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Filed Pursuant to Rule 424(b)(4)
Registration No. 33-63457
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<S> <C>
PROSPECTUS [COOPER LOGO]
15,000,000 DECS(SM)
(DEBT EXCHANGEABLE FOR COMMON STOCK(SM))
COOPER INDUSTRIES, INC.
</TABLE>
6.0% EXCHANGEABLE NOTES DUE JANUARY 1, 1999
(SUBJECT TO EXCHANGE INTO SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE, OF
WYMAN-GORDON COMPANY)
The principal amount of each of the 6.0% Exchangeable Notes Due January 1, 1999
(each a "DECS"), of Cooper Industries, Inc. ("Cooper") being offered hereby will
be $13.50 (the last sale price of the common stock, par value $1.00 per share
(the "Wyman-Gordon Common Stock"), of Wyman-Gordon Company ("Wyman-Gordon") on
December 14, 1995, as reported on The Nasdaq Stock Market's National Market)
(the "Initial Price"). The DECS will mature on January 1, 1999. Interest on the
DECS, at the rate of 6.0% of the principal amount per annum, is payable
quarterly on January 1, April 1, July 1, and October 1, beginning April 1, 1996.
The DECS are not subject to any sinking fund or redemption prior to maturity.
At maturity (including as a result of acceleration or otherwise), the principal
amount of each DECS will be mandatorily exchanged by Cooper into a number of
shares of Wyman-Gordon Common Stock (or, in accordance with the terms of the
Indenture (as defined), at Cooper's option, cash with an equal value) at the
Exchange Rate (as defined herein). The Exchange Rate is equal to, subject to
certain adjustments, (a) if the Maturity Price per share of Wyman-Gordon Common
Stock is greater than or equal to $15.66 per share of Wyman-Gordon Common Stock,
0.862 share of Wyman-Gordon Common Stock per DECS, (b) if the Maturity Price is
less than $15.66 but is greater than the Initial Price, a fractional share of
Wyman-Gordon Common Stock per DECS so that the value thereof at the Maturity
Price equals the Initial Price and (c) if the Maturity Price is less than or
equal to the Initial Price, one share of Wyman-Gordon Common Stock per DECS. The
"Maturity Price" means the average Closing Price (as defined herein) per share
of Wyman-Gordon Common Stock on the 20 Trading Days (as defined herein)
immediately prior to (but not including) the date of maturity. Accordingly,
holders of the DECS will not necessarily receive an amount equal to the
principal amount thereof. If the Maturity Price is less than the Initial Price,
the amount receivable at maturity will be less than the price paid for the DECS,
in which case an investment in the DECS will result in a loss equal to the
decline in the market value of the Wyman-Gordon Common Stock. If the Maturity
Price is greater than the Initial Price but less than $15.66 per share, Cooper
will retain all of the appreciation in the market value of the Wyman-Gordon
Common Stock, and if the Maturity Price is greater than $15.66 per share,
holders of the DECS will realize 86.2% of the appreciation above $15.66 per
share. Cooper may only exercise its option to pay outstanding DECS in cash from
the proceeds of its sale of common stock of Cooper. The DECS will be an
unsecured obligation of Cooper ranking pari passu with all of its other
unsecured and unsubordinated indebtedness. As of September 30, 1995, Cooper had
no indebtedness by its terms ranking senior to the DECS, $151.8 million of
indebtedness effectively ranking senior to the DECS because it is secured or
issued by consolidated subsidiaries, $1,233.4 million of indebtedness ranking
pari passu with the DECS, and $690.5 million of indebtedness subordinated to the
DECS. Wyman-Gordon will have no obligations with respect to the DECS. See
"Description of the DECS."
For a discussion of certain United States federal income tax consequences for
holders of DECS, see "Certain United States Federal Income Tax Considerations."
Attached hereto as Appendix A is a prospectus of Wyman-Gordon (the "Wyman-Gordon
Prospectus") covering the shares of Wyman-Gordon Common Stock which may be
received by a holder of DECS at maturity. The Wyman-Gordon Prospectus relates to
an aggregate of 16,500,000 shares of Wyman-Gordon Common Stock.
"DECS" and "Debt Exchangeable for Common Stock" are service marks of Salomon
Brothers Inc ("Salomon").
