time (the "Transition
Period"), employees of the Surviving Corporation will continue to participate in
the Company's benefit plans (other than deferred compensation plans, stock
option plans or employee stock purchase plans or other employer stock match or
other employer stock related provisions) on substantially similar terms to those
currently in effect and for a period of 18 months following the expiration of
the Transition Period, the Surviving Corporation's employees will be entitled to
participate in employee benefit plans, the terms of which will be similar in
material respects in the aggregate to the Company's benefit plans as in effect
on the date of the Merger Agreement (other than deferred compensation plans,
stock option plans or employee stock purchase plans or other employer stock
match or other employer stock related provisions); (ii) after the closing of the
Merger, PCC shall cause the Surviving Corporation to honor all obligations which
accrued prior to the Effective
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Time under the Company's deferred compensation plans. Except as is otherwise
required by the existing terms of employment and severance agreements to which
the Company is presently a party, (A) future accruals may be (but are not
required to be) provided for under any such plan(s) or under any similar plan(s)
of the Surviving Corporation or PCC; (B) if future accruals are not provided for
with respect to any current employee participant in such plan as of the
Effective Time, and such person remains an employee of the Company or the
Surviving Corporation or PCC, the person's continuing employment in such
capacity shall be counted for purposes of vesting (but not for purposes of
benefit accrual) under such plan; and (C) transfer of employment from the
Company to the Surviving Corporation or to PCC or to an affiliate of PCC shall
not constitute a termination of employment for purposes of payment of benefits
under any such plan; and (iii) if any employee of the Company or any subsidiary
of the Company becomes a participant in any employee benefit plan, practice or
policy of PCC, any of its affiliates or the Surviving Corporation, such employee
shall be given credit under such plan for all service prior to the Effective
Time with the Company and the Company's subsidiaries and prior to the time such
employee becomes such a participant, for purposes of eligibility (including,
without limitation, waiting periods) and vesting but not for any other purposes
for which such service is either taken into account or recognized (including,
without limitation, benefit accrual); provided, however, that such employees
will be given credit for such service for purposes of any vacation policy. In
addition, if any employees of the Company or any subsidiary of the Company
employed as of the Closing Date become covered by a medical plan of PCC, any of
its affiliates or the Surviving Corporation, such medical plan shall not impose
any exclusion on coverage for preexisting medical conditions with respect to
these employees.
INDEMNIFICATION
The Merger Agreement provides that (i) in the event of any threatened or
actual claim, action, suit, proceeding or investigation, whether civil, criminal
or administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any person who is now, or has been at any
time prior to the date hereof, or who becomes prior to the Effective Time, a
director, officer, employee, fiduciary or agent of the Company or any of the
Company's subsidiaries (the "Indemnified Parties") is, or is threatened to be,
made a party based in whole or in part on, or arising in whole or in part out
of, or pertaining to (A) the fact that he is or was a director, officer,
employee, fiduciary or agent of the Company or any of the Company's
subsidiaries, or is or was serving at the request of the Company or any of the
Company's subsidiaries as a director, officer, employee, fiduciary or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
(B) the negotiation, execution or performance of the Merger Agreement or any of
the transactions contemplated thereby, whether in any case asserted or arising
before or after the Effective Time, the Company, PCC and the Purchaser agree to
cooperate and use their commercially reasonable best efforts to defend against
and respond thereto. In addition, the Company agreed that it shall indemnify and
hold harmless, and after the Effective Time the Surviving Corporation and PCC
shall indemnify and hold harmless, as and to the full extent permitted by
applicable law, each Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorneys' fees and
expenses), judgments, fines and amounts paid in settlement in connection with
any such threatened or actual claim, action, suit, proceeding or investigation,
and in the event of any such threatened or actual claim, action, suit,
proceeding or investigation (whether asserted or arising before or after the
Effective Time), (1) the Company, and the Surviving Corporation and PCC after
the Effective Time, shall promptly pay reasonable expenses in advance of the
final disposition of any claim, suit, proceeding or investigation to each
Indemnified Party to the full extent permitted by law, (2) the Indemnified
Parties may retain counsel satisfactory to them, and the Company, and the
Surviving Corporation and PCC after the Effective Time, shall pay all reasonable
fees and expenses of such counsel for the Indemnified Parties within 30 days
after statements therefor are received, and (3) the Company, the Surviving
Corporation and PCC will use their respective commercially reasonable best
efforts to assist in the vigorous defense
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of any such matter; provided that none of the Company, the Surviving Corporation
or PCC shall be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld); and provided further
that the Surviving Corporation and PCC shall have no obligation under the Merger
Agreement to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final and
non-appealable, that indemnification of such Indemnified Party in the manner
contemplated by the Merger Agreement is prohibited by applicable law (whereupon
any advances received shall be repaid to PCC or the Surviving Corporation);
(ii) PCC and the Purchaser agree that all rights to indemnification existing in
favor of, and all limitations on the personal liability of, the directors,
officers, employees and agents of the Company and the Company's subsidiaries
provided for in the Restated Articles of Organization or Amended and Restated
Bylaws of the Company as in effect as of the date of the Merger Agreement with
respect to matters occurring prior to the Effective Time, and including the
Offer and the Merger, shall continue in full force and effect for a period of
not less than six years from the Effective Time; provided, however, that all
rights to indemnification in respect of any claims (each a "Claim") asserted or
made within such period shall continue until the disposition of such Claim.
Prior to the Effective Time, the Company has agreed to purchase an extended
reporting period endorsement under the Company's existing directors' and
officers' liability insurance coverage for the Company's directors and officers
in a form acceptable to the Company which shall provide such directors and
officers with coverage for six years following the Effective Time of not less
than the existing coverage under, and have other terms not materially less
favorable to, the insured persons than the directors' and officers' liability
insurance coverage presently maintained by the Company; and (iii) in the event
that the Surviving Corporation or any of its successors or assigns
(A) consolidates with or merges into any other person or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (B) transfers or conveys all or substantially all of its properties
and assets to any person or entity, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation assume the obligations related to indemnification in the Merger
Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of the Company relating to, among other things: (i) the Company's and
the Company's subsidiaries' organization and similar corporate matters; (ii)
authorization, execution, delivery, performance and validity of the Merger
Agreement and related matters; (iii) the Company's and the Company's
subsidiaries' capital structures; (iv) the Company's subsidiaries and other debt
and equity interests and investments; (v) governmental approvals;
(vi) documents filed by the Company with the Securities and Exchange Commission
(the "Commission") and the accuracy of information contained therein; (vii) the
absence of certain material changes or events; (viii) taxes; (ix) books and
records of the Company and the Company's subsidiaries; (x) real estate
properties; (xi) employee benefit plans and matters relating to the Employee
Retirement Income Security Act of 1974, as amended; (xii) labor matters; (xiii)
the opinion of the Company's financial advisor; (xiv) Year 2000 compliance; (xv)
insurance; (xvi) the key customers of the Company and the Company's
subsidiaries; (xvii) product quality; and (xviii) material contracts and
agreements.
WAIVER AND AMENDMENT
At any time prior to the Closing, the parties may (i) extend the time for
the performance of any of the obligations or other acts of the other parties
under the Merger Agreement, (ii) waive any inaccuracies in the representations
and warranties contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement and (iii) waive compliance with any of the
agreements or conditions contained in the Merger Agreement. The Merger Agreement
may be amended by the parties at any time, but after the Merger Agreement has
been approved by the
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stockholders, no amendment may be made which by law requires further approval of
such holders without obtaining such approval. Prior to the Effective Time, the
affirmative vote of a majority of the Independent Directors is required in
addition to any other applicable requirement to (a) amend the Merger Agreement
in any material respect in a manner adverse to any stockholder of the Company or
any intended third-party beneficiary of the Merger Agreement, (b) terminate the
Merger Agreement by the Company, (c) exercise or waive any of the Company's
material rights, benefits or remedies under the Merger Agreement, or (d) extend
the time for performance of PCC's or the Purchaser's respective obligations
under the Merger Agreement.
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APPRAISAL RIGHTS
Sections 85 through 98, inclusive, of Chapter 156B of the MGL (a copy of
which is attached hereto as APPENDIX C) entitle any holder of Shares who files a
written objection to the proposal to approve the Merger Agreement (the "Merger
Proposal") before the vote to approve such proposal is taken at the Special
Meeting and who does not vote in favor of the Merger Proposal to demand in
writing that the Company pay to such holder in cash the fair value of such
Shares (exclusive of any element of value arising from the expectation or
accomplishment of the Merger).
Any person having a beneficial interest in any Shares that are held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect such beneficial owner's appraisal
rights, if any.
Any stockholder of record contemplating making a demand for appraisal is
urged to review carefully the provisions of Sections 85 through 98 of Chapter
156B of the MGL, particularly the procedural steps required to perfect
dissenters' appraisal rights thereunder ("Appraisal Rights"). Appraisal Rights
will be lost if such procedural requirements of Sections 85 through 98 are not
fully satisfied.
SET FORTH BELOW IS A SUMMARY OF THE PROCEDURES RELATING TO THE EXERCISE OF
APPRAISAL RIGHTS. THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE A COMPLETE
STATEMENT OF THE PROVISIONS OF SECTIONS 85 THROUGH 98, INCLUSIVE, OF CHAPTER
156B OF THE MGL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX C
HERETO AND TO ANY AMENDMENTS TO SUCH SECTIONS AS MAY BE ADOPTED AFTER THE DATE
OF THIS PROXY STATEMENT.
FILING WRITTEN OBJECTION. A stockholder who intends to exercise Appraisal
Rights must deliver to the Company prior to the vote of the Company's
stockholders on the Merger Proposal, a written objection to the Merger Proposal,
stating that such stockholder intends to demand payment for the Shares held by
the stockholder if the Merger is consummated. Such written objection should be
addressed to Wyman-Gordon Company, 244 Worcester Street, P.O. Box 8001, North
Grafton, Massachusetts 01536-8001, Attention: Clerk. A vote against the Merger
Proposal will not satisfy the requirement that a written objection be filed with
the Company. The written objection to the Merger Proposal must be in addition to
and separate from any proxy or vote against the Merger Proposal.
NO VOTE IN FAVOR OF THE MERGER PROPOSAL. Shares for which appraisal is
sought must not be voted in favor of the Merger Proposal. The submission of a
signed blank proxy card will serve to waive Appraisal Rights, but failure to
return a proxy card or vote (or abstaining from voting) will not waive Appraisal
Rights.
NOTICE BY SURVIVING CORPORATION. Within ten days after the Effective Time,
the Surviving Corporation will notify each holder of Shares who has purported to
comply with the provisions of Section 86 of Chapter 156B of the MGL, and whose
Shares were not voted in favor of the Merger Proposal that the Merger has become
effective as provided in Section 88 thereof. The giving of such notice shall not
be deemed to create any rights in the stockholder receiving the same to demand
payment for such holder's Shares. The notice shall be sent by registered or
certified mail, addressed to the stockholder at such stockholder's last known
address as it appears on the records of the Company immediately prior to the
Effective Time.
WRITTEN DEMAND. Within 20 days after the mailing of notice by the Surviving
Corporation, any dissenting stockholder who wishes to exercise Appraisal Rights
must demand in writing from the Surviving Corporation payment for the fair value
of such holder's Shares. Such written demand should be addressed to the
Surviving Corporation, 244 Worcester Street, P.O. Box 8001, North Grafton,
Massachusetts 01536-8001, Attention: Clerk. The Surviving Corporation is
required to make payment of
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the fair value of the Shares owned by each dissenting stockholder within 30 days
(the "Payment Period") after the expiration of the 20-day period during which a
written demand for payment may be made. If the Surviving Corporation and such
stockholder shall have agreed as to the fair value of such Shares, the Surviving
Corporation shall pay to such stockholder the agreed value of such stockholder's
Shares within the Payment Period.
SETTLEMENT OR APPRAISAL. Any stockholder shall, with the Surviving
Corporation's written consent, have the right to withdraw such stockholder's
demand for appraisal and to accept the terms offered in the Merger Proposal
within four months after the expiration of the Payment Period. If the Surviving
Corporation and any stockholder seeking appraisal have not agreed on the fair
value of such holder's Shares within the Payment Period, any such stockholder
who has complied with Section 86 of Chapter 156B of the MGL, or the Surviving
Corporation, by filing a bill in equity with the Superior Court in Worcester
County, Massachusetts (the "Court"), may demand a determination of the fair
value of the Shares of all such stockholders. If no such bill is filed within
such four-month period, no holder of Shares shall be entitled to Appraisal
Rights. Upon the filing of any such bill, notice of the time and place fixed for
a hearing will be given by the Surviving Corporation to all stockholders who
have demanded payment for their Shares and with whom agreements as to the fair
value of their Shares have not been reached. After the hearing on such bill, the
Court will determine the stockholders who have complied with the MGL and who
have become entitled to Appraisal Rights. After determining those stockholders
entitled to appraisal, the Court shall appraise the Shares, determining the fair
value as of the day preceding the Special Meeting and exclusive of any element
of value arising from the expectation or accomplishment of the Merger. Such
determination shall be binding on all such stockholders. The Company has not yet
determined whether it, as the Surviving Corporation, will file such a bill in
equity and, therefore, any dissenting stockholder who desires such a bill in
equity to be filed is advised to file it on a timely basis.
PAYMENT AND COSTS. When value is so determined, the Court will direct the
payment by the Surviving Corporation of such value, with interest thereon, if
any, as the Court determines, to the stockholders entitled to receive the same
upon surrender to the Surviving Corporation by such stockholders of the
Certificates representing their Shares. The cost of the appraisal proceeding
(other than attorneys' and experts' fees) and the reasonable compensation and
expenses of any master appointed by the Court may be apportioned in such manner
as appears to the Court to be equitable; however, all costs of giving notice to
the dissenting stockholders entitled to notice of the filing of such an action
will be paid by the Surviving Corporation.
EXCLUSIVE REMEDY; EXCEPTION. The MGL provides that the enforcement by a
stockholder of Appraisal Rights pursuant to the procedure summarized above is
such stockholder's exclusive remedy, except that this does not exclude the right
of such stockholder to maintain an appropriate proceeding to obtain relief on
the ground that such corporate action will be or is illegal or fraudulent as to
such stockholder. In addition, under Massachusetts law, dissenting stockholders
may not be limited to the statutory remedy of judicial appraisal where
violations of fiduciary duty are found.
ANY STOCKHOLDER WHO DESIRES TO EXERCISE APPRAISAL RIGHTS SHOULD CAREFULLY
REVIEW THE MGL AND IS ADVISED TO CONSULT HIS OR HER LEGAL ADVISOR BEFORE
EXERCISING OR ATTEMPTING TO EXERCISE SUCH RIGHTS.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are generally applicable to holders
of Shares. This discussion is based on currently existing provisions of the
Code, existing and proposed Treasury Regulations thereunder, and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to the holders of Shares as described herein. Special tax
consequences not described below may be applicable to particular classes of
taxpayers, including financial institutions, broker-dealers, persons who are not
citizens or residents of the United States or who are foreign corporations,
foreign partnerships, or foreign estates or trusts as to the United States, and
holders who acquired their stock through the exercise of an employee stock
option or otherwise as compensation.
The receipt of the Merger Consideration in the Merger by holders of Shares
will be a taxable transaction for federal income tax purposes. Each holder's
gain or loss per Share will be equal to the difference between $20.00 and the
holder's adjusted basis in that particular Share. Such gain or loss generally
will be a capital gain or loss. In the case of individuals, trusts and estates,
such capital gain will be subject to a maximum federal income tax rate of 20%
for Shares held for more than 12 months prior to the date of disposition.
A holder of Shares may be subject to backup withholding at the rate of 31%
with respect to Merger Consideration received pursuant to the Merger, unless the
holder (a) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (b) provides a correct taxpayer
identification number ("TIN"), certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. To prevent the possibility of backup federal income tax
withholding on payments made with respect to Shares pursuant to the Merger, each
holder must provide the Paying Agent with his or her correct TIN by completing a
Form W-9 or substitute Form W-9. A holder of Shares who does not provide the
Paying Agent with his or her correct TIN may be subject to penalties imposed by
the Internal Revenue Service (the "IRS"), as well as backup withholding. Any
amount withheld under these rules will be creditable against the holder's
federal income tax liability. The Surviving Corporation (or its agent) will
report to the holders of Shares and the IRS the amount of any "reportable
payments," as defined in Section 3406 of the Code, and the amount of tax, if
any, withheld with respect thereto.
THE FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS
BASED UPON PRESENT LAW. THE FOREGOING DISCUSSION DOES NOT DISCUSS TAX
CONSEQUENCES UNDER THE LAWS OF STATES OR LOCAL GOVERNMENTS OR OF ANY OTHER
JURISDICTION OR TAX CONSEQUENCES TO CATEGORIES OF STOCKHOLDERS THAT MAY BE
SUBJECT TO SPECIAL RULES, SUCH AS FOREIGN PERSONS, TAX-EXEMPT ENTITIES,
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, AND DEALERS IN STOCKS AND
SECURITIES. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO A STOCKHOLDER WHO
ACQUIRED HIS OR HER SHARES PURSUANT TO THE EXERCISE OF STOCK OPTIONS OR
OTHERWISE AS COMPENSATION. EACH HOLDER OF SHARES SHOULD CONSULT SUCH HOLDER'S
OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
HOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES IN SUCH TAX LAWS.
REGULATORY AND OTHER APPROVALS
There are no federal or state regulatory requirements which remain to be
complied with in order to consummate the Merger (other than the filing of the
Articles of Merger with the Secretary of State of the Commonwealth of
Massachusetts).
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INFORMATION CONCERNING THE COMPANY
Wyman-Gordon Company, a Massachusetts corporation, is a leading manufacturer
of high-quality, technologically advanced forging and investment casting
components for the commercial aviation, commercial power and defense industries.
The Company produces metal components for applications such as jet turbine
engines, airframes and land-based and marine gas turbine engines. The Company
also produces extruded seamless thick wall pipe, made from steel and other
alloys for use primarily in the oil and gas industry and commercial power
generation plants. The principal executive offices of the Company are located at
244 Worcester Street, P.O. Box 8001, North Grafton, Massachusetts 01536-8001 and
the telephone number of such offices is (508) 839-4441.
INFORMATION CONCERNING THE PURCHASER AND PCC
The Purchaser, a Massachusetts corporation, was recently formed by PCC for
the purpose of facilitating the Offer and the Merger and has not conducted any
unrelated activities since its organization. All of the outstanding shares of
capital stock of the Purchaser are owned by PCC. The principal executive offices
of the Purchaser are located at the principal executive offices of PCC.
PCC, an Oregon corporation, is a manufacturer of complex metal components
and products. PCC is the market leader in manufacturing large, complex
structural investment castings and is the leading manufacturer of airfoil
castings used in jet aircraft engines. In addition, PCC has expanded into the
industrial gas turbine, fluid management, industrial metalworking tools and
machines, powdered metal and other metal products markets. The principal
executive offices of PCC are located at 4650 SW Macadam Avenue, Suite 440,
Portland, Oregon 97201 and the telephone number of such offices is (503)
417-4800.
SOURCE AND AMOUNT OF FUNDS
Pursuant to the Offer, the Purchaser purchased 35,385,078 Shares. The total
amount of funds required by the Purchaser to purchase all the Shares tendered
pursuant to the Offer and to make all payments to participants in the Company's
Stock Option Plans pursuant to the Merger Agreement was approximately $719
million. The total amount of funds necessary to consummate the Merger is
estimated to be approximately $12 million. The total amount of funds necessary
to pay all related fees and expenses in connection with the Offer and the Merger
is estimated to be approximately $24 million.
The Purchaser will obtain the necessary funds to consummate the Merger and
to pay related fees and expenses from PCC, which in turn will obtain such funds
from its general corporate funds and borrowings under existing credit
facilities. In connection with entering into the Merger Agreement, PCC entered
into a commitment letter with Bank of America, N.A. ("Bank of America") and Banc
of America Securities LLC (formerly known as Nationsbanc Montgomery Securities
LLC) for financing in the aggregate amount of up to $1.25 billion (the "BofA
Facilities"). The BofA Facilities consist of: (i) a $950 million syndicated loan
facility comprising (A) a $400 million revolving credit facility (the "Revolving
Credit Facility"); (B) a $550 million term loan facility (the "Syndicated Term
Loan Facility"); and (ii) a $300 million interim term loan facility (the
"Interim Term Loan Facility"). Definitive documentation for the BofA Facilities
was executed on July 30, 1999.
The Interim Term Loan Facility will mature on November 25, 2000, and the
Syndicated Term Loan Facility and the Revolving Credit Facility will mature on
November 26, 2005. The Interim Term Loan Facility is subject to certain
mandatory prepayments tied to asset sales, insurance and condemnation events and
debt issuances. In addition, if PCC fails to maintain the investment grade
rating of its senior unsecured long-term debt, the Interim Term Loan Facility
will be subject to a mandatory prepayment tied to equity offerings. The
Syndicated Term Loan Facility is subject to a mandatory prepayment requirement
upon utilization of a $150 million accounts receivable-backed credit facility
(the "Permitted
31
<PAGE>
Receivables Purchase Facility" and, together with the BofA Facilities, the
"Facilities"), which PCC and its subsidiary, Precision Receivables Corp. expect
to enter into in mid-December 1999 with Wachovia Bank, N.A. and its affiliate
Blue Ridge Asset Funding Corporation ("Blue Ridge"). The Permitted Receivables
Purchase Facility will have a maturity date approximately 364 days after the
closing date of such facility, but will be subject to renewal for additional
terms of 364 days.
The amounts borrowed pursuant to the BofA Facilities bear interest at a rate
equal to LIBOR plus the applicable margin or the Alternate Base Rate plus the
applicable margin. The Alternate Base Rate is the higher of (i) the Bank of
America reference rate and (ii) the Federal Funds rate plus .50%. The applicable
margin for LIBOR and Alternate Base Rate loans is calculated in accordance with
a pricing grid referenced to PCC's long-term, unsecured senior, non-credit
enhanced debt ratings.
The amounts borrowed pursuant to the Permitted Receivables Purchase Facility
will bear interest at a rate equal to the rate at which Blue Ridge is able to
sell its commercial paper notes, or, if Blue Ridge is unable to sell its
commercial paper notes, at LIBOR plus a margin. The BofA Facilities are
unsecured. The Permitted Receivables Purchase Facility will be secured by a
first priority perfected security interest in the accounts receivable of certain
material subsidiaries of PCC, including the Company.
The Facilities contain representations and warranties, affirmative and
negative covenants, conditions precedent and events of default which are
customarily required for similar financings. Borrowings under the Facilities
were also used to purchase Shares pursuant to the Offer. The consummation of the
Merger is not conditioned on PCC obtaining financing under the Facilities or
otherwise.
32
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth as of the Record Date certain information
regarding the beneficial ownership of the Shares by (i) each person or "group"
(as that term is defined in Section 13(d)(3) of the Exchange Act) known by the
Company to be the beneficial owner of 5% or more of the outstanding Shares,
(ii) each of the Company's directors, nominees for director and named executive
officers and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME BENEFICIALLY OWNED OF CLASS(1)
- ---- ------------------ -----------
<S> <C> <C>
WGC Acquisition Corp.(2)(3)................................. 35,385,078 98.33
Directors and Officers:
David P. Gruber(4)........................................ 0
J. Stewart Smith(4)....................................... 0
J. Douglas Whelan(4)...................................... 0
Wallace F. Whitney, Jr.(4)................................ 0
Frank J. Zugel(4)......................................... 0
Mark Donegan(3)........................................... 0
Warner S. Fletcher(4)..................................... 0
William C. McCormick(3)................................... 0
William D. Larsson(3)..................................... 0
All Directors and Executive Officers as a group (9
persons)................................................ 0
</TABLE>
- ------------------------
(1) Unless otherwise indicated, less than one percent.
(2) WGC Acquisition Corp., the holder of record of these Shares, is a wholly
owned subsidiary of Precision Castparts Corp.
(3) Address: 4650 SW Macadam Avenue, Suite 440, Portland, OR 97201.
(4) Address: 244 Worcester Street, P.O. Box 8001, North Grafton, MA 01536-8001.
33
<PAGE>
MARKET PRICES AND DIVIDENDS
Since December 18, 1998, the Company's common stock, par value $1.00 per
share ("Common Stock"), has been listed on the NYSE under the symbol "WYG."
Prior to December 18, 1998, the Company's Common Stock was traded on The Nasdaq
National Market under the symbol "WYMN." The following table sets forth for the
fiscal periods indicated the high and low sales prices for the Shares as
reported on the NYSE or The Nasdaq National Market (for information prior to
December 18, 1998).
<TABLE>
<CAPTION>
PRICE
-------------------
FISCAL YEAR HIGH LOW
- ----------- -------- --------
<S> <C> <C>
Year Ended May 31, 1998
First Quarter............................................. $ 28.25 $ 23.375
Second Quarter............................................ 30.00 20.375
Third Quarter............................................. 22.125 16.50
Fourth Quarter............................................ 23.125 19.75
Year Ended May 31, 1999
First Quarter............................................. $ 20.875 $ 12.875
Second Quarter............................................ 17.50 11.50
Third Quarter............................................. 16.00 7.125
Fourth Quarter............................................ 19.375 8.0625
Year Ending May 31, 2000
First Quarter............................................. $19.8125 $17.9375
Second Quarter (through November 24, 1999)................ 19.9375 17.9375
</TABLE>
On May 14, 1999, the last trading day prior to the announcement of the
Merger Agreement, the high and low sales prices per Share reported on the NYSE
for the Company were $13.50 and $12.625, respectively, and the closing sales
price per Share reported on the NYSE for the Company was $13.25.
The Company has not declared a dividend on its Common Stock for any period
during its two most recent fiscal years. Under the Merger Agreement, the Company
has agreed not to pay any dividends on its Common Stock prior to the
consummation of the Merger.
Following the acceptance for payment by PCC of the Shares tendered pursuant
to the Offer, on November 26, 1999, the NYSE suspended trading in the Company's
Common Stock.
34
<PAGE>
SELECTED FINANCIAL INFORMATION
Set forth below is certain selected historical consolidated financial
information relating to the Company and its subsidiaries, which, with respect to
the five-year period ended May 31, 1999, has been excerpted from information
contained in the Annual Report on Form 10-K of the Company for the year ended
May 31, 1999, as filed by the Company with the Commission and attached hereto as
EXHIBIT I. More comprehensive financial information is included in such annual
report (including in Management's Discussion and Analysis of Financial Condition
and Results of Operations) and other documents filed by the Company with the
Commission. The financial information set forth below is qualified in its
entirety by reference to such annual report and other documents and all of the
financial statements and related notes contained therein. Such other documents
may be examined and copies thereof may be obtained in the manner set forth under
the heading "Where You Can Find More Information."
The selected historical consolidated financial data for the three months
ended August 31, 1999 and August 31, 1998 has been excerpted from, and should be
read in conjunction with, the Company's unaudited condensed consolidated
financial statements included in the Company's Quarterly Report on Form 10-Q,
which is attached hereto as EXHIBIT II. Data for the three months ended
August 31, 1999 is not necessarily indicative of the results to be expected for
the full year.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, AUGUST 31, AUGUST 31,
1999 1998 1997 1996 1995 1999 1998
-------- ---------- -------- -------- -------- ----------------- -----------------
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues........................ $849,261 $ 752,913 $608,742 $499,624 $396,639 $176,495 $ 189,664
Gross profit.................... 133,359 115,646 97,634 78,132 49,388 28,728 28,597
Other charges (credits)(2)...... 13,745 (4,900) 23,083 2,717 (710) (1,200) (5,000)
Income (loss) from operations... 62,952 68,892 30,322 37,699 13,718 17,952 20,117
Net income (loss)(3)............ 37,028 33,890 50,023 25,234 1,039 8,991 11,852
BASIC PER SHARE DATA:
Income (loss) per share before
extraordinary item............ $ 1.02 $ 1.07 $ 1.40 $ 0.72 $ 0.03 $ 0.25 $ 0.32
Net income (loss) per share
(3)........................... 1.02 0.93 1.40 0.72 0.03 0.25 0.32
DILUTED PER SHARE DATA:
Income (loss) per share before
extraordinary item............ $ 1.01 $ 1.05 $ 1.35 $ 0.70 $ 0.03 $ 0.25 $ 0.32
Net income (loss) per share
(3)........................... 1.01 0.91 1.35 0.70 0.03 0.25 0.32
Shares used to compute income
(loss) per share:
Basic......................... 36,149 36,331 35,825 35,243 34,813 35,911 36,542
Diluted....................... 36,589 37,357 37,027 36,241 35,148 36,557 37,207
BALANCE SHEET DATA (AT END OF
PERIOD)(2):
Working capital................. $230,027 $ 223,764 $166,205 $116,534 $93,062 $237,700 $ 230,400
Total assets.................... 581,710 551,610 454,371 375,890 369,064 582,021 345,692
Long-term debt.................. 164,338 162,573 96,154 90,231 90,308 164,315 165,283
Stockholders' equity............ 233,762 204,820 164,398 109,943 80,855 245,370 217,810
OTHER DATA:
Order backlog (at end of
period)....................... $734,790 $1,030,092 $895,825 $598,438 $468,721 $644,300 $1,000,900
</TABLE>
- ------------------------------
(1) On April 9, 1998, the Company acquired International Extruded Products, LLC
("IXP"). The Selected Consolidated Financial Data include the accounts of
IXP from the date of acquisition. IXP's operating results from April 9, 1998
to May 31, 1998 are not material to the consolidated statement of operations
for the year ended May 31, 1998.
(2) During the year ended May 31, 1996, the Company provided $1,900,000 in order
to recognize its 25.0% share of the net losses of its Australian joint
venture and to reduce the carrying value of such joint venture.
Additionally, the Company provided $800,000 to reduce the carrying value of
the cash surrender value of certain company-owned life insurance policies.
35
<PAGE>
During the year ended May 31, 1997, the Company recorded other charges of
$23,100,000, which included $4,600,000 to provide for the costs of workforce
reductions at the Company's Grafton, Massachusetts, forging facility,
$3,400,000 to the write-off and disposal of certain forging equipment,
$2,300,000 to reduce the carrying value and dispose of certain assets of the
Company's titanium castings operations, $1,200,000 to consolidate the
titanium castings operations, $2,500,000 to reduce the carrying value of the
Australian joint venture, $5,700,000 to reduce the carrying value of the
cash surrender value of certain Company-owned life insurance policies,
$1,900,000 to reduce the carrying value of a building held for sale and
$250,000 to reduce the carrying value of other assets. Other charges
(credits) in the year ended May 31, 1997 also included a charge of
$1,200,000, net of insurance recovery of $6,900,000, related to the accident
at the Houston, Texas facility of Wyman-Gordon Forgings, Inc. in
December 1996.
Other charges (credits) in the year ended May 31, 1998 includes a credit of
$4,000,000 for the recovery of cash surrender value of certain Company-owned
life insurance policies, a credit of $1,900,000 resulting from the disposal
of a building held for sale and a charge of $1,000,000 to provide for costs
as a result of the six-month shutdown of the 29,000-ton press at the
Company's Houston, Texas, forging facility.
During the year ended May 31, 1999, the Company recorded other charges of
$13,745,000. Such other charges include a net charge of $12,955,000 to
provide for settlement costs associated with the Houston industrial
accident, $4,700,000 to provide for the costs of Company-wide workforce
reductions, a charge of $1,090,000 to reduce the carrying value and dispose
of certain assets of the Company's titanium castings operations and a credit
of $5,000,000 resulting from the sale of the operating assets of the
Company's Millbury, Massachusetts, vacuum remelting facility to TIMET.
(3) In the year ended May 31, 1997, net tax benefits of $25,680,000 were
recognized, including a refund of prior years' income taxes amounting to
$19,680,000, plus interest of $3,484,000, and $6,500,000 related to the
expected realization of net operating losses ("NOLs") in future years and
$10,250,000 related to current NOLs benefit offsetting $10,750,000 of
current income tax expense. The refund relates to the carryback of tax net
operating losses to tax years 1981, 1984 and 1986 under the applicable
provisions of Internal Revenue Code Section 172(f).
In the year ended May 31, 1998, the Company provided $16,355,000 for income
taxes, net of a tax benefit of approximately $1,800,000 relating to the
utilization of NOLs carryforwards. In addition, the Company has recorded a
$2,920,000 tax benefit against the extraordinary loss of $8,112,000
associated with the early extinguishment of the Company's 10 3/4% Senior
Notes.
In the year ended May 31, 1999, the Company provided $10,467,000 for income
taxes, net of a tax benefit of approximately $6,400,000 associated with the
expected realization of certain tax assets.
36
<PAGE>
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and schedules of the Company included
in its Annual Report on Form 10-K for the year ended May 31, 1999, which are
incorporated by reference in this Proxy Statement, have been audited by Ernst &
Young LLP. A representative of Ernst & Young LLP is expected to be present at
the Special Meeting to answer appropriate questions by stockholders and will
have the opportunity to make a statement if he or she desires.
STOCKHOLDER PROPOSALS
Upon the consummation of the Merger, all of the outstanding Shares of the
Company will be held and voted by PCC. As a result, the Company will not solicit
proxies in connection with an annual meeting of stockholders. If the Merger is
not consummated, then, according to the Commission's rules, all proposals of
stockholders to be presented at the annual meeting would be required to be
received by the Clerk of the Company a reasonable time before the Company begins
to print and mail its proxy materials. These proposals would also need to comply
with the rules of the Commission governing the form and content of proposals in
order to be included in the Company's proxy statement and form of proxy.
In addition, the Company's Amended and Restated Bylaws provide that, to be
timely, a notice must be delivered no earlier than the close of business on the
120th day prior to such annual meeting and no later than the close of business
on the later of (i) the 90th day prior to such annual meeting and (ii) the 10th
day following the day on which public announcement of the date of such meeting
is first made. The proposal would also need to comply with the other
requirements contained in the Company's Amended and Restated Bylaws, including
supporting documentation and other information.
OTHER MATTERS
Management knows of no other business to be presented at the Special
Meeting. If other matters do properly come before the Special Meeting, or any
adjournment or postponement thereof, it is the intention of the persons named in
the proxy to vote on such matters according to their best judgment unless the
authority to do so is withheld in such proxy.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company (File No. 000-3085)
with the Commission are incorporated by reference in this Proxy Statement:
- The Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1999, previously filed with the Commission on August 30, 1999; and
- The Company's Quarterly Report on Form 10-Q for the quarterly period ended
August 31, 1999, previously filed with the Commission on October 15, 1999.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and prior
to the date of the Special Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents. Any statements contained in a document incorporated by reference
herein or contained in this Proxy Statement shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
(or in any other subsequently filed document which also is incorporated by
reference herein) modified or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof except as
so modified or superseded.
37
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Company is subject to the information filing requirements of the
Exchange Act and, in accordance therewith, is obligated to file with the
Commission periodic reports, proxy statements and other information relating to
its business, financial condition and other matters. Such reports, proxy
statements and other information may be inspected at the Commission's office at
the public reference facilities of the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549, and is also available for inspection at the regional
offices of the Commission located at Citicorp Center, 13th Floor, New York, New
York 10048. Copies of such materials can be obtained, upon payment of the
Commission's customary charges, by writing to the Commission's principal office
at 450 Fifth Street, NW, Washington, D.C. 20549. The Commission also maintains a
website at http://www.sec.gov that contains reports, proxy statements and other
information. The information is also available at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
The Commission allows the Company to "incorporate by reference" information
into this document, which means that the Company can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be a part
of this document, except for any information superseded by information contained
directly in this document. This document incorporates by reference certain
documents that the Company has previously filed with the Commission. These
documents contain important business information about the Company and its
financial condition.
The Company may have sent to you some of the documents incorporated by
reference, but you can obtain any of them through the Company or the Commission
or the Commission's website described above. Documents incorporated by reference
are available from the Company without charge, excluding all exhibits unless
specifically incorporated by reference as an exhibit to this document.
Stockholders may obtain documents incorporated by reference in this document
upon written or oral request to the following address or telephone number:
Wyman-Gordon Company, 244 Worcester Street, P.O. Box 8001, North Grafton, MA
01536-8001, (508) 839-4441, Attention: Clerk.
The Company will send any document so requested to the requesting
stockholder by first class mail or other equally prompt means within one
business day of receiving such request.
You should rely only on the information contained or incorporated by
reference in this document to vote your Shares at the Special Meeting. The
Company has not authorized anyone to provide you with information that is
different from what is contained in this document. This document is dated
December 23, 1999. You should not assume that the information contained in this
document is accurate as of any date other than that date, and the mailing of
this document to stockholders does not create any implication to the contrary.
This Proxy Statement does not constitute a solicitation of a proxy in any
jurisdiction where, or to or from any person to whom, it is unlawful to make
such proxy solicitation in such jurisdiction.
38
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
PRECISION CASTPARTS CORP.,
WGC ACQUISITION CORP.
AND
WYMAN-GORDON COMPANY
DATED AS OF MAY 17, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
ARTICLE I THE OFFER................................................... 1
1.1 The Offer................................................... 1
1.2 Company Actions............................................. 3
1.3 Board Representation........................................ 4
1.4 Company Stock Options and Related Matters................... 5
1.5 Employee Stock Purchase Plan................................ 6
ARTICLE II THE MERGER.................................................. 6
2.1 The Merger.................................................. 6
2.2 Effective Time.............................................. 6
2.3 Closing..................................................... 7
2.4 Directors and Officers...................................... 7
2.5 Stockholders' Meeting....................................... 7
2.6 Merger Without Meeting of Stockholders...................... 8
2.7 Conversion of Securities.................................... 8
2.8 Taking of Necessary Action; Further Action.................. 8
ARTICLE III PAYMENT FOR SHARES; DISSENTING SHARES....................... 9
3.1 Payment for Shares of Company Common Stock.................. 9
3.2 Appraisal Rights............................................ 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
SUB......................................................... 11
4.1 Organization................................................ 11
4.2 Authorization; Validity of Agreement; Necessary Action...... 12
4.3 Consents and Approvals; No Violations....................... 12
4.4 Information in Proxy Statement.............................. 12
4.5 Required Financing.......................................... 13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 13
5.1 Existence; Good Standing; Authority; Compliance With Law.... 13
5.2 Authorization, Validity and Effect of Agreements............ 14
5.3 Capitalization.............................................. 15
5.4 Subsidiaries................................................ 16
5.5 Other Interests............................................. 16
5.6 No Violation; Consents...................................... 16
5.7 SEC Documents............................................... 17
5.8 Litigation.................................................. 18
5.9 Absence of Certain Changes.................................. 18
5.10 Taxes....................................................... 18
5.11 Books and Records........................................... 19
5.12 Properties.................................................. 19
5.13 Intellectual Property....................................... 21
5.14 Environmental Matters....................................... 21
5.15 Employee Benefit Plans...................................... 22
5.16 Labor Matters............................................... 24
5.17 No Brokers.................................................. 24
5.18 Opinion of Financial Advisor................................ 25
5.19 Year 2000................................................... 25
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
5.20 Insurance................................................... 25
5.21 Key Customers............................................... 25
5.22 Product Quality............................................. 26
5.23 Material Contracts and Agreements........................... 26
5.24 Definition of the Company's Knowledge....................... 26
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER...................... 26
6.1 Conduct of Business by the Company.......................... 26
ARTICLE VII ADDITIONAL AGREEMENTS....................................... 28
7.1 Other Filings............................................... 28
7.2 Additional Agreements....................................... 28
7.3 Fees and Expenses........................................... 29
7.4 No Solicitations............................................ 29
7.5 Officers' and Directors' Indemnification.................... 31
7.6 Access to Information; Confidentiality...................... 32
7.7 Financial and Other Statements.............................. 33
7.8 Public Announcements........................................ 33
7.9 Employee Benefit Arrangements............................... 33
7.10 Rights Agreement............................................ 34
7.11 Status of Financing......................................... 35
ARTICLE VIII CONDITIONS TO THE MERGER.................................... 35
8.1 Conditions to the Obligations of Each Party to Effect the
Merger...................................................... 35
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER........................... 36
9.1 Termination................................................. 36
9.2 Effect of Termination....................................... 37
9.3 Amendment................................................... 38
9.4 Extension; Waiver........................................... 38
ARTICLE X GENERAL PROVISIONS.......................................... 39
10.1 Notices..................................................... 39
10.2 Interpretation.............................................. 40
10.3 Non-Survival of Representations, Warranties, Covenants and
Agreements.................................................. 40
10.4 Miscellaneous............................................... 40
10.5 Assignment.................................................. 41
10.6 Severability................................................ 41
10.7 Choice of Law/Consent to Jurisdiction....................... 41
10.8 No Agreement Until Executed................................. 41
ANNEX A..................................................................... A-1
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of May 17, 1999, by
and among Precision Castparts Corp., an Oregon corporation ("PARENT"), WGC
Acquisition Corp., a Massachusetts corporation and a wholly-owned subsidiary of
Parent ("ACQUISITION SUB"), and Wyman-Gordon Company, a Massachusetts
corporation (the "COMPANY").
RECITALS
WHEREAS, the Board of Directors of each of Parent, Acquisition Sub and the
Company has approved, and deems it advisable and in the best interests of its
respective stockholders to consummate, the acquisition of the Company by Parent
upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, Parent, Acquisition Sub and the Company hereby agree as follows:
ARTICLE I
THE OFFER
1.1 THE OFFER.
(a) Provided that this Agreement shall not have been terminated in
accordance with its terms and none of the events or conditions specified in
ANNEX A hereto shall have occurred or shall exist, Acquisition Sub shall, as
soon as practicable after the date hereof, (but in no event later than the fifth
business day following the public announcement of the Offer (treating the
business day on which such public announcement occurs as the first business
day)), commence (within the meaning of Rule 14d-2 under the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (the "EXCHANGE
ACT")) an offer to purchase (as such offer to purchase may be amended in
accordance with the terms of this Agreement, the "OFFER") all of the issued and
outstanding shares ("SHARES") of common stock, par value $1.00 per share, of the
Company (the "COMPANY COMMON STOCK") at a price of not less than $20.00 per
Share, net to the seller in cash (less applicable withholding taxes, if any)
(such price, or such other price per Share as may be paid in the Offer, being
referred to herein as the "OFFER PRICE"). After the commencement of the Offer,
the Offer and the obligation of Acquisition Sub to accept for payment and pay
for Shares tendered pursuant to the Offer shall be subject only to the
conditions set forth in ANNEX A hereto and the condition (the "MINIMUM
CONDITION") that there be validly tendered and not withdrawn prior to the
expiration of the Offer at least two-thirds of the Shares on a fully diluted
basis (the "MINIMUM PERCENTAGE"). Parent and Acquisition Sub expressly reserve
the right to waive any condition set forth in ANNEX A, to change the form or
amount payable per Share in the Offer (including the Offer Price) and to make
any other changes in the terms and conditions of the Offer; provided, however,
that without the prior written consent of the Company, Parent shall not amend,
or permit to be amended, the Offer to (i) decrease the Offer Price, (ii) change
the consideration into a form other than cash, (iii) add any conditions to the
obligation of Acquisition Sub to accept for payment and pay for Shares tendered
pursuant to the Offer, (iv) amend (other than to waive) the Minimum Condition or
the other conditions set forth in ANNEX A, or (v) reduce the maximum number of
Shares to be purchased in the Offer. If on the initial scheduled expiration date
of the Offer (the "INITIAL EXPIRATION DATE"), which shall be 20 business days
after the date the Offer is commenced, all conditions to the Offer shall not
have been satisfied or waived, Acquisition Sub may, from time to time, in its
sole discretion, extend the expiration date of the Offer (the "EXPIRATION
DATE"); provided, however, that, except as set forth below, the Expiration Date,
as extended, shall be no later than the date that is 60 business days
immediately following the Initial Expiration Date (the "FINAL EXPIRATION DATE");
and provided further that if on the Initial Expiration Date, all conditions to
the Offer shall have been satisfied or waived other than the Minimum Condition,
Acquisition Sub shall be required to extend the Expiration Date to the date that
is ten business days immediately following the Initial Expiration Date.