The Wyman-Gordon Common Stock is listed on The Nasdaq Stock Market's National
Market ("Nasdaq") under the symbol "WYMN." The DECS have been approved for
listing on the New York Stock Exchange ("NYSE") under the symbol "CXW."
PROSPECTIVE INVESTORS ARE ADVISED TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED UNDER "RISK FACTORS" ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COOPER(1)(2)
<S> <C> <C> <C>
Per DECS.............................. $13.50 $0.405 $13.095
Total (3)............................. $202,500,000 $6,075,000 $196,425,000
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from December 20, 1995, to the date of
delivery.
(2) Before deducting expenses payable by Cooper, estimated to be $775,000.
(3) Cooper has granted the Underwriters an option, exercisable within 30 days
from the date hereof, to purchase up to an additional 1,500,000 DECS at the
Price to Public, less Underwriting Discount, for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discount and Proceeds to Cooper will
be $222,750,000, $6,682,500 and $216,067,500, respectively. See "Plan of
Distribution."
The DECS are offered subject to receipt and acceptance by the Underwriters, to
prior sales and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the DECS will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about December 20, 1995.
SALOMON BROTHERS INC
MERRILL LYNCH & CO.
SCHRODER WERTHEIM & CO.
The date of this Prospectus is December 14, 1995.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DECS AND THE
WYMAN-GORDON COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NYSE, NASDAQ OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE WYMAN-GORDON COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE
10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE
ACT"). SEE "PLAN OF DISTRIBUTION."
AVAILABLE INFORMATION
Cooper is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by Cooper can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices at Seven World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. In addition, material filed by Cooper can be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
Cooper has filed with the Commission a Registration Statement on Form S-3
(together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued under this Prospectus. This
Prospectus omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto in accordance with the rules
and regulations of the Commission. For further information regarding Cooper and
the DECS offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed therewith, which may be inspected without charge at
the office of the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and copies of which may be obtained from the Commission at prescribed
rates. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
2
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by Cooper with the Commission
pursuant to the Exchange Act and are incorporated herein by reference and made a
part of the Prospectus: (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1994; (ii) Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1994; (iii) Proxy Statement dated March 17, 1995 for the 1995
Annual Meeting of Shareholders; (iv) Current Report on Form 8-K dated April 28,
1995; (v) Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
dated May 12, 1995; (vi) Current Report on Form 8-K dated July 14, 1995; (vii)
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 dated August
14, 1995; and Quarterly Report on Form 10-Q for the quarter ended September 30,
1995 dated November 13, 1995.
All documents subsequently filed by Cooper pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the DECS hereunder shall be deemed to be incorporated herein by reference and
shall be a part hereof from the date of the filing of such documents. Any
statements contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or replaced,
to constitute a part of this Prospectus.
Cooper will provide without charge to each person, including any beneficial
owner, to whom a Prospectus is delivered, upon written or oral request of such
person, a copy of the documents incorporated by reference herein, other than
exhibits to such documents not specifically incorporated by reference. Such
requests should be directed to the principal executive office of Cooper
Industries, Inc., Suite 4000, First City Tower, 1001 Fannin, Houston, Texas
77002, Attention: Corporate Secretary, telephone number (713) 739-5400.
3
<PAGE> 4
RISK FACTORS
The National Association of Securities Dealers, Inc. may provide guidelines
to its members regarding compliance responsibilities and requirements when
handling transactions in the DECS.
As described in more detail below, the trading price of the DECS may vary
considerably prior to maturity (including by acceleration or otherwise,
"Maturity") due to, among other things, fluctuations in the price of
Wyman-Gordon Common Stock and other events that are difficult to predict and
beyond Cooper's control.
COMPARISON TO OTHER DEBT SECURITIES
The terms of the DECS differ from those of ordinary debt securities in that
the amount that a holder of the DECS will receive upon mandatory exchange of the
principal amount thereof at Maturity is not fixed, but is based on the price of
the Wyman-Gordon Common Stock as specified in the Exchange Rate (as defined
herein). There can be no assurance that such amount receivable by such holder
upon exchange at Maturity will be equal to or greater than the principal amount
of the DECS. For example, if the Maturity Price of the Wyman-Gordon Common Stock
is less than the Initial Price, such amount receivable upon exchange will be
less than the principal amount paid for the DECS, in which case an investment in
the DECS would result in a loss and, if Wyman-Gordon is insolvent or bankrupt,
could result in a total loss. Holders of DECS, therefore, bear the full risk of
a decline in the value of the Wyman-Gordon Common Stock prior to Maturity.