Notwithstanding the foregoing, if on the Initial Expiration Date, the
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applicable waiting period (and any extension thereof) under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT") in respect
of the Offer shall not have expired or been terminated and all other conditions
to the Offer shall have been satisfied or waived other than the Minimum
Condition and clause (a) of ANNEX A as it relates to compliance with the HSR Act
or other applicable antitrust laws, Acquisition Sub shall be required to extend
the Expiration Date for such additional periods as may be necessary to permit
the parties to seek to obtain termination of the waiting period under the HSR
Act in accordance with Section 7.1 below up to the date that is nine months
after the date upon which Parent files a pre-merger notification and report form
under the HSR Act (the "HSR EXPIRATION DATE"); provided, however, that if the
applicable waiting period (and any extension thereof) under the HSR Act in
respect of the Offer expires or is terminated prior to the date that is ten
business days prior to the HSR Expiration Date, the Expiration Date shall be the
date which is ten business days immediately following public disclosure of the
expiration or termination of the waiting period under the HSR Act. Acquisition
Sub shall, on the terms and subject to the prior satisfaction or waiver of the
conditions of the Offer, accept for payment and pay for Shares tendered as soon
as it is legally permitted to do so under this Agreement and applicable law. The
Offer shall be made by means of an offer to purchase (the "OFFER TO PURCHASE")
containing the terms set forth in this Agreement, the Minimum Percentage and the
conditions set forth in ANNEX A hereto.
(b) As soon as practicable after the date the Offer is commenced, Parent and
Acquisition Sub shall file or cause to be filed with the Securities and Exchange
Commission (the "COMMISSION") a Tender Offer Statement on Schedule 14D-1
(together with all amendments or supplements thereto, the "SCHEDULE 14D-1"),
which shall include as an exhibit or incorporate by reference, the Offer to
Purchase (or portions thereof) and forms of the related letter of transmittal
and summary advertisement (such Schedule 14D-1, the Offer to Purchase and
related documents, together with all amendments or supplements thereto, are
collectively referred to herein as the "OFFER DOCUMENTS"). The Offer Documents
shall comply in all material respects with the provisions of applicable federal
securities laws and, on the date filed with the Commission and on the date first
published, sent or given to the Company's stockholders, shall not 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 were made, not misleading, except
that no representation is made by Parent or Acquisition Sub with respect to
information furnished by the Company for inclusion in the Offer Documents. The
information supplied in writing by the Company for inclusion in the Offer
Documents and by Parent or Acquisition Sub for inclusion in the Schedule 14D-9
(as hereinafter defined) shall not 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 were made, not misleading. Parent, Acquisition Sub and the
Company each agrees promptly to amend or supplement any information provided by
it for use in the Offer Documents if and to the extent that such information
shall have become false or misleading in any material respect or as otherwise
required by applicable federal securities laws, and Parent and Acquisition Sub
each further agrees to take all steps necessary to cause the Offer Documents, as
so amended or supplemented, to be filed with the Commission and disseminated to
the holders of Shares, in each case as and to the extent required by applicable
federal securities laws. The Company and its counsel shall be given a reasonable
opportunity to review and comment upon the Offer Documents and all amendments
and supplements thereto prior to the filing thereof with the Commission or the
dissemination thereof to the holders of Shares.
1.2 COMPANY ACTIONS.
(a) The Company hereby approves of and consents to the Offer and represents
and warrants that the Board of Directors of the Company (the "COMPANY BOARD"),
at a meeting duly called and held, has unanimously (i) determined that this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger (as hereinafter defined) taken together, are fair to and in the best
interests
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of the Company and its stockholders, (ii) approved this Agreement and the
transactions contemplated hereby, including, without limitation, the Merger and
the Offer (collectively, the "TRANSACTIONS"), and such approval constitutes
approval of the Transactions for purposes of Chapter 110F of the Massachusetts
General Laws, as amended (the "MGL"), and Article 6(c)2 of the Restated Articles
of Organization of the Company (the "ARTICLES OF ORGANIZATION") and (iii) voted
to recommend that the stockholders of the Company accept the Offer, tender their
Shares thereunder to Acquisition Sub and, if required by applicable law, approve
and adopt this Agreement and the Merger, subject to the Company's rights under
Section 7.4 hereof.
(b) Concurrently with the commencement of the Offer and the filing by or on
behalf of Parent and Acquisition Sub of the Schedule 14D-1, the Company shall
file with the Commission and disseminate to the holders of Shares a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments or supplements thereto, the "SCHEDULE 14D-9"), containing (among
other things) the recommendation referred to in clause (iii) of Section 1.2(a)
hereof, subject to the Company's rights under Section 7.4 hereof. The Schedule
14D-9 shall comply in all material respects with the provisions of applicable
federal securities laws and, on the date filed with the Commission and on the
date first published, sent or given to the Company's stockholders, shall not
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 were made, not
misleading, except that no representation is made by the Company with respect to
information furnished by Parent or Acquisition Sub for inclusion in the Schedule
14D-9. The Company, Parent and Acquisition Sub each agrees promptly to correct,
amend or supplement any information provided by it for use in the Schedule 14D-9
if and to the extent that such information shall have become false or misleading
in any material respect or as otherwise required by applicable federal
securities laws, and the Company further agrees to take all steps necessary to
cause the Schedule 14D-9, as so amended or supplemented, to be filed with the
Commission and disseminated to the holders of Shares, in each case as and to the
extent required by applicable federal securities laws. Parent, Acquisition Sub
and their counsel shall be given a reasonable opportunity to review and comment
upon the Schedule 14D-9 and all amendments and supplements thereto prior to the
filing thereof with the Commission or the dissemination thereof to the holders
of Shares.
(c) In connection with the Offer, the Company shall promptly furnish Parent
and Acquisition Sub with a list of the names and addresses of all record holders
of Shares and security position listings of Shares, each as of a recent date,
and shall promptly furnish Parent and Acquisition Sub with such additional
information, including updated lists of the stockholders of the Company, lists
of the holders of the Company's outstanding stock options, mailing labels,
security position listings and such other assistance and information as Parent
or Acquisition Sub or their agents may reasonably request. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Offer, each of Parent and Acquisition Sub shall use the information
described in the preceding sentence only in connection with the Offer, and if
this Agreement is terminated in accordance with its terms, each of them shall,
upon the Company's request, deliver to the Company all such information and any
copies or extracts thereof then in its possession or under its control.
1.3 BOARD REPRESENTATION. Promptly upon the purchase of Shares pursuant to
the Offer, Parent shall be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board as is equal to the
product of (a) the total number of directors on the Company Board (after giving
effect to the directors designated by Parent pursuant to this sentence) and (b)
the percentage that the total votes represented by such number of Shares in the
election of directors of the Company so purchased bears to the total votes
represented by the number of Shares outstanding. In furtherance thereof, the
Company shall, upon request by Parent, promptly increase the size of the Company
Board and/or exercise its commercially reasonable best efforts to secure the
resignations of
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such number of its directors as is necessary to enable Parent's designees to be
elected to the Company Board and shall take all actions to cause Parent's
designees to be so elected to the Company Board. At such time, the Company shall
also cause persons designated by Parent to constitute at least the same
percentage (rounded up to the next whole number) as is on the Company Board of
(i) each committee of the Company Board, (ii) each board of directors (or
similar body) of each Subsidiary (as defined in Section 10.2 hereof) of the
Company (each, a "COMPANY SUBSIDIARY") and (iii) each committee (or similar
body) of each such board. The Company shall take, at its expense, all action
required pursuant to Section 14(f) and Rule 14f-1 of the Exchange Act in order
to fulfill its obligations under this Section 1.3 and shall include in the
Schedule 14D-9 to its stockholders such information with respect to the Company
and its officers and directors as is required by such Section 14(f) and
Rule 14f-1 in order to fulfill its obligations under this Section 1.3. Parent
will supply to the Company in writing and be solely responsible for any
information with respect to itself and its nominees, officers, directors and
affiliates required by such Section 14(f) and Rule 14f-1. The provisions of this
Section 1.3 are in addition to and shall not limit any rights which Acquisition
Sub, Parent or any of their affiliates may have as a holder or beneficial owner
of Shares as a matter of law with respect to the election of directors or
otherwise. In the event that Parent's designees are elected to the Company
Board, until the Effective Time (as hereinafter defined), the Company Board
shall have at least two directors who are directors on the date hereof (the
"INDEPENDENT DIRECTORS"); provided that, in such event, if the number of
Independent Directors shall be reduced below two for any reason whatsoever, the
remaining Independent Director shall be entitled to designate the person to fill
such vacancy who shall be deemed to be an Independent Director for purposes of
this Agreement or, if no Independent Director then remains, the other directors
shall designate two persons to fill such vacancies who shall not be
stockholders, affiliates or associates of Parent or Acquisition Sub and such
persons shall be deemed to be Independent Directors for purposes of this
Agreement. Notwithstanding anything in this Agreement to the contrary, in the
event that Parent's designees are elected to the Company Board, after the
acceptance for payment of Shares pursuant to the Offer and prior to the
Effective Time, the affirmative vote of a majority of the Independent Directors
shall be required in addition to any other applicable requirement to (a) amend
this Agreement in any material respect in a manner adverse to any stockholder of
the Company or any intended third-party beneficiary of this Agreement,
(b) terminate this Agreement by the Company, (c) exercise or waive any of the
Company's material rights, benefits or remedies hereunder, or (d) extend the
time for performance of Parent's or Acquisition Sub's respective obligations
hereunder.
1.4 COMPANY STOCK OPTIONS AND RELATED MATTERS.
(a) Each option and stock appreciation right (collectively, the "OPTIONS")
granted under the Company Stock Option Plans (as hereinafter defined), which is
outstanding (whether or not currently exercisable) as of immediately prior to
the date on which Acquisition Sub accepts for payment Shares pursuant to the
Offer (the "ACCEPTANCE DATE") and which has not been exercised or canceled prior
thereto shall, on the Acceptance Date, be canceled and upon the surrender and
cancellation of the option agreement representing such Option, Acquisition Sub
shall pay to the holder thereof cash in an amount equal to the product of
(i) the number of Shares provided for in such Option and (ii) the excess, if
any, of the Offer Price over the exercise price per Share provided for in such
Option, which cash payment shall be treated as compensation and shall be net of
any applicable federal or state withholding tax. The Company shall take all
actions necessary to ensure that (i) all Options, to the extent not exercised
prior to the Acceptance Date, shall terminate and be canceled as of the
Acceptance Date and thereafter be of no further force or effect, (ii) no Options
are granted after the date of this Agreement, and (iii) as of the Acceptance
Date, the Company Stock Option Plans and all Options issued thereunder shall
terminate.
(b) Except as set forth in Section 1.5 or as may be otherwise agreed to by
Parent or Acquisition Sub and the Company, the Company Stock Option Plans shall
terminate as of the Acceptance Date and the provisions in any other plan,
program or arrangement providing for the issuance or grant of
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any other interest in respect of the capital stock of the Company or any of the
Company Subsidiaries shall be of no further force and effect and shall be deemed
to be deleted as of the Acceptance Date and no holder of an Option or any
participant in any Company Stock Option Plan or any other plans, programs or
arrangements shall have any right thereunder to acquire any equity securities of
the Company, the Surviving Corporation (as hereinafter defined) or any
Subsidiary thereof.
1.5 EMPLOYEE STOCK PURCHASE PLAN. The Company has taken appropriate action
to provide that (i) the current offering period under the Company's Employee
Stock Purchase Plan (the "STOCK PURCHASE PLAN") shall be terminated as of the
date hereof, (ii) each participant in the Stock Purchase Plan on the date hereof
shall be deemed to have exercised his or her Option (as defined in the Stock
Purchase Plan) on such date and shall acquire from the Company (A) such number
of whole shares of Company Common Stock as his or her accumulated payroll
deductions on such date will purchase at the Option Price (as defined in the
Stock Purchase Plan) (treating the last business day prior to the date hereof as
the "Exercise Date" for all purposes of the Stock Purchase Plan) and (B) cash in
the amount of any remaining balance in such participant's account, and
(iii) the Stock Purchase Plan shall be terminated effective as of the date
hereof.
ARTICLE II
THE MERGER
2.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company and Acquisition Sub shall consummate a merger
(the "MERGER") pursuant to which (a) Acquisition Sub shall be merged with and
into the Company and the separate corporate existence of Acquisition Sub shall
thereupon cease, (b) the Company shall be the successor or surviving corporation
in the Merger (sometimes referred to herein as the "SURVIVING CORPORATION") and
shall continue to be governed by the laws of the Commonwealth of Massachusetts,
and (c) the separate corporate existence of the Company with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger. The Articles of Organization, as in effect immediately prior to the
Effective Time, shall be the Articles of Organization of the Surviving
Corporation until thereafter amended as provided by law and such Articles of
Organization, and Bylaws of the Company (the "BYLAWS"), as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by law, by such Articles of Organization or
by such Bylaws. The Merger shall have the effects specified in the MGL.
2.2 EFFECTIVE TIME. As promptly as practicable after all of the conditions
set forth in Article VIII shall have been satisfied or, if permissible, waived
by the party entitled to the benefit of the same, the Company shall duly execute
and file articles of merger (the "ARTICLES OF MERGER") with the Secretary of
State of the Commonwealth of Massachusetts in accordance with the MGL. The
Merger shall become effective at such time as the Articles of Merger,
accompanied by payment of the filing fee (as provided in Chapter 156B, Section
114 of the MGL), have been examined by and received the endorsed approval of the
Secretary of State of the Commonwealth of Massachusetts (the "EFFECTIVE TIME").
2.3 CLOSING. The closing of the Merger (the "CLOSING") shall take place at
such time and on a date to be specified by the parties, which shall be no later
than the second business day after satisfaction or waiver of all of the
conditions set forth in Article VIII hereof (the "CLOSING DATE"), at the offices
of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109,
unless another date or place is agreed to by the parties hereto.
2.4 DIRECTORS AND OFFICERS. The directors and officers of Acquisition Sub
immediately prior to the Effective Time shall, immediately after the Effective
Time, be the directors and officers of the Surviving Corporation, each to hold
office in accordance with the Articles of Organization and Bylaws of the
Surviving Corporation.
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2.5 STOCKHOLDERS' MEETING. If required by applicable law in order to
consummate the Merger, the Company, acting through the Company Board, shall, in
accordance with applicable law:
(a) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "SPECIAL MEETING") as promptly as practicable following the
acceptance for payment and purchase of Shares by Acquisition Sub pursuant to the
Offer for the purpose of considering and taking action upon the approval of the
Merger and the adoption of this Agreement;
(b) prepare as promptly as practicable following the execution of this
Agreement, and file with the Commission as promptly as practicable following the
Expiration Date, a preliminary proxy or information statement relating to the
Merger and this Agreement and use its commercially reasonable best efforts to
obtain and furnish the information required to be included by the Commission in
the Proxy Statement (as hereinafter defined) and, after consultation with
Parent, to respond promptly to any comments made by the Commission with respect
to the preliminary proxy or information statement and cause a definitive proxy
or information statement, including any amendment or supplement thereto (the
"PROXY STATEMENT"), to be mailed to its stockholders, provided that no amendment
or supplement to the Proxy Statement will be made by the Company without the
consultation and approval of Parent and its counsel (which shall not be
unreasonably withheld), and to obtain the necessary approvals of the Merger and
this Agreement by its stockholders; and
(c) include in the Proxy Statement the recommendation of the Company Board
that stockholders of the Company vote in favor of the approval of the Merger and
the adoption of this Agreement.
2.6 MERGER WITHOUT MEETING OF STOCKHOLDERS. Notwithstanding any provision
in this Agreement to the contrary, in the event that Acquisition Sub shall
acquire at least 90% of the outstanding shares of each class of capital stock of
the Company, pursuant to the Offer or otherwise, the parties hereto shall, at
the request of Parent and subject to Article VIII hereof, take all necessary and
appropriate action to cause the merger of the Company with and into Acquisition
Sub to become effective as soon as practicable after such acquisition, without a
meeting of stockholders of the Company, in accordance with Chapter 156B, Section
82 of the MGL.
2.7 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any further action on the part of Parent, Acquisition Sub,
the Company or the holders of any Shares:
(a) Each issued and outstanding Share held by the Company as a treasury
Share or held by any direct or indirect Company Subsidiary and each issued and
outstanding Share owned by Parent, Acquisition Sub or any other direct or
indirect Subsidiary of Parent (a "PARENT SUBSIDIARY") immediately prior to the
Effective Time, shall be canceled and retired and cease to exist without any
conversion thereof and no payment or distribution shall be made with respect
thereto;
(b) Each Share issued and outstanding immediately prior to the Effective
Time, other than (i) those Shares referred to in Section 2.7(a) and
(ii) Dissenting Shares (as hereinafter defined), shall be canceled and shall be
converted automatically into and represent the right to receive the kind and
amount of consideration (without interest) equal to the kind and amount of
consideration paid per Share pursuant to the Offer (the "MERGER CONSIDERATION"),
payable (without interest) to the holder of such Share upon surrender, in the
manner provided in Section 3.1, of the Certificate (as hereinafter defined) that
formerly evidenced such Share. All of the Certificates evidencing Shares, by
virtue of the Merger and without any action on the part of the stockholders of
the Company or the Company, shall be deemed to be no longer outstanding, shall
not be transferable on the books of the Surviving Corporation, and shall
represent solely the right to receive the amount set forth in this Section
2.7(b); and
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(c) Each share of common stock, par value $.01 per share, of Acquisition Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and non-assessable share of common
stock, par value $1.00 per share, of the Surviving Corporation, certificates for
which shall be issued to the stockholders of Acquisition Sub on a pro rata basis
in accordance with their respective shares of Acquisition Sub upon surrender to
the Surviving Corporation of such stockholders' certificates formerly
representing such shares of Acquisition Sub.
2.8 TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent,
Acquisition Sub and the Company shall use its commercially reasonable best
efforts to take all such action as may be necessary or appropriate in order to
effectuate the Merger under the MGL as promptly as practicable following the
purchase of shares pursuant to the Offer. If at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
both of the Company and Acquisition Sub, the officers of such corporations are
fully authorized in the name of their corporation or otherwise to take, and
shall take, all such lawful and necessary action.
ARTICLE III
PAYMENT FOR SHARES; DISSENTING SHARES
3.1 PAYMENT FOR SHARES OF COMPANY COMMON STOCK.
(a) Prior to the Effective Time, Parent shall designate a bank or trust
company to act as agent for the holders of the Shares in connection with the
Merger (the "PAYING AGENT") for purposes of effecting the exchange of
certificates for the Merger Consideration which, prior to the Effective Time,
represented Shares entitled to receive the Merger Consideration pursuant to
Section 2.7(b).
(b) From time to time before or after the Effective Time, as necessary,
Parent or Acquisition Sub shall deposit in trust with the Paying Agent cash in
an aggregate amount equal to the product of (i) the number of Shares issued and
outstanding immediately prior to the Effective Time (other than shares owned by,
or issuable upon conversion of other securities to, the Company, Parent,
Acquisition Sub or any direct or indirect Parent Subsidiary or Company
Subsidiary and Shares known immediately prior to the Effective Time to be
Dissenting Shares) (as hereinafter defined) and (ii) the Merger Consideration
(such aggregate amount being hereinafter referred to as the "PAYMENT FUND"). The
Paying Agent shall, pursuant to irrevocable instructions, make the payments
referred to in Section 2.7(b) out of the Payment Fund.
(c) Promptly after the Effective Time, the Surviving Corporation shall cause
the Paying Agent to mail to each person who was a record holder of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented Shares (the "CERTIFICATES"), whose Shares were converted
pursuant to Section 2.7(b) into the right to receive the Merger Consideration, a
letter of transmittal (which shall specify that delivery shall be effected and
risk of loss and title to Certificates shall pass, only upon proper delivery of
the Certificates to the Paying Agent and shall be in such form and have such
other provisions as Parent and the Surviving Corporation may reasonably specify)
and instructions for its use in surrendering Certificates in exchange for
payment of the Merger Consideration. Upon the surrender to the Paying Agent of
such a Certificate, together with such duly executed letter of transmittal and
any other required documents, the holder thereof shall be paid, without interest
thereon, the Merger Consideration to which such holder is entitled hereunder,
and such Certificate shall forthwith be canceled. Until so surrendered, each
such Certificate shall, after the Effective Time, represent solely the right to
receive the Merger Consideration into which the Shares such Certificate
theretofore represented shall have been converted pursuant to Section 2.7(b),
and the holder thereof shall not be entitled to be paid any cash to which such
holder otherwise would be entitled. In case any payment pursuant to this Section
3.1 is to be made to a holder other than the
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registered holder of a surrendered Certificate, it shall be a condition of such
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
exchange shall pay to the Paying Agent any transfer or other taxes required by
reason of the payment of such cash to a person other than the registered holder
of the Certificate surrendered, or that such person shall establish to the
satisfaction of the Paying Agent that such tax has been paid or is not
applicable.
(d) Promptly following the date which is twelve months after the Effective
Time, the Paying Agent shall return to the Surviving Corporation all cash,
certificates and other instruments in its possession that constitute any portion
of the Payment Fund (including, without limitation, all interest and other
income received by the Paying Agent in respect of all funds made available to
it), and the Paying Agent's duties shall terminate. Thereafter, each holder of a
Certificate shall be entitled to look to the Surviving Corporation (subject to
applicable abandoned property, escheat and similar laws) only as a general
creditor thereof with respect to any Merger Consideration, without interest,
that may be payable upon due surrender of the Certificate or Certificates held
by them. Notwithstanding the foregoing, neither the Paying Agent nor any party
hereto shall be liable to a holder of Certificates that prior to the Effective
Time evidenced Shares for any Merger Consideration delivered pursuant hereto to
a public official pursuant to applicable abandoned property, escheat or other
similar laws.
(e) At the Effective Time, the Company Common Stock transfer books shall be
closed and no transfer of Shares shall be made thereafter. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Paying Agent, they shall be canceled and exchanged for the Merger Consideration
as provided in Section 2.7(b), subject to applicable law in the case of
Dissenting Shares.
(f) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent or the
Surviving Corporation, upon the posting by such person of a bond in such amount
as Parent or the Surviving Corporation may reasonably direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Paying Agent will issue in exchange for such lost, stolen or destroyed
Certificate, the cash representing the Merger Consideration deliverable in
respect thereof pursuant to this Agreement.
3.2 APPRAISAL RIGHTS.
(a) Notwithstanding anything in this Agreement to the contrary, any Shares
which are issued and outstanding immediately prior to the Effective Time and
which are held by stockholders of the Company who have filed with the Company,
before the taking of the vote of the stockholders of the Company to approve this
Agreement, written objections to such approval stating their intention to demand
payment for such Shares, and who have not voted such Shares in favor of the
adoption of this Agreement ("DISSENTING SHARES") will not be converted as
described in Section 2.7 hereof, but will thereafter constitute only the right
to receive payment of the fair value of such Shares in accordance with the
applicable provisions of Chapter 156B of the MGL (the "APPRAISAL RIGHTS
PROVISIONS"); provided, however, that all Shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such Shares under the Appraisal Rights Provisions shall
thereupon be deemed to have been canceled and retired and to have been
converted, as of the Effective Time, into the right to receive the Merger
Consideration, without interest, in the manner provided in Section 2.7. Persons
who have perfected statutory rights with respect to Dissenting Shares as
aforesaid will not be paid by the Surviving Corporation as provided in this
Agreement and will have only such rights as are provided by the Appraisal Rights
Provisions with respect to such Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, if Acquisition Sub abandons or is finally
enjoined or prevented from carrying out, or the stockholders rescind their
adoption of, this Agreement, the right of each holder of Dissenting Shares to
receive the fair value of such Dissenting Shares in accordance with the
Appraisal Rights Provisions will terminate, effective as of the time of such
abandonment, injunction, prevention or rescission.
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(b) Each dissenting stockholder who becomes entitled under the MGL to
payment for Dissenting Shares shall receive payment therefor after the Effective
Time from the Surviving Corporation (but only after the amount thereof shall
have been agreed upon or finally determined pursuant to the MGL) and such
Dissenting Shares shall thereupon be canceled.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND ACQUISITION SUB
Parent and Acquisition Sub jointly and severally hereby represent and
warrant to the Company as follows:
4.1 ORGANIZATION. Except as set forth in Section 4.1 of the schedule
attached to this Agreement setting forth exceptions to Parent's and Acquisition
Sub's representations and warranties set forth herein, each of Parent and
Acquisition Sub 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 corporate authority necessary to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power and authority would not reasonably be expected to have a Parent
Material Adverse Effect (as defined below). "PARENT MATERIAL ADVERSE EFFECT"
means any change or effect that has or would reasonably be expected to have a
material adverse effect on the business, results of operations or financial
condition of Parent and its Subsidiaries (the "PARENT SUBSIDIARIES") taken as a
whole.
4.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION. Except as set
forth in Section 4.2 of the schedule attached to this Agreement setting forth
exceptions to Parent's and Acquisition Sub's representations and warranties set
forth herein, (i) each of Parent and Acquisition Sub has full corporate power
and authority to execute and deliver this Agreement and to consummate the
Transactions; (ii) the execution, delivery and performance by Parent and
Acquisition Sub of this Agreement and the consummation of the Transactions have
been duly authorized by the Board of Directors of Parent (the "PARENT BOARD")
and the Board of Directors of Acquisition Sub (the "ACQUISITION SUB BOARD") and
by Parent as the sole stockholder of Acquisition Sub, and no other corporate
action on the part of Parent and Acquisition Sub is necessary to authorize the
execution and delivery by Parent and Acquisition Sub of this Agreement and the
consummation of the Transactions; and (iii) this Agreement has been duly
executed and delivered by Parent and Acquisition Sub and, assuming due and valid
authorization, execution and delivery hereof by the Company, is a valid and
binding obligation of each of Parent and Acquisition Sub, as the case may be,
enforceable against each of them in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
4.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth in Section
4.3 of the schedule attached to this Agreement setting forth exceptions to
Parent's and Acquisition Sub's representations and warranties set forth herein
and except for filings, permits, authorizations, consents and approvals as may
be required under, and other applicable requirements of, the Exchange Act, the
HSR Act, and state securities or state "Blue Sky" laws, none of the execution,
delivery or performance of this Agreement by Parent or Acquisition Sub, the
consummation by Parent or Acquisition Sub of the Transactions or compliance by
Parent or Acquisition Sub with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the respective articles of
incorporation or organization or bylaws of Parent or Acquisition Sub,
(ii) require any filing with, or permit, authorization, consent or approval of,
any state, federal or foreign government or governmental authority or by any
United States, state or foreign court of competent jurisdiction (a "GOVERNMENTAL
ENTITY"), (iii) result in a violation or breach 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) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
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contract, agreement or other instrument or obligation to which Parent or any of
the Parent Subsidiaries listed in Section 4.3 of the Schedule attached to this
Agreement (the "MATERIAL PARENT SUBSIDIARIES") is a party or by which any of
them or any of their respective properties or assets may be bound, or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent, any of the Material Parent Subsidiaries or any of their
properties or assets, excluding from the foregoing clauses (ii), (iii) and (iv)
such violations, breaches or defaults which would not, individually or in the
aggregate, have a Parent Material Adverse Effect.
4.4 INFORMATION IN PROXY STATEMENT. None of the information supplied by
Parent or Acquisition Sub specifically for inclusion or incorporation by
reference in the Proxy Statement will, as of the date mailed to the Company's
stockholders and except as supplemented by Parent to reflect changes in
information so supplied at the time of any meeting of the Company's stockholders
to be held in connection with the Merger, will 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.
4.5 REQUIRED FINANCING. Parent has a commitment for credit facilities in
place which, if funded, either alone or with cash presently on hand, (i) will
provide sufficient funds to enable Acquisition Sub to purchase and pay for the
Shares pursuant to the Offer and the Merger in accordance with the terms of this
Agreement and to consummate the Transactions and (ii) will cause Parent or
Acquisition Sub to have on the Initial Expiration Date and the Expiration Date,
and at the Effective Time, sufficient funds to purchase and pay for the Shares
pursuant to the Offer and the Merger, respectively, in accordance with the terms
of this Agreement. Neither Parent nor Acquisition Sub has any reason to believe
that any condition to such commitment cannot or will not be satisfied prior to
the Initial Expiration Date. Parent has provided to the Company a true, complete
and correct copy of the commitment letter, including any exhibits, schedules or
amendments thereto (collectively, the "Commitment Letter"), relating to the
financing for the purchase of the Shares pursuant to the Offer and the Merger.
Parent's and Acquisition Sub's commitment for credit facilities permits, subject
to the conditions specified therein, Parent and Acquisition Sub to borrow money
under such facilities and use such funds to purchase and pay for the Shares
pursuant to the Offer and the Merger in accordance with the terms of this
Agreement and to consummate the Transactions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedules delivered at or prior to the
execution hereof to Parent and Acquisition Sub, which shall refer to the
relevant Sections of this Agreement (the "COMPANY DISCLOSURE SCHEDULE"), the
Company represents and warrants to Parent and Acquisition Sub as follows:
5.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts. Except as set
forth in Section 5.1 of the Company Disclosure Schedule, the Company is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States in which the
character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where the
failure to be so licensed or qualified would not have a Company Material Adverse
Effect (as defined below). "COMPANY MATERIAL ADVERSE EFFECT" means any change or
effect that has or would reasonably be expected to have a material adverse
effect on the business, results of operations or financial condition of the
Company and the Company Subsidiaries taken as a whole. The Company has all
requisite corporate power and authority to own, operate, lease and encumber its
properties and carry on its business as now conducted.
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(b) Each of the Company Subsidiaries listed in Section 5.1 of the Company
Disclosure Schedule (the "MATERIAL COMPANY SUBSIDIARIES") is a corporation,
partnership or limited liability company (or similar entity or association in
the case of those Material Company Subsidiaries organized and existing other
than under the laws of a state of the United States) duly incorporated or
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the corporate or other power
and authority to own its properties and to carry on its business as it is now
being conducted, and is duly qualified to do business and is in good standing in
each jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not have a Company
Material Adverse Effect.
(c) Neither the Company nor any of the Material Company Subsidiaries is in
violation of any order of any Governmental Entity or arbitration board or
tribunal, or any law, ordinance, governmental rule or regulation to which or by
which the Company or any Material Company Subsidiary or any of their respective
properties or assets is subject or bound, where such violation would have a
Company Material Adverse Effect. The Company and the Material Company
Subsidiaries have obtained all licenses, permits and other authorizations and
have taken all actions required by applicable law or governmental regulations in
connection with their businesses as now conducted, where the failure to obtain
any such license, permit or authorization or to take any such action would
reasonably be expected to have a Company Material Adverse Effect.
(d) Copies of the Articles of Organization and Bylaws, as currently in
effect, and the other charter documents, bylaws, organizational documents and
partnership, limited liability company and joint venture agreements, as
currently in effect, of the Company and each of the Company Subsidiaries are
listed in, and with respect to the Company and the Material Company
Subsidiaries, are attached to, Section 5.1 of the Company Disclosure Schedule.
5.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The Company has the
requisite power and authority to enter into and consummate the Transactions and
to execute, deliver and perform this Agreement. The Company Board has approved
this Agreement and the Transactions. In connection with the foregoing, the
Company Board has taken such actions and votes as are necessary on its part to
render the provisions of Chapter 110F of the MGL and all other applicable
takeover statutes inapplicable to this Agreement and the Transactions and to
comply with the director approval requirements of Article 6(c)2 of the Articles
of Organization. Subject only to the approval of this Agreement by the holders
of the Company Common Stock, if required, the execution and delivery by the
Company of this Agreement and consummation of the Transactions have been duly
authorized by all requisite corporate action on the part of the Company. This
Agreement, assuming due and valid authorization, execution and delivery thereof
by Parent and Acquisition Sub, constitutes a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights and general principles of equity.
5.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 70,000,000 shares of Company Common Stock and 5,000,000 shares of preferred
stock, no par value per share, of the Company (the "COMPANY PREFERRED STOCK").
As of the date of this Agreement, (i) 35,538,733 shares of Company Common Stock
were issued and outstanding, (ii) 1,129,229 shares of Company Common Stock have
been authorized and reserved for issuance and are available for grant pursuant
to the Company's stock option plans listed in Section 5.3 of the Company
Disclosure Schedule (the "COMPANY STOCK OPTION PLANS"), subject to adjustment on
the terms set forth in the Company Stock Option Plans, (iii) 2,599,653 Options
were outstanding under the Company Stock Option Plans, (iv) 250,000 shares of
Company Common Stock have been authorized and reserved for issuance pursuant to
the Stock Purchase Plan, (v) no shares of Company Preferred Stock were issued
and outstanding, (vi) 100,000 shares of Company Preferred Stock have been
designated as "Series B Junior Participating Cumulative
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Preferred Stock" and reserved for issuance upon exercise of the rights (the
"RIGHTS") issued pursuant to the Shareholder Rights Agreement, dated as of
October 21, 1998, by and between the Company and State Street Bank and Trust
Company (the "RIGHTS AGREEMENT"), and (vii) 1,513,987 shares of Company Common
Stock and no shares of Company Preferred Stock were held in the treasury of the
Company. As of the date of this Agreement, the Company had no shares of Company
Common Stock issued and outstanding or reserved for issuance other than as
described above. All such issued and outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid, nonassessable and free
of preemptive rights. The Company has no outstanding bonds, debentures, notes or
other agreements or obligations the holders of which have the right to vote (or
which are convertible into or exercisable for securities having the right to
vote) with the stockholders of the Company on any matter. Except for the Options
(all of which have been issued under the Company Stock Option Plans) and the
Stock Purchase Plan, there are not at the date of this Agreement any existing
options, warrants, calls, subscriptions, convertible securities, or other
rights, agreements or commitments which obligate the Company to issue, transfer
or sell any shares of capital stock of the Company. Section 5.3 of the Company
Disclosure Schedule sets forth a full list of the Options, including the name of
the person to whom such Options have been granted, the number of shares subject
to each Option, the per share exercise price for each Option and the vesting
schedule for each Option. As of the Acceptance Date, pursuant to the Company
Stock Option Plans, the Options will be fully vested and immediately
exercisable. Except as set forth in Section 5.3 of the Company Disclosure
Schedule, there are no agreements or understandings to which the Company or any
Material Company Subsidiary is a party with respect to the voting of any shares
of capital stock of the Company or which restrict the transfer of any such
shares, nor does the Company have knowledge of any third party agreements or
understandings with respect to the voting of any such shares or which restrict
the transfer of any such shares. Except as set forth in Section 5.3 of the
Company Disclosure Schedule, there are no outstanding contractual obligations of
the Company or any Material Company Subsidiary to repurchase, redeem or
otherwise acquire any shares of capital stock, partnership interests or any
other securities of the Company or any Material Company Subsidiary. Except as
set forth in Section 5.3 of the Company Disclosure Schedule, neither the Company
nor any Material Company Subsidiary is under any obligation, contingent or
otherwise, by reason of any agreement to register the offer and sale or resale
of any of their securities under the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "SECURITIES ACT").
5.4 SUBSIDIARIES. No Company Subsidiary that is not a Material Company
Subsidiary (i) is actively engaged in the conduct of any material business, (ii)
owns any material assets or interests or investments in any corporation,
partnership, limited liability company, joint venture, business trust or other
entity, or (iii) is subject to any material claims of third parties. Except as
set forth in Section 5.4 of the Company Disclosure Schedule, the Company owns
directly or indirectly each of the outstanding shares of capital stock or other
equity interest of each of the Material Company Subsidiaries. Each of the
outstanding shares of capital stock of each of the Material Company Subsidiaries
having corporate form is duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 5.4 of the Company Disclosure
Schedule, each of the outstanding shares of capital stock or other equity
interest of each of the Material Company Subsidiaries is owned, directly or
indirectly, by the Company free and clear of all liens, pledges, security
interests, claims or other encumbrances. The following information for each
Company Subsidiary is correctly set forth in Section 5.4 of the Company
Disclosure Schedule: (i) its name and jurisdiction of incorporation or
organization; (ii) its authorized capital stock, share capital or other equity
interest, to the extent applicable; and (iii) the name of each stockholder or
equity interest holder and the number of issued and outstanding shares of
capital stock, share capital or other equity interest held by it.
5.5 OTHER INTERESTS. Except as set forth in Section 5.5 of the Company
Disclosure Schedule, neither the Company nor any Material Company Subsidiary
owns directly or indirectly any interest or investment (whether equity or debt)
in any corporation, partnership, limited liability company, joint
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venture, business, trust or other entity (other than investments in short-term
investment securities). Except as set forth in Section 5.5 of the Company
Disclosure Schedule, to the Company's knowledge, there is no material dispute
among the equity holders of any entity of which the Company and/or any Company
Subsidiary owns more than five percent, but less than all of the voting
interests or voting securities therein.
5.6 NO VIOLATION; CONSENTS. Except as set forth in Section 5.6 of the
Company Disclosure Schedule, neither the execution and delivery by the Company
of this Agreement nor consummation by the Company of the Transactions in
accordance with the terms hereof, will conflict with or result in a breach of
any provisions of the Articles of Organization or the Bylaws. Except as set
forth in Section 5.6 of the Company Disclosure Schedule, the execution and
delivery by the Company of this Agreement and consummation by the Company of the
Transactions in accordance with the terms hereof will not violate, or conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or in a right of termination or cancellation
of, or accelerate the performance required by, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties of the
Company or the Material Company Subsidiaries under, or result in being declared
void, voidable or without further binding effect, any of the terms, conditions
or provisions of (x) any note, bond, mortgage, indenture or deed of trust or (y)
any license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which the Company or any of the Material Company
Subsidiaries is a party, or by which the Company or any of the Material Company
Subsidiaries or any of their properties is bound, except as otherwise would not
have a Company Material Adverse Effect. Other than the filings provided for in
Article II of this Agreement, the HSR Act, the Exchange Act or applicable state
securities and "Blue Sky" laws (collectively, the "REGULATORY FILINGS"), the
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company and consummation of the
Transactions does not, require any consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Entity or regulatory
authority, except where the failure to obtain any such consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Entity or regulatory authority would not have a Company Material Adverse Effect
or significantly delay any of the Transactions. Except as set forth in Section
5.6 of the Company Disclosure Schedule, there are no material agreements to
which the Company or any Material Company Subsidiary is a party or to which
their respective assets may be bound that would result in a material change in
the rights or obligations of the parties thereto as a result of a change in
control of the Company as contemplated by this Agreement.
5.7 SEC DOCUMENTS. The Company has timely filed all required forms,
reports and documents with the Commission since May 31, 1995 (collectively, the
"COMPANY SEC REPORTS"), all of which were prepared in accordance with the
applicable requirements of the Exchange Act, the Securities Act and the rules
and regulations promulgated thereunder (the "SECURITIES LAWS"). All required
Company SEC Reports have been timely filed with the Commission and constitute
all forms, reports and documents required to be filed by the Company under the
Securities Laws since May 31, 1995. As of their respective dates, the Company
SEC Reports (i) complied as to form in all material respects with the applicable
requirements of the Securities Laws and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of the Company included in or incorporated by
reference into the Company SEC Reports (including the related notes and
schedules) fairly presents the consolidated financial position of the Company
and the Company Subsidiaries as of its date and each of the consolidated
statements of income, retained earnings and cash flows of the Company included
in or incorporated by reference into the Company SEC Reports (including any
related notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of the
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Company and the Company Subsidiaries for the periods set forth therein (subject,
in the case of unaudited statements, to normal year-end audit adjustments which
were or will not be material in amount or effect), in each case in accordance
with generally accepted accounting principles consistently applied during the
periods involved, except as may be noted therein and except, in the case of the
unaudited statements, as permitted by Form 10-Q pursuant to Section 13 or
15(d) of the Exchange Act.
5.8 LITIGATION. Except as set forth in Section 5.8 of the Company
Disclosure Schedule, there is no litigation, suit, action or proceeding pending
or, to the knowledge of the Company, threatened against the Company or any of
the Company Subsidiaries, which, if adversely determined, individually or in the
aggregate with all such other litigation, suits, actions or proceedings, would
(i) have a Company Material Adverse Effect, (ii) materially and adversely affect
the Company's ability to perform its obligations under this Agreement or (iii)
prevent or significantly delay the consummation of any of the Transactions.
Except as set forth in Section 5.8 of the Company Disclosure Schedule, there is
no writ, order, injunction, ordinance, judgment or decree in effect or, to the
knowledge of the Company, threatened that would materially and adversely affect
the Company's ability to perform its obligations under this Agreement or prevent
or significantly delay the consummation of any of the Transactions.
5.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section 5.9 of the
Company Disclosure Schedule or in the Company SEC Reports filed with the
Commission prior to the date of this Agreement, since May 31, 1998, the Company
and the Material Company Subsidiaries have conducted their businesses only in
the ordinary course of business and there has not been: (i) as of the date
hereof, any declaration, setting aside or payment of any dividend or other
distribution with respect to the Company Common Stock; (ii) any material
commitment, contractual obligation (including, without limitation, any
management or franchise agreement, any lease (capital or otherwise) or any
letter of intent), borrowing, liability, guaranty, capital expenditure or
transaction (each, a "COMMITMENT") entered into by the Company or any of the
Material Company Subsidiaries outside the ordinary course of business except for
Commitments for expenses of attorneys, accountants and investment bankers
incurred in connection with the Transactions; or (iii) any material change in
the Company's accounting principles, practices or methods. Between February 28,
1999 and the date of this Agreement, there has not occurred any change or effect
concerning the Company or the Company Subsidiaries which has had or would
reasonably be expected to have a material adverse effect on the business,
operations or condition (financial or otherwise) of the Company and the Company
Subsidiaries taken as a whole.
5.10 TAXES.
(a) Except as set forth in Section 5.10 of the Company Disclosure Schedule,
each of the Company and the Material Company Subsidiaries (i) has timely filed
all Tax Returns (as defined below) which it was required to file (after giving
effect to any filing extension granted by a Governmental Entity) and all such
Tax Returns are accurate and complete in all material respects, and (ii) has
paid all Taxes (as defined below) shown on such Tax Returns as required to be
paid by it, except, in each case, where the failure to file (or timely file)
such Tax Returns or pay such Taxes would not have a Company Material Adverse
Effect. The most recent audited financial statements contained in the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1998 reflect, to
the knowledge of the Company, an adequate reserve for all material Taxes payable
by the Company and the Material Company Subsidiaries for all taxable periods and
portions thereof through the date of such financial statements. To the knowledge
of the Company, and except as set forth in Section 5.10 of the Company
Disclosure Schedule, no deficiencies for any Taxes have been proposed, asserted
or assessed against the Company or any of the Material Company Subsidiaries, and
no requests for waivers of the time to assess any such Taxes are pending. The
Company has previously furnished to Parent (a) correct and complete copies of
all federal and material state or foreign Tax Returns by the Company or any
Material Company Subsidiary for taxable periods ending on or after June 1, 1996,
and (b) copies of all agreements that, to the knowledge of the Company, under
certain circumstances could obligate the Company to make any payments that will
not be deductible under Code Section 280G. Section 5.10 of
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the Company Disclosure Schedule lists all (A) Tax sharing agreements, (B) all
Tax Returns currently under audit (the "AUDITS") and (C) agreements for
extensions with Governmental Entities to which the Company or any of the
Material Company Subsidiaries is a party. Section 5.10 of the Company Disclosure
Schedule discusses all material issues which have been raised to date in the
Audits.