In addition, the opportunity for equity appreciation afforded by an
investment in the DECS is less than the opportunity for equity appreciation
afforded by an investment in the Wyman-Gordon Common Stock because the amount
receivable by holders of DECS upon exchange at Maturity will only exceed the
principal amount of such DECS ($13.50) if the Maturity Price exceeds $15.66, the
Threshold Appreciation Price (as defined herein), which represents an
appreciation of 16.0 percent of the Initial Price of $13.50. Moreover, holders
of the DECS will only be entitled to receive upon exchange at Maturity 86.2
percent of any appreciation of the value of Wyman-Gordon Common Stock in excess
of the Threshold Appreciation Price. For example, if the Maturity Price is
$20.00, the DECS holders will receive $17.24 at maturity. Because the price of
the Wyman-Gordon Common Stock is subject to market fluctuations, the value of
the Wyman-Gordon Common Stock (or, to the extent permitted by applicable law, at
the option of Cooper, the amount of cash) received by a holder of DECS upon
exchange at Maturity, determined as described herein, may be more or less than
the principal amount of the DECS.
RELATIONSHIP OF THE DECS AND WYMAN-GORDON COMMON STOCK
The market price of the DECS at any time is affected primarily by changes
in the price of Wyman-Gordon Common Stock. It is impossible to predict whether
the price of Wyman-Gordon Common Stock will rise or fall. Trading prices of
Wyman-Gordon Common Stock will be influenced by Wyman-Gordon's operational
results and by complex and interrelated political, economic, financial and other
factors that can affect the capital markets generally, Nasdaq (on which the
Wyman-Gordon Common Stock is traded) and the market segment of which
Wyman-Gordon is a part. As of December 14, 1995, Cooper beneficially owned an
aggregate of 16,500,000 shares of Wyman-Gordon Common Stock, 15,000,000 shares
(16,500,000 shares if the Underwriters' over-allotment option is exercised in
full) of which Cooper may deliver to holders of the DECS at Maturity.
Holders of the DECS will not be entitled to any rights with respect to
Wyman-Gordon Common Stock (including, without limitation, voting rights and
rights to receive any dividends or other distributions in respect thereof) until
such time, if any, as Cooper shall have mandatorily exchanged the DECS at
Maturity for shares of Wyman-Gordon Common Stock and the applicable record date,
if any, for the exercise of such rights occurs after such date.
There can be no assurance that Wyman-Gordon will continue to be subject to
the reporting requirements of the Exchange Act and distribute reports, proxy
statements and other information required thereby to its stockholders. In the
event that Wyman-Gordon ceases to be subject to such
4
<PAGE> 5
reporting requirements and the DECS continue to be outstanding, pricing
information for the DECS may be more difficult to obtain and the value and
liquidity of the DECS may be adversely affected.
IMPACT OF THE DECS ON THE MARKET FOR THE WYMAN-GORDON COMMON STOCK
It is not possible to predict accurately how or whether the DECS will trade
in the secondary market or whether such market will be liquid. Any market that
develops for the DECS is likely to influence and be influenced by the market for
the Wyman-Gordon Common Stock. For example, the price of the Wyman-Gordon Common
Stock could become more volatile and could be depressed by investors'
anticipation of the potential distribution into the market of substantial
additional amounts of Wyman-Gordon Common Stock at the maturity of the DECS, by
possible sales of Wyman-Gordon Common Stock by investors who view the DECS as a
more attractive means of equity participation in Wyman-Gordon and by hedging or
arbitrage trading activity that may develop involving the DECS and the
Wyman-Gordon Common Stock.