(b) For purposes of this Agreement, "TAXES" means all federal, state, local
and foreign income, property, sales, use, franchise, employment, withholding,
excise and other taxes, tariffs or governmental charges of any nature
whatsoever, together with any interest, penalties or additions to Tax with
respect thereto.
(c) For purposes of this Agreement, "TAX RETURNS" means all reports,
returns, declarations, statements, schedules, attachments or other information
required to be supplied to a taxing authority in connection with Taxes.
5.11 BOOKS AND RECORDS.
(a) The books of account and other financial records of the Company and each
of the Material Company Subsidiaries are true, complete and correct in all
material respects, have been maintained in accordance with good business
practices, and are accurately reflected in all material respects in the
financial statements included in the Company SEC Reports.
(b) The minute books and other records of the Company and each of the
Material Company Subsidiaries have been made available to Parent and Acquisition
Sub, contain in all material respects accurate records of all meetings and
accurately reflect in all material respects all other corporate action of the
stockholders and directors and any committees of the Company Board and the
boards of directors of each of the Material Company Subsidiaries and all actions
of the directors, partners or managers of each of the Material Company
Subsidiaries, as applicable.
5.12 PROPERTIES.
(a) All of the real estate properties owned or leased by the Company or any
of the Material Company Subsidiaries are set forth in Section 5.12 of the
Company Disclosure Schedule. The Company has no ownership interest in any real
property other than the properties owned by the Company or the Material Company
Subsidiaries and set forth in Section 5.12 of the Company Disclosure Schedule.
Except as set forth in Section 5.12 of the Company Disclosure Schedule, the
Company or such Material Company Subsidiary owns fee simple title to each of the
real properties identified in Section 5.12 of the Company Disclosure Schedule
(the "COMPANY PROPERTIES"), free and clear of any liens, mortgages or deeds of
trust, claims against title, charges which are liens, security interests or
other encumbrances on title (collectively, "ENCUMBRANCES"), and the Company
Properties are not subject to any easements, rights of way, covenants,
conditions, restrictions or other written agreements, laws, ordinances and
regulations materially affecting building use or occupancy, or reservations of
an interest in title (collectively, "PROPERTY RESTRICTIONS"), except for
(i) Encumbrances, Property Restrictions and other matters set forth in Section
5.12 of the Company Disclosure Schedule, (ii) Property Restrictions imposed or
promulgated by law or any governmental body or authority with respect to real
property, including zoning regulations, that do not materially and adversely
affect the current or currently contemplated use of the property, materially
detract from the value of or materially interfere with the present or currently
contemplated use of the property, (iii) Encumbrances and Property Restrictions
disclosed on existing title policies or reports or current surveys, and
(iv) mechanics', carriers', suppliers', workmen's or repairmen's liens and other
Encumbrances, Property Restrictions and other limitations of any kind, if any,
which, individually or in the aggregate, are not material in amount, do not
materially detract from the value of or materially interfere with the present
use of any of the Company Properties subject thereto or affected thereby, and do
not otherwise materially impair business operations conducted by the Company and
the Material Company Subsidiaries and which have arisen or been incurred only in
the ordinary course of business. Except as set forth in Section 5.12 of the
Company Disclosure Schedule, (A) no written notice of any material violation of
any federal, state or municipal
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law, ordinance, order, regulation or requirement affecting any portion of any of
the Company Properties has been issued to the Company by any governmental
authority; (B) to the Company's knowledge, there are no material structural
defects relating to any of the Company Properties; (C) to the Company's
knowledge, there is no Company Property whose building systems are not in
working order in any material respect; and (D) to the Company's knowledge, there
is no physical damage for which the Company is responsible to any Company
Property in excess of $250,000 for which there is no insurance in effect
covering the full cost of the restoration.
(b) Except as set forth in Section 5.12 of the Company Disclosure Schedule,
the Company and the Company Subsidiaries own good and marketable title, free and
clear of all Encumbrances, to all of the personal property and assets shown on
the Company's balance sheet at February 28, 1999 as reflected in the Company SEC
Reports (the "BALANCE SHEET") or acquired after February 28, 1999, except for
(A) assets which have been disposed of to nonaffiliated third parties since
May 31, 1998 in the ordinary course of business, (B) Encumbrances reflected in
the Balance Sheet, (C) Encumbrances or imperfections of title which are not,
individually or in the aggregate, material in character, amount or extent and
which do not materially detract from the value or materially interfere with the
present or presently contemplated use of the assets subject thereto or affected
thereby, and (D) Encumbrances for current Taxes not yet due and payable. All of
the machinery, equipment and other tangible personal property and assets owned
or used by the Company and the Material Company Subsidiaries are, to the
Company's knowledge, (i) in good condition and repair, except for ordinary wear
and tear not caused by neglect and (ii) useable in the ordinary course of
business of the Company or the Material Company Subsidiaries.
5.13 INTELLECTUAL PROPERTY. To the knowledge of the Company, the Company
or the Material Company Subsidiaries is the owner of, or a licensee under a
valid license for, all items of intangible property which are material to the
business of the Company and the Material Company Subsidiaries as currently
conducted or contemplated, including, without limitation, trade names,
unregistered trademarks and service marks, brand names, domain names, software,
patents and copyrights. Except as disclosed in the Company SEC Reports filed
prior to the date of this Agreement or Section 5.13 of the Company Disclosure
Schedule, there are no claims pending or, to the Company's knowledge,
threatened, that the Company or any Material Company Subsidiary is in violation
of any material intellectual property right of any third party which would have
a Company Material Adverse Effect, and, to the knowledge of the Company, no
third party is in violation of any intellectual property rights of the Company
or any Material Company Subsidiary which would have a Company Material Adverse
Effect. Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement or Section 5.13 of the Company Disclosure Schedule, neither
the Company nor any Material Company Subsidiary is violating or has violated the
intellectual property rights of any third party.
5.14 ENVIRONMENTAL MATTERS. The Company and the Material Company
Subsidiaries are in compliance with all Environmental Laws (as defined below),
except for any noncompliance that, either singly or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect. As used in
this Agreement, "ENVIRONMENTAL LAWS" shall mean all federal, state, provincial,
territorial, international and local laws, rules, regulations, ordinances and
orders that purport to regulate the release of hazardous substances or other
materials into the environment, or impose requirements relating to environmental
protection or human health. As used in this Agreement, "HAZARDOUS MATERIALS"
means any hazardous, toxic, noxious, radioactive or infectious substance
material, pollutant or waste as defined, listed or regulated under any
Environmental Law, and includes, without limitation, petroleum oil and its
fractions. Except as set forth in Section 5.14 of the Company Disclosure
Schedule, there is no administrative or judicial enforcement proceeding or, to
the knowledge of the Company, investigation pending, or threatened, against the
Company or any Material Company Subsidiary under any Environmental Law. Except
as set forth in Section 5.14 of the Company Disclosure Schedule, neither the
Company nor any Material Company Subsidiary or, to the knowledge of the Company,
any legal predecessor of the Company or any Material Company Subsidiary, has
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received any written notice that it is actually or potentially responsible under
any Environmental Law for investigation, removal, remedial or other response
costs or natural resource damages or other damages from the release of a
Hazardous Material into the environment at any location. Except as set forth in
Section 5.14 of the Company Disclosure Schedule, neither the Company nor any
Material Company Subsidiary has transported or disposed of, or allowed or
arranged for any third party to transport or dispose of, any Hazardous Materials
at any location included on the National Priorities List, as defined under the
Comprehensive Environmental Response, Compensation, and Liability Act, or any
location proposed for inclusion on that list or at any location proposed for
inclusion on any analogous state list. Except as set forth in Section 5.14 of
the Company Disclosure Schedule, (i) the Company has no knowledge of any release
on the real property currently or previously owned or leased by the Company or
any Material Company Subsidiary or predecessor entity of Hazardous Materials in
a manner that could result in an order to perform a response action or in
material liability under the Environmental Laws, and (ii) to the Company's
knowledge, there is no hazardous waste treatment, storage or disposal facility,
underground storage tank, landfill, surface impoundment, underground injection
well, friable asbestos or PCB's, as those terms are defined under the
Environmental Laws, located at any of the real property currently or previously
owned or leased by the Company or any Material Company Subsidiary or predecessor
entity or facilities utilized by the Company or the Material Company
Subsidiaries, except which are either permitted uses or have been adequately
reserved for in the Company's financial statements. Except as set forth in
Section 5.14 of the Company Disclosure Schedule, neither the Company nor any
Company Subsidiary has compromised or released any insurance policies that may
provide coverage for liabilities under Environmental Laws or liabilities or
damages otherwise arising out of the release of Hazardous Materials into the
environment. Except as set forth in Section 5.14 of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary has agreed to assume
the liability of any other person or entity for, nor has the Company or any
Company subsidiary agreed to indemnify any other person or entity against,
claims arising out of the release of Hazardous Materials into the environment or
other claims under Environmental Laws.
5.15 EMPLOYEE BENEFIT PLANS.
(a) Section 5.15 of the Company Disclosure Schedule sets forth a list of
every Company Benefit Plan (as hereinafter defined) that is maintained by the
Company or an Affiliate (as hereinafter defined) on the date hereof.
(b) Each Company Benefit Plan which has been intended to qualify under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "CODE"),
has received a favorable determination or approval letter from the Internal
Revenue Service ("IRS") regarding its qualification covering all legally
required updates and any other plan amendments for which the remedial amendment
period has expired under such section and no such Company Benefit Plan has been
maintained in a manner that would preclude qualified status, including, without
limitation, any failure to adopt a legally required amendment or comply with a
legally required administrative procedure within the time required. Each Company
Benefit Plan which has been intended to qualify under Code Sections 79, 105,
106, 125 or 127 is documented and has been maintained in a manner that meets the
applicable qualification requirements in all material respects. No event has
occurred relating to any Company Benefit Plan that has caused (or to the
knowledge of the Company or any Affiliate, is likely to cause) any excise or
penalty tax liability under the Code for the Company or any Affiliate that would
have a Company Material Adverse Effect.
(c) With respect to any Company Benefit Plan, there has been no (i)
"PROHIBITED TRANSACTION," as defined in Section 406 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Code Section 4975, for
which an exemption is not available or (ii) material failure to comply with any
provision of ERISA, other applicable law, or any agreement, which, in either
case, would subject the Company or any Affiliate to liability (including,
without limitation, through any
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obligation of indemnification or contribution) for any damages, penalties, or
taxes, or any other material loss or expense that would have a Company Material
Adverse Effect. No litigation or governmental administrative proceeding or
investigation or other proceeding is pending or, to the Company's knowledge,
threatened with respect to any such Company Benefit Plan.
(d) Neither the Company nor any Affiliate has incurred any liability under
Title IV of ERISA which has not been paid in full as of the date of this
Agreement. There has been no "accumulated funding deficiency" (whether or not
waived) with respect to any employee pension benefit plan maintained by the
Company or any Affiliate and subject to Code Section 412 or ERISA Section 302.
With respect to any Company Benefit Plan maintained by the Company or any
Affiliate and subject to Title IV of ERISA, there has been no (other than as a
result of the transactions contemplated by this Agreement) (i) "reportable
event," within the meaning of ERISA Section 4043 or the regulations thereunder,
for which the notice requirement is not waived by the regulations thereunder,
and (ii) event or condition which presents a material risk of a plan termination
or any other event that may cause the Company or any Affiliate to incur
liability or have a lien imposed on its assets under Title IV of ERISA. Except
as set forth in Section 5.15 of the Company Disclosure Schedule, neither the
Company nor any Affiliate has ever maintained a Multiemployer Plan (as
hereinafter defined) or a Multiple Employer Plan (as hereinafter defined).
(e) With respect to each Company Benefit Plan, complete and correct copies
of the following documents (if applicable to such Company Benefit Plan) have
previously been delivered to Parent: (i) all documents embodying or governing
such Company Benefit Plan, and any funding medium for such Company Benefit Plan
(including, without limitation, trust agreements) as they may have been amended
to the date hereof; (ii) the most recent IRS determination or approval letter
with respect to such Company Benefit Plan under Code Section 401(a), and any
applications for determination or approval subsequently filed with the IRS;
(iii) the most recently filed IRS Form 5500, with all applicable schedules and
accountants' opinions attached thereto; and (iv) the current summary plan
description for such Company Benefit Plan (or other descriptions of such Company
Benefit Plan provided to employees) and all modifications thereto.
(f) For purposes of this Section:
(i) "COMPANY BENEFIT PLAN" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3) maintained by the Company or any
Affiliate, (B) all stock option plans and stock purchase plans and
(C) all executive severance arrangements that have payments or other
benefits triggered by a change of control;
(ii) An entity "MAINTAINS" a Company Benefit Plan if such entity
sponsors, contributes to, or provides benefits under or through such
Company Benefit Plan, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under or through
such Company Benefit Plan, or if such Company Benefit Plan provides
benefits to or otherwise covers employees of such entity (or their
spouses, dependents, or beneficiaries);
(iii) An entity is an "AFFILIATE" of the Company for purposes of this
Section 5.15 if it would have ever been considered a single employer with
the Company under ERISA Section 4001(b) or part of the same "CONTROLLED
GROUP" as the Company for purposes of ERISA Section 302(d)(8)(C); and
(iv) "MULTIEMPLOYER PLAN" means an employee pension or welfare
benefit plan to which more than one unaffiliated employer contributes and
which is maintained pursuant to one or more collective bargaining
agreements.
(v) 'MULTIPLE EMPLOYER PLAN" means an employee pension or welfare
plan to which more than one unaffiliated employer contributes and which
is not a Multiemployer Plan.
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5.16 LABOR MATTERS. Except as set forth in Section 5.16 of the Company
Disclosure Schedule, neither the Company nor any Material Company Subsidiary is
a party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor union organization. There
is no unfair labor practice or labor arbitration proceeding or grievance pending
or, to the knowledge of the Company, threatened against the Company or any of
the Material Company Subsidiaries relating to their business, except for any
such proceeding which would have a Company Material Adverse Effect. To the
Company's knowledge, there is no labor strike, dispute, request for
representation, slowdown or stoppage pending or threatened against the Company
or any Material Company Subsidiary. To the Company's knowledge, there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of the Company or
any of the Material Company Subsidiaries. The Company and each Material Company
Subsidiary has complied in all material respects with all labor and employment
laws, including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes, except
as otherwise would not reasonably be expected to have a Company Material Adverse
Effect.
5.17 NO BROKERS. Neither the Company nor any of the Company Subsidiaries
has entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of such entity or Parent or Acquisition
Sub to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or
consummation of the Transactions, except that the Company has retained Goldman,
Sachs & Co. ("GOLDMAN SACHS") as its financial advisor in connection with the
Transactions. Other than the foregoing arrangements and Parent's arrangements
with Schroder & Co., Inc., the Company is not aware of any claim for payment of
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the Transactions.
5.18 OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of
Goldman Sachs to the effect that, as of the date hereof, the Offer Price and the
Merger Consideration are fair to the holders of the Company Common Stock from a
financial point of view and such opinion has not been subsequently modified or
withdrawn.
5.19 YEAR 2000. To the Company's knowledge, there are no impediments to
the Company being year 2000 compliant by December 31, 1999 (i.e., that products,
hardware, software and other date-sensitive equipment and systems manufactured,
sold, owned, licensed or used by the Company will be capable of correctly
processing date data (including, but not limited to, calculating, comparing and
sequencing) accurately prior to, during and after the calendar year 2000 when
used, assuming that all third party products, hardware, software and other
date-sensitive equipment and systems used in combination therewith are capable
of properly exchanging date data).
5.20 INSURANCE. The Company and the Material Company Subsidiaries are
covered by insurance in scope and amount customary and reasonable for the
businesses in which they are engaged. Except as disclosed in Section 5.20 of the
Company Disclosure Schedule, each insurance policy to which the Company or any
of the Material Company Subsidiaries is a party is in full force and effect and
will not require any consent as a result of the consummation of the
Transactions. Neither the Company nor any of the Material Company Subsidiaries
is in material breach or default (including with respect to the payment of
premiums or the giving of notices) under any insurance policy to which it is a
party, and no event has occurred which, with notice or the lapse of time, would
constitute such a material breach or default by the Company or any of the
Material Company Subsidiaries or would permit termination, modification or
acceleration, under such policies; and the Company has not received any notice
from the insurer disclaiming coverage or reserving rights with respect to any
material claim or any such policy in general. Section 5.20 of the Company
Disclosure Schedule contains a list of all material insurance policies (i)
insuring the business or properties of the Company or the Company Subsidiaries
or (ii) which provides insurance for any director, officer, employee, fiduciary
or agent of the Company
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or any of the Company Subsidiaries, that is paid for or maintained by the
Company or any Company Subsidiary.
5.21 KEY CUSTOMERS. Schedule 5.21 of the Company Disclosure Schedule sets
forth a list of each customer that accounted for five percent or more of the
consolidated revenues of the Company and the Company Subsidiaries in the year
ended May 31, 1998. Except as set forth in Section 5.21 of the Company
Disclosure Schedule, the Company and the Material Company Subsidiaries have no
material pending disputes with any customers or notice of any intent of a
customer to terminate its business relationship with the Company or any of the
Material Company Subsidiaries which in the aggregate would have a Company
Material Adverse Effect.
5.22 PRODUCT QUALITY. The products sold by the Company and the Material
Company Subsidiaries prior to the date of this Agreement are not subject to any
general recall notice or Federal Aviation Administration airworthiness directive
which in the aggregate would have a Company Material Adverse Effect.
5.23 MATERIAL CONTRACTS AND AGREEMENTS. Neither the Company nor any
Material Company Subsidiary is in material default under any material contract
or agreement (and to the knowledge of the Company, no other party to a material
contract or agreement with the Company or any Material Company Subsidiary is in
material default or breach) which defaults, in the aggregate, would have a
Company Material Adverse Effect.
5.24 DEFINITION OF THE COMPANY'S KNOWLEDGE. As used in this Agreement, the
phrase "TO THE KNOWLEDGE OF THE COMPANY" or any similar phrase means the actual
(and not the constructive or imputed) knowledge of those individuals identified
in Section 5.24 of the Company Disclosure Schedule.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
6.1 CONDUCT OF BUSINESS BY THE COMPANY. During the period from the date of
this Agreement to the Effective Time, except as otherwise contemplated by this
Agreement, the Company shall use its commercially reasonable best efforts to,
and shall cause each of the Company Subsidiaries to use its commercially
reasonable best efforts to, carry on their respective businesses in the usual,
regular and ordinary course, consistent with the requirements of law and past
practice, and use their commercially reasonable best efforts to preserve intact
their present business organizations, keep available the services of their
present advisors, managers, officers and employees and preserve their
relationships with customers, suppliers, licensors and others having business
dealings with them and continue existing contracts as in effect on the date
hereof (for the term provided in such contracts). Without limiting the
generality of the foregoing, neither the Company nor any of the Company
Subsidiaries will (except as expressly permitted by this Agreement or as
contemplated by the Offer or the Transactions contemplated hereby or to the
extent that Parent shall otherwise consent in writing):
(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 (other than dividends or other distributions declared,
set aside or paid by any wholly-owned Company Subsidiary consistent with past
practice), (ii) split, combine or reclassify any of its capital stock or
(iii) repurchase, redeem or otherwise acquire any of its securities, except, in
the case of clause (iii), for the acquisition of Shares from holders of Options
in full or partial payment of the exercise price payable by such holders upon
exercise of Options outstanding on the date of this Agreement;
(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
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vote) or equity equivalents (including, without limitation, stock appreciation
rights) (other than the issuance of Shares upon the exercise of Options
outstanding on the date of this Agreement in accordance with their present
terms);
(c) acquire, sell, lease, encumber, transfer or dispose of any assets
outside the ordinary course of business which are material to the Company or any
of the Company Subsidiaries (whether by asset acquisition, stock acquisition or
otherwise), except pursuant to obligations in effect on the date hereof or as
set forth in Section 6.1 of the Company Disclosure Schedule;
(d) (i) incur any amount of indebtedness for borrowed money, guarantee any
indebtedness, guarantee (or become liable for) any debt of others, make any
loans, advances or capital contributions, mortgage, pledge or otherwise encumber
any material assets, create or suffer any material lien thereupon other than in
the ordinary course of business consistent with prior practice, (ii) incur any
short-term indebtedness for borrowed money or (iii) issue or sell debt
securities or warrants or rights to acquire any debt securities, except, in the
case of clause (i) or (ii) above, pursuant to credit facilities in existence on
the date hereof in accordance with the current terms of such credit facilities;
(e) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
any payment, discharge or satisfaction (i) in the ordinary course of business
consistent with past practice, or (ii) as contemplated by the Transactions;
(f) change any of the accounting principles or practices used by it (except
as required by generally accepted accounting principles, in which case written
notice shall be provided to Parent and Acquisition Sub prior to any such
change);
(g) except as required by law, (i) enter into, adopt, amend or terminate any
Company Benefit Plan, (ii) enter into, adopt, amend or terminate any agreement,
arrangement, plan or policy between the Company or any of the Company
Subsidiaries and one or more of their directors or officers, or (iii) except for
normal increases in the ordinary course of business consistent with past
practice, increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any Company
Benefit Plan or arrangement as in effect as of the date hereof;
(h) adopt any amendments to the Articles of Organization, the Bylaws or the
Rights Agreement, except as expressly provided by the terms of this Agreement;
(i) adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing such a liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or reorganization (other than plans of complete
or partial liquidation or dissolution of inactive Company Subsidiaries);
(j) settle or compromise any litigation (whether or not commenced prior to
the date of this Agreement) other than settlements or compromises of litigation
where the amount paid (after giving effect to insurance proceeds actually
received) in settlement or compromise does not exceed $250,000; or
(k) enter into an agreement to take any of the foregoing actions.
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ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 OTHER FILINGS. As promptly as practicable, the Company, Parent and
Acquisition Sub each shall properly prepare and file any other filings required
under the Exchange Act or any other federal, state or foreign law relating to
the Merger and the Transactions (including filings, if any, required under the
HSR Act) (collectively, "OTHER FILINGS"). Each of Parent and the Company shall
promptly notify the other of the receipt of any comments on, or any request for
amendments or supplements to, any Other Filings by the Commission or any other
Governmental Entity or official, and each of the Company and Parent shall supply
the other with copies of all correspondence between it and each of its
Subsidiaries and representatives, on the one hand, and the Commission or the
members of its staff or any other appropriate Governmental Entity or official,
on the other hand, with respect to any Other Filings. The Company, Parent and
Acquisition Sub each shall use its respective commercially reasonable best
efforts to obtain and furnish the information required to be included in any
Other Filings. Parent and Acquisition Sub hereby covenant and agree to use their
respective commercially reasonable best efforts to secure termination of any
waiting periods under the HSR Act and obtain the approval of the Federal Trade
Commission (the "FTC") or any other Governmental Entity for the Transactions,
including, without limitation, promptly entering into good faith negotiations
with the FTC or other Governmental Entity to enter into a consent decree or
other arrangement as may be necessary to secure termination of such waiting
periods or obtain such other approval. Nothing in this Section 7.1 shall
prevent, or be construed to prevent, Parent or Acquisition Sub from agreeing to
extend the waiting period under the HSR Act in connection with good faith
settlement negotiations with any Governmental Entity. Notwithstanding anything
to the contrary in this Agreement, Parent and Acquisition Sub shall use their
commercially reasonable best efforts to have any non-final Injunction (as
defined in Section 8.1(d)) stayed or reversed.
7.2 ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its commercially 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 to consummate and make
effective as promptly as practicable the Transactions contemplated by this
Agreement and to cooperate with each other in connection with the foregoing,
including the taking of such actions as are reasonably necessary to obtain any
necessary consents, approvals, orders, exemptions and authorizations by or from
any public or private third party, including, without limitation, any that are
required to be obtained under any federal, state, local or foreign law or
regulation or any contract, agreement or instrument to which the Company or any
Company Subsidiary is a party or by which any of their respective properties or
assets are bound, to defend all lawsuits or other legal proceedings challenging
this Agreement or the consummation of the Transactions, to cause to be lifted or
rescinded any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the Transactions, and to effect all
necessary registrations and Other Filings, including, but not limited to,
filings under the HSR Act, if any, and submissions of information requested by
Governmental Entities. For purposes of the foregoing sentence, the obligations
of the Company, Parent and Acquisition Sub to use their "commercially reasonable
best efforts" to obtain waivers, consents and approvals to loan agreements,
leases and other contracts shall not include any obligation to agree to an
adverse modification of the terms of such documents or to prepay or incur
additional obligations to such other parties.
7.3 FEES AND EXPENSES. Whether or not any of the Transactions are
consummated, all fees, costs and expenses incurred in connection with this
Agreement and the Transactions shall be paid by the party incurring such fees,
costs or expenses.
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7.4 NO SOLICITATIONS.
(a) The Company will immediately cease any discussions or negotiations with
any parties that may be ongoing with respect to an Acquisition Proposal (as
defined below). Except as explicitly permitted hereunder, the Company shall not,
and shall not authorize or permit any of its officers, directors or employees or
any investment banker, financial advisor, attorney, accountant or other
representative, directly or indirectly, to, (i) solicit, initiate or encourage
(including by way of furnishing non-public information), or take any other
action to facilitate, any inquiries or the making of any proposal that
constitutes an Acquisition Proposal, or (ii) participate in any discussions or
negotiations regarding an Acquisition Proposal; provided, however, that if the
Company Board determines in good faith, after consultation with counsel, that
such action is necessary to comply with its fiduciary duties to the Company's
stockholders under applicable law, the Company, in response to an Acquisition
Proposal and in compliance with Section 7.4(e), may (i) furnish non-public
information with respect to the Company to the person who made such Acquisition
Proposal pursuant to a confidentiality agreement on terms no more favorable to
such person than the Confidentiality Agreement (as defined in Section 7.6);
provided that such confidentiality agreement need not include the same
standstill provisions as those contained in the Confidentiality Agreement, it
being understood that if there are no standstill provisions in such
confidentiality agreement or if such provisions are more favorable to the person
who made such Acquisition Proposal than those in the Confidentiality Agreement,
the Confidentiality Agreement shall be deemed amended to exclude the existing
standstill provision or include such more favorable provisions, as the case may
be, and (ii) may participate in negotiations regarding such Acquisition
Proposal.
(b) The Company Board shall not (i) withdraw or modify in a manner adverse
to Parent or Acquisition Sub its approval or recommendation of this Agreement,
the Offer or the Merger, (ii) approve or recommend an Acquisition Proposal to
its stockholders or (iii) cause the Company to enter into any definitive
acquisition agreement with respect to an Acquisition Proposal, unless the
Company Board (A) shall have determined in good faith, after consultation with
counsel, that the Acquisition Proposal is a Superior Proposal (as defined below)
and such action is necessary to comply with its fiduciary duties to the
Company's stockholders under applicable law and (B) in the case of clause
(iii) above, complies with Section 9.1(c)(ii) hereof. In the event that before
the Acceptance Date the Company Board determines in good faith, after
consultation with counsel, that it is necessary to do so in order to comply with
its fiduciary duties to the Company's stockholders under applicable law, the
Company may enter into an agreement with respect to a Superior Proposal, but
only forty-eight hours after Parent's receipt of written notice (i) advising
Parent that the Company Board has received a Superior Proposal and that the
Company has elected to terminate this Agreement pursuant to Section
9.1(c)(ii) of this Agreement and (ii) setting forth such other information
required to be included therein as provided in Section 9.1(c)(ii) of this
Agreement. If the Company enters into an agreement with respect to a Superior
Proposal, it shall have paid, to Parent the Liquidated Amount (as defined below)
in accordance with Section 9.2(b) of this Agreement. For purposes of this
Agreement, a "SUPERIOR PROPOSAL" means a bona fide Acquisition Proposal to
acquire two thirds or more of the Shares then outstanding or all or
substantially all of the assets of the Company and the Company Subsidiaries on
terms which the Company Board determines in its good faith judgement (after
consultation with Goldman Sachs or another financial advisor of nationally
recognized reputation) to be more favorable to the Company's stockholders than
the Offer and the Merger.
(c) Nothing contained in this Section 7.4 shall prohibit the Company from at
any time disclosing information to its stockholders as required by Rule 14e-2
promulgated under the Exchange Act.
(d) As used in this Agreement, the term "ACQUISITION PROPOSAL" shall mean
any proposed or actual (i) acquisition, merger, consolidation or similar
transaction involving the Company, (ii) sale, lease or other disposition,
directly or indirectly, by merger, consolidation, share exchange or otherwise,
of any assets of the Company or the Company Subsidiaries representing 15% or
more of the consolidated
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assets of the Company and the Company Subsidiaries, (iii) issue, sale or other
disposition of (including by way of merger, consolidation, share exchange or any
similar transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 15% or more of the
votes associated with the outstanding securities of the Company,
(iv) transaction in which any person shall acquire beneficial ownership (as such
term is defined in Rule 13d-3 under the Exchange Act), or the right to acquire
beneficial ownership, or any "group" (as such term is defined under the Exchange
Act) shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 15% or more of the outstanding Shares,
(v) recapitalization, restructuring, liquidation, dissolution, or other similar
type of transaction with respect to the Company or (vi) transaction which is
similar in form, substance or purpose to any of the foregoing transactions;
provided, however, that the term "Acquisition Proposal" shall not include the
Offer, the Merger and the Transactions.
(e) The Company will within 24 hours notify Parent of its receipt of an
Acquisition Proposal and the material terms and conditions of such Acquisition
Proposal. Notwithstanding anything to the contrary in this Agreement, except as
provided in Sections 9.1(c)(ii) and 7.4(b), the Company shall have no duty to
notify or update Parent or Acquisition Sub on the status of discussions or
negotiations (including the status of such Acquisition Proposal or any
amendments or proposed amendments thereto) between the Company and the person
making the Acquisition Proposal.
7.5 OFFICERS' AND DIRECTORS' INDEMNIFICATION.
(a) In the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, a director, officer, employee, fiduciary or
agent of the Company or any of the Company Subsidiaries (the "INDEMNIFIED
PARTIES") is, or is threatened to be, made a party based in whole or in part on,
or arising in whole or in part out of, or, pertaining to (i) the fact that he is
or was a director, officer, employee, fiduciary or agent of the Company or any
of the Company Subsidiaries, or is or was serving at the request of the Company
or any of the Company Subsidiaries as a director, officer, employee, fiduciary
or agent of another corporation, partnership, joint venture, trust or other
enterprise, or (ii) the negotiation, execution or performance of this Agreement
or any of the transactions contemplated hereby, whether in any case asserted or
arising before or after the Effective Time, the parties hereto agree to
cooperate and use their commercially reasonable best efforts to defend against
and respond thereto. It is understood and agreed that the Company shall
indemnify and hold harmless, and after the Effective Time the Surviving
Corporation and Parent shall indemnify and hold harmless, as and to the full
extent permitted by applicable law, each Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorneys'
fees and expenses), judgments, fines and amounts paid in settlement in
connection with any such threatened or actual claim, action, suit, proceeding or
investigation, and in the event of any such threatened or actual claim, action,
suit, proceeding or investigation (whether asserted or arising before or after
the Effective Time), (A) the Company, and the Surviving Corporation and Parent
after the Effective Time, shall promptly pay reasonable expenses in advance of
the final disposition of any claim, suit, proceeding or investigation to each
Indemnified Party to the full extent permitted by law, (B) the Indemnified
Parties may retain counsel satisfactory to them, and the Company, and the
Surviving Corporation and Parent after the Effective Time, shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties within
30 days after statements therefor are received, and (C) the Company, the
Surviving Corporation and Parent will use their respective commercially
reasonable best efforts to assist in the vigorous defense of any such matter;
provided that none of the Company, the Surviving Corporation or Parent shall be
liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld); and provided further that the
Surviving Corporation and Parent shall have no obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such
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determination shall have become final and non-appealable, that indemnification
of such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law (whereupon any advances received shall be repaid to the Parent or
the Surviving Corporation). Any Indemnified Party wishing to claim
indemnification under this Section 7.5, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify the Company and, after the
Effective Time, the Surviving Corporation and Parent, thereof; provided that the
failure to so notify shall not affect the obligations of the Company, the
Surviving Corporation and Parent except to the extent such failure to notify
materially prejudices such party.
(b) Parent and Acquisition Sub agree that all rights to indemnification
existing in favor of, and all limitations on the personal liability of, the
directors, officers, employees and agents of the Company and the Company
Subsidiaries provided for in the Articles of Organization or Bylaws as in effect
as of the date hereof with respect to matters occurring prior to the Effective
Time, and including the Offer and the Merger, shall continue in full force and
effect for a period of not less than six years from the Effective Time;
provided, however, that all rights to indemnification in respect of any claims
(each a "CLAIM") asserted or made within such period shall continue until the
disposition of such Claim. Prior to the Effective Time, the Company shall
purchase an extended reporting period endorsement under the Company's existing
directors' and officers' liability insurance coverage for the Company's
directors and officers in a form acceptable to the Company which shall provide
such directors and officers with coverage for six years following the Effective
Time of not less than the existing coverage under, and have other terms not
materially less favorable to, the insured persons than the directors' and
officers' liability insurance coverage presently maintained by the Company.
(c) This Section 7.5 is intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties and shall be binding on all
successors and assigns of Parent, the Company and the Surviving Corporation.
Each of the Indemnified Parties shall be entitled to enforce the covenants
contained in this Section 7.5.
(d) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any person or entity, then, and in each such case,
proper provision shall be made so that the successors and assigns of the
Surviving Corporation assume the obligations set forth in this Section 7.5.
7.6 ACCESS TO INFORMATION; CONFIDENTIALITY. From the date hereof until the
Effective Time, the Company shall, and shall cause each of the Company
Subsidiaries and each of the Company's and Company Subsidiaries' officers,
employees and agents to, afford to Parent and to the officers, employees and
agents of Parent complete access at all reasonable times to such officers,
employees, agents, properties, books, records and contracts, and shall furnish
Parent such financial, operating and other data and information as Parent may
reasonably request. Prior to the Effective Time, Parent and Acquisition Sub
shall hold in confidence all such information on the terms and subject to the
conditions contained in that certain confidentiality agreement between Parent
and the Company dated March 26, 1999 (the "CONFIDENTIALITY AGREEMENT"). The
Company hereby waives the provisions of the Confidentiality Agreement as and to
the extent necessary to permit the making and consummation of the Transactions.
At the Effective Time, such Confidentiality Agreement shall terminate.
7.7 FINANCIAL AND OTHER STATEMENTS. Notwithstanding anything contained in
Section 7.6, during the term of this Agreement, the Company shall also provide
to Parent the following documents and information:
(a) As soon as reasonably available, but in no event more than 45 days
after the end of each fiscal quarter ending after the date of this
Agreement, the Company will deliver to Parent its Quarterly Report on Form
10-Q as filed under the Exchange Act. As soon as reasonably available,
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but in no event more than 90 days after the end of each fiscal year ending
after the date of this Agreement, the Company will deliver to Parent its
Annual Report on Form 10-K as filed under the Exchange Act. The Company will
also deliver to Parent, contemporaneously with its being filed with the
Commission, a copy of each Current Report on Form 8-K.
(b) Promptly upon receipt thereof, the Company will furnish to Parent
copies of all internal control reports submitted to the Company or any
Company Subsidiary by independent accountants in connection with each
annual, interim or special audit of the books of the Company or any such
Company Subsidiary made by such accountants.
(c) As soon as practicable, the Company will furnish to Parent copies of
all such financial statements and reports as it or any Company Subsidiary
shall send to its stockholders, the Commission or any other regulatory
authority, to the extent any such reports furnished to any such regulatory
authority are not confidential and except as legally prohibited thereby.
7.8 PUBLIC ANNOUNCEMENTS. The Company and Parent shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement or any of the Transactions and shall not issue
any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may be required
by law or the applicable rules of any stock exchange if it has used its
commercially reasonable best efforts to consult with the other party and to
obtain such party's consent but has been unable to do so in a timely manner.
7.9 EMPLOYEE BENEFIT ARRANGEMENTS.
(a) After the Closing, Parent shall cause the Surviving Corporation to
honor all obligations under (i) the existing terms of the employment and
severance agreements to which the Company or any Company Subsidiary is
presently a party, except as may otherwise be agreed to by the parties
thereto, and (ii) the Company's and any Company Subsidiary's general
severance policy as set forth in Section 7.9 of the Company Disclosure
Schedule. For a period of six months following the Effective Time (the
"TRANSITION PERIOD"), employees of the Surviving Corporation will continue
to participate in the Company Benefit Plans (other than deferred
compensation plans, stock option plans or employee stock purchase plans or
other employer stock match or other employer stock related provisions) on
substantially similar terms to those currently in effect. For a period of 18
months following the expiration of the Transition Period, the Surviving
Corporation's employees will be entitled to participate in employee benefit
plans, the terms of which will be similar in material respects in the
aggregate to the Company Benefit Plans as in effect on the date hereof
(other than deferred compensation plans, stock option plans or employee
stock purchase plans or other employer stock match or other employer stock
related provisions).
(b) After the Closing, Parent shall cause the Surviving Corporation to
honor all obligations which accrued prior to the Effective Time under the
Company's deferred compensation plans. Except as is otherwise required by
the existing terms of employment and severance agreements to which the
Company is presently a party, future accruals may be (but are not required
to be) provided for under any such plan(s) or under any similar plan(s) of
the Surviving Corporation or Parent. Except as is otherwise required by the
existing terms of employment and severance agreements to which the Company
is a presently party, if future accruals are not provided for with respect
to any current employee participant in such plan as of the Effective Time,
and such person remains an employee of the Company or the Surviving
Corporation or Parent, the person's continuing employment in such capacity
shall be counted for purposes of vesting (but not for purposes of benefit
accrual) under such plan. Except as is otherwise required by the existing
terms of employment and severance agreements to which the Company is a
party, transfer of employment from the Company to the Surviving Corporation
or to the Parent or to an affiliate of
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the Parent shall not constitute a termination of employment for purposes of
payment of benefits under any such plan.
(c) If any employee of the Company or any of the Company Subsidiaries
becomes a participant in any employee benefit plan, practice or policy of
Parent, any of its affiliates or the Surviving Corporation, such employee
shall be given credit under such plan for all service prior to the Effective
Time with the Company and the Company Subsidiaries and prior to the time
such employee becomes such a participant, for purposes of eligibility
(including, without limitation, waiting periods) and vesting but not for any
other purposes for which such service is either taken into account or
recognized (including, without limitation, benefit accrual); provided,
however, that such employees will be given credit for such service for
purposes of any vacation policy. In addition, if any employees of the
Company or any of the Company Subsidiaries employed as of the Closing Date
become covered by a medical plan of Parent, any of its affiliates or the
Surviving Corporation, such medical plan shall not impose any exclusion on
coverage for preexisting medical conditions with respect to these employees.
7.10 RIGHTS AGREEMENT. The Company Board has amended the Rights Agreement
prior to the execution of this Agreement (i) so that neither the execution nor
the delivery of this Agreement will trigger or otherwise affect any rights or
obligations under the Rights Agreement, including causing the occurrence of a
"Distribution Date" or a "Stock Acquisition Date," as defined in the Rights
Agreement, and (ii) to terminate the Rights Plan immediately upon the Effective
Time.
7.11 STATUS OF FINANCING. Parent and Acquisition Sub shall keep the
Company informed of the status of their financing arrangements for the
Transactions, including providing written notice to the Company as promptly as
possible (but in any event within 24 hours after obtaining knowledge thereof)
with respect to (i) any facts of circumstances which reasonable indicate that
the Lenders (as defined in the Commitment Letter) may be unable to provide the
financing contemplated by the Commitment Letter, (ii) the prospective inability
of Parent or Acquisition Sub to satisfy any of the conditions set forth in the
Commitment Letter, and (iii) any material adverse developments relating to the
availability of the financing contemplated by the Commitment Letter.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver, where permissible, at or prior to the Closing Date,
of each of the following conditions:
(a) STOCKHOLDER APPROVAL. If required by applicable law, this Agreement
and the Transactions, including the Merger, shall have been approved and
adopted by the affirmative vote of the stockholders of the Company to the
extent required by the MGL and the Articles of Organization.
(b) HART-SCOTT-RODINO ACT. Any waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
(c) OTHER REGULATORY APPROVALS. All necessary approvals, authorizations
and consents of any governmental or regulatory entity required to consummate
the Merger shall have been obtained and remain in full force and effect, and
all waiting periods relating to such approvals, authorizations and consents
shall have expired or been terminated, except where such failure would not
have a Company Material Adverse Effect or a Parent Material Adverse Effect,
as the case may be, or would not be reasonably likely to affect adversely
the ability of the Company or Acquisition Sub, as the case may be, to
consummate the Merger.
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(d) NO INJUNCTIONS, ORDERS OR RESTRAINTS; ILLEGALITY. No preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission (an "INJUNCTION") nor any statute, rule, regulation or executive
order promulgated or enacted by any governmental authority shall be in effect
which would (i) make the consummation of the Merger illegal, or (ii) otherwise
restrict, prevent or prohibit the consummation of any of the Transactions,
including the Merger.
(e) PURCHASE OF SHARES IN OFFER. Parent, Acquisition Sub or their affiliates
shall have purchased Shares pursuant to the Offer.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after stockholder approval thereof:
(a) by the mutual written consent of Parent or Acquisition Sub and the
Company.
(b) by either of the Company or Parent or Acquisition Sub:
(i) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their commercially reasonable best
efforts to lift), which permanently restrains, enjoins or otherwise
prohibits the acceptance for payment of, or payment for, Shares pursuant
to the Offer or the Merger; or
(ii) if, without any material breach by the terminating party of its
obligations under this Agreement, Parent or Acquisition Sub shall not
have purchased Shares pursuant to the Offer on or prior to the later of
(i) the Final Expiration Date or (ii) the HSR Expiration Date (if
applicable).
(c) by the Company:
(i) if Parent or Acquisition Sub shall have failed to commence the
Offer on or prior to five business days following the date of the initial
public announcement of the Offer; or
(ii) in connection with entering into a definitive agreement to
effect a Superior Proposal in accordance with Section 7.4(b) hereof;
provided, however, that prior to terminating this Agreement pursuant to
this Section 9.1(c)(ii), (A) the Company shall have paid the Liquidated
Amount, as set forth in Section 9.2(b), and (B) the Company shall have
provided Acquisition Sub with 48 hours prior written notice of the
Company's decision to so terminate. Such notice shall indicate in
reasonable detail the material terms and conditions of such Superior
Proposal, including, without limitation, the amount and form of the
proposed consideration and whether such Superior Proposal is subject to
any material conditions; or
(iii) if Parent or Acquisition Sub shall have breached in any material
respect any of their respective representations, warranties, covenants or
other agreements contained in this Agreement, which breach cannot be or
has not been cured within 15 days after the giving of written notice to
Parent or Acquisition Sub except, in any case, for such breaches which
are not reasonably likely to affect adversely Parent's or Acquisition
Sub's ability to consummate the Offer or the Merger; provided, however,
that no cure period shall be applicable under any circumstances to the
matters set forth in Section 9.1(c)(i).
(d) by Parent or Acquisition Sub if, prior to the purchase of Shares
pursuant to the Offer:
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<PAGE>
(i) the Company shall have breached any representation or warranty or
failed to have performed any covenant or other agreement contained in
this Agreement which breach or failure to perform (A) would give rise to
the failure of a condition set forth in ANNEX A hereto, and (B) cannot be
or has not been cured within 15 days after the giving of written notice
to the Company; or
(ii) (A) the Company Board shall withdraw, modify or change its
recommendation or approval in respect of this Agreement or the Offer in a
manner adverse to Parent, (B) the Company Board shall recommend any
proposal other than by Parent and Acquisition Sub in respect of an
Acquisition Proposal or (C) the Company shall have exercised a right with
respect to an Acquisition Proposal and shall, directly or through its
representatives, continue discussions with any third party concerning
such Acquisition Proposal for more than 20 business days after the date
of receipt of such Acquisition Proposal.