DILUTION OF WYMAN-GORDON COMMON STOCK
The amount that holders of the DECS are entitled to receive upon the
mandatory exchange at Maturity is subject to adjustment for certain events
arising from, among others, a merger or consolidation in which Wyman-Gordon is
not the surviving or resulting corporation, a sale or other transfer of all or
substantially all of the assets of Wyman-Gordon and the liquidation,
dissolution, winding up or bankruptcy of Wyman-Gordon as well as stock splits
and combinations, stock dividends and certain other actions of Wyman-Gordon that
modify its capital structure. See "Description of the DECS -- Dilution
Adjustments." The amount to be received by such holders upon exchange at
Maturity may not be adjusted for other events, such as offerings of Wyman-Gordon
Common Stock for cash or in connection with acquisitions, that may adversely
affect the price of Wyman-Gordon Common Stock and, because of the relationship
of such amount to be received upon exchange to the price of Wyman-Gordon Common
Stock, such other events may adversely affect the trading price of the DECS.
There can be no assurance that Wyman-Gordon will not make offerings of
Wyman-Gordon Common Stock or take such other action in the future or as to the
amount of such offerings, if any.
NO OBLIGATION ON PART OF WYMAN-GORDON WITH RESPECT TO THE DECS
Wyman-Gordon has no obligations with respect to the DECS, including any
obligation to take the needs of Cooper (other than pursuant to the Investment
Agreement (described below)) or of holders of the DECS into consideration for
any reason. Wyman-Gordon will not receive any of the proceeds of the offering of
the DECS made hereby and is not responsible for, and has not participated in,
the determination or calculation of the amount receivable by holders of the DECS
at Maturity. Wyman-Gordon is not involved with the administration or trading of
the DECS and has no obligations with respect to the amount receivable by holders
of the DECS at Maturity.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how the DECS will trade in the secondary
market or whether such market will be liquid or illiquid. There is currently no
secondary market for the DECS. The Underwriters (as described under "Plan of
Distribution") currently intend, but are not obligated, to make a market in the
DECS. There can be no assurance that a secondary market will develop or, if a
secondary market does develop, that it will provide the holders of the DECS with
liquidity of investment or that it will continue for the life of the DECS.
The DECS have been approved for listing on the NYSE under the symbol "CXW."
However, there can be no assurance that the DECS will not later be delisted or
that trading in the DECS on the NYSE will not be suspended. In the event of
delisting or suspension of trading on such market, Cooper will apply for
quotation on another trading market or for listing of the DECS on another
national securities exchange. If the DECS are not listed or traded on any
securities exchange or trading market, or if trading of the DECS
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is suspended, pricing information for the DECS may be difficult to obtain, and
the liquidity of the DECS may be adversely affected.
TAX UNCERTAINTIES
The Indenture (as defined herein) requires that any holder subject to U.S.
federal income tax include currently in income, for U.S. federal income tax
purposes, payments denominated as interest that are made with respect to the
DECS, in accordance with such holder's method of accounting, and the amount of
original issue discount ("OID"), if any, attributable to the DECS as it accrues.
The Indenture also requires holders to treat the DECS as a unit consisting of
(i) an exchange note, which is a debt obligation with a fixed principal amount
unconditionally payable at Maturity equal to the principal amount of the DECS,
and (ii) a forward purchase contract pursuant to which the holder agrees to use
the principal payment due on the exchange note to purchase at Maturity the
Wyman-Gordon Common Stock that the holder is entitled to receive at that time
(subject to Cooper's right to deliver cash in lieu of the Wyman-Gordon Common
Stock). It is contemplated that, upon a holder's sale or other disposition of
the DECS prior to Maturity, the amount realized will be allocated between these
two components of the DECS on the basis of their then relative fair market
values. Because of an absence of authority as to the proper characterization of
the DECS for tax purposes, these tax characterizations and results are
uncertain. This uncertainty extends to characterization of any gain or loss
recognized with respect to the DECS at Maturity as capital gain or loss or
ordinary income or loss and, in the event Cooper delivers Wyman-Gordon Common
Stock at Maturity, as to whether any gain or loss can be deferred until a sale
or disposition of such stock. As a result of these uncertainties, Cooper has not
received an opinion of counsel with respect to the specific tax consequences of
owning or disposing of the DECS. See "Certain United States Federal Income Tax
Considerations."
RISK FACTORS RELATING TO WYMAN-GORDON
Investors in the DECS should carefully consider the information in the
Wyman-Gordon Prospectus attached hereto as Appendix A, including the information
contained under "Risk Factors."
COOPER INDUSTRIES, INC.
Cooper, which was incorporated in Ohio in 1919, is a diversified, worldwide
manufacturing company doing business in three primary business segments:
Electrical Products, Automotive Products and Tools & Hardware. Cooper has over
125 manufacturing facilities and approximately 39,700 employees in the United
States and more than 23 foreign countries.