9.2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement pursuant to Section
9.1 hereof, this Agreement shall forthwith become null and void and have no
effect, without any liability on the part of any party hereto or its affiliates,
trustees, directors, officers or stockholders and all rights and obligations of
any party hereto shall cease except for the agreements contained in Sections 7.3
and 7.6, this Section 9.2 and Article X; provided, however, that nothing
contained in this Section 9.2 shall relieve any party from liability for any
fraud or willful breach of this Agreement.
(b) If the Company terminates this Agreement in accordance with Section
9.1(c)(ii), then the Company shall concurrently pay to Parent an amount in cash
equal to $25,000,000 (the "LIQUIDATED AMOUNT"). If any of the circumstances
described in Section 9.1(d)(i) (if such breach or failure relates to the
Company's obligations under Section 7.4 of this Agreement) or Section
9.1(d)(ii) hereof shall have occurred and within 9 months thereafter the Company
shall have entered into a definitive agreement to consummate an acquisition
pursuant to an Acquisition Proposal, then the Company shall pay to Parent
concurrently with the consummation of the acquisition contemplated by the
Acquisition Proposal, the Liquidated Amount.
(c) Any payment required by this Section 9.2 shall be payable by the Company
to Parent by wire transfer of immediately available funds to an account
designated by Parent.
(d) Notwithstanding anything to the contrary in this Agreement, Parent and
Acquisition Sub hereto expressly acknowledge and agree that, with respect to any
termination of this Agreement pursuant to Section 9.1(c)(ii) hereof, the payment
of the Liquidated Amount shall constitute liquidated damages with respect to any
claim for damages or any other claim which Parent or Acquisition Sub would
otherwise be entitled to assert against the Company or any of the Company
Subsidiaries or any of their respective assets, or against any of their
respective directors, officers, employees, partners, managers, members or
shareholders, with respect to this Agreement and the Transactions and shall
constitute the sole and exclusive remedy available to Parent and Acquisition
Sub. The parties hereto expressly acknowledge and agree that, in light of the
difficulty of accurately determining actual damages with respect to the
foregoing upon any termination of this Agreement pursuant to Section
9.1(c)(ii) hereof, the rights to payment under Section 9.2(b): (i) constitute a
reasonable estimate of the damages that will be suffered by reason of any such
proposed or actual termination of this Agreement pursuant to Section
9.1(c)(ii) hereof and (ii) shall be in full and complete satisfaction of any and
all damages arising as a result of the foregoing. Except for nonpayment of the
amounts set forth in Section 9.2(b), Parent and Acquisition Sub hereby agree
that, upon any termination of this Agreement pursuant to Section 9.1(c)(ii)
hereof, in no event shall Parent or Acquisition Sub be entitled to seek or to
obtain any recovery or judgment against the Company or any of the Company
Subsidiaries or any of their respective assets, or against any of their
respective directors, officers, employees, partners, managers, members or
shareholders, and in no event shall Parent or Acquisition Sub be entitled to
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<PAGE>
seek or obtain any other damages of any kind, including, without limitation,
consequential, indirect or punitive damages.
9.3 AMENDMENT. This Agreement may be amended by the parties hereto by an
instrument in writing signed on behalf of each of the parties hereto at any time
before or after any approval hereof by the stockholders of the Company and
Acquisition Sub, but in any event following authorization by the Acquisition Sub
Board and the Company Board; provided, however, that after any such stockholder
approval, no amendment shall be made which by law requires further approval by
stockholders without obtaining such approval.
9.4 EXTENSION; WAIVER. At any time prior to the Closing, the parties
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
10.1 NOTICES. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered or sent if delivered personally or sent by telecopier
(which is confirmed) or sent by prepaid overnight carrier to the parties at the
following addresses (or at such other addresses as shall be specified by the
parties by like notice) (provided that with respect to any notice required to be
given within 48 hours or less notice shall be deemed given when actually
received):
(a) if to Parent or Acquisition Sub:
Precision Castparts Corp.
4650 SW Macadum Avenue
Suite 440
Portland, OR 97201-4254
Attn: William D. Larsson
Telecopy No.: (503) 417-4817
with a copy to:
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 97204-1268
Attn: Ruth A. Beyer
Telecopy No.: (503) 220-2480
(b) if to the Company:
Wyman-Gordon Company
244 Worcester Street
Box 8001
North Grafton, MA 01536-8001
Attn: Wallace F. Whitney, Jr., Esq.
Telecopy No.: (508) 839-7564
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with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: David F. Dietz, P.C.
Joseph L. Johnson III, P.C.
Telecopy No.: (617) 523-1231
10.2 INTERPRETATION. When a reference is made in this Agreement to
subsidiaries of Parent, Acquisition Sub or the Company, the word "SUBSIDIARY"
means any corporation more than 50% of whose outstanding voting securities, or
any partnership, joint venture or other entity more than 50% of whose total
equity interest, is directly or indirectly owned by Parent, Acquisition Sub or
the Company, as the case may be. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.3 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Except for Sections 3.1, 7.3, 7.5 and 7.9, the last sentence of
Section 2.8 and Article X, none of the representations, warranties, covenants
and agreements contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time, and thereafter
there shall be no liability on the part of either Parent, Acquisition Sub or the
Company or any of their respective officers, directors or stockholders in
respect thereof. Except as expressly set forth in this Agreement, there are no
representations or warranties of any party hereto, express or implied.
10.4 MISCELLANEOUS. This Agreement (i) constitutes, together with the
exhibits hereto, the Confidentiality Agreement, ANNEX A hereto, the Company
Disclosure Schedule and the schedule referred to in Article IV hereof, the
entire agreement and supersedes all of the prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof, (ii) shall be binding upon and inure to the benefits of
the parties hereto and their respective permitted successors and assigns and is
not intended to confer upon any other person (except as set forth below) any
rights or remedies hereunder and (iii) may be executed in two or more
counterparts which together shall constitute a single agreement. Section 7.5 and
Section 7.9 are intended to be for the benefit of those persons described
therein and the covenants contained therein may be enforced by such persons. The
parties hereto agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
the Delaware Courts (as hereinafter defined), this being in addition to any
other remedy to which they are entitled at law or in equity.
10.5 ASSIGNMENT. Except as expressly permitted by the terms hereof,
neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned by any of the parties hereto without the prior written consent
of the other parties.
10.6 SEVERABILITY. If any provision of this Agreement, or the application
thereof to any person or circumstance is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
persons or circumstances, shall not be affected thereby, and to such end, the
provisions of this Agreement are agreed to be severable.
10.7 CHOICE OF LAW/CONSENT TO JURISDICTION. All disputes, claims or
controversies arising out of this Agreement, or the negotiation, validity or
performance of this Agreement, or the Transactions shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts
without regard to its rules of conflict of laws. Each of the Company, Parent and
Acquisition Sub hereby
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irrevocably and unconditionally consents to submit to the sole and exclusive
jurisdiction of the courts of the State of Delaware and of the United States
District Court for the District of Delaware (the "DELAWARE COURTS") for any
litigation arising out of or relating to this Agreement, or the negotiation,
validity or performance of this Agreement, or the Transactions (and agrees not
to commence any litigation relating thereto except in such courts), waives any
objection to the laying of venue of any such litigation in the Delaware Courts
and agrees not to plead or claim in any Delaware Court that such litigation
brought therein has been brought in any inconvenient forum. Each of the parties
hereto agrees, (a) to the extent such party is not otherwise subject to service
of process in the State of Delaware, to appoint and maintain an agent in the
State of Delaware as such party's agent for acceptance of legal process, and
(b) that service of process may also be made on such party by prepaid certified
mail with a proof of mailing receipt validated by the United States Postal
Service constituting evidence of valid service. Service made pursuant to (a) or
(b) above shall have the same legal force and effect as if served upon such
party personally within the State of Delaware. For purposes of implementing the
parties' agreement to appoint and maintain an agent for service of process in
the State of Delaware, each such party does hereby appoint CT Corporation,
Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, as such
agent.
10.8 NO AGREEMENT UNTIL EXECUTED. Irrespective of negotiations among the
parties or the exchanging of drafts of this Agreement, this Agreement shall not
constitute or be deemed to evidence a contract, agreement, arrangement or
understanding among the parties hereto unless and until (i) the Board of
Directors of the Company has approved, for purposes of Chapter 110F of the MGL
and any applicable provision of the Articles of Organization, the terms of this
Agreement, and (ii) this Agreement is executed by the parties hereto.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Parent, Acquisition Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
<TABLE>
<S> <C> <C>
PRECISION CASTPARTS CORP.
By: /s/ WILLIAM D. LARSSON
-----------------------------------------
Name: William D. Larsson
Title: Chief Financial Officer
WGC ACQUISITION CORP.
By: /s/ WILLIAM C. MCCORMICK
-----------------------------------------
Name: William C. McCormick
Title: President
By: /s/ WILLIAM D. LARSSON
-----------------------------------------
Name: William D. Larsson
Title: Treasurer
WYMAN-GORDON COMPANY
By: /s/ J. DOUGLAS WHELAN
-----------------------------------------
Name: J. Douglas Whelan
Title: President and Treasurer
</TABLE>
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ANNEX A
OFFER CONDITIONS
The capitalized terms used in this ANNEX A have the meanings set forth in
the attached Agreement, except that the term "Agreement" shall be deemed to
refer to the attached Agreement together with this ANNEX A.
Notwithstanding any other provision of the Offer or the Agreement and
subject to Rule 14e-1(c) under the Exchange Act, Acquisition Sub shall not be
required to accept for payment or pay for any Shares and may delay the
acceptance for payment of and payment for any Shares, (A) until any applicable
waiting period (and any extension thereof) under the HSR Act in respect of the
Offer shall have expired or been terminated, (B) if there shall not have been
validly tendered to Acquisition Sub pursuant to the Offer and not withdrawn
immediately prior to the Expiration Date, at least that number of Shares that,
when taken as a whole with all other Shares owned or acquired by Acquisition Sub
(whether pursuant to the Offer or otherwise), constitutes at least the Minimum
Condition, or (C) at any time on or after the date of the Agreement, and prior
to the Expiration Date, any of the following conditions exist or shall occur or
remain in effect:
(a) Any Governmental Entity shall have issued an order, decree or ruling or
taken any other action, including instituting any legal proceeding, (which,
order, decree, ruling or other action the parties hereto shall use their
commercially reasonable best efforts to lift), which seeks to restrain, enjoin
or otherwise prohibit or significantly delay any of the Transactions; (b)
(i) Any of the representations and warranties of the Company set forth in the
Agreement which are qualified by materiality or a Company Material Adverse
Effect or words of similar effect shall not have been, or cease to be, true and
correct (except to the extent such representations and warranties expressly
relate to a specific date, in which case such representations and warranties
shall not have been true and correct as of such date) or (ii) any of the
representations and warranties of the Company set forth in the Agreement which
are not so qualified shall not have been, or cease to be, true and correct in
all material respects (except to the extent such representations and warranties
expressly relate to a specific date, in which case such representations and
warranties shall not have been true and correct in all material respects as of
such date);
(c) The Company shall not have performed all obligations required to be
performed by it under the Agreement, including, without limitation, the
covenants contained in Article VI or VII thereof, except where any failure to
perform would, individually or in the aggregate, not reasonably be expected to
have a Company Material Adverse Effect or materially impair or significantly
delay the ability of Acquisition Sub to consummate the Offer;
(d) There shall have occurred after the date of this Agreement any change or
effect concerning the Company or the Company Subsidiaries which has had or would
reasonably be expected to have a material adverse effect on the business,
operations or condition (financial or otherwise) of the Company and the Company
Subsidiaries taken as a whole (other than any changes that are related to or
result from the announcement or pendency of the Offer and/or the Merger,
including disruptions to the Company's business or the Company Subsidiaries'
businesses, and their respective employees, customers and suppliers);
(e) The Agreement shall have been terminated in accordance with its terms;
(f) Any consent, authorization, order or approval of (or filing or
registration with) any Governmental Entity or other third party required to be
made or obtained by the Company or any of the Company Subsidiaries or affiliates
in connection with the execution, delivery and performance of the Agreement and
the consummation of the Transactions shall not have been obtained or made,
except where the failure to have obtained or made any such consent,
authorization, order, approval,
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filing or registration, would not have a Company Material Adverse Effect or
would not reasonably be expected to materially impair or significantly delay the
ability of Acquisition Sub to consummate the Offer; or
(g) There shall have occurred (i) any general suspension of trading in, or
limitation on prices for securities on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq Stock Market for a period in excess of 24 hours
(excluding suspension or limitations resulting solely from physical damage or
interference with such exchanges not related to market conditions), (ii) a
declaration of a general banking moratorium or any general suspension of
payments in respect of banks in the United States (whether or not mandatory), or
(iii) in the case of any of the foregoing existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof;
The foregoing conditions (i) may be asserted by Parent or Acquisition Sub
regardless of the circumstances (including any action or inaction by Parent or
Acquisition Sub or any of their affiliates other than a material breach of the
Agreement), and (ii) are for the sole benefit of Parent, Acquisition Sub and
their respective affiliates. The foregoing conditions may be waived by Parent,
in whole or in part, at any time and from time to time, in the sole discretion
of Parent. The foregoing conditions are material to the Offer. The failure by
Parent or Acquisition Sub at any time to exercise any of the foregoing rights
will not be deemed a waiver of any right and each right will be deemed an
ongoing right which may be asserted at any time and from time to time.
Should the Offer be terminated due to the foregoing provisions, all tendered
Shares not theretofore accepted for payment shall promptly be returned to the
tendering stockholders.
A-2
<PAGE>
APPENDIX B
PERSONAL AND CONFIDENTIAL
May 17, 1999
Board of Directors
Wyman-Gordan Company
244 Worcester Street
North Grafton, MA 01536-8001
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $1.00
per share (the "Shares"), of Wyman-Gordon Company (the "Company") of the $20.00
per Share in cash proposed to be paid by Precision Castparts Corporation
("Buyer") in the Tender Offer and the Merger (as defined below) pursuant to the
Agreement and Plan of Merger, dated as of May 17, 1999, among Buyer, WGC
Acquisition Corp., a wholly-owned subsidiary of Buyer ("Acquisition Sub"), and
the Company (the "Agreement"). The Agreement provides for a tender offer for all
of the Shares (the "Tender Offer") pursuant to which Acquisition Sub will pay
$20.00 per Share in cash for each Share accepted. The Agreement further provides
that following completion of the Tender Offer, Acquisition Sub will be merged
into the Company (the "Merger") and each outstanding Share (other than Shares
already owned by Acquisition Sub) will be converted into the right to receive
$20.00 in cash.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. We also have provided certain investment banking services to Buyer
from time to time, including having acted as managing underwriter of a public
offering of $150,000,000 aggregate principal amount of 6 1/8% Senior Notes of
Buyer due December 15, 2007 in December 1997, and may provide investment banking
services to Buyer and its subsidiaries in the future. Goldman, Sachs & Co.
provides a full range of financial advisory and securities services and, in the
course of its normal trading activities, may from time to time effect
transactions and hold securities, including derivative securities, of the
Company or Buyer for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five fiscal years ended May 31, 1998; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company; certain other
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management. We
also have held discussions with members of the senior management of the Company
regarding its past and current business operations, financial condition and
future prospects. In addition, we have reviewed the reported price and trading
activity for the Shares, compared certain financial and stock market information
for the Company with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the aerospace components industry specifically
and in other industries generally and performed such other studies and analyses
as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this
<PAGE>
Wyman-Gordon Company
May 17, 1999
Page Two
opinion. In addition, we have not made an independent evaluation or appraisal of
the assets and liabilities of the Company or any of its subsidiaries and we have
not been furnished with any such evaluation or appraisal. Our advisory services
and the opinion expressed herein are provided for the information and assistance
of the Board of Directors of the Company in connection with its consideration of
the transaction contemplated by the Agreement and such opinion does not
constitute a recommendation as to whether or not any holder of Shares should
tender such Shares in connection with such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the $20.00
per Share in cash to be received by the holders of Shares in the Tender Offer
and the Merger is fair from a financial point of view to such holders.
<TABLE>
<S> <C> <C>
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
-----------------------------------------
(GOLDMAN, SACHS & CO.)
</TABLE>
<PAGE>
APPENDIX C
SECTIONS 85 TO 98, INCLUSIVE, OF THE
MASSACHUSETTS BUSINESS CORPORATION LAW, CHAPTER 156B
85. A stockholder in any corporation organized under the laws of
Massachusetts which shall have duly voted to consolidate or merge with another
corporation or corporations under the provisions of sections seventy-eight or
seventy-nine who objects to such consolidation or merger may demand payment for
his stock from the resulting or surviving corporation and an appraisal in
accordance with the provisions of sections eighty-six to ninety-eight,
inclusive, and such stockholder and the resulting or surviving corporation shall
have the rights and duties and follow the procedure set forth in those sections.
This section shall not apply to the holders of any shares of stock of a
constituent corporation surviving a merger if, as permitted by subsection
(c) of section seventy-eight, the merger did not require for its approval a vote
of the stockholders of the surviving corporation.
86. If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
87. The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to
demand payment for his shares if the action is taken and (2) whose shares
are not voted in favor of such action has or may have the right to demand
in writing from the corporation (or, in the case of a consolidation or
merger, the name of the resulting or surviving corporation shall be
inserted), within twenty days after the date of mailing to him of notice
in writing that the corporate action has become effective, payment for
his shares and an appraisal of the value thereof. Such corporation and
any such stockholder shall in such cases have the rights and duties and
shall follow the procedure set forth in sections 88 to 98, inclusive, of
chapter 156B of the General Laws of Massachusetts."
88. The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
<PAGE>
89. If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
90. If during the period of thirty days provided for in section eighty-nine
the corporation upon which such demand is made and any such objecting
stockholder fail to agree as to the value of such stock, such corporation or any
such stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
91. If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
92. After hearing the court shall enter a decree determining the fair value
of the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
93. The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
94. On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for notation thereon of the
pendency of the bill, and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
95. The costs of the bill, including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter
<PAGE>
shall be paid by the corporation. Interest shall be paid upon any award from the
date of the vote approving the proposed corporate action, and the court may on
application of any interested party determine the amount of interest to be paid
in the case of any stockholder.
96. Any stockholder who has demanded payment for his stock as provided in
this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation,
or in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
97. The shares of the corporation paid for by the corporation pursuant to
the provisions of this chapter shall have the status of treasury stock or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
98. The enforcement by a stockholder of his right to receive payment for
his shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
<PAGE>
EXHIBIT I
Annual Report on Form 10-K of Wyman-Gordon Company for the fiscal year ended
May 31, 1999
<PAGE>
# = pounds sterling
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED MAY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-3085
WYMAN-GORDON COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-1992780
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
244 WORCESTER STREET, BOX 8001,
GRAFTON, MASSACHUSETTS 01536-8001
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
508-839-4441
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $1 PAR VALUE
(TITLE OF CLASS)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
-1-
<PAGE>
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of July 31, 1999:
$548,112,873
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 31, 1999
Common Stock, $1 Par Value 36,098,928 Shares
-2-
<PAGE>
ITEM 1. BUSINESS
THE COMPANY
Wyman-Gordon Company is a leading manufacturer of high-quality,
technologically advanced forging and investment casting components for the
commercial aviation, commercial power and defense industries. The Company
produces metal components to exacting customer specifications for technically
demanding applications such as jet turbine engines, airframes and land-based and
marine gas turbine engines. The Company also produces extruded seamless thick
wall pipe, made from steel and other alloys for use primarily in the oil and gas
industry and commercial power generation plants. The Company produces components
for most of the major commercial and United States defense aerospace programs.
The Company's unique combination of manufacturing facilities and broad range of
metallurgical skills allows it to serve its customers effectively and to lead
the development of new metal technologies for its customers' applications.
Through its Scaled Composites and Scaled Technology Works subsidiaries, the
Company engages in research, development, engineering and manufacture of
composite airframe structures. In fiscal years 1999 and 1998, the Company's
total revenues were $849.3 million and $752.9 million, respectively.
The Company employs three manufacturing processes: forging, investment
casting and composite production. The Company's forging process involves heating
metal and shaping it through pressing or extrusion. Forged products represented
77% of the Company's total revenues in the year ended May 31, 1999. Castings is
a process in which molten metal is poured into molds. Cast products represented
21% of the Company's total revenues in the year ended May 31, 1999. The
Company's composite business designs, fabricates and tests composite airframe
structures for the aerospace market. The composite business represented 2% of
the Company's total revenues in fiscal year 1999.
On May 17, 1999, the Company and Precision Castparts Corp. ("PCC") entered
into a Merger Agreement pursuant to the terms of which WGC Acquisition Corp., a
wholly owned subsidiary of PCC, commenced on May 21, 1999 a cash tender offer
for all of the outstanding shares of common stock of the Company at a price of
$20.00 per share. Consummation of the tender offer is subject, among other
things, to the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). PCC and
the staff of the Federal Trade Commission (the "FTC") have agreed that PCC will
not consummate the tender offer until ten calendar days after PCC has notified
the FTC of its intent to complete the transaction. PCC has also agreed that it
will not provide such notice until at least 3:00 p.m. Eastern Time on August 24,
1999. The agreement regarding timing is intended to provide additional time for
PCC to negotiate with the FTC.
-3-
<PAGE>
As a result, the expiration date of the tender offer has been extended until
midnight, New York City time, on September 10, 1999; provided, however, that if
the applicable waiting period (and any extension thereof) under the HSR Act in
respect of the tender offer is terminated prior to August 31, 1999, the
expiration date of the tender offer will be the date that is ten business days
immediately following public disclosure of the expiration or termination of the
waiting period under the HSR Act. As of August 20, 1999, approximately
21,873,878 shares of common stock of the Company had been tendered in the tender
offer. This constitutes approximately 62.6% of the Company's outstanding shares
as of the commencement of the tender offer.
WGC Acquisition Corp. has also made a tender offer for the Company's
outstanding 8% Senior Notes due 2007 and has extended the Senior Notes tender
offer to coincide with the extension of the tender offer for the Company's
common stock.
For further information concerning the tender offer, see the Company's
Schedule 14D-9, Solicitation/Recommendation Statement Pursuant to the Section
14(d)(4) of the Securities Exchange Act of 1934 and the amendments to said
Schedule 14D-9.
MARKETS AND PRODUCTS
The principal markets served by the Company are aerospace and energy.
Revenue by market for the respective periods were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1999 MAY 31, 1998 MAY 31, 1997
% OF % OF % OF
REVENUE TOTAL REVENUE TOTAL REVENUE TOTAL
(000's OMITTED, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Aerospace $705,763 83% $622,718 83% $475,131 78%
Energy 117,229 14 101,353 13 97,117 16
Other 26,269 3 28,842 4 36,494 6
$849,261 100% $752,913 100% $608,742 100%
</TABLE>
Aerospace Products
Aerospace Turbine Products. The Company manufactures
components from sophisticated titanium and nickel alloys for jet
engines manufactured by General Electric Company ("GE"), the
Pratt & Whitney Division ("Pratt & Whitney") of United
Technologies Corporation ("United Technologies"), Rolls-Royce plc
("Rolls Royce") and CFM International S.A. Such jet engines are
used on substantially all commercial aircraft produced by the
Boeing Company ("Boeing") and Airbus Industrie, S.A. ("Airbus").
The Company's forged engine parts include fan discs, compressor
discs, turbine discs, seals, spacers, shafts, hubs and cases.
Cast engine parts include thrust reversers, valves and fuel
system parts such as combustion chamber swirl guides. Rotating
-4-
<PAGE>
parts (which include fan, compressor and turbine discs) must be manufactured to
precise quality specifications. The Company believes it is the leading producer
of these rotating components for use in large turbine aircraft engines. Jet
engines can produce in excess of 100,000 pounds of thrust and may subject parts
to temperatures reaching 1,350 degrees Fahrenheit. Components for such extreme
conditions therefore require precision manufacturing and expertise with
high-purity titanium and nickel-based alloys.
Aerospace Structural Products. The Company's airframe structural
components, such as landing gear, bulkheads and wing spars, are used on every
model of airplane manufactured by Boeing and Airbus. In addition, the Company's
structural components are used on a number of military aircraft and in other
defense-related applications, including the C-17 transport and the new F-22
fighter being jointly developed by Lockheed Martin Corporation ("Lockheed") and
Boeing. The Company also produces dynamic rotor forgings for helicopters. The
Company's composites subsidiary, Scaled Composites, located in Mojave,
California, designs, fabricates and tests composite airframe structures made by
layering carbon graphite and other fibers with epoxy resins for the aerospace
market. The Company's subsidiary, Scaled Technology Works, Montrose, Colorado
manufactures airplane components, principally those designed by Scaled
Composites.
Aerospace structural 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. Forging is particularly well suited for
airframe parts because of its ability to impart greater strength per unit of
weight to metal than other manufacturing processes. Investment casting can
produce complex shapes to precise, repeatable dimensions.
The Company has been a major supplier of the beams that support the main
landing gear assemblies on the Boeing 747 for many years and supplies main
landing gear beams for the Boeing 777. The Company forges landing gear and other
airframe structural components for the Boeing 737, 747, 757, 767 and 777, and
the Airbus A321, A330 and A340. The Company produces structural forgings for the
F-15, F-16 and F/A-18 fighter aircraft and the Black Hawk helicopter produced by
Sikorsky Aircraft Corporation, a subsidiary of United Technologies. The Company
also produces large, one-piece bulkheads for Lockheed and Boeing for the F-22
fighter.
Energy Products. The Company is a major supplier of extruded seamless thick
wall pipe used in critical piping systems in both fossil fuel and nuclear
commercial power plants worldwide as well as in oil and gas industry
applications. The Company produces rotating components, such as discs and
spacers, and valve components for land-based steam turbine and gas turbine
generators, and in addition, also manufactures shafts, cases, and compressor and
turbine discs for marine gas engines.
-5-
<PAGE>
The Company produces a variety of mechanical and structural tubular forged
products, primarily in the form of extruded seamless pipe, for the domestic and
international energy markets, which include nuclear and fossil-fueled power
plants, co-generation projects and retrofit and life extension applications. In
recent years the Company has developed several proprietary products for the
energy exploration and power generation industries including the THOR(R)
connector for the weldless joining of lengths of pipe, double ended upset pipe
that facilitates joining, clad and titanium alloy pipe for corrosive
environments and multiport diverter valves for offshore oil and gas production.
Aluminum, Steel, and titanium products are manufactured at the Company's
Houston, Texas forging facility where one of the world's largest vertical
extrusion presses extrudes pipe up to 48 inches in diameter and seven inches in
wall thickness and bar stock from six to 32 inches in diameter. Lengths of pipe
and bar stock vary from ten to 45 feet, with a maximum forged weight of 20 tons.
Similar equipment and capabilities are in operation at the Company's Livingston,
Scotland, and Buffalo, New York, forging facilities. Additionally, the Houston
press extrudes powder billets for use in aircraft turbine engine forgings.
Other Products. The Company supplies products to builders of military
ordnance. Examples of forged products include steel casings for bombs and
rockets. For naval defense applications, the Company supplies components for
propulsion systems for nuclear submarines and aircraft carriers as well as pump,
valve, structural and non-nuclear propulsion forgings. The Company also extrudes
powders for other alloy powder manufacturers.
Through its investment casting operations, which utilize a process of
pouring molten metal into a mold, the Company manufactures products for
commercial applications such as food processing, semiconductor manufacturing,
diesel turbochargers and sporting equipment. The Company is actively seeking to
identify alternative applications for its capabilities, such as in the
automotive and other commercial markets. In this regard, the Company recently
established a facility in Mexicali, Mexico for the production of nickel and
titanium aluminide turbocharger wheels for Allied Signal Corporation.
CUSTOMERS
The Company has approximately 290 active customers that purchase forgings,
approximately 825 active customers that purchase investment castings and
approximately 25 active customers that purchase composite structures. The
Company's principal customers are similar across all of these production
processes. Five customers accounted for 49%, 51% and 48% of the Company's
revenues for the years ended May 31, 1999, 1998 and 1997, respectively. GE and
United Technologies (primarily Pratt & Whitney and Sikorsky) have currently or
historically each accounted for 10% or more of revenues for the years ended May
31, 1999, 1998 and 1997.
-6-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1999 MAY 31, 1998 MAY 31, 1997
% OF % OF % OF
REVENUE TOTAL REVENUE TOTAL REVENUE TOTAL
(000's OMITTED, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
GE $213,598 25% $169,894 23% $156,764 26%
United
Technologies (1) (1) 76,786 10 60,921 10
</TABLE>
(1) Revenues for the year ended May 31, 1999 were less than 10%.
Boeing and Rolls-Royce are also significant customers of the Company.
Because of the relatively small number of customers for some of the Company's
principal products, those customers exercise significant influence over the
Company's prices and other terms of trade.
The Company has become actively involved with its aerospace customers
through supply chain management initiatives, joint development relationships and
cooperative research and development, engineering, quality control, just-in-time
inventory control and computerized design programs. The Company believes that
greater involvement in the design and development of components for its
customers' products will result in significant efficiencies and will allow the
Company to better serve its customers.
MARKETING AND SALES
The Company markets its products principally through its own sales
engineers and makes only limited use of independent manufacturers'
representatives. Substantially all sales are made directly to original equipment
manufacturers.
The Company's sales are not subject to significant seasonal fluctuations.
A substantial portion of the Company's revenues are derived from long-term,
fixed-price agreements ("LTAs") 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.
The Company has increased its efforts to obtain LTAs with customers which
contain price adjustments that would compensate the Company for increased raw
material costs. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Impact of Inflation."
-7-
<PAGE>
BACKLOG
The Company's firm backlog includes the sales prices of all undelivered
units covered by customers' orders for which the Company has production
authorization. The Company's firm backlog in the various markets served by the
Company has been as follows:
<TABLE>
<CAPTION>
MAY 31, 1999 MAY 31, 1998 MAY 31, 1997
% OF % OF % OF
BACKLOG TOTAL BACKLOG TOTAL BACKLOG TOTAL
(000's OMITTED, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Aerospace $643,468 87% $ 908,633 88% $767,989 86%
Energy 64,240 9 94,314 9 99,172 11
Other 27,082 4 27,145 3 28,664 3
$734,790 100% $1,030,092 100% $895,825 100%
</TABLE>
At May 31, 1999, approximately $555.6 million of total firm backlog was
scheduled to be shipped within one year (compared to $716.8 million at May 31,
1998 and $671.6 million at May 31, 1997) and the remainder in subsequent years.
Sales during any period include sales that were not part of backlog at the end
of the prior period. Customer orders in firm backlog are subject to rescheduling
or termination for customer convenience and as a result of market fluctuations
in the commercial aerospace industry. However, in certain cases, the Company is
entitled to an adjustment in contract amounts. Because of the cyclical nature of
order entry experienced by the Company and its dependence on the aerospace
industry, there can be no assurance that order entry will continue at current
levels or that current firm purchase orders will not be canceled or delayed.
Accordingly, the Company's backlog is not necessarily indicative of the
Company's revenues for any future period or periods.
MANUFACTURING PROCESSES
The Company employs three manufacturing processes: forging,
investment casting and composites production.
Forging
The Company's forging process involves heating metal and shaping it through
pressing or extrusion. The Company forges titanium and steel alloys, as well as
high temperature nickel alloys. Forging is conducted on hydraulic presses with
capacities ranging up to 55,000 tons. The Company believes that it is the
leading producer of rotating components for use in turbine aircraft engines.
These parts are forged from purchased ingots which are converted to billet in
the Company's cogging presses and from alloy metal powders (primarily nickel
alloys) which are produced, consolidated and extruded into billet entirely at
the Company's facilities.
-8-
<PAGE>
The Company manufactures its forgings at its facilities in Grafton and
Worcester, Massachusetts; Houston, Texas; Buffalo, New York; and Livingston,
Scotland. The Company also operates an alloy powder metal facility in Brighton,
Michigan and vacuum remelting facilities in Houston, Texas which produce steel
and nickel alloy ingots. The Company has eight large closed die hydraulic
forging presses rated as follows: 18,000 tons, 35,000 tons and 50,000 tons in
Grafton Massachusetts; 20,000 tons, 29,000 tons and 35,000 tons in Houston,
Texas; 12,000 tons in Buffalo, New York and 9,000 tons, 14,000 tons and 30,000
tons in Livingston, Scotland. The 35,000 ton vertical extrusion press in Houston
can also be operated as a 55,000 ton hydraulic forging press. The Company also
operates two open die cogging presses used to convert ingot into billet rated at
2,000 tons and 1,375 tons at its Grafton, Massachusetts location. The Company
produces isothermal forgings on its forging press rated at 8,000 tons at its
Worcester, Massachusetts location.
The Company employs the following five forging processes:
- Open-Die Forging. In this process, the metal is pressed 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 to be further processed by
closed die forging.
- Closed-Die Forging. Closed-die forging involves pressing heated metal
into the required shapes and size determined by machined impressions in
specially prepared dies which completely surround the metal. In hot-die
forging, both titanium and nickel alloys can be forged using this
process, in which the dies are heated to a temperature of approximately
1300 degrees Fahrenheit. This process allows metal to flow more easily
within the die cavity which produces forgings with superior surface
finish, metallurgical structures with tighter tolerances and enhanced
repeatability of the part shape.
- Conventional/Multi-Ram. The closed-die, multi-ram process utilized on the
Company's 30,000 and 20,000 ton presses enables the Company to produce
extremely complex forgings such as valve bodies 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. Multi-ram forging enables the Company to
produce a wide variety of shapes, sizes and configurations. The process
also optimizes grain flow and uniformity of deformation and reduces
machining requirements.
- 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 degrees Fahrenheit. The forged material
typically consists of nickel alloy powders. Because of
-9-
<PAGE>
the high die temperatures necessary for forming these alloys, the dies
are made of refractory metals, typically 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.
- Extrusion. The Company's 35,000 ton vertical extrusion press is one of
the largest and most advanced extrusion presses in the world. Extrusions
are produced for applications in the oil and gas industry, including
tension leg platforms, riser systems and production manifolds. The
extrusion process is facilitated by manipulators capable of handling work
pieces weighing up to 20 tons, rotary hearth furnaces and a 14,000 ton
blocking press. The Company's extrusion press is capable of producing
thick wall seamless pipe with outside diameters up to 48 inches and wall
thicknesses from 1/2 inch up to seven inches. Solid extrusions can be
manufactured from six to 32 inches in diameter. Typical lengths vary from
ten to 45 feet. Powder materials can also be compacted and extruded into
forging billets utilizing this press. The 30,000 ton press in Livingston,
Scotland has similar extrusion capabilities in addition to its multi-ram
forging capabilities. The 12,000 ton press in Buffalo, New York is
capable of producing seamless pipe with outside diameters up to 20 inches
and wall thicknesses from 3/8 inches up to three inches.
Metal Production. The Company's Brighton, Michigan powder metal facility
has the capability to atomize, process, and consolidate (by hot isostatic
pressing) alloy metal powders for use in aerospace, medical implant,
petrochemical, hostile environment oil and gas drilling and production, and
other applications. This facility has an annual production capacity of up to
500,000 pounds of alloy powder. After production of the powder, the Company
consolidates the metal by extrusion using its 35,000 ton press in Houston, and
the extruded billets are then forged into critical jet engine components on the
Company's 8,000 ton isothermal press in Worcester, Massachusetts.
The Company's vacuum arc remelting ("VAR") shop in Houston, Texas has five
computer-controlled VAR furnaces which process electrodes up to 42 inches in
diameter that weigh up to 40,000 pounds. The Houston VAR furnaces are used to
remelt purchased electrodes into high purity alloys for internal use. 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.
-10-
<PAGE>
The Company is in a joint venture with Pratt & Whitney and certain
Australian investors which produces nickel alloy ingots in Perth, Australia,
some of which the Company utilizes as raw materials for its forging and casting
products.
Support Operations. The Company designs its forging dies and manufactures
some of those dies. In designing its dies, the Company utilizes its customers'
drawings and engineers the dies using CAD/CAM equipment and sophisticated
computer models that simulate metal flow during the forging process. This
activity improves process control and permits the Company to enhance the
metallurgical characteristics of the forging.
At two of its three major forging locations, the Company has machine shops
with computer aided profiling equipment, vertical turret lathes and other
equipment that it employs to shape rough machine products. The Company also
operates rotary and car-bottom furnaces for heat treatment to enhance the
performance characteristics of the forgings. In fiscal year 1999, the Company
entered into a joint venture in Monterrey, Mexico to machine its forgings.
Testing. Because the Company's products are for high performance end uses,
rigorous testing is necessary and is performed internally by Company engineers.
Throughout the manufacturing process, numerous tests and inspections are
performed to insure the final quality of each product; statistical process
control techniques are also applied throughout the entire manufacturing process.
The Company subjects its products to extensive quality inspection and contract
qualification procedures involving zyglo, chemical etching, ultrasonic, red dye,
hardness, and electrical conductivity testing facilities.
Investment Castings
The Company's investment castings operations use 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 steel, aluminum, nickel, titanium and magnesium. The Company's
castings operations are conducted in facilities located in Groton, Connecticut;
Franklin and Tilton, New Hampshire; Carson City, Nevada; San Leandro, California
and Albany, Oregon.
In July 1998, the Company and Titanium Metals Corporation ("TIMET")
combined their respective titanium casting operations in Franklin, New Hampshire
and Albany, Oregon into Wyman Gordon Titanium Castings, LLC, a Delaware limited
liability company, (the "Joint Venture"), 80.1% owned by the Company and 19.9%
by TIMET. The parties have agreed, in general, that the Joint Venture will be
the exclusive means by which they conduct their titanium castings operations.
-11-
<PAGE>
The Company produces its investment castings by the "lost wax" process, a
method developed in China over 5,000 years ago. The initial step in producing
investing castings is to create a wax form of the ultimate metal part by
injecting molten wax into an aluminum mold, known as a "tool." These tools are
produced to the specifications of the customer and are primarily purchased from
outside die makers, although the Company maintains internal tool-making
capabilities. The wax patterns are then mechanically coated with a ceramic
slurry in a process known as investment. This forms a ceramic shell which is
subsequently air-dried and hardened under controlled environmental conditions.
Next, the wax inside this shell is melted and removed in a high temperature
steam autoclave and the molten wax is recycled. In the next, 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, chipping or various types of water or air blasting. The metal
parts are then cleaned in a high temperature caustic bath, followed by water
rinsing. In the finishing stage, the castings are finished by grinding and
polishing to remove excess metal. The final product then undergoes a lengthy
series of testing (radiography, fluorescent penetrant, magnetic particle and
dimensional) to ensure quality and consistency.
Composites
The Company's composites subsidiary, Scaled Composites, located in Mojave,
California, designs, fabricates and tests composite airframe structures made by
layering carbon graphite and other fibers with epoxy resins for the aerospace
market. During fiscal year 1998, the Company completed the construction of a
120,000-square-foot facility in Montrose, Colorado, where the Company's
subsidiary, Scaled Technology Works, manufactures airplane components,
principally those designed by Scaled Composites.
OPERATING FACILITIES
The following table sets forth certain information with respect to the
Company's operating facilities at May 31, 1999, all of which are owned. The
Company believes that its operating facilities are well maintained, are suitable
to support the Company's business and are adequate for the Company's present and
anticipated needs. On average, during the Company's fiscal year 1999, the
Company's forging, investment castings and composites facilities were operating
at approximately 78%, 76% and 73% of their total productive capacity,
respectively.
-12-
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE PRIMARY FUNCTION
<S> <C> <C>
Brighton, Michigan 34,500 Alloy Powder
Production
Grafton, Massachusetts 85,420 Administrative
Offices
Grafton, Massachusetts 843,200 Forging
Houston, Texas 1,283,800 Forging
Livingston, Scotland 405,200 Forging
Millbury, Massachusetts 104,125 Research and
Development
Worcester, Massachusetts 22,300 Forging
Buffalo, New York (2 plants) 235,000 Forging
Carson City, Nevada 55,000 Casting
Franklin, New Hampshire 43,200 Casting
Groton, Connecticut (2 plants) 162,550 Casting
San Leandro, California 60,000 Casting
Tilton, New Hampshire 94,000 Casting
Albany, Oregon 60,400 Casting
Mojave, California 67,000 Composites
Montrose, Colorado 120,000 Composites
</TABLE>
RAW MATERIALS
Raw materials used by the Company in its forgings and castings include
titanium, nickel, steel, aluminum, cobalt, magnesium and other metallic 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 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. Its principal suppliers of nickel
alloys include Special Metals Corporation, Allegheny Teledyne, Inc., and
Carpenter Technologies Corporation. Its principal suppliers of titanium alloys
are TIMET, Allegheny Teledyne, Inc. and RMI Titanium Company. In July 1998, the
Company exchanged certain assets of its Millbury, Massachusetts titanium vacuum
arc remelting facility for certain assets of TIMET's Albany, Oregon titanium
castings business. In connection with such exchange the Company and TIMET
entered into a long term supply agreement pursuant to which the Company will
acquire a substantial portion of its titanium raw material requirements from
TIMET. The Company's powder metal facility in Brighton, Michigan produces nickel
alloy powder. In addition, the Company utilizes a portion of the output of its
Australian joint venture for its own use.
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<PAGE>
The titanium and nickel alloys utilized by the Company have a relatively
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 a customer cancels an order for which material has been
purchased, 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, are
generally billed to the customer unless transferable to another order.
Many of the Company's customer contracts have fixed prices for extended
time periods and do not provide complete price adjustments for changes in the
prices of raw materials such as metals. The Company attempts to reduce its risk
with respect to its customer contracts by procuring long-term contracts with
suppliers of metal alloys, but the Company's supply contracts typically do not
completely insulate the Company from fluctuations in the prices of raw
materials.
ENERGY USAGE
The Company is a large consumer of energy. Energy is required primarily for
heating metals to be forged and melting metals to be cast, melting of ingots,
heat-treating products after forging and casting, operating forging presses,
melting furnaces, mechanical manipulation and pollution control equipment and
space heating. Supplies of natural gas, oil and electricity used by the Company
have been sufficient and there is no anticipated shortage for the future.
However, significant increases in the price of or shortages in these energy
supplies may have an adverse impact on the Company's results of operations.
EMPLOYEES
As of May 31, 1999, the Company had approximately 3,955 employees, of whom
1,039 were executive, administrative, engineering, research, sales and clerical
and 2,916 were production and craft. Approximately 35% of the production and
craft employees, consisting of employees in the forging business, are
represented by unions. The Company has entered into collective bargaining
agreements with these union employees as follows:
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEES
COVERED BY
BARGAINING INITIATION EXPIRATION
LOCATION AGREEMENTS DATE DATE
<S> <C> <C> <C>
Grafton and
Worcester,
Massachusetts 471 April 6, 1997 March 24, 2002
Houston, Texas 570 August 10, 1998 August 12, 2001
39 September 28, 1998 September 28, 2001
Livingston,
Scotland 171 December 1, 1998 November 30, 2001
60 February 1, 1999 January 31, 2002
Buffalo,New York 69 June 7, 1999 June 2, 2003
Total 1,380
</TABLE>
The Company believes it has good relations with its employees, but there
can be no assurances that the Company will not experience a strike or other work
stoppage or that acceptable collective bargaining agreements can be negotiated
when the existing collective bargaining agreements expire.
RESEARCH AND PATENTS
The Company maintains research and development departments at both
Millbury, Massachusetts, and Houston, Texas, which are 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 and casting
materials and processes. The Company's castings operations conduct research and
development related to advanced casting materials and processes at its Groton,
Connecticut, and Tilton, New Hampshire, facilities. The Company's composites
operation conducts research and development related to aerospace composite
structures at the Mojave, California, facility. The Company spent approximately
$2.9 million, $3.3 million and $2.9 million on applied research and development
work during the years ended May 31, 1999, 1998 and 1997, respectively. 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. Most of the Company's products are manufactured to customer
specifications and, consequently, the Company has few 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 in each of the Company's current product markets is
cyclical, intensifying during upturns and lessening during downturns, but such
cyclicality of competition is especially present in aerospace structural
products markets because of the cyclical nature of the
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<PAGE>
commercial and defense aerospace industries. In the aerospace turbine products
market, the Company's largest competitors are Ladish Co., Inc., Fortech, S.A.
and Thyssen AG. In the aerospace structural products market, Alcoa Corporation
and Schultz Steel Company are the Company's largest competitors. In the energy
products market, the Company faces mostly international competition from
Mannesmann A.G. and Sumitomo Corporation, among others. In the aerospace
castings products market, Howmet Corporation and Precision Castparts Corp. are
the Company's largest competitors.
In the future, the Company may face increased competition from
international companies as the Company's customers seek lower cost sources of
supply. International competition in the forging and casting processes may also
increase in the future as a result of strategic alliances among aircraft prime
contractors and foreign companies, particularly where "offset" or "local
content" requirements create purchase obligations with respect to products
manufactured in or directed to a particular country. Competition is often
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. The Company believes that it has strength in these areas,
but there can be no assurance that the Company can maintain its share of the
market for any of its products.
ENVIRONMENTAL REGULATIONS
The Company's operations are 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. However, it is not possible to predict accurately the amount or
timing of costs of any future environmental remediation requirements. 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. As of May 31, 1999,
aggregate environmental reserves amounted to $15.5 million, which includes
expected cleanup costs estimated between $4.4 million and $5.4 million upon the
eventual sale of the Worcester, Massachusetts facility, certain environmental
issues, including the remediation of on-site landfills, at the Houston, Texas
facility amounting to approximately $3.0 million, $4.4 million in remediation
projects at the Grafton facility, $0.8 million for remediation at the Buffalo
facility and $1.1 million for various Superfund sites. There can be no assurance
that the actual costs of remediation will not eventually materially exceed the
amount presently accrued.
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<PAGE>
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 agreed to make expenditures totaling $20.8 million for environmental
management and remediation at that site, of which $3.3 million remained as of
May 31, 1999. Approximately one-half of the remaining Air Force projects are
capital in nature and the remainder are covered by existing reserves. These
expenditures will not resolve all of the Company's obligations to federal and
state regulatory authorities, who are not parties to the agreement, however, and
the Company expects to incur an additional amount, currently estimated at
approximately $2.8 million, to comply with current federal and state
environmental requirements governing the investigation and remediation of
contamination at the site.
The Company's Grafton facility was formerly included in the U.S. Nuclear
Regulatory Commission's ("NRC") May 1992 Site Decommissioning Management Plan
("SDMP") for low-level radioactive waste as the result of the disposal of
magnesium thorium alloys at the facility in the 1960s and early 1970s under
license from the Atomic Energy Commission. On March 31, 1997, the NRC informed
the Company that jurisdiction for the Grafton site had been transferred to the
Commonwealth of Massachusetts Department of Public Health (the "DPH") and that
the Grafton facility had been removed from the SDMP. Although it is unknown what
specific remediation and disposal requirements may be imposed on the Company by
the DPH, the Company believes that a reserve of $1.5 million, included within
the $2.8 million noted above, is sufficient to cover all costs. There can be no
assurance, however, that such reserve will be adequate to cover any obligations
that the DPH may ultimately impose on the Company.
The Company, together with numerous other parties, has been named a PRP
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") for the cleanup of the following Superfund sites: Operating
Industries, Monterey Park, California; PSC Resources, Palmer, Massachusetts; the
Harvey GRQ site, Harvey, Illinois; and the Gemme/Fournier site, Leicester,
Massachusetts. The Company believes that a reserve of $1.1 million recorded on
its books is sufficient to cover all costs.
At the Gemme/Fournier site, a proposed agreement would allocate 33% of the
cleanup costs to the Company. In September 1995, a consulting firm retained by
the PRP group made a preliminary remediation cost estimate of $1.4 million to
$2.8 million. The Company's insurance company is defending the Company's
interests, and the Company believes that any recovery against the Company would
be offset by recovery of insurance proceeds.
The Company expects to incur between $4.4 and $5.4 million in cleanup
expenses upon the planned sale of its Worcester, Massachusetts facility to
remedy certain contamination discovered on site. The Massachusetts Department of
Environmental Protection has classified the site as a Tier II site under the
Massachusetts Contingency Plan.
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<PAGE>
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
In addition to the matters disclosed below, at May 31, 1999, 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.
On December 22, 1996, a serious industrial accident occurred at the
Houston, Texas, facility of Wyman-Gordon Forgings, Inc. ("WGFI"), a wholly-owned
subsidiary of the Company, in which eight employees were killed, and three
employees and several subcontractor employees were injured.
The Company and WGFI have settled the lawsuits brought by all decedents'
families and other claimants on terms acceptable to the Company and its
insurance carriers. The amounts paid in settlement of the lawsuits exceeded the
Company's available liability insurance. The Company recorded a charge of $13.8
million in the third quarter of fiscal year 1999 that covered its share of the
costs of defending the lawsuits and funding the agreed settlements.
On September 25, 1997, the Company received a subpoena from the United
States Department of Justice informing it that the Department of Defense and
other federal agencies had commenced an investigation with respect to the
manufacture and sale of investment castings at the Company's Tilton, New
Hampshire facility. The Company does not believe that the federal investigation
is likely to result in a material adverse impact on the Company's financial
condition or results of operations, although no assurance as to the outcome or
impact of that investigation can be given.
ITEM 2. PROPERTIES
The response to ITEM 2. PROPERTIES incorporates by reference the paragraphs
captioned "Facilities" included in ITEM 1.
BUSINESS.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The response to ITEM 3. LEGAL PROCEEDINGS incorporates by
reference the paragraphs captioned "Environmental Regulations"
and "Legal Proceedings" included in ITEM 1. BUSINESS.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended May 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Wyman-Gordon Company's common stock, par value $1.00 per share, is listed
on the New York Stock Exchange under the symbol WYG. The table below lists the
quarterly price range per share for the years ended May 31, 1999 and 1998. The
quarterly price range per share is based on the high and low sales prices. At
May 31, 1999, there were approximately 1,927 holders of record of the Company's
common stock.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 1999 MAY 31, 1998
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First quarter $21 1/8 $13 $28 1/4 $23 3/8
Second quarter 16 7/8 11 1/2 30 20 5/8
Third quarter 15 5/8 7 3/8 22 1/8 16 1/2
Fourth quarter 19 5/16 8 1/4 23 1/8 19 3/4
</TABLE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data and other operating
information of Wyman-Gordon Company. The selected financial data in the table
are derived from the consolidated financial statements of Wyman-Gordon Company.
The data should be read in conjunction with the consolidated financial
statements, related notes, other financial information and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included herein.
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<PAGE>
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000'S OMITTED, EXCEPT PER-SHARE AMOUNTS)
STATEMENT OF OPERATIONS
DATA(1):
<S> <C> <C> <C>
Revenues $849,261 $ 752,913 $608,742
Gross profit 133,359 115,646 97,634
Other charges(credits)(2) 13,745 (4,900) 23,083
Income (loss) from operations 62,952 68,892 30,322
Net income (loss)(3) 37,028 33,890 50,023
BASIC PER SHARE DATA:
Income (loss) per share
before extraordinary item $ 1.02 $ 1.07 $ 1.40
Net income (loss) per share (3) 1.02 .93 1.40
DILUTED PER SHARE DATA:
Income (loss) per share
before extraordinary item $ 1.01 $ 1.05 $ 1.35
Net income (loss) per share (3) 1.01 .91 1.35
Shares used to compute income
(loss) per share:
Basic 36,149 36,331 35,825
Diluted 36,589 37,357 37,027
BALANCE SHEET DATA (AT END OF
PERIOD(2):
Working capital $230,027 $ 223,764 $166,205
Total assets 581,710 551,610 454,371
Long-term debt 164,338 162,573 96,154
Stockholders' equity 233,762 204,820 164,398
OTHER DATA:
Order backlog (at end of
period) $734,790 $1,030,092 $895,825
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
1996 1995
(000'S OMITTED, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Revenues $499,624 $396,639
Gross profit 78,132 49,388
Other charges(credits)(2) 2,717 (710)
Income (loss) from operations 37,699 13,718
Net income (loss)(3) 25,234 1,039
BASIC PER SHARE DATA:
Income (loss) per share
before extraordinary item $ 0.72 $ 0.03
Net income (loss) per share (3) 0.72 0.03
DILUTED PER SHARE DATA:
Income (loss) per share
before extraordinary item $ 0.70 $ 0.03
Net income (loss) per share (3) 0.70 0.03
Shares used to compute income
(loss) per share:
Basic 35,243 34,813
Diluted 36,241 35,148
BALANCE SHEET DATA (AT END OF
PERIOD(2):
Working capital $116,534 $ 93,062
Total assets 375,890 369,064
Long-term debt 90,231 90,308
Stockholders' equity 109,943 80,855
OTHER DATA:
Order backlog (at end of
period) $598,438 $468,721
</TABLE>
(1) On April 9, 1998, the Company acquired International Extruded Products, LLC
("IXP"). The Selected Consolidated Financial Data include the accounts of
IXP from the date of acquisition. IXP's operating results from April 9,
1998 to May 31, 1998 are not material to the consolidated statement of
operations for the year ended May 31, 1998.
(2) During the year ended May 31, 1996, the Company provided $1,900,000 in
order to recognize its 25.0% share of the net losses of its Australian
joint venture and to reduce the carrying value of such joint venture.
Additionally, the Company provided $800,000 to reduce the carrying value of
the cash surrender value of certain company-owned life insurance policies.
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<PAGE>
During the year ended May 31, 1997, the Company recorded other charges of
$23,100,000, which included $4,600,000 to provide for the costs of
workforce reductions at the Company's Grafton, Massachusetts, Forging
facility, $3,400,000 to the write-off and disposal of certain forging
equipment, $2,300,000 to reduce the carrying value and dispose of certain
assets of the Company's titanium castings operations, $1,200,000 to
consolidate the titanium castings operations, $2,500,000 to reduce the
carrying value of the Australian joint venture, $5,700,000 to reduce the
carrying value of the cash surrender value of certain Company-owned life
insurance policies, $1,900,000 to reduce the carrying value of a building
held for sale and $250,000 to reduce the carrying value of other assets.
Other charges (credits) in the year ended May 31, 1997 also included a
charge of $1,200,000, net of insurance recovery of $6,900,000, related to
the accident at the Houston, Texas, facility of Wyman-Gordon Forgings, Inc.
in December 1996.
Other charges (credits) in the year ended May 31, 1998 includes a credit of
$4,000,000 for the recovery of cash surrender value of certain
company-owned life insurance policies, a credit of $1,900,000 resulting
from the disposal of a building held for sale and a charge of $1,000,000 to
provide for costs as a result of the six-month shutdown of the 29,000-ton
press at the Company's Houston, Texas, forging facility.
During the year ended May 31, 1999, the Company recorded other charges of
$13,745,000. Such other charges include a net charge of $12,955,000 to
provide for settlement costs associated with the Houston industrial
accident, $4,700,000 to provide for the costs of Company-wide workforce
reductions, a charge of $1,090,000 to reduce the carrying value and dispose
of certain assets of the Company's titanium Castings operations and a
credit of $5,000,000 resulting from the sale of the operating assets of the
Company's Millbury, Massachusetts vacuum remelting facility to TIMET.
(3) In the year ended May 31, 1997, net tax benefits of $25,680,000 were
recognized, including a refund of prior years' income taxes amounting to
$19,680,000, plus interest of $3,484,000, and $6,500,000 related to the
expected realization of net operating losses ("NOLs") in future years and
$10,250,000 related to current NOLs benefit offsetting $10,750,000 of
current income tax expense. The refund relates to the carryback of tax net
operating losses to tax years 1981, 1984 and 1986 under the applicable
provisions of Internal Revenue Code Section 172(f).
-22-
<PAGE>
In the year ended May 31, 1998, the Company provided $16,355,000 for income
taxes, net of a tax benefit of approximately $1,800,000 relating to the
utilization of NOLs carryforwards. In addition, the Company has recorded a
$2,920,000 tax benefit against the extraordinary loss of $8,112,000
associated with the early extinguishment of the Company's 10 3/4% Senior
Notes.
In the year ended May 31, 1999, the Company provided $10,467,000 for income
taxes, net of a tax benefit of approximately $6,400,000 associated with the
expected realization of certain tax assets.
-23-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 1999 ("FISCAL YEAR 1999") COMPARED TO YEAR
ENDED MAY 31, 1998 ("FISCAL YEAR 1998")
OVERVIEW
Total revenues in fiscal year 1999 reached a record $849.3 million, an
increase of 12.8% from fiscal year 1998 sales of $752.9 million. Revenue
increases by market in fiscal year 1999 compared to fiscal year 1998 were as
follows: a $83.0 million, or 13.3%, increase in aerospace, a $15.9 million, or
15.7%, increase in energy and a $2.6 million, or 8.9%, decrease in other.
Increased throughput at the Company's Houston, TX and Grafton, MA facilities
attributed to the growth in aerospace and energy revenues as well as the recent
venture with TIMET and the full year of revenues from the acquisition of IXP in
fiscal year 1998.
Earnings before interest, taxes, depreciation, amortization, other charges
and extraordinary items ("EBITDA") in fiscal year 1999 increased to $103.1
million, or 12.1% of revenues compared to $86.6 million, or 11.5% of revenues in
fiscal year 1998. EBITDA in fiscal year 1999 was negatively affected by the
following: a one-time charge of $5.8 million, or 0.7%, related to sales
commitments under contractual agreements with certain customers that will result
in losses, a $3.1 million, or 0.4%, impact resulting from production
inefficiencies incurred in the first three months of fiscal year 1999 resulting
from the recommissioning of the Company's 29,000 ton press and approximately
$8.0 million, or 0.9%, primarily relating to overtime and outsourcing costs
associated with reducing overdue customers orders, fixed costs escalations, and
underabsorption in the Company's energy product line.
EBITDA should not be considered a substitute for net income as an indicator
of operating performance or as an alternative to cash flow as a measure of
liquidity, in each case determined in accordance with generally accepted
accounting principles. Investors should be aware that EBITDA as reported within
may not be comparable to similarly titled measures presented by other companies,
and comparisons could be misleading unless all companies and analysts calculate
this measure in the same fashion.
OUTLOOK
The Company expects fiscal year 2000 will see a decline in revenues by
approximately 15% from fiscal year 1999, while maintaining operating margins
approximating fiscal year 1999 levels. The anticipated decline in revenues is
attributable to a downturn in the aerospace cycle, the overall weakness in the
oil and gas industries and the weak Asian economy. Through planned cost
reduction programs and actions taken to align the cost structure of the Company,
it is estimated that EBITDA margins for fiscal year 2000 will approximate the
same levels as that of fiscal year 1999 although no assurances can be given that
the Company will achieve such EBITDA margins.
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<PAGE>
FINANCIAL RESULTS BY SEGMENT
In fiscal year 1999, the Company adopted Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which revises
reporting and disclosure requirements for operating segments. The Statement
requires that the Company present segment data based on the way that management
organizes the business within the Company for making operating decisions and
assessing performance. The three segments, based on markets served, are
Aerospace, Energy and Other.
AEROSPACE MARKET
The Aerospace Market segment produces components utilizing all of the
Company's manufacturing disciplines: forging, investment casting and composites.
The parts produced in this segment are used extensively by the major jet engine
manufacturers and airframe builders within the commercial and military aircraft
industry. A variety of engine parts produced by the Company include fan discs,
compressor discs, turbine discs, seals, shafts, hubs, reversers and valves.
Aerospace airframe components include landing gear, bulkheads, wing spars,
engine mounts, struts, wing and tail flaps and bulkheads. The Company produces
these components from titanium, nickel, steel, aluminum and composite materials.
The Aerospace Market segment reported fiscal year 1999 revenues of $705.8
million and EBITDA of $101.1 million. Fiscal year 1999 revenues increased 13.3%
over last year's $622.7 million, and EBITDA as a percentage of sales improved to
14.3% in fiscal year 1999 from 13.0% in fiscal year 1998. The increase in
aerospace market revenues was the result of an increase in aerospace turbine
sales volume due to significant throughput improvements on the Company's 29,000
ton press, increased aerospace structural sales from the joint venture with
TIMET and throughput improvements generated from the reorganization of the
Grafton, MA facility. The higher EBITDA reflected leverage from the higher sales
volume, improved operating performance at the Grafton, MA facility and improved
production efficiencies resulting from repairs and refurbishment's on the
Company's 29,000 ton press in Houston, TX.
ENERGY MARKET
The Company is a major supplier of products used in nuclear and
fossil-fueled commercial power plants, co-generation projects and retrofit and
life extension applications as well as in the oil and gas industry. Products
produced within the energy product segment include extruded seamless thick wall
pipe, connectors, and valves. The Company produces rotating components, such as
discs and spacers, and valve components for land-based steam turbine and gas
turbine generators.
-25-
<PAGE>
Fiscal year 1999 revenues for the Energy Market segment totaled $117.2 million,
as compared to $101.4 million in fiscal year 1998, an increase of 15.7%. The
segment's EBITDA, however, saw some deterioration, falling to $10.6 million from
last year's $11.4 million. The Energy Market segment is currently experiencing
the effect of lower oil prices worldwide, which has dramatically affected sales
of oil and gas products both domestically and internationally. In addition, the
weakened Asian economy has resulted in a reduction in the installation of power
generation systems in that geographical area. The decline in these markets has
not only caused a substantial reduction in orders, but has also increased
competitive pricing pressures, which adversely affected normal margin
opportunities during fiscal year 1999.
OTHER MARKET
The Company manufacturers a variety of products for defense related
applications. Some of the products produced within this segment include steel
casings for bombs and rockets, components for propulsion systems for nuclear
submarines and aircraft carriers as well as pump, valve, structural and
non-nuclear propulsion forgings. The Company also manufactures products for
commercial applications such as food processing, semiconductor manufacturing,
diesel turbochargers and sporting equipment.
The Other Market segment revenues decreased to $26.3 million in fiscal year
1999 compared to $28.8 million in fiscal year 1998, a decrease of 8.9%. EBITDA
decreased from $4.8 million in fiscal year 1998 to $2.6 million in fiscal year
1999. The decline in revenues was largely due to reduced sales of ordnance
products. EBITDA was unfavorably impacted by the product mix making up fiscal
year 1998 revenues and the decrease in ordnance revenues and associated margins.
EBITDA benefited from a $1.8 million LIFO credit in fiscal year 1999.
The positive impact primarily affected the aerospace market segment EBITDA
results. There was no LIFO charge (credit) in fiscal year 1998.
The Company's backlog decreased to $734.8 million at May 31, 1999 from
$1,030.1 million at May 31, 1998. This decrease resulted from the following
factors:
1. Reduction in build rates of the Company's engine and
airframe customers due to a downturn in the commercial
aircraft cycle,
2. Inventory reduction programs initiated by certain major customers, and
3. A decrease in overdue orders to customer delivery dates as a result of
increased capacity from recommissioning of major presses coupled with
reduced bookings.
Of the Company's total current backlog, $555.6 million is shippable in the
next twelve months. The Company believes that it will be able to fulfill those
twelve-month requirements.
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<PAGE>
Selling, general and administrative expenses increased 9.7% to $56.7
million during fiscal year 1999 from $51.7 million during fiscal year 1998.
Selling, general and administrative expenses as a percentage of revenues
improved to 6.7% in fiscal year 1999 from 6.9% in fiscal year 1998. Excluding a
$3.4 million charge in fiscal year 1998 for compensation expense associated with
the Company's performance share program, selling, general and administrative
expense as a percentage of revenue increased by 0.3% in fiscal year 1999
compared to fiscal year 1998. This overall increase as a percentage of revenue
was due primarily to costs associated with the development of the Company's oil
and gas business in its Livingston, Scotland facility, and development of the
Company's composite business in Montrose, Colorado.
During the year ended May 31, 1999, the Company recorded other charges of
$13.7 million. Such other charges include a net charge of $13.0 million to
provide for settlement costs associated with the Houston industrial accident,
$4.7 million to provide for the costs of Company-wide workforce reductions, a
charge of $1.1 million to reduce the carrying value and dispose of certain
assets of the Company's titanium castings operations and a credit of $5.0
million resulting from the sale of the operating assets of the Company's
Millbury, Massachusetts vacuum remelting facility to TIMET.
During fiscal year 1998, the Company recorded net other credits of $4.9
million. Such other credits include $1.9 million resulting from the disposal of
a building held for sale and $4.0 million for the recovery of cash surrender
value of certain Company-owned life insurance policies offset by other charges
of $1.0 million to provide for costs as a result of the shutdown of the 29,000
ton press at the Company's Houston, Texas, forging facility.
Interest expense increased $1.7 million to $14.2 million in fiscal year
1999 compared to $12.5 million in fiscal year 1998. The increase results from a
higher average debt level for the full year in fiscal year 1999 compared to
fiscal year 1998 due to the issuance of $150.0 million of 8% Senior Notes in the
third quarter of fiscal year 1998.
The Company provided $10.5 million for income taxes, net of a tax benefit
of approximately $6.4 million associated with the expected realization of
certain tax assets.
In fiscal year 1999, net income was $37.0 million, or $1.01 per share
(diluted). In fiscal year 1998, net income before extraordinary item was $39.1
million, or $1.05 per share (diluted), and net income, including extraordinary
item, was $33.9 million, or $.91 per share (diluted). In fiscal year 1998, the
Company recorded an extraordinary charge of $5.2 million, or $.14 per share
(diluted), net of tax, in connection with the extinguishment of $84.7 million of
its 10 3/4% Senior Notes. The decrease resulted from the items described above.
-27-
<PAGE>
YEAR ENDED MAY 31, 1998 ("FISCAL YEAR 1998") COMPARED TO YEAR
ENDED MAY 31, 1997 ("FISCAL YEAR 1997")
OVERVIEW
The Company's revenue increased 23.7% to $752.9 million in fiscal year 1998
from $608.7 million in fiscal year 1997. These revenue increases during fiscal
year 1998 as compared to fiscal year 1997 are reflected by market as follows: a
$147.6 million, or 31.1%, increase in aerospace, a $4.2 million, or 4.4%,
increase in energy and a $7.7 million, or 21.0%, decrease in other. Revenue
growth in the aerospace market was the result of higher airplane and engine
build rates and higher demands for spares by aerospace engine prime contractors.
The increase in energy revenue was a result of higher shipments of land-based
gas turbine products in fiscal year 1998 compared to fiscal year 1997. The cause
of the decrease in other markets is primarily due to the decline in the titanium
golf club head business as the Company exited this business in fiscal year 1997.
EBITDA increased to $86.6 million from $79.1 million in fiscal year 1998.
EBITDA as a percentage of revenues decreased to 11.5% from 13.0% in fiscal year
1997. Aerospace market EBITDA in fiscal year 1998 was negatively affected by the
impact of the Company's 29,000 ton press being taken out of service for repairs
for six months. During the six month period the press was out of service, the
work scheduled on the 29,000 ton press was performed on alternative presses at a
significant increased cost. The Company has estimated that EBITDA in fiscal year
1998 was negatively impacted by approximately 2.3% as a result of
underabsorption, inefficiencies and other items, all of which include extra
labor, higher overtime, tooling modifications and higher scrap and rework costs.
FINANCIAL RESULTS BY SEGMENT
The three segments, based on markets served, are Aerospace, Energy and
Other.
AEROSPACE MARKET
Fiscal year 1998 revenues for the Aerospace Market segment totaled $622.7
million compared to $475.1 million in fiscal year 1997, an increase of 31.1%.
EBITDA increased to $81.2 million in fiscal year 1998 from $75.0 million in
fiscal year 1997. The growth in revenues was attributable to higher airplane and
engine build rates and higher demands for spares by aerospace engine prime
contractors. Although there were higher shipments to aerospace customers during
fiscal year 1998, the shipments to aerospace customers were impacted by the
Company's 29,000 ton press being out of service for repairs for six months. In
addition to impacts on revenues, EBITDA was negatively impacted by the
disruption of that press being out of service. EBITDA as a percentage of sales
decreased to 13.0% in fiscal year 1998 compared to 15.8% in fiscal year 1997.
Significant costs were
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<PAGE>
incurred in order to meet engine customers' product demands. The Company
incurred production inefficiencies and high levels of overtime and rework
resulting from production of turbine parts on alternate presses.
ENERGY MARKET
Fiscal year 1998 revenues for the Energy Market segment totaled $101.4
million, as compared to $97.1 million in fiscal year 1997, an increase of 4.4%.
EBITDA also showed modest growth to $11.4 million in fiscal year 1998 from $9.6
million in fiscal year 1997. The growth in revenues was primarily attributable
to higher shipments of land-based gas turbine products in fiscal year 1998
compared to fiscal year 1997. Improvements in EBITDA resulted from strong focus
on cost management throughout the year.
OTHER MARKET
The Other Market segment revenues were $28.8 million, a $7.7 million
decrease from $36.5 million in fiscal year 1998. Although revenues decreased,
EBITDA grew to $4.8 million, or 16.6% of revenues, compared to $2.8 million, or
7.7% of revenues in fiscal year 1998. The decline in other market revenues was
primarily due to exiting the cast titanium golf club head business in fiscal
year 1997. EBITDA in fiscal year 1997 was negatively impacted by price and
demand declines within the titanium golf club head business which accounted for
a significant portion of this segment's revenues. Although revenues decreased,
higher margin parts generated from ordnance and commercial product sales
resulted in a significant improvement in EBITDA for fiscal year 1998.
There was no LIFO charge (credit) impacting EBITDA in fiscal year 1998. In
fiscal year 1997, EBITDA, primarily impacting the aerospace market segment, was
negatively impacted by a LIFO charge of $1.6 million.
The Company's backlog increased to $1,030.1 million at May 31, 1998 from
$895.8 million at May 31, 1997. This increase resulted from the following
factors:
1. Higher build rates of the Company's engine and airframe
customers,
2. Higher prices for the Company's aerospace products, and
3. An increase in overdue orders to customer delivery dates as a result
of shipping delays at the Company due to equipment repairs and raw
material unavailability.
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<PAGE>
Selling, general and administrative expenses increased 16.8% to $51.7
million during fiscal year 1998 from $44.2 million during fiscal year 1997.
Selling, general and administrative expenses as a percentage of revenues
improved to 6.9% in fiscal year 1998 from 7.3% in fiscal year 1997. The
improvement as a percent of revenues was primarily the result of higher
revenues. Although selling, general and administrative expense in fiscal year
1998 improved, it includes higher costs associated with relocating employees,
development costs associated with the Company's composite operations and $2.0
million higher compensation expense, as compared to fiscal year 1997, associated
with the Company's performance share program.
During fiscal year 1998, the Company recorded net other credits of $4.9
million. Such other credits include $1.9 million resulting from the disposal of
a building held for sale and $4.0 million for the recovery of cash surrender
value of certain Company-owned life insurance policies offset by other charges
of $1.0 million to provide for costs as a result of the shutdown of the 29,000
ton press at the Company's Houston, Texas, forging facility.
During fiscal year 1997, the Company recorded other charges of $23.1
million. Such other charges included $4.6 million to provide for the costs of
workforce reductions at the Company's Grafton, Massachusetts, facility, $3.4
million to write off and dispose of certain forging equipment, $2.3 million to
reduce the carrying value and dispose of certain assets of the Company's
titanium castings operations, $1.2 million to consolidate the titanium castings
operations, $2.5 million to recognize the Company's 25.0% share of the net
losses of its Australian joint venture and to reduce the carrying value of such
joint venture, $0.3 million relating to expenditures for an investment in
another joint venture, $5.7 million to reduce the carrying value of the cash
surrender value of certain Company-owned life insurance policies and $1.2
million of costs, net of insurance recovery of $6.9 million, related to the
Houston accident and $1.9 million to reduce the carrying value of the Jackson,
Michigan, facility being held for sale.
As of May 31, 1997, the Company had fully written off its investment in the
Australian joint venture. However, in the future, the Company may make
additional capital contributions to the Australian joint venture to satisfy its
cash or other requirements and may be required to recognize its share of any
additional losses or may write off such additional capital contributions. There
were no contributions made to the joint venture in fiscal year 1998.
Interest expense increased $1.7 million to $12.5 million in fiscal year
1998 compared to $10.8 million in fiscal year 1997. The increase results
primarily from an issuance of $150.0 million of 8% Senior Notes offset by
repayment of $84.7 million of 10 3/4% Senior Notes.
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<PAGE>
Miscellaneous, net was an expense of $0.9 million in fiscal year 1998 as
compared to income of $4.8 million in fiscal year 1997. Miscellaneous, net in
fiscal year 1998, included a $0.7 million loss on the sale of fixed assets.
Miscellaneous, net in fiscal year 1997 included interest income on a refund of
prior years' income taxes amounting to $3.5 million and a $2.0 million gain on
the sale of fixed assets.
The Company provided $16.4 million for income taxes, net of a tax benefit
of approximately $1.8 million relating to the utilization of NOL carryforwards.
In addition, the Company recorded a $2.9 million tax benefit against the
extraordinary loss of $8.1 million associated with the early extinguishment of
the Company's 10 3/4% Senior Notes.
Net tax benefits of $25.7 million were recognized in fiscal year 1997,
including a refund of prior years' income taxes amounting to $19.7 million and
$6.5 million related to the expected realization of NOLs in the future years and
$10.3 million related to current NOLs benefit offsetting $10.8 million of
current income tax expense. The refund related to the carryback of tax net
operating losses to tax years 1981, 1984 and 1986 under applicable provisions of
Internal Revenue Code Section 172(f).
In fiscal year 1998, net income before extraordinary item was $39.1
million, or $1.05 per share (diluted), and net income, including extraordinary
item, was $33.9 million, or $.93 per share (diluted). In fiscal year 1998, the
Company recorded an extraordinary charge of $5.2 million, or $.14 per share
(diluted), net of tax, in connection with the extinguishment of $84.7 million of
its 10 3/4% Senior Notes. In fiscal year 1997, the Company reported net income
of $50.0 million, or $1.40 per share (diluted). The decrease resulted from the
items described above.
LIQUIDITY AND CAPITAL RESOURCES
The increase in the Company's cash of $9.3 million to $73.9 million at May
31, 1999 from $64.6 million at May 31, 1998 resulted from cash provided by
operating activities of $59.8 million, issuance of common stock of $5.2 million
in connection with employee compensation and benefit plans, $6.7 million of
proceeds from the sale of fixed assets, and $0.4 million generated from other,
net investing and financing activities, offset by capital expenditures of $47.4
million, $13.1 million repurchase of common stock and $2.3 million payment to
Cooper Industries, Inc. ("Cooper"). The $2.3 million payment to Cooper was the
final payment made in accordance with the Company's promissory note payable to
Cooper under the terms of the Stock Purchase Agreement with Cooper related to
the acquisition of Cameron Forged Products Company in May 1994.
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<PAGE>
The increase in the Company's working capital of $6.2 million to $230.0
million at May 31, 1999 from $223.8 million at May 31, 1998 resulted primarily
from (in millions):
<TABLE>
<S> <C>
Net income $37.0
Decrease in:
Long-term restructuring, integration
disposal and environmental (1.9)
Long-term benefit liabilities (2.8)
Deferred taxes and other (0.2)
Other changes in stockholders' equity (0.2)
Pension liability (1.1)
Intangible assets 1.2
Net repurchase of common stock (7.9)
Increase in:
Other assets (2.4)
Long-term debt 1.7
Property, plant and equipment, net (17.2)
Increase in working capital $ 6.2
</TABLE>
As of May 31, 1999, the Company estimated the remaining cash requirements
for the 1999 severance reserves to be $2.9 million, which the Company expects to
spend during fiscal year 2000.
As of May 31, 1999, the Company estimated the remaining cash requirements
for the 1997 restructuring to be $2.5 million, of which the Company expects to
spend approximately $2.2 million during fiscal year 2000 and $0.3 million
thereafter.
The Company spent $1.0 million in fiscal year 1999 for non-capitalizable
environmental projects and has a reserve with respect to environmental matters
of $15.5 million, of which it expects to spend $1.3 million in fiscal year 2000
and the remainder in future periods on non-capitalizable environmental
activities.
The Company from time to time expends cash on capital expenditures for more
cost-effective operations, environmental projects and joint development programs
with customers. In fiscal year 1999, capital expenditures amounted to $47.4
million and are expected to be approximately $25.0 million in fiscal year 2000.
During fiscal year 1998, the Company issued $150.0 million of 8% Senior
Notes due 2007 under an indenture between the Company and a bank as trustee. The
8% Senior Notes pay interest semi-annually in arrears on June 15 and December 15
of each year. The 8% 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. Proceeds from the sale of the 8%
Senior Notes were used to repurchase $84.7 million (94%) of its outstanding 10
3/4% Senior Notes due 2003.
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<PAGE>
The Company's revolving receivables-backed credit facility (the
"Receivables Financing Program") provides the Company with an aggregate maximum
borrowing capacity of $65.0 million (subject to a borrowing base), with a letter
of credit sub-limit of $35.0 million. The term of the Receivables Financing
Program is five years with a renewal option. As of May 31, 1999, the total
availability under the Receivables Financing Program was $65.0 million, there
were no borrowings and letters of credit amounting to $9.8 million were
outstanding.
Wyman-Gordon Limited, the Company's subsidiary located in Livingston,
Scotland, entered into a credit agreement ("the U.K. Credit Agreement") with
Clydesdale Bank PLC ("Clydesdale") effective June 22, 1998. The maximum
borrowing capacity under the U.K. Credit Agreement is #2,000,000 (approximately
$3,200,000) with separate letter of credit and guarantee limits of #1,000,000
(approximately $1,600,000) each. Borrowings bear interest at 1% over
Clydesdale's base rate. In the event that borrowings by way of overdraft are
allowed to exceed the agreed limit, interest on the excess borrowings will be
charged at the rate of 1.5% per annum over Clydesdale's base rate. The U.K.
Credit Agreement is secured by all present and future assets of Wyman-Gordon
Limited (including without limitation, accounts receivable, inventory, property,
plant and equipment, intellectual property, intercompany loans, and other real
and personal property). The U.K. Credit Agreement contains covenants
representations and warranties customary for such facilities. There were no
borrowings outstanding at May 31, 1999 or May 31, 1998. At May 31, 1999, and May
31, 1998, Wyman-Gordon Limited had outstanding #1,069,000 (approximately
$1,710,000), and #975,000 (approximately $1,590,000) respectively, of letters of
credit or guarantees under the U.K. Credit Agreement.
The primary sources of liquidity available to the Company to fund
operations and other future expenditures include available cash ($73.9 million
at May 31, 1999), borrowing availability under the Company's Receivables
Financing Program, cash generated by operations and reductions in working
capital requirements through planned inventory reductions and accounts
receivable management. The Company believes that it has adequate resources to
provide for its operations and the funding of restructuring, capital and
environmental expenditures.
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 entering into fixed price arrangements with
raw material suppliers and, where possible, negotiating price escalators into
its customer contracts to offset a portion of raw material cost increases.
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<PAGE>
ACCOUNTING AND TAX MATTERS
Reporting Comprehensive Income: In fiscal year 1999, the Company adopted
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for reporting and display of comprehensive income and its
components. The Company has reclassified all years presented to reflect
accumulated other comprehensive income and its components in the consolidated
statements of comprehensive income.
Segment Information: In fiscal year 1999, the Company adopted Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which revises reporting and disclosure requirements for operating segments. The
Statement requires that the Company present segment data based on the way that
management organizes the businesses within the Company for making operating
decisions and assessing performance.
Pensions and Other Post Retirement Benefits: In fiscal year 1999, the
Company adopted Statement No. 132, "Employers' Disclosures about Pensions and
Other Post Retirement Benefits" ("SFAS 132") which revises disclosures about
pension and other postretirement benefits.
Accounting for Derivative Instruments and Hedging Activities: In June,
1998, the Financial Accounting Standards Board issued Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This Statement requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
133 is not expected to have material impact on the Company's consolidated
financial statements. This Statement is effective for fiscal years beginning
after June 15, 2000. The Company will adopt this accounting standard as required
in fiscal 2001.
YEAR 2000
The Year 2000 computer issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the computer programs in the Company's computer systems and plant equipment
systems that have time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities.
-34-
<PAGE>
The Company's overall Year 2000 project approach and status is as follows:
<TABLE>
<CAPTION>
ESTIMATED
STATE OF TIMETABLE
DESCRIPTION OF APPROACH COMPLETION FOR COMPLETION
<S> <C> <C>
Computer Systems:
Assess systems for possible
Year 2000 impact 100% Completed
Modify or replace non-compliant
systems 90% September 30, 1999
Test systems with system clocks
set at current date 90% September 30, 1999
Test systems off-line with
system clocks set at various
Year 2000 related critical
dates 90% September 30,1999
Plant Equipment:
Computer-dependent plant
equipment assessment and
compliance procedures
performed 90% October 30, 1999
</TABLE>
The Company has completed a comprehensive inventory of substantially all
computer systems and programs. All hardware required for stand alone testing of
systems has been installed in order to perform off-line testing for Year 2000
program compliance. The Company has identified all software supplied by outside
vendors that is not Year 2000 compliant. With respect to approximately 90% such
non-compliant software the Company has acquired the most recent release and is
currently testing such versions for Year 2000 compliance. All software developed
in-house has been reviewed and necessary modifications are in process.
In addition to assessing the Company's Year 2000 readiness, the Company has
also undertaken an action plan to assess and monitor the progress of third-party
vendors in resolving Year 2000 issues. To date, the Company has generated
correspondence to each of its third-party vendors to assure their Year 2000
readiness. At this time, correspondence received and communication with the
Company's major suppliers indicates Year 2000 readiness plans are currently
being developed and monitored.
The Company is using both internal and external resources to reprogram, or
replace, and test software for Year 2000 modifications. The Year 2000 project is
90% complete and the Company anticipates completing the project by October 30,
1999. Maintenance or modification costs will be expensed as incurred, while the
costs of new information technology will be capitalized and amortized in
accordance with Company policy. The Company estimates it will cost approximately
$1.2 million to make its computer-dependent plant equipment Year 2000 compliant.
The total
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<PAGE>
estimated cost of the Year 2000 computer project, including software
modifications, consultants, replacement costs for non-compliant systems and
internal personnel costs, based on presently available information, is not
material to the financial operations of the Company and is estimated at
approximately $2.0 million. However, if such modifications and conversions are
not made, or are not completed in time, the Year 2000 computer issue could have
a material impact on the operations of the Company.
The Company is currently assessing Year 2000 contingency plans. The Company
has multiple business systems at different locations. In case of the failure of
a system at one location, the Company's contingency plan is to evaluate the use
of an alternate compliant business system at another location. The Company will
continue to assess possible contingency plan solutions.
The forecast costs and the date on which the Company believes it will
complete its Year 2000 computer modifications are based on its best estimates,
which, in turn, were based on numerous assumptions of future events, including
third-party modification plans, continued availability of resources and other
factors. The Company cannot be sure that these estimates will be achieved and
actual results could differ materially from those anticipated.
"FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY"
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain "forward-looking" information (as
defined in the Private Securities Litigation Reform Act of 1995). The words
"believe," "expect," "anticipate," "intend," "estimate," "assume" and other
similar expressions which are predictions of or indicate future events and
trends and which do not relate to historical matters identify forward-looking
statements. In addition, information concerning raw material prices and
availability, customer orders and pricing, and industry cyclicality and their
impact on gross margins and business trends, as well as liquidity and sales
volume are forward-looking statements. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, which are in some cases beyond the control of
the Company and may cause the actual results, performance or achievements of the
Company to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements.
Certain factors that might cause such differences include, but are not
limited to, the following: The Company's ability to successfully negotiate
long-term contracts with customers and raw materials suppliers at favorable
prices and other terms acceptable to the Company, the Company's ability to
obtain required raw materials and to supply its customers on a timely basis and
the cyclicality of the aerospace industry.
-36-
<PAGE>
For further discussion identifying important factors that could cause
actual results to differ materially from those anticipated in forward-looking
statements, see "Business -- The Company," "Customers," "Marketing and Sales,"
"Backlog," "Raw Materials," "Energy Usage," "Employees," "Competition,"
"Environmental Regulations," "Product Liability Exposure" and "Legal
Proceedings".
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company uses derivative financial instruments to limit exposure to
changes in foreign currency exchange rates and interest rates.
FOREIGN CURRENCY RISK
The Company's subsidiary in Livingston, Scotland enters into foreign
exchange contracts to manage risk on transactions conducted in foreign
currencies. As discussed in the "Commitments and Contingencies" footnote, the
Company had several foreign currency hedges in place at May 31, 1999 to reduce
such exposure. The potential loss in fair value on such financial instruments
from a hypothetical 10 percent adverse change in quoted foreign currency
exchange rates would not have been material to the financial position of the
Company as of the end of fiscal year 1999 or fiscal year 1998.
INTEREST RATE RISK
As discussed in the "Short-Term and Long-Term Debt" footnote, the Company
was committed to an interest rate swap on a revolving credit facility at May 31,
1999. If market rates would have averaged 10 percent higher than actual levels
in fiscal year 1999, the effect on the Company's interest expense and net
income, after considering the effects of the interest swap contract would not
have been material. There were no borrowings under the Company's WGRC Revolving
Credit Facility or the U.K. Credit Agreement during any period in fiscal years
1999 or 1998. As such, if market rates would have averaged 10 percent higher
than actual levels in fiscal years 1999 and 1998, there would have been no
impact to interest expense or net income as reported.
-37-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF
MANAGEMENT
To the Stockholders of Wyman-Gordon Company:
We have prepared the financial statements included herein and are
responsible for all information and representations contained therein. The
financial statements were prepared in accordance with generally accepted
accounting principles appropriate in the circumstances, based on our best
estimates and judgements.
Wyman-Gordon maintains accounting and internal control systems that are
designed to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and to produce records adequate for preparation of financial
information. These systems are established and monitored in accordance with
written policies that set forth management's responsibility for proper internal
controls and the adequacy of these controls is subject to continuing independent
review by our external auditors, Ernst & Young LLP.
To assure the effective administration of internal control, we carefully
select and train our employees, develop and disseminate written policies and
procedures and provide appropriate communication channels. We believe that it is
essential for the Company to conduct its business affairs in accordance with the
highest ethical standards.
The financial statements have been audited by Ernst & Young LLP,
Independent Auditors, in accordance with generally accepted auditing standards.
In connection with their audit, Ernst & Young LLP has developed an understanding
of our accounting and financial controls, and conducted such tests and related
procedures as it considers necessary to render their opinion on the financial
statements.
The financial data contained in these financial statements were subject to
review by the Audit Committee of the Board of Directors. The Audit Committee
meets periodically during the year with Ernst & Young LLP and with management to
review accounting, auditing, internal control and financial reporting matters.
We believe that our policies and procedures provide reasonable assurance
that operations are conducted in conformity with applicable laws and with our
commitment to a high standard of business conduct.