Electrical Products Segment
The Electrical Products segment manufactures and markets electrical and
circuit protection products for use in residential, commercial and industrial
construction, maintenance and repair applications. In addition, the segment
produces and markets products for use by utilities and industries for primary
electrical power transmission and distribution. Some of the major products
include Buss(R) and Edison(R) fuses; Crouse-Hinds(R) electrical construction
materials; Crouse-Hinds(R), Fail-Safe(TM), Halo(R) and Metalux(R) lighting
fixtures; Kyle(R) distribution switchgear and McGraw-Edison(TM) and RTE(R) power
and distribution transformers and related products.
Automotive Products Segment
The Automotive Products segment manufactures and distributes spark plugs,
brake components, wiper blades, lighting products, heating and air conditioning
parts, steering and suspension components and other products for use by the
automotive aftermarket and in automobile assemblies. Products include Abex(R),
Lee(R), Gibson(R) and Wagner(R) brake components; Anco(R) windshield wiper
products; automotive wire and cable; Champion(R) spark plugs and igniters;
Everco(R) and Murray(R) heating and air conditioning
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parts; Moog(R) steering and suspension products; Precision(R) universal joint
products; and Wagner(R) and Zanxx(R) lighting products.
Tools & Hardware Segment
The Tools & Hardware segment produces and markets tools and hardware items
for use in residential, commercial and industrial construction, maintenance and
repair applications, and for other general industrial and consumer uses. Some of
the well-known products include Campbell(R) chain; Crescent(R) wrenches;
Diamond(R) horseshoes and farrier tools; Lufkin(R) measuring tapes; Nicholson(R)
files and saws; Plumb(R) hammers; Weller(R) soldering equipment; Wiss(R)
scissors; Xcelite(R) screwdrivers; Buckeye(R), DGDTM and Dotco(R) power tools;
and Kirsch(R) drapery hardware and custom window coverings.
RECENT DEVELOPMENTS
On June 30, 1995, Cooper distributed 85.5 percent (21,375,000 shares) of
the common stock of its wholly-owned subsidiary Cooper Cameron Corporation
("Cooper Cameron") in exchange for 9,500,000 shares of Cooper common stock
pursuant to an offer made to Cooper's shareholders to exchange 2.25 shares of
common stock of Cooper Cameron for each share of Cooper common stock tendered,
up to a maximum of 9,500,000 shares of Cooper common stock. Cooper retained 14.5
percent (3,625,000 shares) of the common stock of Cooper Cameron. Cooper Cameron
was incorporated in Delaware on November 10, 1994. As of January 1, 1995, Cooper
transferred to Cooper Cameron the businesses that comprised Cooper's former
Petroleum & Industrial Equipment segment at September 30, 1994. These businesses
included the Cooper Oil Tool, Cooper Energy Services, Cooper Turbocompressor and
Wheeling Machine Products operations of Cooper.
For additional information with respect to Cooper, see the documents
specified under "Documents Incorporated by Reference."
WYMAN-GORDON COMPANY
Wyman-Gordon, founded in 1883, is a leading producer of highly engineered,
technically advanced components primarily for the aerospace industry as well as
for other markets, including power generation. Wyman-Gordon uses forging,
casting and composites technologies to produce components to exacting customer
specifications for technically demanding applications such as jet turbine
engines, airframe structures, land-based gas turbines and extruded seamless
pipe. Components manufactured by Wyman-Gordon are utilized in most of the major
commercial and United States defense aerospace programs.
Attached hereto as Appendix A is the Wyman-Gordon Prospectus covering the
shares of Wyman-Gordon Common Stock offered, among other things, in connection
with the DECS.