/s/ DAVID P. GRUBER
David P. Gruber
Chairman and Chief Executive
Officer
/s/ DAVID J. SULZBACH
David J. Sulzbach
Vice President, Finance,
Corporate Controller and
Principal Accounting Officer
-38-
<PAGE>
WYMAN-GORDON COMPANY
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Stockholders of Wyman-Gordon Company:
We have audited the accompanying consolidated balance sheets of
Wyman-Gordon Company and subsidiaries as of May 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, cash flows and
comprehensive income for each of the three years in the period ended May 31,
1999. These consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Wyman-Gordon Company and subsidiaries at May 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 31, 1999 in conformity with generally
accepted accounting principles.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
June 23, 1999
-39-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000'S OMITTED, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C>
Revenue $849,261 $752,913 $608,742
Cost of goods sold 715,902 637,267 511,108
Selling, general and
administrative expenses 56,662 51,654 44,229
Other charges (credits) 13,745 (4,900) 23,083
786,309 684,021 578,420
Income from operations 62,952 68,892 30,322
Other deductions (income):
Interest expense 14,234 12,548 10,822
Miscellaneous, net 1,223 907 (4,843)
15,457 13,455 5,979
Income before income taxes 47,495 55,437 24,343
Provision (benefit) for
income taxes 10,467 16,355 (25,680)
Income before extraordinary item 37,028 39,082 50,023
Extraordinary loss, net of income
tax benefit (Note E) - 5,192 -
Net income $ 37,028 $ 33,890 $ 50,023
Basic net income per share:
Income before extraordinary
item $ 1.02 $ 1.07 $ 1.40
Extraordinary item, net of tax - (.14) -
Net income $ 1.02 $ .93 $ 1.40
Diluted net income per share:
Income before extraordinary
item $ 1.01 $ 1.05 $ 1.35
Extraordinary item, net of tax - (.14) -
Net income $ 1.01 $ .91 $ 1.35
Shares used to compute net income per share:
Basic 36,149 36,331 35,825
Diluted 36,589 37,357 37,027
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
-40-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1999 1998
(000'S OMITTED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 73,867 $ 64,561
Accounts receivable 156,042 124,658
Inventories 97,603 133,134
Prepaid expenses 6,768 6,710
Deferred income taxes 6,400 -
Total current assets 340,680 329,063
Property, plant and equipment, net 214,604 197,363
Intangible assets 18,296 19,461
Other assets 8,130 5,723
Total assets $581,710 $551,610
LIABILITIES
Current portion of long-term debt $ 965 $ 3,017
Accounts payable 52,561 51,590
Accrued liabilities and other 57,127 50,692
Total current liabilities 110,653 105,299
Restructuring, integration,
disposal and environmental 15,444 17,314
Long-term debt 164,338 162,573
Pension liability 1,771 2,908
Deferred income taxes and other 13,857 14,066
Postretirement benefits 41,885 44,630
STOCKHOLDERS' EQUITY Preferred stock, no par value:
Authorized 5,000,000 shares;
none issued - -
Common stock, par value $1.00
per share:
Authorized 70,000,000 shares;
issued 37,052,720 37,053 37,053
Capital in excess of par value 27,360 28,037
Retained earnings 185,875 148,847
Accumulated other comprehensive income 1,267 1,465
Treasury stock, 1,417,737 and 543,077
shares at May 31, 1999 and 1998 (17,793) (10,582)
Total stockholders' equity 233,762 204,820
Total liabilities and
stockholders' equity $581,710 $551,610
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
-41-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000'S OMITTED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 37,028 $ 33,890 $ 50,023
Adjustments to reconcile net
income to net cash provided
by operating activities:
Extraordinary loss on debt
retirement - 5,192 -
Depreciation and amortization 27,576 23,473 20,872
Deferred income taxes (6,400) 6,500 (6,500)
Gain on sale of operating assets (5,000) - -
Other charges 9,779 - 19,145
Losses on equity investment - - 2,734
Change in assets and liabilities:
Accounts receivable (31,409) (1,547) (24,430)
Inventories 35,531 (38,219) (27,235)
Prepaid expenses and other assets (2,421) 727 4,754
Accrued restructuring,
integration, disposal and
environmental (4,385) (3,536) (3,950)
Income and other taxes payable 5,804 (123) (5,241)
Accounts payable and accrued
and other liabilities (6,318) (11,931) 17,839
Net cash provided by
operating activities 59,785 14,426 48,011
INVESTING ACTIVITIES:
Investment in acquired
subsidiaries - (15,460) -
Capital expenditures (47,380) (48,017) (34,123)
Proceeds from sale of fixed assets 6,660 869 559
Other, net 716 (221) (921)
Net cash (used) by investing
activities (40,004) (62,829) (34,485)
FINANCING ACTIVITIES:
Payment to Cooper Industries, Inc. (2,300) (2,300) -
Net borrowings (repayments)
of debt (287) 55,463 5,923
Net proceeds from issuance of
common stock 5,214 12,433 7,325
Repurchase of common stock (13,102) (4,603) (4,937)
Net cash provided (used) by
financing activities (10,475) 60,993 8,311
Increase in cash 9,306 12,590 21,837
Cash, beginning of period 64,561 51,971 30,134
Cash, end of period $ 73,867 $ 64,561 $ 51,971
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
-42-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN
SHARES PAR EXCESS OF RETAINED
ISSUED VALUE PAR VALUE EARNINGS
(000'S OMITTED)
<S> <C> <C> <C> <C>
Balance, May 31, 1996 37,053 $37,053 $33,291 $ 64,934
Net income 50,023
Stock plans (5,838)
Stock repurchase
Savings/Investment
Plan match 155
Pension equity
adjustment
Currency translation
Balance, May 31, 1997 37,053 37,053 27,608 114,957
Net income 33,890
Stock plans 12
Stock repurchase
Savings/Investment
Plan match 417
Pension equity
adjustment
Currency translation
Balance, May 31, 1998 37,053 37,053 28,037 148,847
Net income 37,028
Stock plans (311)
Stock repurchase
Savings/Investment
Plan match (366)
Pension equity
adjustment
Currency translation
Balance, May 31, 1999 37,053 $37,053 $27,360 $185,875
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
-43-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TREASURY
INCOME STOCK TOTALS
(000'S OMITTED)
<S> <C> <C> <C>
Balance, May 31, 1996 $ 719 $(26,054) $109,943
Net income 50,023
Stock plans 11,106 5,268
Stock repurchase (4,937) (4,937)
Savings/Investment
Plan match 1,902 2,057
Pension equity
adjustment (23) (23)
Currency translation 2,067 2,067
Balance, May 31, 1997 2,763 (17,983) 164,398
Net income 33,890
Stock plans 9,982 9,994
Stock repurchase (4,603) (4,603)
Savings/Investment
Plan match 2,022 2,439
Pension equity
adjustment (901) (901)
Currency translation (397) (397)
Balance, May 31, 1998 1,465 (10,582) 204,820
Net income 37,028
Stock plans 2,973 2,662
Stock repurchase (13,102) (13,102)
Savings/Investment
Plan match 2,918 2,552
Pension equity
adjustment 663 663
Currency translation (861) (861)
Balance, May 31, 1999 $ 1,267 $(17,793) $233,762
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
-44-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000'S OMITTED)
<S> <C> <C> <C>
Net income $37,028 $33,890 $50,023
Other comprehensive
income (loss):
Minimum pension liability
adjustment 663 (901) (23)
Foreign currency
translation adjustments (861) (397) 2,067
Total other comprehensive
income (loss) (198) (1,298) 2,044
Total comprehensive income $36,830 $32,592 $52,067
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
-45-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is engaged principally in the design, engineering, production
and marketing of high-technology forged and investment cast metal and composite
components used for a wide variety of aerospace and power generation
applications.
The Company maintains its books using a 52/53 week year ending on the
Saturday nearest to May 31. For purposes of the consolidated financial
statements, the year-end is stated at May 31. The years ended May 31, 1999, 1998
and 1997 consisted of 52 weeks.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and all majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Revenue Recognition: Sales and income are recognized at the time
products are shipped.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
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 both the lower of first-in,
first-out (FIFO) cost or market, or for certain forgings raw material and
work-in-process inventories, the last-in, first-out (LIFO) method. On certain
orders, usually involving lengthy raw material procurement and production
cycles, progress payments received from customers are reflected as a reduction
of inventories. 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
available information indicates that the sales price is less than a fully
allocated cost projection.
-46-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciable Assets: Property, plant and equipment, including significant
renewals and betterments, are capitalized at cost and are depreciated on the
straight-line method. Generally, depreciable lives range from 10 to 20 years for
land improvements, 10 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 reimbursement from
customers and depreciated over 5 years. Depreciation expense amounted to
$26,871,000, $22,835,000 and $20,168,000 in the years ended May 31, 1999, 1998
and 1997, respectively.
Bank Fees: Bank fees and related costs of obtaining credit facilities
are recorded as other assets and amortized over the term of the facilities.
Net Income per Share: The Company reports earnings per share in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). Basic per-share data are computed based on the weighted average
number of common shares outstanding during each year. Diluted per-share data
include common stock equivalents related to outstanding stock options unless
their inclusion would be antidilutive.
Concentration of Credit Risk: Financial instruments that potentially
subject the Company to concentration of credit risk consist primarily of
temporary cash investments and trade receivables. The Company restricts
investment of temporary cash investments to financial institutions with high
credit standing. The Company has approximately 1,140 active customers. However,
the Company's accounts receivable are concentrated with a small number of
Fortune 500 companies with whom the Company has long-standing relationships.
Accordingly, management considers credit risk to be low. Five customers
accounted for 48.6%, 50.5% and 47.7% of the Company's revenues during the years
ended May 31, 1999, 1998 and 1997, respectively.
Currency Translation: For foreign operations, the local currency is the
functional currency. Assets and liabilities are translated at year-end exchange
rates, and statement of income items are translated at the average exchange
rates for the year. Translation adjustments are reported in accumulated other
comprehensive income as a separate component of stockholders' equity, which also
includes exchange gains and losses on certain intercompany balances of a
long-term investment nature.
Research and Development: Research and development expenses, including
related depreciation, amounted to $2,947,000, $3,290,000 and $2,895,000 for the
years ended May 31, 1999, 1998 and 1997, respectively.
-47-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets: Intangible assets consist primarily of costs of acquired
businesses in excess of net assets acquired and are amortized on a straight line
basis over periods up to 35 years. On a periodic basis, the Company estimates
the future undiscounted cash flows of the businesses to which the costs of
acquired businesses in excess of net assets acquired relate in order to ensure
that the carrying value of such intangible asset has not been impaired.
Accounting for Stock-Based Compensation: The Company has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), in accounting for its employee stock option plans because
the alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Impairment of Long-Lived Assets: The Company adopted Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121 prescribes
the accounting for the impairment of long-lived assets that are to be held and
used in the business and similar assets to be disposed of. The adoption has not
had a material effect on earnings or the financial position of the Company.
Reporting Comprehensive Income: In fiscal year 1999, the Company adopted
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for reporting and display of comprehensive income and its
components. The Company has reclassified all years presented to reflect
accumulated other comprehensive income and its components in the consolidated
statements of comprehensive income. The components that make up accumulated
other comprehensive income as of May 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
MAY 31, MAY 31, May 31,
1999 1998 1997
(000's OMITTED)
<S> <C> <C> <C>
Accumulated Pension liability
adjustment $ (315) $ (976) $ (76)
Accumulated foreign currency
translation 1,582 2,441 2,839
Total accumulated other
comprehensive income $1,267 $1,465 $2,763
</TABLE>
-48-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. ACQUISITIONS
1999
On July 31, 1998, the Company and Titanium Metals Corporation ("TIMET")
combined their respective titanium casting businesses into a jointly-owned
venture. The joint venture, 80.1% owned by Wyman-Gordon and 19.9% owned by
TIMET, consists primarily of Wyman-Gordon's titanium casting business located in
Franklin, New Hampshire, and TIMET's titanium casting business located in
Albany, Oregon. The joint venture produces investment castings primarily for the
aerospace market and seeks to develop new applications for titanium castings.
The joint venture and its operating results from the date of acquisition are not
material to the consolidated financial statements of the Company.
In connection with the formation of the joint venture, Wyman-Gordon
exchanged the operating assets from its Millbury, Massachusetts, vacuum arc
remelting facility, which produces titanium ingots for further processing into
finished forgings, for $5.0 million and similar operating assets of TIMET's
titanium casting business, valued at approximately $7.0 million. The exchange
was treated as a nonmonetary exchange of assets, and a gain was recognized for
the cash received. In addition, Wyman-Gordon and TIMET have entered into a
ten-year supply agreement pursuant to which TIMET will supply a portion of
Wyman-Gordon's requirements for titanium raw materials for its forging and
casting operations.
1998
On April 9, 1998, the Company acquired International Extruded Products, LLC
("IXP"), a specialty manufacturer of extruded seamless wall pipe, for
approximately $15,460,000. The acquisition was financed through operating cash.
The acquisition was accounted for as a purchase and the net assets and results
of operations have been included in the consolidated financial statements since
the date of acquisition. The purchase price was allocated on the basis of the
estimated fair market value of the assets acquired and the liabilities assumed.
This acquisition did not materially impact consolidated results, therefore no
pro forma information is provided.
-49-
<PAGE>
C. BALANCE SHEET INFORMATION
Components of selected captions in the consolidated balance sheets follow:
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1999 1998
(000'S OMITTED)
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements $132,834 $133,401
Machinery and equipment 359,786 330,337
Under construction 23,555 27,065
516,175 490,803
Less: accumulated depreciation 301,571 293,440
$214,604 $197,363
INTANGIBLE ASSETS:
Pension intangible $ 1,387 $ 1,847
Costs in excess of net assets acquired 28,786 28,786
Less: accumulated amortization (11,877) (11,172)
$ 18,296 $ 19,461
OTHER ASSETS:
Cash surrender value of Company-owned
life insurance policies $ 1,170 $ 1,105
Other 6,960 4,618
$ 8,130 $ 5,723
ACCRUED LIABILITIES AND OTHER:
Accrued payroll and benefits $ 13,254 $ 12,520
Restructuring, integration, disposal
and environmental reserves 12,211 5,330
Other 31,662 32,842
$ 57,127 $ 50,692
</TABLE>
D. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1999 1998
(000'S OMITTED)
<S> <C> <C>
Raw Material $ 36,849 $ 50,050
Work-in-process 65,654 92,136
Other 3,204 4,221
105,707 146,407
Less progress payments 8,104 13,273
$ 97,603 $133,134
</TABLE>
-50-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At May 31, 1999 and 1998 approximately 33% and 38%, respectively, of
inventories are valued at LIFO cost. If all inventories valued at LIFO cost had
been valued at FIFO cost or market which approximates current replacement cost,
inventories would have been $16,446,000 and $18,262,000 higher than reported at
May 31, 1999 and 1998, respectively.
LIFO inventory quantities decreased in the year ended May 31, 1999. LIFO
inventory quantities increased in each of the years ended May 31, 1998 and 1997,
respectively. Inflation and deflation have negative and positive effects on
income from operations, respectively. The effects of lower quantities and
deflation (inflation) were as follows:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000'S OMITTED)
<S> <C> <C> <C>
Lower quantities $1,398 $ - $ -
Deflation (inflation) 418 - (1,600)
Net increase (decrease) to income
from operations $1,816 $ - $(1,600)
</TABLE>
E. SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consisted of the following:
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1999 1998
(000'S OMITTED)
<S> <C> <C>
Current portion of long-term debt $ 965 $ 3,017
Long-term debt:
8% Senior Notes $150,000 $150,000
10 3/4% Senior Notes 5,275 5,275
Industrial Revenue Bond 4,800 5,600
Revolving Credit Facility, fixed rate
of 6.48% under a swap agreement at
May 31, 1999, variable rate of 5.7%
(LIBOR plus .75%) at June 2, 1999,
expiring fiscal 2002 4,000 -
Other 263 1,698
Total long-term debt $164,338 $162,573
</TABLE>
-51-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal year 1998, the Company issued $150,000,000 of 8% Senior Notes
due 2007 ("8% Senior Notes") under an indenture between the Company and a bank
as trustee. The 8% Senior Notes pay interest semi-annually in arrears on June 15
and December 15 of each year. The 8% 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. Proceeds from the
sale of the 8% Senior Notes were used to repurchase $84,725,000 (94%) of its
outstanding 10 3/4% Senior Notes due 2003 ("10 3/4% Senior Notes").
In conjunction with the extinguishment of the 10 3/4% Senior Notes, the
Company recorded an extraordinary loss, net of income tax benefit of $2,920,000,
amounting to $5,192,000. The extraordinary after-tax loss relates to (i) the
premium related to the retirement of the 10 3/4% Senior Notes, (ii) the
write-off of certain deferred debt issue expenses and (iii) fees and expenses
paid by the Company with respect to the tender offer for the 10 3/4% Senior
Notes.
The estimated fair value of the combined 8% and 10 3/4% Senior Notes was
$151,952,000 and $157,067,000 at May 31, 1999 and 1998, respectively, based on
third party valuations.
During fiscal year 1997, the Company issued an Industrial Revenue Bond (the
"IRB") for the construction of a facility in Montrose, Colorado amounting to
$6,000,000. The IRB bears an interest rate approximating 3.5%, fluctuating
weekly. The fair value approximates market value. The Company maintains a letter
of credit to collateralize the IRB.
On May 20, 1994, the Company initiated, through a subsidiary, Wyman-Gordon
Receivables Corporation ("WGRC"), a revolving credit agreement with a group of
five banks ("Receivables Financing Program"). WGRC is a separate corporate
entity from Wyman-Gordon Company and its other subsidiaries, with its own
separate creditors. WGRC's business is the purchase of accounts receivable from
Wyman-Gordon Company and certain of its subsidiaries ("Sellers"), and neither
WGRC on the one hand nor the Sellers (or subsidiaries or affiliates of the
Sellers) on the other have agreed to pay or make their assets available to pay
creditors of others. WGRC's creditors have a claim on its assets prior to those
assets becoming available to any creditors of any of the Sellers. The facility
provides for a total commitment by the banks of up to $65,000,000, including a
letter of credit sub-facility of up to $35,000,000. Interest on borrowings is
charged at LIBOR plus 0.625% or based on the bank's base rate.
-52-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There were no borrowings outstanding under the Receivables Financing
Program at May 31, 1999 and 1998. At May 31, 1999 and 1998, the total
availability under the Receivables Financing Program was $65,000,000, there were
no borrowings against the available amounts in either year and letters of credit
amounting to $9,808,000 and $8,373,000 were outstanding, respectively.
Wyman-Gordon Limited, the Company's subsidiary located in Livingston,
Scotland, entered into a credit agreement ("the U.K. Credit Agreement") with
Clydesdale Bank PLC ("Clydesdale") effective June 22, 1998. The maximum
borrowing capacity under the U.K. Credit Agreement is #2,000,000 (approximately
$3,200,000) with separate letter of credit and guarantee limits of #1,000,000
(approximately $1,600,000) each. Borrowings bear interest at 1% over
Clydesdale's base rate. In the event that borrowings by way of overdraft are
allowed to exceed the agreed limit, interest on the excess borrowings will be
charged at the rate of 1.5% per annum over Clydesdale's base rate. The U.K.
Credit Agreement is secured by all present and future assets of Wyman-Gordon
Limited (including without limitation, accounts receivable, inventory, property,
plant and equipment, intellectual property, intercompany loans, and other real
and personal property). The U.K. Credit Agreement contains covenants
representations and warranties customary for such facilities. There were no
borrowings outstanding at May 31, 1999 or May 31, 1998. At May 31, 1999, and May
31, 1998, Wyman-Gordon Limited had outstanding #1,069,000 (approximately
$1,710,000), and #975,000 (approximately $1,590,000) respectively, of letters of
credit or guarantees under the U.K. Credit Agreement.
For the years ended May 31, 1999 and 1998, the weighted average interest
rate on short-term borrowings was 4.4% and 6.5%, respectively.
Annual maturities of long-term debt in the next five years amount to
$965,460 for 2000, $897,707 for 2001, $4,907,732 for 2002, $6,132,978 for 2003,
$800,000 for 2004 and $151,600,000 thereafter. On June 30, 1998, the Company
made a final principal payment of $2,300,000 under the Company's promissory note
to Cooper Industries, Inc. provided under the terms of the Stock Purchase
Agreement with Cooper Industries, Inc.
-53-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of interest expense are as follows:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000'S OMITTED)
<S> <C> <C> <C>
Interest on debt $13,069 $11,319 $ 9,795
Capitalized interest - - (528)
Amortization of financing fees
and other 1,165 1,229 1,555
Interest expense $14,234 $12,548 $10,822
</TABLE>
Total interest paid approximates "Interest on debt" stated in the table
above.
F. RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (CREDITS)
Cameron Purchase Cash Costs:
In connection with the acquisition of Cameron Forged Products Company
("Cameron"), the Company recorded $7,000,000 for costs related to the relocation
of Cameron machinery and dies, severance of Cameron personnel and other costs.
All activities associated with these reserves have been completed.
1994 Cameron Integration Costs:
The integration of Cameron in May 1994 resulted in the Company's recording
an integration restructuring charge totalling $24,100,000 to provide for
relocating machinery, equipment, tooling and dies of the Company, relocation and
severance costs of Company personnel and the write-down of certain assets of the
Company. The reserve was comprised of non-cash charges of $15,800,000 which were
fully charged by the end of fiscal year 1995, and a charge of $8,300,000
representing estimated future cash charges. As of May 31, 1999, the Company
estimates future cash outlays of approximately $300,000 in the year ended May
31, 2000 and $200,000 thereafter, in accordance with future payments under
contractual obligations.
-54-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 Restructuring:
The Company recorded a charge totalling $11,500,000 which included
$4,600,000 to provide for severance and other personnel costs associated with
workforce reductions at the Company's Grafton, Massachusetts forging facility,
$3,400,000 to write-off and dispose of certain Forging equipment, $2,300,000 to
reduce the carrying value and dispose of certain assets of the Company's
titanium castings operations and $1,200,000 to consolidate the titanium castings
operations. The Company made a total of $3,900,000 of cash charges against these
reserves during the years ended May 31, 1999, 1998 and 1997 and estimates that
the remaining reserves associated with the disposal of Forging equipment and
consolidation of the titanium castings operations will require cash outlays of
$2,200,000 in the year ended May 31, 2000 and $300,000 thereafter.
-55-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of charges made or estimated to be made against restructuring,
integration and disposal reserves is as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
MAY 31, 1994 YEAR
THROUGH THE ENDED
YEAR ENDED MAY 31,
TOTAL MAY 31, 1997 1998
(000'S OMITTED)
<S> <C> <C> <C>
CAMERON PURCHASE CASH COSTS:
Cost of relocating Cameron's
machinery and equipment
and tooling and dies $ 3,200 $ 2,800 $ 100
Severance of personnel 3,800 3,600 -
Total cash charges $ 7,000 $ 6,400 $ 100
1994 CAMERON INTEGRATION COSTS:
Movement of machinery,
equipment and tooling and
dies $ 4,300 $ 3,200 $ 400
Severance and other personnel
costs 4,000 3,600 100
Total cash charges $ 8,300 $ 6,800 $ 500
1997 RESTRUCTURING:
Cash:
Severance and other personnel
costs $ 2,200 $ 200 $1,400
Disposal of Forging equipment 2,300 - 400
Castings titanium operations 1,900 700 -
Total cash charges 6,400 900 1,800
Non-cash:
Severance and other personnel
costs 2,400 2,400 -
Asset write-off and
revaluation 2,700 2,700 -
Total non-cash charges 5,100 5,100 -
Total 1997 Restructuring
charges $11,500 $ 6,000 $1,800
</TABLE>
-56-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR
YEAR ENDED
ENDED MAY 31,
MAY 31, 2000 AND
1999 THEREAFTER
(000'S OMITTED)
<S> <C> <C>
CAMERON PURCHASE CASH COSTS:
Cost of relocating Cameron's
machinery and equipment
and tooling and dies $ 300 $ -
Severance of personnel 200 -
Total cash charges $ 500 $ -
1994 CAMERON INTEGRATION COSTS:
Movement of machinery,
equipment and tooling and
dies $ 200 $ 500
Severance and other personnel
costs 300 -
Total cash charges $ 500 $ 500
1997 RESTRUCTURING:
Cash:
Severance and other personnel
costs $ 600 $ -
Disposal of Forging equipment 600 1,300
Castings titanium operations - 1,200
Total cash charges 1,200 2,500
Non-Cash:
Severance and other personnel
costs - -
Asset write-off and
revaluation - -
Total non-cash charges - -
Total 1997 Restructuring
charges $ 1,200 $2,500
</TABLE>
-57-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Charges (Credits):
Other charges (credits) are as follows:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000'S OMITTED)
<S> <C> <C> <C>
Write-off of Australian joint
venture $ - $ - $ 2,484
(Recovery) write-off of cash
surrender value of company-
owned life insurance polices - (4,000) 5,745
(Recovery) write-off of building
held for sale - (1,900) 1,900
Houston accident costs - - 1,200
Houston accident claim settlement
costs 12,955 - -
Gain on sale of operating assets
of Millbury facility (5,000) - -
Severance and asset write-down 5,790 - -
Other - 1,000 250
$13,745 $(4,900) $11,579
</TABLE>
During fiscal year 1999, the Company recorded a charge totalling $5,790,000
which included $4,700,000 to provide for severance and other personnel costs
associated with company-wide headcount reductions and a charge of $1,090,000 to
reduce the carrying value and dispose of certain assets of the Company's
titanium castings operations. The Company made a total of $1,800,000 of cash
charges against this reserve during fiscal year 1999 and estimates the remaining
severance and other personnel costs will require a cash outlay of $2,900,000 in
the year ending May 31, 2000.
G. ENVIRONMENTAL MATTERS
The Company's operations are 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. However, it is not possible to predict accurately the amount or
timing of costs of any future environmental remediation requirements. 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
-58-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
environmental requirements. As of May 31, 1999, aggregate environmental reserves
amounted to $15.5 million, which includes expected cleanup costs estimated
between $4.4 million and $5.4 million upon the eventual sale of the Worcester,
Massachusetts facility, certain environmental issues, including the remediation
of on-site landfills, at the Houston, Texas facility amounting to approximately
$3.0 million, $4.4 million in remediation projects at the Grafton, Massachusetts
facility, $0.8 million for remediation at the Buffalo, New York facility and
$1.1 million for various Superfund sites. There can be no assurance that the
actual costs of remediation will not eventually materially exceed the amount
presently accrued.
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 agreed to make expenditures totaling $20.8 million for environmental
management and remediation at that site, of which $3.3 million remained as of
May 31, 1999. Approximately one-half of the remaining Air Force projects are
capital in nature and the remainder are covered by existing reserves. These
expenditures will not resolve all of the Company's obligations to federal and
state regulatory authorities, who are not parties to the agreement, however, and
the Company expects to incur an additional amount, currently estimated at
approximately $2.8 million, to comply with current federal and state
environmental requirements governing the investigation and remediation of
contamination at the site.
The Company's Grafton facility was formerly included in the U.S. Nuclear
Regulatory Commission's ("NRC") May 1992 Site Decommissioning Management Plan
("SDMP") for low-level radioactive waste as the result of the disposal of
magnesium thorium alloys at the facility in the 1960s and early 1970s under
license from the Atomic Energy Commission. On March 31, 1997, the NRC informed
the Company that jurisdiction for the Grafton site had been transferred to the
Commonwealth of Massachusetts Department of Public Health (the "DPH") and that
the Grafton facility had been removed from the SDMP. Although it is unknown what
specific remediation and disposal requirements may be imposed on the Company by
the DPH, the Company believes that a reserve of $1.5 million, included within
the $2.8 million noted above, is sufficient to cover all costs. There can be no
assurance, however, that such reserve will be adequate to cover any obligations
that the DPH may ultimately impose on the Company.
The Company, together with numerous other parties, has been named a PRP
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") for the cleanup of the following Superfund sites: Operating
Industries, Monterey Park, California; PSC Resources, Palmer, Massachusetts; the
Harvey GRQ site, Harvey, Illinois; and the Gemme/Fournier site, Leicester,
Massachusetts. The Company believes that a reserve of $1.1 million recorded on
its books is sufficient to cover all costs.
-59-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At the Gemme/Fournier site, a proposed agreement would allocate 33% of the
cleanup costs to the Company. In September 1995, a consulting firm retained by
the PRP group made a preliminary remediation cost estimate of $1.4 million to
$2.8 million. The Company's insurance company is defending the Company's
interests, and the Company believes that any recovery against the Company would
be offset by recovery of insurance proceeds.
The Company expects to incur between $4.4 and $5.4 million in cleanup
expenses upon the planned sale of its Worcester, Massachusetts facility to
remedy certain contamination discovered on site. The Massachusetts Department of
Environmental Protection has classified the site as a Tier II site under the
Massachusetts Contingency Plan.
H. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has a defined benefit pension plan 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. Company contributions are determined
based upon the funding requirements of U.S. and other governmental laws and
regulations. The Company also provides 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 Company has no plans for funding
the liability and will continue to pay for retiree medical costs as they occur.
In fiscal year 1999, the Company adopted Statement No. 132, "Employers'
Disclosures about Pensions and Other Post Retirement Benefits" ("SFAS 132")
which revises disclosures about pension and other postretirement benefits. The
following information is provided in accordance with the requirements of the
statement for the plans discussed above.
-60-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. Pension and Postretirement Benefit Plans
<TABLE>
<CAPTION>
POSTRETIREMENTS
PENSION BENEFITS BENEFITS
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31, MAY 31,
1999 1998 1999 1998
(000's OMITTED)
<S> <C> <C> <C> <C>
Change in plan assets:
Beginning fair value
of plan assets $195,987 $164,977 $ - $ -
Actual return on
plan assets 12,299 45,296 - -
Benefits paid (14,499) (14,286) - -
Ending fair value
of plan assets $193,787 $195,987 $ - $ -
Change in benefit
obligations:
Beginning benefit
obligations $180,707 $169,965 $ 46,638 $ 46,443
Service cost 5,326 4,961 166 160
Interest cost 11,694 12,179 3,063 3,372
Amendments - - (271) -
Special termination
costs (benefits) 522 - (234) -
Actuarial (gains)
losses (1,054) 8,794 657 2,476
Benefits paid (15,490) (15,192) (5,756) (5,813)
Ending benefit
obligations $181,705 $180,707 $ 44,263 $ 46,638
Reconciliation to
balance sheet amounts:
Funded status of the
plan (underfunded) $ 12,083 $ 15,280 $(44,263) $(46,638)
Unrecognized
actuarial net
(gain) loss (24,057) (28,221) 2,020 1,335
Unrecognized prior
service cost 6,462 7,503 358 673
Unrecognized
transition
obligation 1,271 2,021 - -
Accrued benefit
cost $ (4,241) $ (3,417) $(41,885) $(44,630)
</TABLE>
-61-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
POSTRETIREMENTS
PENSION BENEFITS BENEFITS
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31, MAY 31,
1999 1998 1999 1998
(000's OMITTED)
<S> <C> <C> <C> <C>
Amounts recognized in
the balance sheets:
Prepaid benefit cost $ 3,842 $ 3,750 $ - $ -
Accrued benefit
liability (9,785) (9,990) - -
Pension intangible
asset 1,387 1,847 - -
Accumulated other
comprehensive
(income) loss 315 976 - -
Accrued retirement
benefits obligation - - (41,885) (44,630)
Accrued benefit
cost $(4,241) $(3,417) $(41,885) $(44,630)
</TABLE>
Included in the aggregated data in the above tables are amounts applicable
to the Company's pension plans with accumulated benefit obligations in excess of
plan assets. The Company maintains two unfunded pension plans and the amounts
related to such plans were as follows:
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
1999 1998
(000's OMITTED)
<S> <C> <C>
Projected benefit obligation $ 11,952 $ 11,202
Accumulated benefit obligation $ 9,785 $ 9,990
</TABLE>
-62-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assumptions used in determining the benefit obligations in fiscal years
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
POSTRETIREMENTS
PENSION BENEFITS BENEFITS
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31, MAY 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Discount rate 6.75% 7.00% 6.75% 7.00%
Expected return on
plan assets 10.50% 10.00% - -
Rate of compensation
increase 3.00% 4.00-5.00% - -
</TABLE>
The assumed health care cost trend rate has a significant effect on the
amounts reported. For the year ended May 31, 1999, the medical trend rates for
indemnity and Health Maintenance Organization ("HMO") inflationary costs are
6.0% and 4.0%, respectively. The rates for indemnity and HMO for the year ended
May 31, 2000 are 5.5% and 4.0% and are ultimately estimated at 5.0% and 4.0%,
respectively, for the year ended May 31, 2001.
<TABLE>
<CAPTION>
1 PERCENTAGE 1 PERCENTAGE
POINT INCREASE POINT DECREASE
(000's OMITTED)
<S> <C> <C>
Effect on total of service
and interest cost components $ 235 $ (214)
Effect on postretirement
benefit obligation $3,074 $(2,816)
</TABLE>
The net cost for the Company's U.S. pension plans consisted
of the following components:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000's OMITTED)
<S> <C> <C> <C>
Service cost $ 5,326 $ 4,961 $ 4,298
Interest cost 11,694 12,179 11,302
Expected return on plan assets (17,653) (14,611) (14,658)
Amortization of prior service cost 1,041 1,041 820
Amortization of transitional
(asset) or obligation 750 750 750
Recognized actuarial loss 135 97 6
Enhanced benefit package for
early retirement 522 - 3,775
Net pension cost $ 1,815 $ 4,417 $ 6,293
</TABLE>
-63-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cost of postretirement benefits other than pensions consisted of the
following components:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000's OMITTED)
<S> <C> <C> <C>
Service cost $ 166 $ 160 $ 380
Prior service cost 44 61 -
Benefit from early retirement
package (234) - (1,375)
Interest cost 3,062 3,372 3,550
Net amortization and deferral - - 409
Postretirement benefit cost $3,038 $3,593 $ 2,964
</TABLE>
U.K. Pension Plan
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
1999 1998
(000's OMITTED)
<S> <C> <C>
Change in Plan Assets:
Beginning fair value of plan
assets $26,686 $21,873
Actual return on plan assets 1,259 4,595
Company contributions 840 776
Plan participants' contributions 418 388
Benefits and expenses paid (1,152) (445)
Ending fair value of plan
assets $28,051 $27,187
</TABLE>
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
1999 1998
(000's OMITTED)
<S> <C> <C>
Change in Benefit Obligations:
Beginning benefit obligations $25,306 $21,035
Service cost 896 737
Interest cost 1,568 1,674
Plan participants' contributions 418 388
Liability loss 2,558 2,183
Benefits paid (942) (236)
Ending benefit obligation $29,804 $25,781
</TABLE>
-64-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
1999 1998
(000's OMITTED)
<S> <C> <C>
Reconciliation to balance
sheet amounts:
Funded status of the plan
(underfunded) $(1,753) $ 1,406
Unrecognized net loss/(gain) 2,042 (1,322)
Prepaid pension cost $ 289 $ 84
</TABLE>
The assumptions used in determining the benefit obligation in fiscal years
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
1999 1998
<S> <C> <C>
Discount rate 5.75% 6.25%
Expected return on plan assets 6.25% 6.25%
Rate of compensation increase 3.25% 3.25%
</TABLE>
Pension expense for the U.K. pension plan consisted of the
following components:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000'S OMITTED)
<S> <C> <C> <C>
Service cost $ 924 $ 746 $ 629
Interest cost 1,617 1,695 1,507
Expected return on assets (1,739) (1,800) (1,640)
Net pension expense $ 802 $ 641 $ 496
</TABLE>
-65-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Defined Contribution Plan
The Company also makes a 401(k) plan available to most full-time employees.
Employer contributions to the defined contribution plan are made at the
Company's discretion and are reviewed periodically. The Company made cash
contribution of $704,000 for the year ended May 31, 1999. There were no cash
contributions in the years ended May 31, 1998 and 1997. Additionally, for the
years ended May 31, 1999, 1998 and 1997, the Company contributed 176,617,
100,409 and 97,696 shares of its common stock from Treasury to its defined
contribution plan, respectively, and recorded expense relating thereto of
$2,552,000, $2,439,000 and $2,057,000, respectively.
I. FEDERAL, FOREIGN AND STATE INCOME TAXES
The components of the net provision (benefit) for income taxes for the
years ended May 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000's OMITTED)
<S> <C> <C> <C>
Current tax provision:
Federal $13,864 $ 5,778 $ 7,900
State 2,000 1,250 680
Foreign 1,003 2,827 2,170
16,867 9,855 10,750
Deferred tax (credit) provision:
Federal (5,600) 6,500 (34,080)
State (800) - (480)
Foreign - - (1,870)
(6,400) 6,500 (36,430)
Net provision (benefit)
for income taxes $10,467 $16,355 $(25,680)
</TABLE>
In the year ended May 31, 1999, the Company provided $10,467,000 for income
taxes. In the year ended May 31, 1998, the Company provided $16,355,000 for
income taxes, net of a tax benefit of approximately $1,800,000 relating to the
utilization of NOL carryforwards. In fiscal year 1998, the Company recorded a
$2,920,000 tax benefit against the extraordinary loss of $8,112,000 associated
with the early extinguishment of the Company's 10 3/4% Senior Notes.
-66-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes before extraordinary item is at a
rate other than the federal statutory tax rate for the following reasons:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000'S OMITTED)
<S> <C> <C> <C>
Provision at the applicable
U.S. federal statutory tax rate $16,623 $19,403 $ 8,442
Benefit from net permanent tax
differences (510) (4,059) -
Benefit of higher statutory tax
rates in applicable prior years
realized in Section 172(f)
carryback claims - - (2,700)
State income taxes 1,300 1,640 200
(Decrease) increase of deferred
tax asset valuation allowance (6,400) 1,168 (30,626)
Other (546) (1,797) (996)
Income tax provision (benefit)
before extraordinary loss tax
benefit $10,467 $16,355 $(25,680)
</TABLE>
The principal components of deferred tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
MAY 31, 1999 MAY 31, 1998
(000'S OMITTED)
<S> <C> <C>
DEFERRED TAX ASSETS
Provision for postretirement
benefits $ 17,173 $ 18,298
Net operating loss carryforwards 6,714 4,667
Restructuring provisions 11,120 8,406
Alternative minimum tax
carryforward credit 2,781 5,964
Other 9,145 8,205
46,933 45,540
Valuation allowance (26,613) (32,269)
20,320 13,271
DEFERRED TAX LIABILITIES
Accelerated depreciation 13,594 12,409
Other 326 862
13,920 13,271
Net deferred tax asset $ 6,400 $ -
</TABLE>
-67-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has recorded a valuation allowance for deferred tax assets
because of uncertainties associated with the realization of some of the deferred
tax benefits. The change in the valuation allowance primarily reflects the
expected utilization of AMT credits, use of certain state NOL carryforwards and
credits associated with various other deferred assets.
J. NET INCOME PER SHARE
There were no adjustments required to be made to income before
extraordinary item for purposes of computing basic and diluted net income per
share. A reconciliation of the average number of common shares outstanding used
in the calculation of basic and diluted net income per share is as follows:
<TABLE>
<CAPTION>
MAY 31, MAY 31, MAY 31,
1999 1998 1997
<S> <C> <C> <C>
Shares used to compute basic
net income per share 36,149,072 36,331,305 35,824,576
Dilutive effect of stock
options 440,277 1,025,553 1,202,247
Shares used to compute
diluted net income per
share 36,589,349 37,356,858 37,026,823
</TABLE>
There were stock options outstanding that were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares and, therefore
would be antidilutive. The following table summarizes all options exceeding
average market price as of the years ended May 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
MAY 31, MAY 31, MAY 31,
1999 1998 1997
<S> <C> <C> <C>
Options exceeding
average market price 1,243,145 240,000 185,000
Exercise price range $16.56- $25.50 $23.00
$25.50
</TABLE>
-68-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
The Company, through administration by the Compensation Committee of the
Company's Board of Directors (the "Committee"), may grant awards under the
Company's Long-Term Incentive Plans in the form of non-qualified stock options
or incentive stock options to those key employees it selects to purchase in the
aggregate up to 3,400,000 shares of newly issued or treasury common stock.
Options expire after 10 years from the date of grant and generally become
exercisable ratably over a three to seven year period commencing from the date
of grant. The exercise price of stock options may not be less than 100% of the
fair market value on the date of grant. Awards of stock appreciation rights
("SAR's") may also be granted, either in tandem with grants of stock options
(and exercisable as an alternative to the exercise of stock options) or
separately.
In addition, the Committee may grant other awards that consist of, are
denominated in or are 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.
Information concerning stock options issued to officers and other employees
is presented in the following table.
<TABLE>
YEAR WEIGHTED YEAR WEIGHTED
ENDED AVERAGE ENDED AVERAGE
MAY 31, EXERCISE MAY 31, EXERCISE
1999 PRICE 1998 PRICE
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C>
Number of shares under
option:
Outstanding at
beginning of year 2,462 $14.46 2,648 $12.56
Granted 322 13.24 356 24.11
Exercised (141) 10.86 (500) 10.74
Canceled or expired (197) 18.19 (42) 18.95
Outstanding at end
of year 2,446 $14.20 2,462 $14.46
Exercisable at end
of year 1,723 1,598
</TABLE>
-69-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR WEIGHTED
ENDED AVERAGE
MAY 31, EXERCISE
1997 PRICE
(SHARES IN THOUSANDS)
<S> <C> <C>
Number of shares under
option:
Outstanding at
beginning of year 2,295 $ 9.46
Granted 817 18.34
Exercised (415) 6.60
Canceled or expired (49) 14.18
Outstanding at end
of year 2,648 $12.56
Exercisable at end
of year 1,189
</TABLE>
At May 31, 1999 and 1998, 1,186,191 and 1,304,207 shares were available for
future grants, respectively.
The following tables summarize information about stock options outstanding
at May 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WTD. AVG. WTD. WTD.
RANGE OF REMAINING AVG. AVG.
EXERCISE CONTRACTUAL EXER. EXER.
PRICES SHARES LIFE(YRS.) PRICE SHARES PRICE
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 3.00-$ 7.99 675 2.8 $ 5.77 675 $ 5.77
$ 8.00-$12.99 257 6.4 $12.25 232 $12.51
$13.00-$17.99 1,032 7.3 $15.83 551 $16.68
$18.00-$22.99 104 5.1 $20.20 82 $20.15
$23.00-$27.99 378 7.7 $24.48 183 $24.06
2,446 5.9 $14.20 1,723 $12.79
</TABLE>
-70-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to stock options, the Company grants performance shares to key
executive employees. There were no performance shares granted during the year
ended May 31, 1999 and 1998. During the year ended May 31, 1997, awards of
118,000 shares of the Company's common stock were made, subject to restrictions
based upon continued employment and the performance of the Company. There was no
compensation expense relating to the awards for the year ended May 31, 1999.
Compensation expense totalling $3,412,000 and $1,403,000 relating to the awards
were recorded during the years ended May 31, 1998 and 1997, respectively.
EMPLOYEE STOCK PURCHASE PLAN
Effective January 1, 1996, the Company adopted a qualified, noncompensatory
Employee Stock Purchase Plan. This plan enables substantially all employees to
subscribe to purchase shares of the Company's common stock on an annual basis.
Such shares are subscribed at the lower of 85% of their fair market value on the
first day of the plan year, January 1, or 85% of their fair market value on the
last business day of the plan year, usually December 31. Each eligible
employee's participation is limited to 10% of base wages and a maximum of
450,000 shares are authorized for subscription. Employee subscriptions for the
twelve months ended December 31, 1998 were 80,147 shares at $8.77 per share
based on 85% of the fair market value on December 31, 1998 ($10.31). Under the
terms of the Merger agreement between Wyman-Gordon Company and Precision
Castparts Corp.("PCC"), the Company terminated the 1999 Employee Stock Purchase
Plan on May 17, 1999. All proceeds received under this plan were used to
purchase shares of the Company's common stock at a price per share equal to 85%
of the $10.31 closing price on December 31, 1998, or $8.77 per share. Employees
have the option of tendering these shares to PCC at a price of $20.00 per share
in accordance with PCC's tender offer. See footnote N. Pending Merger.
Accounting for stock-based plans is in accordance with Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense has been recognized for fixed stock option
plans or the Employee
Stock Purchase Plan.
-71-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As required by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company has determined the weighted average fair values of stock-based
arrangements granted during the years ended May 31, 1999, 1998 and 1997 to be
$7.77, $14.94 and $11.28, respectively. The fair values of stock-based
compensation awards granted were estimated using the Black-Scholes model with
the following assumptions.
<TABLE>
<CAPTION>
YEAR EXPECTED RISK-FREE
ENDED GRANT OPTION DIVIDEND INTEREST
MAY 31, DATE TERM VOLATILITY YIELD RATE
<S> <C> <C> <C> <C> <C>
1999 7/31/98 7 years 50% -- 5.54%
10/21/98 7 years 50% -- 5.54%
1/20/99 7 years 50% -- 5.54%
1998 10/15/97 10 years 41% -- 5.57%
1/14/98 9 years 41% -- 5.57%
2/17/98 10 years 41% -- 5.57%
1997 7/16/96 9 years 38% -- 6.67%
10/16/96 10 years 38% -- 6.67%
1/15/97 10 years 38% -- 6.67%
3/17/97 9 years 38% -- 6.67%
</TABLE>
Had compensation expense for the Company's stock-based plans and Employee
Stock Purchase Plan been accounted for using the fair value method prescribed by
SFAS No. 123, net income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(000'S OMITTED, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C>
Net income as reported $37,028 $33,890 $50,023
Pro forma net income under
SFAS No. 123 31,595 32,062 47,399
Net income per share as
reported:
Basic $ 1.02 $ .93 $ 1.40
Diluted 1.01 .91 1.35
Pro forma net income per
share under SFAS No. 123:
Basic $ .87 $ .88 $ 1.32
Diluted .86 .86 1.28
</TABLE>
The effects of applying SFAS No. 123 in the above pro forma
disclosure are not indicative of future amounts.
-72-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
L. STOCK PURCHASE RIGHTS
On October 21, 1998, the Company's Board of Directors unanimously adopted a
shareholder rights agreement under which preferred share purchase rights were
distributed as a dividend on shares of Wyman-Gordon Company's common stock. The
rights will be exercisable only if a person or group acquires 15 percent or more
of the Company's common stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of 15 percent or more of
the common stock or the determination by the Board of Directors that any person
is an "Adverse Person." Each right entitles the registered holder thereof to
purchase from the Company a unit consisting of one ten-thousandth of a share of
Series B Junior Participating Cumulative Preferred Stock, at a cash exercise
price of $75 per unit. The dividend distribution was made on November 30, 1998,
payable to stockholders of record on that date.
The rights will expire on November 30, 2008, subject to earlier redemption
or exchange by Wyman-Gordon Company as described in the plan. The rights
distribution is not taxable to stockholders.
During fiscal year 1999, the Company's Board of Directors authorized a
stock repurchase program to acquire up to 4 million shares of Wyman-Gordon
Company's common stock. The shares may be purchased from time-to-time in the
open market. As of May 31, 1999, the Company had purchased 1,273,900 shares, at
an average price of $10.28 per share, under this program.
M. COMMITMENTS AND CONTINGENCIES
At May 31, 1999, certain lawsuits arising in the normal course of business
were pending. In the opinion of management, the outcome of these legal matters
will not have a material adverse effect on the Company's financial position and
results of operations.
The Company has entered into various foreign exchange contracts to manage
its foreign exchange risks. Through its foreign currency hedging activities, the
Company seeks to minimize the risk that the eventual cash flows resulting from
purchase and sale transactions denominated in other than the functional currency
of the operating unit will be affected by changes in exchange rates. Foreign
currency transaction exposures generally are the responsibility of the Company's
individual operating units to manage as an integral part of their business. The
Company hedges its foreign currency transaction exposures based on judgment,
generally through the use of forward exchange contracts. Gains and losses on the
Company's foreign currency transaction hedges are recognized as an adjustment to
the underlying hedged transactions. Deferred gains and losses on
-73-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
foreign exchange contracts were not significant at May 31, 1999
and 1998. The Company had foreign exchange contracts totaling
$13,486,000 at May 31, 1999. Such contracts include forward
contracts of $4,855,000 for the purchase of U.K. pounds and
$8,631,000 for the sale of U.K. pounds. These contracts hedge
certain normal operating purchase and sales transactions,
generally mature within six months and require the Company to
exchange U.K. pounds for non-U.K. currencies or non-U.K.
currencies for U.K. pounds. Translation and transaction gains and
losses included in the Consolidated Statements of Net Income and
Consolidated Statements of Comprehensive Income for the years
ended May 31, 1999, 1998 and 1997 were not significant.
On December 22, 1996, a serious industrial accident occurred at the
Houston, Texas, facility of Wyman-Gordon Forgings, Inc. ("WGFI"), a wholly-owned
subsidiary of the Company, in which eight employees were killed, and three
employees and several subcontractor employees were injured.
The Company and WGFI have settled the lawsuits brought by all decedents'
families and other claimants on terms acceptable to the Company and its
insurance carriers. The amounts paid in settlement of the lawsuits exceeded the
Company's available liability insurance. The Company recorded a charge of $13.8
million in the third quarter of fiscal year 1999 that covered its share of the
costs of defending the lawsuits and funding the agreed settlements.
On September 25, 1997, the Company received a subpoena from the United
States Department of Justice informing it that the Department of Defense and
other federal agencies had commenced an investigation with respect to the
manufacture and sale of investment castings at the Company's Tilton, New
Hampshire facility. The Company does not believe that the federal investigation
is likely to result in a material adverse impact on the Company's financial
condition or results of operations, although no assurance as to the outcome or
impact of that investigation can be given.
N. PENDING MERGER
On May 17, 1999, Precision Castparts, Corp. ("PCC") and the Company
announced that PCC has agreed to acquire 100 percent of the Company's common
stock in a cash tender offer of $20 per share, valued at approximately
$825,000,000, including the assumption of $104,000,000 of net debt. Upon
completion of the tender offer and subsequent merger, Wyman-Gordon will become a
wholly-owned subsidiary of PCC. The completion of the tender offer is
conditioned upon the tender of at least two-thirds of the outstanding shares of
Wyman-Gordon and certain other conditions, including compliance with the
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976. PCC,
headquartered in Portland, Oregon, is a worldwide manufacturer of complex metal
components and products.
-74-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
O. SEGMENT INFORMATION
In fiscal year 1999, the Company adopted Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which revises
reporting and disclosure requirements for operating segments. The Statement
requires that the Company present segment data based on the way that management
organizes the businesses within the Company for making operating decisions and
assessing performance. The three segments, based on markets served, are
Aerospace, Energy and Other.
Aerospace Market
The Aerospace Products Segment produces components utilizing all of the
Company's manufacturing disciplines: forging, investment casting and composites.
The parts produced in this segment are used extensively by the major jet engine
manufacturers and airframe builders within the commercial and military aircraft
industry. A variety of engine parts produced by the Company include fan discs,
compressor discs, turbine discs, seals, shafts, hubs, reversers and valves.
Aerospace airframe components include landing gear, bulkheads, wing spars,
engine mounts, struts, wing and tail flaps and bulkheads. The Company produces
these components from titanium, nickel, steel, aluminum and composite materials.
Energy Market
The Company is a major supplier of products used in nuclear and
fossil-fueled commercial power plants, co-generation projects and retrofit and
life extension applications as well as in the oil and gas industry. Products
produced within the energy product segment include extruded seamless thick wall
pipe, connectors, and valves. The Company produces rotating components, such as
discs and spacers, and valve components for land-based steam turbine and gas
turbine generators.
Other Market
The Company manufactures a variety of products for defense related
applications. Some of the products produced within this segment include steel
casings for bombs and rockets, components for propulsion systems for nuclear
submarines and aircraft carriers as well as pump, valve, structural and
non-nuclear propulsion forgings. The Company manufactures extruded missile,
rocket and bomb casings and supplies extruded products for nuclear submarines
and aircraft carriers, including thick wall piping for nuclear propulsion
systems, torpedo tubes and catapult launch tubes. The Company also manufactures
products for commercial applications such as food processing, semiconductor
manufacturing, diesel turbochargers and sporting equipment.
-75-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes segment information:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
<S> <C> <C> <C>
Net sales
Aerospace products $705,763 $622,718 $475,131
Energy products 117,229 101,353 97,117
Other products 26,269 28,842 36,494
Consolidated net sales $849,261 $752,913 $608,742
EBITDA(1)
Aerospace products $101,053 $ 81,175 $ 75,013
Energy products 10,563 11,413 9,563
Other products 2,597 4,775 2,808
Corporate (11,163) (10,805) (8,264)
Total EBITDA 103,050 86,558 79,120
Depreciation and Amortization 27,576 23,473 20,872
Other charges (credit) 13,745 (4,900) 23,083
Interest expense 14,234 12,548 10,822
Income before income taxes
and extraordinary item $ 47,495 $ 55,437 $ 24,343
</TABLE>
(1) Earnings before interest, taxes, depreciation, amortization, extraordinary
items and other charges (credits).
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Expenses that are
not directly identifiable to a business market are allocated. Common
administrative expenses are allocated based on revenue, common period costs are
allocated based on value added.
In fiscal year 1998, the Company recorded an extraordinary loss, net of
income tax benefit of $2,920,000, of $5,192,000. The extraordinary loss is not
included in the segment EBITDAs for fiscal year 1998 disclosed above.
The Company's management uses Revenues and EBITDA by business market as its
primary information for decision-making purposes. The Company's revenues are
predominantly generated in the Aerospace market segment. All plants with the
exception of the Buffalo, New York facility, which has approximately $25,783,000
of total assets and generates all of its revenues from the Energy market
segment, generate the majority of its revenues from the Aerospace market.
Certain plants manufacture products for all segments; however, due to the
significance of the Aerospace market segment (83% of revenues), assets of the
Company are not managed by business markets but are managed on a plant-by-plant
basis. Because the Company does not prepare and management does not use asset
information by the segments identified, assets by segments are not presented in
these financial statements.
-76-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain information on a geographic basis follows:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 1998 1997
(000'S OMITTED)
<S> <C> <C> <C>
REVENUES FROM UNAFFILIATED
CUSTOMERS:
United States (including direct
export sales) $771,961 $676,342 $541,456
United Kingdom 77,300 76,571 67,286
$849,261 $752,913 $608,742
EXPORT SALES:
United States direct export sales $139,113 $118,407 $ 88,888
IDENTIFIABLE ASSETS (EXCLUDING
INTERCOMPANY):
United States $509,174 $479,181 $390,540
United Kingdom 62,190 63,759 54,777
General Corporate 10,346 8,670 9,054
$581,710 $551,610 $454,371
</TABLE>
General Electric Company ("GE") and United Technologies Corporation ("UT")
have currently or historically each accounted for 10%, or more, of the Company's
revenues as follows:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
1999 % 1998 % 1997 %
(000's OMITTED, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
GE $213,598 25 $169,894 23 $156,764 26
UT (1) (1) 76,786 10 60,921 10
</TABLE>
(1) Revenues for the year ended May 31, 1999 were less than 10%.
-77-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
P. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended May 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
(000'S OMITTED, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED MAY 31, 1999
Revenue $189,664 $238,829 $211,223 $209,545
Cost of goods sold 161,067 197,551 188,506 168,778
Other charges (credits) (5,000) - 18,990 (245)
Income (loss) from
operations 20,117 26,920 (10,923) 26,838
Net income (loss) 11,852 15,046 (9,357) 19,487
Net income (loss) per
share:
Basic .32 .41 (.26) .55
Diluted .32 .41 (.26) .54
YEAR ENDED MAY 31, 1998
Revenue $180,009 $189,370 $181,764 $201,771
Cost of goods sold 146,764 157,422 159,229 173,852
Other charges (credits) (1,900) (3,000) - -
Income from operations 21,750 21,771 9,577 15,794
Income before extra-
ordinary item 11,859 13,336 3,963 9,924
Extraordinary item,
net of tax - - (5,192) -
Net income (loss) 11,859 13,336 (1,229) 9,924
Basic net income per
share:
Income before extra-
ordinary item .33 .37 .11 .27
Net income (loss) .33 .37 (.03) .27
Diluted net income per
share:
Income before extra-
ordinary item .32 .36 .11 .27
Net income (loss) .32 .36 (.03) .27
</TABLE>
-78-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David P. Gruber 57 Chairman and Chief
Executive Officer
J. Douglas Whelan 60 President, Chief
Operating Officer and
Director
William T. McGovern 52 Vice President, Human
Resources
Sanjay N. Shah 48 Vice President, Corporate
Strategy Planning
and Business Development
J. Stewart Smith 57 President,
Turbine Products
Colin Stead 60 Senior Vice President,
Quality and Technology
Wallace F. Whitney, Jr. 56 Vice President, General
Counsel and Clerk
Frank J. Zugel 54 President, Structural
and Energy Products
E. Paul Casey 69 Director
Warner S. Fletcher 54 Director
Robert G. Foster 61 Director
Charles W. Grigg 60 Director
M Howard Jacobson 66 Director
Robert L. Leibensperger 60 Director
Andrew E. Lietz 60 Director
David A. White, Jr. 57 Director
</TABLE>
DAVID P. GRUBER was elected Chairman and Chief Executive Officer of the
Company on October 15, 1997, having previously served as President and Chief
Executive Officer since May 1994 and as President and Chief Operating Officer
since he joined the Company in October 1991. Director of the Company since 1992.
Term expires in 2001. Prior to joining the Company, Mr. Gruber served as Vice
President, Advanced Ceramics, of Compagnie de Saint Gobain (which acquired
Norton Company in 1990), a position he held with Norton Company since 1987. Mr.
Gruber previously held various executive and technical positions with Norton
Company since 1978. He is a Director of State Street Corporation, a Trustee of
the Manufacturers' Alliance for Productivity and Innovation, and a member of the
Mechanical Engineering Advisory Committee of Worcester Polytechnic Institute.
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<PAGE>
J. DOUGLAS WHELAN was elected President and Chief Operating Officer of the
Company on October 15, 1997, having previously served as President, Forgings
since he joined the Company in March 1994. Director of the Company since 1998.
Term expires in 2001. Prior to joining the Company, he had served for a short
time as the President of Ladish Co., Inc., a forging company in Cudahy,
Wisconsin, and prior thereto, had been Vice President, Operations of Cameron
Forged Products Company, with which company and its predecessors he had been
employed since 1965 in various executive capacities. Mr. Whelan is a Director of
Sifco Industries, Inc. and a member of the President's Council of Manufacturers
Alliance.
WILLIAM T. MCGOVERN joined the Company in 1999 as Vice President, Human
Resources. Prior to that time, he had served as Vice President, Human Resources,
Contract and Commercial SBU of Staples, Inc. since 1995. From 1994 to 1995 he
had been employed as Training Director for the City of Worcester, Massachusetts.
SANJAY N. SHAH was elected Vice President, Corporate Strategy Planning and
Business Development in May 1994, having previously served as Vice President and
Assistant General Manager of the Company's Aerospace Forgings Division. He has
held a number of executive, research, engineering and manufacturing positions at
the Company since joining the Company in 1975.
J. STEWART SMITH was elected President, Turbine Products of the Company in
January 1999, having previously served as President, Manufacturing since 1997
and before then as Vice President, Manufacturing and Engineering of the Forgings
Division since he joined the Company in 1994. Prior to that time, Mr. Smith had
held various technical and manufacturing positions with Cameron and its
predecessors since joining that company in 1978.
COLIN STEAD was elected Senior Vice President, Quality and Technology of
the Company on October 15, 1997, having previously served as Vice President,
Quality and Metallurgy of the Forgings Division since 1994. Prior thereto, he
had served in various technical and quality positions with Cameron and its
predecessors since joining that company in 1984.
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 was elected President, Structural and Energy Products of the
Company in January, 1999, having previously served as President, Marketing since
1997 and before then as President, Investment Castings, since he joined the
Company in 1993. Prior to that time, he had served as President of Stainless
Steel Products, Inc., a metal fabricator for aerospace applications, since 1992.
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<PAGE>
E. PAUL CASEY, Chairman and General Partner, Metapoint Partners, Peabody,
Massachusetts (an investment partnership which he established in 1988), has been
a Director of the Company since 1993. Term expires in 1999. 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., a Trustee of Henry Ford Health
Care System and President of the Hobe Sound, Florida Community Chest.
WARNER S. FLETCHER, Attorney and Director of the law firm of Fletcher,
Tilton & Whipple, P.C., Worcester, Massachusetts, has been a Director of the
Company since 1987. Term expires in 1999. Mr. Fletcher is an Advisory Director
of Bank of Boston, Worcester. He is also Chairman of The Stoddard Charitable
Trust, a Trustee of The Fletcher Foundation, the George I. Alden Trust,
Worcester Polytechnic Institute, Worcester Foundation for Experimental Biology,
Bancroft School and the Worcester Art Museum.
ROBERT G. FOSTER, President, Chief Executive Officer and Chairman of the
Board of Commonwealth BioVentures, Inc., Portland, Maine (a venture capital
company engaged in biotechnology) since 1987. Director of the Company since
1989. Term expires 2000. He is also a Director of United Timber Corp., Meridian
Medical Technologies, Phytera, the Small Enterprise Growth Fund for the State of
Maine, Intellicare American and Epic Pharmaceuticals.
CHARLES W. GRIGG, Chairman and Chief Executive Officer of SPS Technologies,
Inc. (a manufacturer of high technology products in the field of fastening,
precision components and materials handling), was elected a Director in 1996.
Term expires 2000. Prior to joining SPS Technologies in 1993, Mr. Grigg spent
ten years at Watts Industries, Inc. (a Massachusetts manufacturer of valves for
industrial applications), the last nine of which as President and Chief
Operating Officer.
M HOWARD JACOBSON, Senior Advisor, Bankers Trust, New York, has been a
Director of the Company since 1993. Term expires in 1999. Mr. Jacobson was for
many years President and Treasurer and a Director of Idle Wild Foods, Inc. until
that company was sold in 1986. Mr. Jacobson is a Director of Allmerica Financial
Corporation and Stonyfield Farm, Inc. He is Chairman of the Overseers of WGBH
Public Broadcasting, the Massachusetts Biotechnology Research Institute, a
Trustee of the Worcester Foundation for Biomedical Research, a Trustee of the
Worcester Polytechnic Institute, UMass Memorial Healthcare and a member of the
Harvard University Overseers' Committee on University Resources. He is also a
member of the Commonwealth of Massachusetts Board of Higher Education.
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<PAGE>
ROBERT L. LEIBENSPERGER, Executive Vice President, Chief Operating Officer
and President -- Bearings of The Timken Company, Canton, Ohio (a manufacturer of
precision bearings.) Mr. Leibensperger joined the Company's Board of Directors
in January 1998. Term expires 2001. Mr. Leibensperger has been employed by The
Timken Company since 1960, where he has held various research, engineering,
sales and marketing, and executive positions. Mr. Leibensperger is a member of
the American Bearing Manufacturers Association Executive Committee, the Council
on Competitiveness Global R&D Committee, the Stark County (Ohio) Capital
Campaigns Committee, the Cultural Center for the Arts (Canton, Ohio) House &
Grounds Committee and the Goodwill Industries (Canton, Ohio) Transportation
Services Committee.
ANDREW E. LIETZ, President and Chief Executive Officer and Director of
HADCO Corporation, Salem, New Hampshire. (Manufacturer of electronic
interconnect products.) Mr. Lietz joined the Company's Board of Directors in
January 1998. Term expires in 2001. Mr. Lietz has held various executive
positions with HADCO Corporation since 1984. He is director of EnergyNorth,
Inc., Business and Industry Association and National Electronics Manufacturing
Initiative, as well as a member of the advisory Board of the University of New
Hampshire Whittemore School of Business and the Executive Committee of New
Hampshire Industrial Research Center.
DAVID A. WHITE, JR., Senior Vice President of Strategic Planning for
Cooper, was elected a Director in 1996. Term expires in 1999. Since joining
Cooper as a Planning Analyst in 1971, Mr. White has served in various planning
and finance capacities. In 1980, he was named Vice President and General Manager
of the Cooper Power Tools Division and in 1988 he became Vice President,
Corporate Planning and Development. He assumed his present position in 1996. Mr.
White serves as Vice Chairman of the Strategic Planning and Development Council
of the Manufacturers' Alliance for Productivity and Innovation.
In addition to the executive officers of the Company, David J. Sulzbach,
who has been employed by the Company in various financial capacities since 1977,
serves as Corporate Controller and Principal Accounting Officer of the Company.
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<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership with the Securities
and Exchange Commission (the "SEC") and the New York Stock Exchange. Officers,
directors and greater than 10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, based solely on a review of the copies of such reports and
amendments thereto furnished to the Company and written representations that no
other reports were required during, or with respect to, the Company's fiscal
year ended May 31, 1999, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than 10% beneficial owners were
satisfied except for the Securities and Exchange Commission filings on Form 4
for Mr. Gruber and a former director of the Company which were not timely filed.
Such filings, have been subsequently corrected.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The remuneration of the Company's Chief Executive Officer and each of the
four most highly compensated executive officers at May 31, 1999 for services
rendered to the Company during its fiscal year then ended and the Company's
prior two fiscal years ended May 31, 1998 and 1997 is reported in the table set
forth below.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ALL
NAME AND FISCAL ANNUAL LONG- OTHER
PRINCIPAL YEAR COMPENSATION TERM COMPEN-
POSITION ENDED SALARY BONUS AWARDS SATION(1)
<S> <C> <C> <C> <C> <C>
David P. Gruber 05/31/99 $491,797 $ 85,500 - $11,909
Chairman and 05/31/98 458,340 85,500 - 24,738
Chief Executive 05/31/97 400,004 286,875 - 16,001
Officer
J. Douglas Whelan 05/31/99 309,711 45,000 - 13,566
President and 05/31/98 295,833 45,000 - 18,144
Chief Operating 05/31/97 242,333 123,750 - 14,677
Officer
J. Stewart Smith 05/31/99 194,108 24,700 - 68,892
President, 05/31/98 174,853 68,980 - 6,958
Turbine Products 05/31/97 142,850 208,320 - 5,482
Wallace F.
Whitney, Jr. 05/31/99 191,000 20,460 - 8,124
Vice President, 05/31/98 184,168 20,460 - 9,744
General Counsel 05/31/97 173,340 78,000 - 6,827
and Clerk
Frank J. Zugel 05/31/99 223,724 28,600 - 13,179
President, 05/31/98 215,004 28,600 - 13,110
Structural and 05/31/97 198,335 76,200 - 9,569
Energy Products
</TABLE>
(1) Consists of group term life insurance premiums, the value of the shares
allocated to the executive's account under the Company's Savings/Investment
Plan and Deferred Compensation Plan as a matching contribution, in the case
of Mr. Smith and Mr. Whelan moving expense reimbursement and related income
tax gross up in 1999 and 1998, respectively, and in the case of Mr. Zugel,
car allowance.
During the Company's fiscal year ended May 31, 1999 Messrs. Gruber, Whelan,
Smith, Whitney and Zugel were not granted any stock options because such
officers participate in the Executive Long-Term Incentive Plan (the "LTIP")
described below.
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<PAGE>
The following table relates to aggregate grants of options under the 1997
Long-Term Incentive Plan and predecessor plans.
AGGREGATE OPTION EXERCISES IN
THE COMPANY'S 1999 FISCAL YEAR
AND MAY 31, 1999 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
NO. OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS OPTIONS
ACQUIRED AT 5/31/99 AT 5/31/99
ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE)
<S> <C> <C> <C> <C>
D.P. Gruber - - 148,750/29,250 $ 638,765/$78,609
J.D. Whelan - - 54,000/19,750 $ 270,125/$53,078
J.S. Smith - - 7/364/11,539 $ 49,700/$29,569
W.F. Whitney, Jr. 5,000 $43,000 122,375/14,625 $1,055,508/$39,305
F.J. Zugel 6,000 $93,000 87,109/19,750 $ 323,142/$53,078
</TABLE>
AGREEMENTS WITH MANAGEMENT
Chairman and Chief Executive Officer
At the time of his election as President and Chief Executive Officer in
1994, Mr. Gruber and the Company entered into an agreement that provides for a
two year rolling term of employment and for continuation of employee benefits in
the event of termination of his employment under specified conditions. Mr.
Gruber and the Company have also entered into a severance agreement, a
performance share agreement and irrevocable trust arrangement, as well as the
agreements pursuant to the LTIP. In addition, when Mr. Gruber became Chief
Executive Officer the Compensation Committee of the Company's Board of Directors
("the Committee") granted him 150,000 shares under a performance share agreement
at which time the Company's stock price was $5.125 per share. The shares granted
to Mr. Gruber pursuant to this agreement were subject to restrictions. Under the
performance share agreement, the shares vested in Mr. Gruber only if he remained
in the employ of the Company for a period of five years and if the Company's
stock reached target price levels of at least $10 per share with full vesting at
$12 per share. The $12 target has been achieved, and consequently the Committee
approved an arrangement whereby the 150,000 shares were transferred to an
irrevocable trust that held the shares until May 24, 1999 when they were
distributed to Mr. Gruber. Mr. Gruber sold 70,500 of such shares in May 1999 to
provide funds for the payment of income taxes due upon the distribution of
shares to him. Mr. Gruber now beneficially owns 123,030 Shares, including the
shares issued to him in accordance with his performance share agreement and the
28,500 shares granted to him under the LTIP. In addition, Mr. Gruber has been
granted options to purchase a total of 178,000 shares.
-85-
<PAGE>
Severance Agreements
The Company has entered into severance agreements with each of its
executive officers and with Mr. Sulzbach 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 coverage for up to
twenty-four months following termination and accelerated vesting of existing
options and stock appreciation rights and certain benefits under the Company's
deferred compensation plan. No benefits are payable under the severance
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. At its meeting on March 17, 1999, the Committee
amended the severance agreements to provide that following a "change of control"
of the Company SERP benefits (described below under "Pension Benefits") for SERP
participants will continue to accrue for a period of two years following a
qualifying termination of employment.
Executive Long-Term Incentive Plan
In 1996 the Committee developed an Executive Long-Term Incentive Plan
("LTIP") which results in significant payouts to the participants if significant
price appreciation in the Company's stock is achieved. Under the LTIP the
Company's executive officers (including Messrs. Gruber, Whelan, Smith, Whitney
and Zugel) and other key executives will not participate in the annual grant of
stock options for the five year term of the LTIP. The LTIP provides for a
one-time grant of stock options which are the normal options under the Company's
stock option plans except that they vest in equal installments over four years
rather than three. The second element of the LTIP consists of performance stock
options that are ten year options that vest upon the achievement of certain
stock prices. For example, 10% of the performance stock options vest if the
stock reaches $21.00 per share, and at $30.00 per share the performance stock
options become fully vested. In any event, the options vest seven years after
the date of grant. The third element of the LTIP consists of performance shares
which are subject to risk of loss and forfeiture if the price of the shares does
not achieve certain price levels. The price levels are the same as under the
performance stock options, and if the stock reaches a price of $21.00 per share,
10% of the performance shares vest and are not subject to forfeiture. Similarly
if the price reaches $30.00 per share, the performance shares vest in their
entirety. If the stock fails to reach the target levels during the five year
term of the LTIP, then the performance shares are forfeited to the extent the
target levels have not been attained. At the time of the grants to executive
officers under the LTIP on April 17, 1996, the price of the Company's stock was
16 5/8 per share.
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<PAGE>
As of September 15, 1997 the price of the Company's stock had reached the
$27 per share level and therefore 80% of the performance stock options have
vested and restrictions on 80% of the performance shares have lapsed. Under the
terms of the LTIP, the Committee has granted 202,125 stock options, 928,375
performance stock options, and 226,800 performance shares, including the grant
to Mr. Gruber of 25,000 stock options, 115,000 performance stock options and
28,500 performance shares. In the event of a change of control of the Company,
including a change of control resulting from the PCC tender offer, any remaining
invested stock options and performance stock options immediately vest and any
and all restrictions lapse. At its meeting on May 13, 1999 the Committee voted
that in the event that a "change of control" of the Company results from the PCC
tender offer the remaining 20% of the performance shares that had not previously
vested shall vest and the restrictions or such shares shall lapse.
As a result of the consummation of the transactions contemplated by the
Merger Agreement with PCC unvested performance shares under the LTIP and
unvested options set forth in the following table held by the officers will
become fully vested.
<TABLE>
<CAPTION>
NUMBER
OF NUMBER OPTION
PERFORM- OF SHARES
ANCE OPTION EXERCISE
NAME SHARES SHARES PRICE($)
<S> <C> <C> <C>
David P. Gruber 5,700 29,250 16.625
J. Douglas Whelan 3,800 19,750 16.625
William T. McGovern - 15,000 9.875
Sanjay N. Shah 2,800 14,625 16.625
J. Stewart Smith 1,820 11,539 16.75
Colin Stead 1,820 11,539 16.75
David J. Sulzbach 1,820 11,539 16.75
Wallace F. Whitney, Jr. 2,800 14,625 16.625
Frank J. Zugel 3,800 19,750 16.625
</TABLE>
PENSION BENEFITS
Salaried employees and executive officers of the Company participate in the
Company's qualified defined benefit pension plan (the "Plan"). Under the terms
of the 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, the executive officers covered by the Summary Compensation Table and
certain other key executives designated by the Committee are eligible to receive
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<PAGE>
benefits under the Supplemental Retirement Plan for Senior Executives (the
"SERP"). Under the SERP, participants who have been employed by the Company for
at least five years who retire at age 62 are entitled to receive a pension equal
to their highest average annual earnings during any preceding 60- consecutive
month period multiplied by 4% for each year of service up to ten years and 2%
per year from ten to fifteen years. This supplemental benefit is reduced if the
participant retires prior to age 62 and is further reduced by benefits payable
under the Company's qualified pension plan and by social security payments. If
the Committee so determines, payments under the SERP may be terminated if a
retired participant becomes "substantively employed," as defined in the SERP, by
another employer before age 65. The following table indicates the aggregate
estimated annual benefit payable, as single life annuity amounts, under both the
Plan and the SERP to participants retiring in various categories of earnings and
years of service. To the extent that an annual retirement benefit exceeds the
limits imposed by the Internal Revenue Code, the difference will be paid from
the general operating funds of the Company.
As of May 31, 1999, the individuals named in the Summary
Compensation Table had full credited years of service with the
Company as follows: Mr. Gruber, seven years; Mr. Whelan, five
years; Mr. Smith, five years; Mr. Whitney, eight years, and Mr.
Zugel, six years.
PENSION BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
15 AND
REMUNERATION 5 10 ABOVE
<S> <C> <C> <C>
$250,000 50,000 100,000 125,000
350,000 70,000 140,000 175,000
450,000 90,000 180,000 225,000
550,000 110,000 220,000 275,000
650,000 130,000 260,000 325,000
750,000 150,000 300,000 375,000
</TABLE>
TOTAL STOCKHOLDER RETURN
The graph presented below compares the yearly percentage change in the
Company's cumulative total stockholder 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 May 31, 1999.
-88-
<PAGE>
The Stock Performance Graph assumes an investment of $100 in each of the
Company and the two indices, and the reinvestment of any dividends. The
historical information set forth below is not necessary indicative of future
performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
WYMAN-GORDON COMPANY, DOW JONES EQUITY MARKET INDEX
AND DOW JONES AEROSPACE AND DEFENSE SECTOR
<TABLE>
<CAPTION>
5/27/94 6/2/95 5/31/96
<S> <C> <C> <C>
Aerospace & Defense 100 139.5 207.1
Equity Mkt Index 100 119.4 153.7
Wyman-Gordon Co. 100 175.7 273.8
</TABLE>
<TABLE>
<CAPTION>
5/30/97 5/29/98 5/28/99
<S> <C> <C> <C>
Aerospace & Defense 250.3 266.8 251.5
Equity Mkt Index 197.7 259.5 314.8
Wyman-Gordon Co. 356.9 311.8 302.9
</TABLE>
COMPENSATION COMMITTEE REPORT
OVERALL POLICY
The Compensation Committee (the "Committee") of the Board of Directors is
composed entirely of non-employee directors. The Committee is responsible for
setting and administering the policies that 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
Company's stock price. The overall objectives of this strategy are to attract
and retain talented executives, to motivate these 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.
The Committee approves the compensation of David P. Gruber, Chairman and
Chief Executive Officer, and corporate executives, including Messrs. Whelan,
Smith, Whitney and Zugel, who report to Mr. Gruber. 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. Gruber), the
Committee takes into account Mr. Gruber'sevaluation of their performance.
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<PAGE>
There are three principal elements of the Company's executive compensation
program: base salary, annual bonus and long-term stock-based incentives
consisting of stock options and performance share grants. The Committee's
policies with respect to each of these elements, including the bases for the
compensation awarded to Mr. Gruber, 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. In carrying out its responsibilities the
Committee has in recent years obtained advice from William M. Mercer & Co. and
Towers Perrin, compensation consulting firms.
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, and by reference to the competitive marketplace, including a
comparison to base salaries for comparable positions at other companies.
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 also uses industry surveys to assist in ensuring
that executive salaries are consistent with industry practice.
Mr. Gruber serves as Chairman and Chief Executive Officer of the Company
pursuant to a May 16, 1994 Employment Agreement. Mr. Gruber'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 or such higher amount as the
Board may determine. The Committee and the Board have set Mr. Gruber's annual
salary to $510,000 and have voted to increase such annual salary to $525,000
effective October 1999.
ANNUAL BONUS
The Company maintains a Management Incentive Plan ("MIP") under which
executive officers are eligible for an annual cash bonus. The Committee approves
individual employee's participation in, and awards under, the MIP based on
recommendations of Mr. Gruber. The Committee established goals for earnings per
share and return on investment as the basis of MIP payouts for fiscal year 1999.
In addition, the Committee retained a 20% discretionary factor in determining
annual incentive compensation. Under the MIP, Mr. Gruber can receive an
incentive payment up to 90% of his base salary. For other participants in the
MIP, the maximum bonus opportunities range from 55% to 75% of base salary. The
Company did not meet its goals for earnings per share and return on investment
for fiscal year 1999 primarily because of the costs of the Houston accident
settlement and aftereffects of the 29,000 ton press outage.
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<PAGE>
Recognizing, however, the efforts by management on behalf of the Company and its
shareholders, the Committee authorized bonus payments equal to the bonus
payments that the MIP participants received for fiscal year 1998. As a result,
Mr. Gruber earned a bonus of $85,500 for fiscal year 1999 while other executive
officers earned bonuses ranging from 10% to 14% of base salary.
STOCK BASED COMPENSATION
Under the Company's 1997 Long-Term Incentive Plan, which was approved by
stockholders at the 1997 Annual Meeting of Stockholders, and under predecessor
plans, options with respect to the Company's common stock may be granted to the
Company's key employees. In addition, the Committee may grant other stock-based
awards such as restricted shares, performance shares, stock appreciation rights,
phantom shares, performance units and bonus awards. The Committee sets
guidelines for the size of awards based on similar factors, including industry
surveys, as those used to determine base salaries and annual bonus.
Stock-based compensation is designed to align the interests of executives
with those of the stockholders. The approach is designed to provide an incentive
for the creation of stockholder value since the benefit of the compensation
package cannot be realized unless stock price appreciates. In the past the
Committee has made annual grants of stock options, and during the Company's 1999
Fiscal Year the Committee granted options to a total of 147 key employees. The
Committee believes that broad dissemination of options within the Company
enhances the benefits to the Company of stock-based incentives. The Committee
also believes that significant equity interests in the Company held by the
Company's management align the interests of stockholders and management and
foster an emphasis on the creation of stockholder value.
In order to focus on the creation of long-term stockholder value, and with
the advice of Towers Perrin, in 1996 the Committee developed the LTIP (described
above), which results in significant payouts to the participants if significant
price appreciation in the Company's stock is achieved. Under the LTIP the
Company's executive officers (including Messrs. Gruber, Whelan, Smith, Whitney
and Zugel) and other key executives do not participate in the annual grant of
stock options for the five year term of the LTIP. Stock grants to Mr. Gruber and
other officers under the LTIP and under other plans and agreements are described
above on pages 85-87.
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<PAGE>
TAX MATTERS
The Omnibus Budget Reconciliation Act of 1993 imposes a limit, with certain
exceptions, on the amount that a publicly held corporation may deduct in any
year for the compensation paid or accrued with respect to its five most highly
compensated officers. The Committee intends to try to preserve the tax
deductibility of all executive compensation while maintaining the Company's
compensation program as described in this report. Towards this end the Company's
1997 Long-Term Incentive Plan approved by the shareholders at the 1997 Annual
Meeting of Shareholders has been designed in such a manner so that awards
thereunder to the Company's executive officers, including LTIP awards, will
qualify as performance-based compensation and, therefore, deductible by the
Company.
CONCLUSION
Through the incentive and stock-based 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 return to stockholders.
E. Paul Casey, Chairman
Charles W. Grigg
Andrew E. Lietz
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<PAGE>
ITEM 12. SHARES OF COMPANY STOCK BENEFICIALLY OWNED BY CERTAIN
OWNERS AND BY MANAGEMENT
The following table sets forth as of July 31, 1999 (except as otherwise
indicated) certain information regarding the beneficial ownership of the Shares
of the Company's common stock by (i) each person or "group" (as that term is
defined in Section 13(d)(3) of the Exchange Act) known by the Company to be the
beneficial owner of 5% or more of the outstanding Shares, (ii) each of the
Company's directors, nominees for director and executive officers and (iii) all
directors and executive officers as a group. Except as otherwise indicated, each
person listed below has sole voting and investment power over the shares of
Common Stock shown as beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
SHARES EXERCISABLE PERCENT
BENEFICIALLY WITHIN OF
NAME OWNED(1) 60 DAYS CLASS(2)
<S> <C> <C>
ICM Asset Management,
Inc.(3) 3,649,523 - 10.3%
601 W. Main Ave.
Suite 600
Spokane, WA 99201
Scudder Kemper
Investments, Inc.(4) 2,130,500 - 6.0%
345 Park Ave.
New York, NY 10154
Directors and Officers:
E. Paul Casey 25,372 3,999
Warner S. Fletcher(5)(6) 2,684,349 3,999 7.6%
Robert G. Foster 1,072 3,999
Charles W. Grigg 3,372 1,666
David P. Gruber 123,030 148,750
M Howard Jacobson 1,372 3,999
Robert L. Leibensperger 1,372 666
Andrew E. Lietz 5,372 666
William T. McGovern - -
Sanjay N. Shah 14,247 151,340
J. Stewart Smith 10,010 9,395
Colin Stead 15,040 25,792
J. Douglas Whelan 24,491 54,000
David J. White, Jr. 1,500 1,666
Wallace F. Whitney, Jr. 12,507 122,375
Frank J. Zugel 24,463 75,709
All directors and
executive officers as
a group(5)(6) 744,956 608,021 3.7%
</TABLE>
-93-
<PAGE>
(1) The address of all directors and executive officers is Wyman-Gordon
Company, 244 Worcester Street, North Grafton, MA 01536.
(2) Unless other wise indicated, less than one percent. Includes exercisable
options.
(3) Based on information contained in Schedule 13G filed by ICM Asset
Management, Inc. with the Securities and Exchange
Commission on March 10, 1999.
(4) Based on information contained in a Schedule 13G filed by Scudder Kemper
Investments, Inc. with the Securities and Exchange Commission on February
16, 1999.
(5) Warner S. Fletcher is one of the five trustees of The Stoddard Charitable
Trust (the "Stoddard Trust"), a charitable trust which owns 1,458,000
Shares. The Shares owned by the Stoddard Trust are therefore reported in
the above table. Mr. Fletcher disclaims any beneficial interest in the
Shares owned by the Stoddard Trust.
(6) Mr. Fletcher is a trustee of the Fletcher Foundation, which hold 311,000
Shares and of other trusts that hold 119,880 Shares for the benefit of
Judith S. King, a former director of the Company, and her sister, who are
his cousins, and 313,733 Shares for the benefit of his sister. Although the
Shares owned by the Fletcher Foundation and by such trusts are therefore
reported in the above table, Mr. Fletcher disclaims beneficial ownership of
such Shares.
CHANGE OF CONTROL
On May 17, 1999, the Company and Precision Castparts Corp. ("PCC") entered
into a Merger Agreement pursuant to the terms of which WGC Acquisition Corp., a
wholly owned subsidiary of PCC, commenced on May 21, 1999, a cash tender offer
for all of the outstanding shares of common stock of the Company at a price of
$20.00 per share. Consummation of the tender offer is subject, among other
things, to the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). PCC and
the staff of the Federal Trade Commission (the "FTC") have agreed that PCC will
not consummate the tender offer until ten calendar days after PCC has notified
the FTC of its intent to complete the transaction. PCC has also agreed that it
will not provide such notice until at least 3:00 p.m. Eastern Time on August 24,
1999. The agreement regarding timing is intended to provide additional time for
PCC to negotiate with the FTC.
As a result, the expiration date of the tender offer has been extended
until midnight, New York City time, on September 10, 1999; provided, however,
that if the applicable waiting period (and any extension thereof) under the HSR
Act in respect of the tender offer is terminated prior to August 31, 1999, the
expiration date of the tender offer will be the date that is ten
-94-
<PAGE>
business days immediately following public disclosure of the expiration or
termination of the waiting period under the HSR Act. As of August 20, 1999,
approximately 21,873,878 shares of common stock of the Company had been tendered
in the tender offer. This constitutes approximately 62.6% of the Company's
outstanding shares as of the commencement of the tender offer.
WGC Acquisition Corp. has also made a tender offer for the Company's
outstanding 8% Senior Notes due 2007 and has extended the Senior Notes tender
offer to coincide with the extension of the tender offer for the Company's
common stock.
For further information concerning the tender offer, see the Company's
Schedule 14D-9, Solicitation/Recommendation Statement Pursuant to the Section
14(d)(4) of the Securities Exchange Act of 1934 and the amendments to said
Schedule 14D-9.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Documents Filed as a Part of this Report
<TABLE>
<CAPTION>
PAGES
<S> <C>
1. Financial Statements:
Report of Management 38
Report of Independent Auditors 39
Consolidated Statements of Income 40
Consolidated Balance Sheets 41
Consolidated Statements of Cash Flows 42
Consolidated Statements of Stockholders' Equity 43
Consolidated Statements of Comprehensive Income 45
Notes to Consolidated Financial Statements 46
</TABLE>
(a)(2) Schedules
Valuation and qualifying accounts are not material to the Company's
consolidated financial statements. All other schedules for which provision is
made in the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are not
applicable, and therefore have been omitted.