RELATIONSHIP BETWEEN COOPER AND WYMAN-GORDON
Pursuant to the Stock Purchase Agreement, dated as of January 10, 1994 (the
"Stock Purchase Agreement"), between Cooper and Wyman-Gordon, Wyman-Gordon
acquired from Cooper on May 26, 1994 all of the outstanding shares of common
stock of Cameron Forged Products Company ("Cameron") in consideration for
16,500,000 shares of Wyman-Gordon Common Stock and $8.5 million, consisting of
$3.9 million in cash and a $4.6 million promissory note of Wyman-Gordon (the
"Note"). The Stock Purchase Agreement contains obligations of each of Cooper and
Wyman-Gordon which remain outstanding. These obligations include, among others,
payment by Wyman-Gordon of the Note, cross indemnification by Cooper and
Wyman-Gordon for certain tax obligations, liabilities arising out of the
business and operations of Cameron and inaccuracies in certain representations
and warranties made by each company, and indemnification of Wyman-Gordon by
Cooper for certain liabilities under the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), with respect to employee benefit plans.
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In connection with the Stock Purchase Agreement, Cooper and Wyman-Gordon
entered into the Investment Agreement, dated as of January 10, 1994, as amended
by Amendment dated as of May 26, 1994 (the "Investment Agreement"), which
governs Cooper's ownership of the 16,500,000 shares of Wyman-Gordon Common Stock
that were issued to Cooper under the Stock Purchase Agreement. The Investment
Agreement, among other things, contains (i) restrictions on Cooper's ability to
sell or encumber its shares of Wyman-Gordon Common Stock, (ii) provisions
requiring generally that Cooper vote its shares of Wyman-Gordon Common Stock
either in the manner recommended by the Wyman-Gordon Board of Directors or, at
Cooper's election, in the same proportion as the vote of the other Wyman-Gordon
shareholders, (iii) customary standstill provisions, (iv) provisions requiring
Wyman-Gordon to use its best efforts to cause two persons designated by Cooper
to be elected to the Wyman-Gordon Board of Directors and (v) provisions granting
Cooper certain registration rights in respect of its shares of Wyman-Gordon
Common Stock. The voting, sale and standstill restrictions set forth in the
Investment Agreement terminate upon the earlier of (i) May 26, 2004 and (ii) the
first date on which Cooper beneficially owns less than 5 percent of the
outstanding Company Voting Securities (as defined in the Investment Agreement).
Neither the Stock Purchase Agreement nor the Investment Agreement will be
affected by the DECS offering.
See "Relationship Between Cooper and the Company" in the Wyman-Gordon
Prospectus attached hereto as Appendix A for a further description of the Stock
Purchase Agreement and the Investment Agreement.
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PRICE RANGE OF WYMAN-GORDON COMMON STOCK AND DIVIDEND POLICY
Wyman-Gordon Common Stock is listed on Nasdaq under the symbol "WYMN." The
following table sets forth the high and low sales prices of the Wyman-Gordon
Common Stock for the calendar periods listed below as reported on Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
1994
First Quarter.......................................... $ 7 1/8 $ 4 5/8
Second Quarter......................................... 6 7/8 4 1/2
Third Quarter.......................................... 7 5 3/4
Fourth Quarter......................................... 6 1/2 4 3/4
1995
First Quarter.......................................... 8 5 1/4
Second Quarter......................................... 12 3/8 7 5/8
Third Quarter.......................................... 14 1/8 10 5/8
Fourth Quarter (through December 14, 1995)............. 15 1/8 12 1/4
</TABLE>
As of December 11, 1995, there were approximately 1,360 holders of record
of Wyman-Gordon Common Stock. The number of record holders may not be
representative of the number of beneficial holders since many shares are held by
depositories, brokers or other nominees.
On December 14, 1995, the last reported sale price of Wyman-Gordon Common
Stock on the Nasdaq was $13.50 per share. Wyman-Gordon has paid no dividends on
the Wyman-Gordon Common Stock since the fourth quarter of 1991. See "Price Range
of Common Stock and Dividend Policy" in the Wyman-Gordon Prospectus attached
hereto as Appendix A.
Cooper makes no representation as to the amount of dividends, if any, that
Wyman-Gordon will pay in the future. In any event, holders of the DECS will not
be entitled to receive any dividends that may be payable on Wyman-Gordon Common
Stock until such time, if any, as Cooper shall have mandatorily exchanged the
DECS at Maturity for shares of Wyman-Gordon Common Stock and a record date, if
any, for such dividend occurs after such date. See "Description of the DECS."
USE OF PROCEEDS
The net proceeds to be received by Cooper from the sale of the DECS will be
used for general corporate purposes, including potential acquisitions,
refinancings of existing indebtedness, working capital and capital expenditures.