-95-
<PAGE>
2. Exhibits:
Exhibits to the Form 10-K have been included only with the copies of the
Form 10-K filed with the Commission. Upon request to the Company and payment of
a reasonable fee, copies of the individual exhibits will be furnished.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
<S> <C> <C>
3.A Restated Articles of Organization of Wyman-Gordon Company - incorporated
by reference to Exhibit 3A to the Company's Form 10-K for the year ended
June 3, 1995. -
3.B Bylaws of Wyman-Gordon Company, as amended through May 24, 1994 -
incorporated by reference to Exhibit 3B to the Company's Form 10-K for
the year ended June 3, 1995. -
4.A Amended and Restated Rights Agreement, dated as of January 10, 1994
between the Company and State Street Bank & Trust Company, as Rights
Agent - incorporated by reference to Exhibit 1 to the Company's Report
on Form 8-A/A dated January 21, 1994. -
4.B Indenture dated as of March 16, 1993 among Wyman-Gordon Company, its
Subsidiaries and State Street Bank and Trust Company as Trustee with
respect to Wyman-Gordon Company's 10 3/4% Senior Notes due 2003 -
incorporated by reference to Exhibit 4C to the Company's Report on Form
10-K for the year ended December 31, 1992. -
4.C 10 3/4% Senior Notes due 2003. Supplemental Indenture dated May 19, 1994
- incorporated by reference to Exhibit 5 to the Company's Report on Form
8-K dated May 26, 1994. -
4.D 10 3/4% Senior Notes due 2003. Second Supplemental Indenture and
Guarantee dated May 27, 1994 - incorporated by reference to the
Company's Report on Form 8-K dated May 26, 1994. -
4.E Instruments defining the rights of holders of long-term debt are omitted
pursuant to paragraph (b)(4)(iii) of Regulation S-K Item 601. The
Company agrees to furnish such instruments to the Commission upon
request. -
4.F 10 3/4% Senior Notes due 2003. Third Supplemental Indenture dated
December 9, 1997. -
4.G Indenture dated as of December 15, 1997 among Wyman-Gordon Company, its
Subsidiaries and State Street Bank and Trust Company as Trustee with
respect to Wyman-Gordon Company's 8% Senior Notes due 2007. -
</TABLE>
-96-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
<S> <C> <C>
4.H 8% Senior Notes due 2007. Supplemental Indenture dated December 15,
1997. -
10.A J. Stewart Smith, Performance Stock Option Agreement under the
Wyman-Gordon Company Long-term Incentive Plan dated July 16, 1996
incorporated by reference on Form 10-K dated May 31, 1998. -
10.B David P. Gruber, Performance Stock Option Agreement under the
Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996
incorporated by reference to Exhibit 10.H of the Company's Report on
Form 10-K dated May 31, 1996. -
10.C Sanjay N. Shah, Performance Stock Option Agreement under the
Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996
incorporated by reference to Exhibit 10.I of the Company's Report on
Form 10-K dated May 31, 1996. -
10.D J. Douglas Whelan, Performance Stock Option Agreement under the
Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996
incorporated by reference to Exhibit 10.J of the Company's Report on
Form 10-K dated May 31, 1996. -
10.E Wallace F. Whitney, Jr, Performance Stock Option Agreement under the
Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996
incorporated by reference to Exhibit 10.K of the Company's Report on
Form 10-K dated May 31, 1996. -
10.F Frank J. Zugel, Performance Stock Option Agreement under the
Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996
incorporated by reference to Exhibit 10.L of the Company's Report on
Form 10-K dated May 31, 1996. -
10.G J. Stewart Smith, Performance Share Agreement under the Wyman-Gordon
Company Long-term Incentive Plan dated July 16, 1996 incorporated by
reference to Exhibit 10.M of the Company's Report on Form 10-K dated May
31, 1998. -
10.H David P. Gruber, Performance Share Agreement under the Wyman-Gordon
Company Long-term Incentive Plan dated April 17, 1996 incorporated by
reference to Exhibit 10.N of the Company's Report on Form 10-K dated May
31, 1996. -
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
<S> <C> <C>
10.I Sanjay N. Shah, Performance Share Agreement under the Wyman-Gordon
Company Long-term Incentive Plan dated April 17, 1996 incorporated by
reference to Exhibit 10.O of the Company's Report on Form 10-K dated May
31, 1996. -
10.J J. Douglas Whelan, Performance Share Agreement under the Wyman-Gordon
Company Long-term Incentive Plan dated April 17, 1996 incorporated by
reference to Exhibit 10.P of the Company's Report on Form 10-K dated May
31, 1996. -
10.K Wallace F. Whitney, Jr., Performance Share Agreement under the
Wyman-Gordon Company Long-term Incentive Plan dated April 17, 1996
incorporated by reference to Exhibit 10.Q of the Company's Report on
Form 10-K dated May 31, 1996. -
10.L Frank J. Zugel, Performance Share Agreement under the Wyman-Gordon
Company Long-term Incentive Plan dated April 17, 1996 incorporated by
reference to Exhibit 10.R of the Company's Report on Form 10-K dated May
31, 1996. -
10.M David P. Gruber, Stock Option Agreement under the Wyman-Gordon Company
Long-term Incentive Plan dated April 17, 1996 - incorporated by
reference to Exhibit 10.T of the Company's Report on Form 10-K dated May
31, 1996. -
10.N Sanjay N. Shah, Stock Option Agreement under the Wyman-Gordon Company
Long-term Incentive Plan dated April 17, 1996 - incorporated by
reference to Exhibit 10.U of the Company's Report on Form 10-K dated May
31, 1996. -
10.O J. Douglas Whelan, Stock Option Agreement under the Wyman-Gordon Company
Long-term Incentive Plan dated April 17, 1996 - incorporated by
reference to Exhibit 10.V of the Company's Report on Form 10-K dated May
31, 1996. -
10.P Wallace F. Whitney, Jr., Stock Option Agreement under the Wyman-Gordon
Company Long-term Incentive Plan dated April 17, 1996 incorporated by
reference to Exhibit 10.W of the Company's Report on Form 10-K dated May
31, 1996. -
10.Q Frank J. Zugel, Stock Option Agreement under the Wyman-Gordon Company
Long-term Incentive Plan dated April 17, 1996 - incorporated by
reference to Exhibit 10.X of the Company's Report on Form 10-K dated May
31, 1996. -
</TABLE>
-98-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
<S> <C> <C>
10.R Amendment to Performance Share Agreement under the Wyman-Gordon Company
Long-term Incentive Plan dated May 24, 1994 between Wyman-Gordon Company
and David P. Gruber - incorporated by reference to Exhibit 10.Y of the
Company's Report on Form 10-K dated May 31, 1996. -
10.S Revolving Credit Agreement dated as of May 20, 1994 among Wyman-Gordon
Receivables Corporation, the Financial Institutions Parties Hereto and
Shawmut Bank N.A. as Issuing Bank, as Facility Agent and as Collateral
Agent - incorporated by reference to the Company's Report on Form 8-K
dated May 26, 1994. -
10.T Receivables Purchase and Sale Agreement dated as of May 20, 1994 among
Wyman-Gordon Company, Wyman-Gordon Investment Castings, Inc. and
Precision Founders Inc. as the Sellers, Wyman- Gordon Company as the
Servicer and Wyman-Gordon Receivables Corporation as the Purchaser -
incorporated by reference to the Company's Report on Form 8-K dated May
26, 1994. -
10.U Performance Share Agreement under the Wyman-Gordon Company Long-term
Incentive Plan between the Company and David P. Gruber dated as of May
24, 1994 - incorporated by reference to the Company's Report on Form 8-K
dated May 26, 1994. -
10.V Long-term Incentive Plan dated July 19, 1995 incorporated by reference
to Appendix A of the Company's "Proxy Statement for Annual Meeting of
Stockholders" on October 18, 1995. -
10.W Wyman-Gordon Company Non-Employee Director Stock Option Plan dated
January 18, 1995 incorporated by reference to Appendix C of the
Company's "Proxy Statement for Annual Meeting of Stockholders" on
October 18, 1995. -
10.X Wyman-Gordon Company Long-term Incentive Plan dated January 15, 1997
incorporated by reference to Appendix A of the Company's "Proxy
Statement for Annual Meeting to Stockholders" to be held on October 15,
1997. -
10.Y Colin Stead, Performance Stock Option Agreement under the Wyman-Gordon
Company Long-term Incentive Plan dated July 16, 1996 incorporated by
reference to Exhibit 10.AI of the Company's Report on Form 10-K dated
May 31, 1998. -
10.Z Colin Stead, Performance Share Agreement under the Wyman-Gordon Company
Long-term Incentive Plan dated July 16, 1996 - incorporated by reference
to Exhibit 10.AJ of the Company's Report on Form 10-K dated May 31,
1998. -
</TABLE>
-99-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
<S> <C> <C>
10.AA Agreement and Plan of Merger, dated May 17, 1999, by and among Precision
Castparts Corp., WGC Acquisition Corp. and Wyman-Gordon Company
(incorporated herein by reference to Exhibit 3 to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, dated May 21,
1999 (File No. 005-10796)). -
10.AB Form of Executive Severance Agreement. Wyman-Gordon Company has entered
into such agreements with the following of its officers: David P.
Gruber, J. Douglas Whelan, Sanjay N. Shah, J. Stewart Smith, Colin
Stead, Wallace F. Whitney, Jr., Frank J. Zugel, William T. McGovern and
David J. Sulzbach (incorporated herein by reference to Exhibit 4 to the
Company's Solicitation/Recommendation Statement on Schedule 14D-9, dated
May 21, 1999 (File No. 005-10796)). -
10.AC Form of Amendment to Severance Agreement. Wyman-Gordon Company has
entered into such agreements with the following of its officers: David
P. Gruber, J. Douglas Whelan, Sanjay N. Shah, J. Stewart Smith, Colin
Stead, Wallace F. Whitney, Jr., Frank J. Zugel and William T. McGovern
(incorporated herein by reference to Exhibit 5 to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, dated May 21,
1999 (File No. 005-10796)). -
21 List of Subsidiaries E-1
23 Consent of Ernst & Young LLP 102
27 Financial Data Schedule E-2
</TABLE>
-100-
<PAGE>
(b) Reports on Form 8-K
On August 11, 1998, the Company filed a Form 8-K with the Commission to
report that it and Titanium Metals Corporation completed a transaction in which
the parties have combined their respective titanium castings businesses into a
jointly-owned venture.
On October 29, 1999, the Company filed a Form 8-K with the Commission to
report the adoption of (i) certain amendments to the Company's By-laws and (ii)
a Shareholder Rights Agreement.
On April 4, 1999, the Company filed a Form 8-K with the Commission to
report the resignation of Edward J. Davis, the Company's Vice President, Chief
Financial Officer and Treasurer.
On April 9, 1999, the Company filed a Form 8-K with the Commission to
report a pre-tax charge of $13.8 million relating to the settlement of claims
associated with a previously reported industrial accident that occurred on
December 22, 1996.
-101-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, File Numbers 2-56547, 2-75980, 33-26980, 33-48068 and 33-64503)
pertaining to the Wyman-Gordon Company Executive Long-Term Incentive Program
(1975) -- Amendment No. 6, the Wyman-Gordon Company Stock Purchase Plan, the
Wyman-Gordon Company Savings/Investment Plan, the Wyman-Gordon Company Long-Term
Incentive Plan and the Wyman-Gordon Company Employee Stock Purchase Plan; and
the Registration Statements (Form S-3, File Numbers 33-63459 and 333-32149) of
Wyman-Gordon Company and in the related Prospectuses of our report dated June
23, 1999, with respect to the consolidated financial statements of Wyman-Gordon
Company and subsidiaries included in this Annual Report (Form 10-K) for the year
ended May 31, 1999.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
August 26, 1999
-102-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Wyman-Gordon Company
(REGISTRANT)
By: /s/ DAVID J. SULZBACH
David J. Sulzbach
Vice President, Finance
and Corporate Controller
and Principal Accounting
Officer
Date: August 27, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ DAVID P. GRUBER Chairman of the Board August 27, 1999
David P. Gruber of Directors and Chief
Executive Officer
/s/ J. DOUGLAS WHELAN President and Chief August 27, 1999
J. Douglas Whelan Operating Officer
/s/ DAVID J. SULZBACH Vice President, August 27, 1999
David J. Sulzbach Finance and Corporate
Controller and
Principal Accounting
Officer
/s/ E. PAUL CASEY Director August 27, 1999
E. Paul Casey
/s/ WARNER S. FLETCHER Director August 27, 1999
Warner E. Fletcher
/s/ ROBERT G. FOSTER Director August 27, 1999
Robert G. Foster
/s/ CHARLES W. GRIGG Director August 27, 1999
Charles W. Grigg
/s/ M HOWARD JACOBSON Director August 27, 1999
M Howard Jacobson
</TABLE>
-103-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ ROBERT L. LEIBENSPERGER Director August 27, 1999
Robert L. Leibensperger
/s/ ANDREW E. LIETZ Director August 27, 1999
Andrew E. Lietz
/s/ DAVID A. WHITE, JR. Director August 27, 1999
David A. White, Jr.
</TABLE>
-104-
<PAGE>
EXHIBIT II
Quarterly Report on Form 10-Q of Wyman-Gordon Company for the quarterly period
ended August 31, 1999
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1999
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
COMMISSION FILE NUMBER 0-3085
WYMAN-GORDON COMPANY
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1992780
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
244 WORCESTER STREET, BOX 8001, NO. GRAFTON, MASSACHUSETTS 01536-8001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 508-839-4441
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS OCTOBER 2, 1999
<S> <C>
Common Stock, $1 Par Value 36,103,428
</TABLE>
<PAGE>
PART I.
ITEM 1. FINANCIAL STATEMENTS
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, AUGUST 31,
1999 1998
(000's omitted, except per share data)
<S> <C> <C>
Revenue $ 176,495 $ 189,664
Less:
Cost of goods sold 147,767 161,067
Selling, general and
administrative expenses 11,976 13,480
Other charges(credits) (1,200) (5,000)
158,543 169,547
Income from operations 17,952 20,117
Other deductions:
Interest expense 3,599 3,529
Miscellaneous, net 305 256
3,904 3,785
Income before income taxes 14,048 16,332
Provision for income taxes 5,057 4,480
Net income $ 8,991 $ 11,852
Net income per share:
Basic $ .25 $ .32
Diluted $ .25 $ .32
Shares used to compute net income per share:
Basic 35,911 36,542
Diluted 36,557 37,207
</TABLE>
The accompanying notes to the interim consolidated condensed financial
statements are an integral part of these financial statements.
-2-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1999 1999
(Unaudited)
(000's omitted)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 74,855 $ 73,867
Accounts receivable 156,112 156,042
Inventories 95,118 97,603
Prepaid expenses 4,386 6,768
Deferred income taxes 6,400 6,400
Total current assets 336,871 340,680
Property, plant and equipment, net 213,629 214,604
Intangible and other assets 30,521 26,426
Total assets $ 581,021 $ 581,710
LIABILITIES
Borrowings due within one year $ 968 $ 965
Accounts payable 46,904 52,561
Accrued liabilities and other 51,338 57,127
Total current liabilities 99,210 110,653
Restructuring, integration, disposal
and environmental 15,279 15,444
Long-term debt 164,315 164,338
Pension liability 1,605 1,771
Deferred income tax and other 13,890 13,857
Postretirement benefits 41,352 41,885
Total liabilities 335,651 347,948
STOCKHOLDERS' EQUITY
Preferred stock - none issued -- --
Common stock issued - 37,052,720 shares 37,053 37,053
Capital in excess of par value 26,467 27,360
Retained earnings 194,866 185,875
Accumulated other comprehensive income 1,264 1,267
Less treasury stock at cost
August 31, 1999 - 950,292 shares
May 31, 1999 - 1,417,737 shares (14,280) (17,793)
Total stockholders' equity 245,370 233,762
Total liabilities and stockholders'
equity $ 581,021 $ 581,710
</TABLE>
The accompanying notes to the interim consolidated condensed financial
statements are an integral part of these financial statements.
-3-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, AUGUST 31,
1999 1998
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 8,991 $ 11,852
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 7,353 6,799
Gain on sale of operating assets -- (5,000)
Changes in assets and liabilities:
Accounts receivable (70) (471)
Inventories 2,485 (12,861)
Prepaid expenses and other assets (1,892) (3,561)
Accrued restructuring, integration
disposal and environmental (4,050) 37
Income and other taxes payable 5,194 3,542
Accounts payable and accrued
other liabilities (13,254) 10,292
Net cash provided (used) by
operating activities 4,757 10,629
INVESTING ACTIVITIES:
Capital expenditures (6,403) (12,573)
Proceeds from sale of fixed assets 159 5,283
Other, net (124) (215)
Net cash provided (used) by
investing activities (6,368) (7,505)
FINANCING ACTIVITIES:
Payment to Cooper Industries, Inc. -- (2,300)
Repayments of debt (21) --
Net proceeds from issuance of
common stock 2,620 946
Net cash provided (used) by
financing activities 2,599 (1,354)
Increase (decrease) in cash 988 1,770
Cash, beginning of year 73,867 64,561
Cash, end of period $ 74,855 $ 66,331
</TABLE>
The accompanying notes to the interim consolidated condensed financial
statements are an integral part of these financial statements.
-4-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
August 31, 1999
(Unaudited)
NOTE A - BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly its financial position at August 31, 1999 and its results of operations
and cash flows for the three months ended August 31, 1999 and August 31, 1998.
All such adjustments are of a normal recurring nature.
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with Article 10 of Securities and Exchange
Commission Regulation S-X and, therefore, do not include all information and
footnotes necessary for a fair presentation of the financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. In conjunction with its May 31, 1999 Annual Report on Form 10-K, the
Company filed audited consolidated financial statements which included all
information and footnotes necessary for a fair presentation of its financial
position at May 31, 1999 and 1998 and its results of operations and cash flows
for the years ended May 31, 1999, 1998, and 1997, in conformity with generally
accepted accounting principles. Where appropriate, prior period amounts have
been reclassified to permit comparison.
NOTE B - RECENTLY ISSUED ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This Statement requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
133 is not expected to have material impact on the Company's consolidated
financial statements. This Statement is effective for fiscal years beginning
after June 15, 2000. The Company will adopt this accounting standard as required
in fiscal 2002.
-5-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
August 31, 1999
(Unaudited)
NOTE C - INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
AUGUST 31, 1999 MAY 31, 1999
(000's omitted)
<S> <C> <C>
Raw material $ 35,897 $ 36,849
Work-in-process 62,084 65,654
Other 3,970 3,204
101,951 105,707
Less progress payments 6,833 8,104
$ 95,118 $ 97,603
</TABLE>
If all inventories valued at LIFO cost had been valued at the lower of
first-in, first-out (FIFO) cost or market, which approximates current
replacement cost, inventories would have been $16,446,000 higher than reported
at August 31, 1999 and May 31, 1999.
There were no LIFO inventory credits or charges to cost of goods sold in the
three months ended August 31, 1999 or August 31, 1998.
NOTE D - NET INCOME PER SHARE
There were no adjustments required to be made to net income (loss) for
purposes of computing basic and diluted net income per share. A reconciliation
of the average number of common shares outstanding used in the calculation of
basic and diluted net income per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, AUGUST 31,
1999 1998
<S> <C> <C>
Shares used to compute
basic net income per
share 35,911,474 36,542,318
Dilutive effect of
stock options 645,507 664,735
Shares used to compute
diluted net income
per share 36,556,981 37,207,053
</TABLE>
-6-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
August 31, 1999
(Unaudited)
NOTE E - SEGMENT INFORMATION
The following table summarizes segment information by markets served:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, AUGUST 31,
1999 1998
<S> <C> <C>
Net sales
Aerospace products $145,645 $152,951
Energy products 25,735 29,574
Other products 5,115 7,139
Consolidated net sales $176,495 $189,664
EBITDA(1)
Aerospace products $ 23,016 $ 19,200
Energy products 2,237 3,066
Other products 491 1,261
Corporate (1,944) (1,867)
Total EBITDA 23,800 21,660
Depreciation and Amortization 7,353 6,799
Other charges (credit) (1,200) (5,000)
Interest expense 3,599 3,529
Income before income taxes $ 14,048 $ 16,332
</TABLE>
(1) Earnings before interest, taxes, depreciation, amortization, extraordinary
items and other charges (credits).
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Expenses that are
not directly identifiable to a business market are allocated. Common
administrative expenses are allocated based on revenue, common period costs are
allocated based on value added.
The Company's management uses Revenues and EBITDA by business market as its
primary information for decision-making purposes. The Company's revenues are
predominantly generated in the Aerospace market segment. All plants with the
exception of the Buffalo, New York facility, which has approximately $23,000,000
of total assets and generates most of its revenues from the Energy market
segment, generate the majority of their revenues from the Aerospace market.
Certain plants manufacture products for all segments; however, due to the
significance of the Aerospace market segment (82% of revenues), assets of the
-7-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
August 31, 1999
(Unaudited)
NOTE E - SEGMENT INFORMATION, Continued
Company are not managed by business markets but are managed on a plant-by-plant
basis. Because the Company does not prepare and management does not use asset
information by the segments identified, assets by segments are not presented in
these financial statements.
NOTE F - COMMITMENTS AND CONTINGENCIES
At August 31, 1999, certain lawsuits arising in the normal course of
business were pending. In the opinion of management, the outcome of these legal
matters will not have a material adverse effect on the Company's financial
position and results of operations.
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 had foreign exchange contracts totaling approximately
$12,541,000 at August 31, 1999. These contracts hedge certain normal operating
purchase and sales transactions. The foreign exchange contracts generally mature
within six months and require the Company to exchange U.K. pounds for non-U.K.
currencies or non-U.K. currencies for U.K. pounds. Transaction gains and losses
included in the Consolidated Condensed Statements of Income for the three months
ended August 31, 1999 and August 31, 1998 were not material.
On September 25, 1997, the Company received a subpoena from the United
States Department of Justice informing it that the Department of Defense and
other federal agencies had commenced an investigation with respect to the
manufacture and sale of investment castings at the Company's Tilton, New
Hampshire facility. The Company does not believe that the federal investigation
is likely to result in a material adverse impact on the Company's financial
condition or results of operations, although no assurance as to the outcome or
impact of that investigation can be given.
-8-
<PAGE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
August 31, 1999
(Unaudited)
NOTE G - OTHER CHARGES (CREDITS)
In the three months ended August 31, 1999, the Company recorded other
credits of $1,200,000 for the recovery of costs associated with the Houston
industrial accident.
In the three months ended August 31, 1998, the Company recorded other
credits of $5,000,000 resulting from the sale of the operating assets of the
Company's Millbury, Massachusetts vacuum remelting facility which produced
titanium ingots for further processing into finished forgings to Titanium Metals
Corporation "TIMET".
NOTE H - PENDING MERGER
On May 17, 1999, Precision Castparts, Corp. ("PCC") and the Company
announced that PCC has agreed to acquire 100 percent of the Company's common
stock in a cash tender offer of $20 per share, valued at approximately
$825,000,000, including the assumption of $104,000,000 of net debt. Upon
completion of the tender offer and subsequent merger, Wyman-Gordon will become a
wholly-owned subsidiary of PCC. The completion of the tender offer is
conditioned upon the tender of at least two-thirds of the outstanding shares of
Wyman-Gordon and certain other conditions, including compliance with the
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976. PCC,
headquartered in Portland, Oregon, is a worldwide manufacturer of complex metal
components and products.
-9-
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY"
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain "forward-looking" information (as
defined in the Private Securities Litigation Reform Act of 1995). The words
"believe," "expect," "anticipate," "intend," "estimate", "assume" and other
similar expressions which are predictions of or indicate future events and
trends and which do not relate to historical matters identify forward-looking
statements. In addition, information concerning raw material prices and
availability, customer orders and pricing, and industry cyclicality and their
impact on gross margins and business trends as well as liquidity and sales
volume are forward-looking statements. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, which are in some cases beyond the control of
the Company and may cause the actual results, performance or achievements of the
Company to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements.
Certain factors that might cause such differences include, but are not
limited to, the following: The Company's ability to successfully negotiate
long-term contracts with customers and raw materials suppliers at favorable
prices and other terms acceptable to the Company, the Company's ability to
obtain required raw materials to supply its customers on a timely basis and the
cyclicality of the aerospace industry.
For further discussion identifying important factors that could cause actual
results to differ materially from those anticipated in forward-looking
statements, see the Company's SEC filings, in particular see the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1999 Part I, Item 1
"Business - The Company," "Customers," "Marketing and Sales," "Backlog," "Raw
Materials," "Energy Usage," "Employees," "Competition," "Environmental
Regulations," "Product Liability Exposure" and "Legal Proceedings".
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS
The principal markets served by the Company are aerospace and energy.
Revenue by market for the respective periods was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, 1999 AUGUST 31, 1998
(000's omitted)
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
<S> <C> <C> <C> <C>
Aerospace $145,645 82% $152,951 81%
Energy 25,735 15% 29,574 15%
Other 5,115 3% 7,139 4%
$176,495 100% $189,664 100%
</TABLE>
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1999 ("first quarter of
fiscal year 2000") COMPARED TO THREE MONTHS ENDED AUGUST 31, 1998 ("first
quarter of fiscal year 1999")
CONSOLIDATED RESULTS OF OPERATIONS
Total revenues in the first quarter of fiscal year 2000 decreased by $13.2
million, or 6.9%, to $176.5 million compared to $189.7 million in the first
quarter of fiscal year 1999. EBITDA improved to $23.8 million, or 13.5% of
revenues compared to $21.7 million, or 11.4% of revenues in the first quarter of
fiscal year 1999. The decline in revenues while maintaining EBITDA and gross
margins consistent with those of fiscal year 1999 is in line with the Company's
previous announcements.
EBITDA should not be considered a substitute for net income as an indicator
of operating performance or as an alternative to cash flow as a measure of
liquidity, in each case determined in accordance with generally accepted
accounting principles. Investors should be aware that EBITDA as reported within
may not be comparable to similarly titled measures presented by other companies,
and comparisons could be misleading unless all companies and analysts calculate
this measure in the same fashion.
Net income was $9.0 million, or $.25 per share (diluted), for the quarter,
compared to $11.9 million, or $.32 per share (diluted) for the first quarter of
fiscal year 1999. During the first quarter of fiscal year 2000, the Company
recorded other credits of $1.2 million for the recovery of costs associated with
the Houston industrial accident. During the first quarter of
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1999 ("first quarter of
fiscal year 2000") COMPARED TO THREE MONTHS ENDED AUGUST 31, 1998 ("first
quarter of fiscal year 1999"), Continued
CONSOLIDATED RESULTS OF OPERATIONS, Continued
fiscal year 1999, the Company recorded a $5.0 million credit associated with the
sale of operating assets from its Millbury, Massachusetts facility to TIMET and
a $1.4 million tax benefit related to expected realization of certain tax
assets. Notwithstanding these items, net income for the first quarter of fiscal
year 2000 and the first quarter of fiscal year 1999 would have been $8.2
million, or $.23 per share (diluted) and $7.3 million, or $.20 per share
(diluted), respectively.
Selling, general and administrative expenses decreased 11.2% to $12.0
million during the first quarter of fiscal year 2000 from $13.5 million during
the first quarter of fiscal year 1999. Selling, general and administrative
expenses as a percentage of revenues improved to 6.8% in first quarter of fiscal
year 2000 from 7.1% in the first quarter of fiscal year 1999. Selling, general
and administrative expenses benefited from a $2.4 million credit associated with
the demutualization of one of the Company's insurance carriers in which the
Company holds certain life insurance policies. This benefit was offset by a
charge of $1.2 million relating to the maturation of restricted stock and $1.4
million associated with incentive accruals. Excluding these items noted above,
selling, general and administrative expenses would have been $11.8 million, or
6.7% of revenues.
During the first quarter of fiscal year 2000, the Company provided $5.1
million, representing a 36% effective tax rate, for income taxes. The Company
recorded a provision for income taxes of $4.5 million in the first quarter of
fiscal year 1999. The provision was recorded net of a $1.4 million tax benefit
related to reduction in the tax asset reserve for the capital loss related to
the Company's investment in an Australian joint venture.
The Company's backlog decreased to $644.3 million as of the end of the first
quarter of fiscal year 2000 from $1,000.9 million as of the end of the first
quarter of fiscal year 1999 and $734.8 million at May 31, 1999. This decrease
resulted from the following factors:
1. Reduction in build rates of the Company's engine and airframe customers
due to a downturn in the commercial aircraft cycle,
2. Inventory reduction programs initiated by certain major customers, and
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1999 ("first quarter of
fiscal year 2000") COMPARED TO THREE MONTHS ENDED AUGUST 31, 1998 ("first
quarter of fiscal year 1999"), Continued
CONSOLIDATED RESULTS OF OPERATIONS, Continued
3. A decrease in overdue orders to customer delivery dates as a result of
increased capacity from recommissioning of major presses coupled with
reduced bookings.
Of the Company's total current backlog, $492.6 million is shippable in the
next twelve months. The Company believes that it will be able to fulfill those
twelve-month requirements.
FINANCIAL RESULTS BY SEGMENT
AEROSPACE MARKET
The Aerospace Market segment produces components utilizing all of the
Company's manufacturing disciplines: forging, investment casting and composites.
The parts produced in this segment are used extensively by the major jet engine
manufacturers and airframe builders within the commercial and military aircraft
industry. A variety of engine parts produced by the Company include fan discs,
compressor discs, turbine discs, seals, shafts, hubs, reversers and valves.
Aerospace airframe components include landing gear, bulkheads, wing spars,
engine mounts, struts, wing and tail flaps and bulkheads. The Company produces
these components from titanium, nickel, steel, aluminum and composite materials.
The Aerospace Market segment reported first quarter fiscal year 2000
revenues of $145.6 million and EBITDA of $23.0 million. Revenues for the first
quarter of fiscal year 2000 decreased by 4.8% compared to first quarter of
fiscal year 1999 revenues of $153.0 million, however, EBITDA as a percentage of
revenues improved to 19.9% in first quarter of fiscal year 2000 from 12.6% in
the first quarter of fiscal year 1999. The decrease in aerospace market revenues
is a result of the downturn in the commercial aircraft cycle. The significant
improvement in EBITDA is a result of continuous cost reduction initiatives and
shipment of a more favorable product mix compared to the first quarter of fiscal
year 1999. Also, the first quarter of fiscal year 1999 EBITDA was negatively
impacted by inefficiencies associated with bringing the 29,000 ton press back
on-line in the Company's Houston, TX facility.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1999 ("first quarter of
fiscal year 2000") COMPARED TO THREE MONTHS ENDED AUGUST 31, 1998 ("first
quarter of fiscal year 1999"), Continued
ENERGY MARKET
The Company is a major supplier of products used in nuclear and
fossil-fueled commercial power plants, co-generation projects and retrofit and
life extension applications as well as in the oil and gas industry. Products
produced within the energy product segment include extruded seamless thick wall
pipe, connectors and valves. The Company produces rotating components, such as
discs and spacers, and valve components for land-based steam turbine and gas
turbine generators.
Revenues for the Energy Market segment totaled $25.7 million for the first
quarter of fiscal year 2000, as compared to $29.6 million in the first quarter
of fiscal year 1999, a decrease of $3.8 million, or 13.0%. The segment's EBITDA
saw some deterioration, falling to $2.2 million, or 8.7% of revenues for the
first quarter of fiscal year 2000 from $3.1 million, or 10.4% of revenues in the
first quarter of fiscal year 1999. The Energy Market segment continues to
experience the lack of demand for oil exploration worldwide, which has
dramatically affected sales of oil and gas products both domestically and
internationally.
OTHER MARKET
The Company manufactures a variety of products for defense related
applications. Some of the products produced within this segment include steel
casings for bombs and rockets, components for propulsion systems for nuclear
submarines and aircraft carriers as well as pump, valve, structural and
non-nuclear propulsion forgings. The Company also manufactures products for
commercial applications such as food processing, semiconductor manufacturing,
diesel turbochargers and sporting equipment.
The Other Market segment revenues decreased to $5.1 million in the first
quarter of fiscal year 2000 compared to $7.1 million in first quarter of fiscal
year 1999, a decrease of $2.0 million, or 28.4%. EBITDA dropped to $0.5 million,
or 9.8% of revenues compared to $1.3 million, or 17.7% of revenues. The decrease
in revenues and EBITDA was largely due to reduced sales of ordnance products and
associated margins.
LIQUIDITY AND CAPITAL RESOURCES
The $1.0 million increase in the Company's cash to $74.9 million at August
31, 1999 from $73.9 million at May 31, 1999 resulted primarily from cash
provided by operating activities of $4.8 million, issuance of common stock of
$2.6 million in connection with employee compensation and benefit plans and $0.2
million of proceeds from the sale of fixed assets, offset by capital
expenditures of $6.4 million and $0.2 million used for other, net investing and
financing activities.
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, Continued
LIQUIDITY AND CAPITAL RESOURCES, Continued
The $7.7 million increase in the Company's working capital to $237.7 million
at August 31, 1999 from $230.0 million at May 31, 1999 resulted primarily from
(in millions):
<TABLE>
<S> <C>
Increase in:
Cash and cash equivalents $ 1.0
Accounts receivable 0.1
Decrease in:
Inventories (2.5)
Prepaid expenses (2.4)
Accounts payable 5.7
Accrued liabilities and other 5.8
Increase in working capital $ 7.7
</TABLE>
Earnings before interest, taxes, depreciation, amortization and other
charges (credits) ("EBITDA") increased $2.1 million to $23.8 million in the
first three months of fiscal year 2000 from $21.7 million in the first three
months of fiscal year 1999. The increase in EBITDA reflects the favorable impact
from cost reduction initiatives and a more favorable mix of products shipped,
primarily within the Company's aerospace market product lines.
EBITDA should not be considered a substitute for net income as an indicator
of operating performance or as an alternative to cash flow as a measure of
liquidity, which, in each case is determined in accordance with generally
accepted accounting principles. Investors should be aware that EBITDA as shown
above may not be comparable to similarly titled measures presented by other
companies, and comparisons could be misleading unless all companies and analysts
calculate this measure in the same fashion.
As of May 31, 1999, the Company estimated the remaining cash requirements
for the 1997 restructuring to be $2.5 million. Of such amount, the Company
expects to spend approximately $2.2 million during fiscal year 2000 and $0.3
million thereafter. In the first three months of fiscal year 2000, spending
related to the 1997 restructuring amounted to $1.2 million.
The Company expects to spend $1.3 million in fiscal year 2000 and $14.2
million thereafter on non-capitalizable environmental activities. In the first
three months of fiscal year 2000, $0.2 million was expended for
non-capitalizable environmental projects.
-15-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES, Continued
The Company from time to time expends cash on capital expenditures for more
cost-effective operations, environmental projects and joint development programs
with customers. In the first three months of fiscal year 2000, capital
expenditures amounted to $6.4 million and are expected to be approximately $25.0
million in fiscal year 2000.
On December 15, 1997, the Company issued $150.0 million of 8% Senior Notes
due 2007 under an indenture between the Company and a bank as trustee. The 8%
Senior Notes pay interest semi-annually in arrears on June 15 and December 15 of
each year. The 8% 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 Company's revolving receivables-backed credit facility (the "Receivables
Financing Program") provides the Company with an aggregate maximum borrowing
capacity of $65.0 million (subject to a borrowing base), with a letter of credit
sub-limit of $35.0 million. The term of the Receivables Financing Program is
five years with a renewal option. As of August 31, 1999, the total availability
under the Receivables Financing Program was $65.0 million, there were no
borrowings and letters of credit amounting to $9.8 million were outstanding.
Wyman-Gordon Limited, the Company's subsidiary located in Livingston,
Scotland, entered into a credit agreement ("the U.K. Credit Agreement") with
Clydesdale Bank PLC ("Clydesdale") effective May 24, 1999. The maximum borrowing
capacity under the U.K. Credit Agreement is 2.0 million pounds sterling
(approximately $3.2 million) with a separate letter of credit and guarantee
limits of 1.0 million pounds sterling (approximately $1.6 million) each. The
term of the U.K. Credit Agreement is one year with a renewal option. There were
no borrowings outstanding at August 31, 1999. Wyman-Gordon Limited had
outstanding 1.1 million pounds sterling (approximately $1.7 million) of letters
of credit or guarantees under the U.K. Credit Agreement.
The primary sources of liquidity available to the Company to fund operations
and other future expenditures include available cash ($74.9 million at August
31, 1999), borrowing availability under the Company's Receivables Financing
Program, cash generated by operations and reductions in working capital
requirements through planned accounts receivable management. The Company
believes that it has adequate resources to provide for its operations and the
funding of restructuring, capital and environmental expenditures.
-16-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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 entering into fixed price arrangements with
raw material suppliers and, where possible, negotiating price escalators into
its customer contracts to offset a portion of raw material cost increases.
ACCOUNTING AND TAX MATTERS
In June, 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This Statement requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
133 is not expected to have material impact on the Company's consolidated
financial statements. This Statement is effective for fiscal years beginning
after June 15, 2000. The Company will adopt this accounting standard as required
in fiscal 2002.
YEAR 2000
The Year 2000 computer issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the computer programs in the Company's computer systems and plant equipment
systems that have time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities.
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
YEAR 2000, Continued
The Company's overall Year 2000 project approach and status is as follows:
<TABLE>
<CAPTION>
ESTIMATED
STATE OF TIMETABLE
DESCRIPTION OF APPROACH COMPLETION FOR COMPLETION
<S> <C> <C>
Computer Systems:
Assess systems for possible
Year 2000 impact 100% Completed
Modify or replace non-compliant
systems 99% October 31, 1999
Test systems with system clocks
set at current date 99% October 31, 1999
Test systems off-line with
system clocks set at various
Year 2000 related critical
dates 99% October 31,1999
Plant Equipment:
Computer-dependent plant
equipment assessment and
compliance procedures
performed 99% October 31, 1999
</TABLE>
The Company has completed a comprehensive inventory of substantially all
computer systems and programs. All hardware required for stand alone testing of
systems has been installed in order to perform off-line testing for Year 2000
program compliance. The Company has identified all software supplied by outside
vendors that is not Year 2000 compliant. With respect to all such non-compliant
software the Company has acquired the most recent release and has completed
testing such versions for Year 2000 compliance. All software developed in-house
has been reviewed and necessary modifications have been completed.
In addition to assessing the Company's Year 2000 readiness, the Company has
also undertaken an action plan to assess and monitor the progress of third-party
vendors in resolving Year 2000 issues. To date, the Company has generated
correspondence to each of its third-party vendors to assure their Year 2000
readiness. At this time, correspondence received and communication with the
Company's major suppliers indicates Year 2000 readiness plans are currently
being developed and monitored.
The Company used both internal and external resources to reprogram, or
replace, and test software for Year 2000 modifications. The Year 2000 project is
99% complete and the Company anticipates completing the project by October 31,
1999.
-18-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
YEAR 2000, Continued
Maintenance or modification costs will be expensed as incurred, while the costs
of new information technology will be capitalized and amortized in accordance
with Company policy. The Company estimates it will cost approximately $1.2
million to make its computer-dependent plant equipment Year 2000 compliant. The
total estimated cost of the Year 2000 computer project, including software
modifications, consultants, replacement costs for non-compliant systems and
internal personnel costs, based on presently available information, is not
material to the financial operations of the Company and is estimated at
approximately $2.0 million. However, if such modifications and conversions are
not made, or are not completed in time, the Year 2000 computer issue could have
a material impact on the operations of the Company.
The Company is currently assessing Year 2000 contingency plans. A
contingency planning guideline has been established to address departmental
requirements to develop plans for responding to the loss or degradation of
system or services due to Year 2000 issues. The contingency planning involves
the preparation and implementation of alternate work process (such as manual
process and/or the use of an alternate compliant business system at another
location) in the event of system failure due to Year 2000 noncompliance.
The forecast costs and the date on which the Company believes it will
complete its Year 2000 computer modifications are based on its best estimates,
which, in turn, were based on numerous assumptions of future events, including
third-party modification plans, continued availability of resources and other
factors. The Company cannot be sure that these estimates will be achieved and
actual results could differ materially from those anticipated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company uses derivative financial instruments to limit exposure to
changes in foreign currency exchange rates and interest rates.
FOREIGN CURRENCY RISK
The Company's subsidiary in Livingston, Scotland enters into foreign
exchange contracts to manage risk on transactions conducted in foreign
currencies. As discussed in the "Commitments and Contingencies" footnote, the
Company had several foreign currency hedges in place at August 31, 1999 to
reduce such exposure. The potential loss in fair value on such financial
instruments from a hypothetical 10 percent adverse change in quoted foreign
currency exchange rates would not have been material to the financial position
of the Company as of the three months ended August 31, 1999 or August 31, 1998.
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK, Continued
INTEREST RATE RISK
There were no borrowings under the Company's WGRC Revolving Credit Facility
or the U.K. Credit Agreement during the three months ended August 31, 1999 or
August 31, 1998. As such, if market rates would have averaged 10 percent higher
than actual levels during these periods, there would have been no impact to
interest expense or net income as reported.
PART II.
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K
(a) Exhibits
The following exhibits are being filed as part of this Form 10-Q:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
27 Financial Data Schedule for the Three Months
Ended August 31, 1999
</TABLE>
(b) Reports on Form 8-K
NONE
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WYMAN-GORDON COMPANY
Date: 10/15/99 By: /S/ WALLACE F. WHITNEY, JR
Wallace F. Whitney, Jr.
Vice President,
General Counsel and Clerk
Date: 10/15/99 By: /S/ DAVID J. SULZBACH
David J. Sulzbach
Vice President,
Finance, Corporate Controller
and Principal Accounting Officer
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PROXY PROXY
WYMAN-GORDON COMPANY
244 WORCESTER STREET
P.O. BOX 8001
NORTH GRAFTON, MASSACHUSETTS 01536-8001
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
WYMAN-GORDON COMPANY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 12, 2000
The undersigned hereby constitutes and appoints Alan J. Glass and Denis
Poirier, and each of them, as proxies (the "Proxies") of the undersigned,
with full power of substitution in each, and authorizes each of them to
represent and to vote all shares of common stock, par value $1.00 per share,
of Wyman-Gordon Company (the "Company") held of record by the undersigned at
the close of business on Thursday, December 16, 1999, at the Special Meeting
of Stockholders (the "Special Meeting") to be held at the offices of Goodwin,
Procter & Hoar LLP, Exchange Place, 53 State Street, Boston, Massachusetts,
on Wednesday, January 12, 2000 at 10:00 a.m., local time, and at any
adjournments or postponements thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR THE PROPOSAL SET FORTH IN PARAGRAPH 1 ON THE REVERSE
SIDE HEREOF. THE PROXIES ARE EACH AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING AND ANY ADJOURNMENT OR
POSTPONEMENT THEREOF. STOCKHOLDERS WHO PLAN TO ATTEND THE SPECIAL MEETING MAY
REVOKE THEIR PROXY BY CASTING THEIR VOTE AT THE SPECIAL MEETING IN PERSON.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of Special Meeting of Stockholders and the Proxy Statement with respect
thereto and hereby revoke(s) any proxy or proxies heretofore given.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON REVERSE SIDE
AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
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[X] PLEASE MARK VOTE
AS IN THIS EXAMPLE
WYMAN-GORDON COMPANY
RECORD DATE SHARES:
PLEASE BE SURE TO SIGN AND DATE THIS PROXY.
Date:________________________
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Stockholder sign here
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Co-owner sign here
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FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. To approve the Agreement and Plan of Merger, / / / / / /
dated as of May 17, 1999, by and among
Precision Castparts Corp., WGC Acquisition Corp., and the
Company, providing for the merger of WGC Acquisition Corp. with
and into the Company, with the Company being the surviving
corporation.
2. To consider and act upon such other business as may properly
come before the Special Meeting and any adjournments or
postponements thereof.
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PLEASE SIGN NAME EXACTLY AS SHOWN ON REVERSE. WHERE THERE IS MORE THAN ONE
HOLDER, EACH SHOULD SIGN. WHEN SIGNING AS AN ATTORNEY, ADMINISTRATOR, EXECUTOR,
GUARDIAN OR TRUSTEE, PLEASE ADD YOUR TITLE AS SUCH. IF EXECUTED BY A CORPORATION
OR PARTNERSHIP, THIS PROXY SHOULD BE EXECUTED IN THE FULL CORPORATE OR
PARTNERSHIP NAME AND SIGNED BY A DULY AUTHORIZED PERSON, STATING HIS OR HER
TITLE OR AUTHORITY.
PLEASE SIGN, DATE AND PROMPTLY MAIL YOUR PROXY.
DETACH CARD DETACH CARD