9
<PAGE> 10
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for
Cooper for each of the years in the five-year period ended December 31, 1994,
and selected unaudited historical financial data for the nine-month periods
ended September 30, 1995 and 1994. The historical data for the five full years
shown below has been derived from the audited consolidated financial statements
of Cooper. The historical data for the nine-month periods ended September 30,
1995 and 1994 has been derived from Cooper's unaudited consolidated financial
statements and includes, in the opinion of Cooper's management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
data for such periods. Financial information for the interim periods presented
is not necessarily indicative of the financial information for the full year.
The historical data set forth below should be read in conjunction with the
consolidated financial statements and notes thereto of Cooper incorporated by
reference herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- --------------------------------------------------------
1995(1)(2) 1994(1) 1994(1) 1993(1) 1992(1) 1991 1990
---------- -------- -------- -------- -------- -------- --------
(IN MILLIONS WHERE APPLICABLE)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues.................................... $3,597.7 $3,348.1 $4,588.0 $4,776.4 $4,468.4 $4,307.6 $4,570.8
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
cumulative effect of changes in accounting
principles................................ 207.4 207.3 292.8 299.0 239.6 231.2 265.3
Income from discontinued operations
net of taxes.............................. -- 0.3 0.3 68.1 121.7 162.0 96.1
Charge for discontinued operations.......... (186.6) (313.0) (313.0) -- -- -- --
Cumulative effect on prior years of changes
in accounting principles.................. -- -- -- -- (590.0) -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......................... $ 20.8 $ (105.4) $ (19.9) $ 367.1 $ (228.7) $ 393.2 $ 361.4
======== ======== ======== ======== ======== ======== ========
Per Common Share Data:
Primary --
Income from continuing operations before
cumulative effect of changes in
accounting
principles.............................. $ 1.83 $ 1.47 $ 2.10 $ 2.15 $ 1.64 $ 1.60 $ 1.94
Income (loss) from discontinued
operations.............................. (1.65) (2.74) (2.74) 0.60 1.07 1.44 0.87
Cumulative effect on prior years of
changes in
accounting principles................... -- -- -- -- (5.19) -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......................... $ .18 $ (1.27) $ (0.64) $ 2.75 $ (2.48) $ 3.04 $ 2.81
======== ======== ======== ======== ======== ======== ========
Fully diluted --
Income from continuing operations before
cumulative effect of changes in
accounting
principles.............................. $ 1.76 $ 1.47 $ 2.10 $ 2.15 $ 1.64 $ 1.60 $ 1.94
======== ======== ======== ======== ======== ======== ========
Net income (loss)......................... $ .18 $ (1.27) $ (0.64) $ 2.75 $ (2.48) $ 3.01 $ 2.81
======== ======== ======== ======== ======== ======== ========
Cash dividends.............................. $ 0.99 $ 0.99 $ 1.32 $ 1.32 $ 1.24 $ 1.16 $ 1.08
Book value.................................. 15.40 16.71 17.50 19.76 18.63 22.93 21.23
Balance Sheet Data (at the end of period):
Total assets................................ $5,776.1 $6,064.4 $6,400.7 $6,361.7 $6,551.4 $5,951.1 $6,019.1
Long-term debt.............................. 1,882.0 1,254.6 1,361.9 883.4 1,369.8 1,033.3 1,238.5
Stockholders' Equity........................ 1,660.4 2,694.1 2,741.1 3,009.6 2,862.6 3,319.0 3,042.0
Other Data (unaudited):
Ratio of earnings to fixed charges(3)....... 3.8x 6.4x 6.4x 6.0x 4.6x 3.8x 3.4x
</TABLE>
- ---------------
(1) Includes the results of Moog Automotive Group, Inc., which was acquired
effective October 1, 1992 from IFINT S.A. This transaction was accounted for
as a purchase.
(2) Includes the results of Abex Friction Products, which was acquired effective
December 30, 1994 from Abex, Inc. This transaction was accounted for as a
purchase.
(3) The ratio of earnings to fixed charges has been calculated by dividing fixed
charges into the sum of earnings before income tax expense and fixed
charges. Fixed charges consist of interest costs and estimated interest in
rentals.
10
<PAGE> 11
DESCRIPTION OF THE DECS
The DECS are a series of debt securities ("Debt Securities"), to be issued
under an Indenture dated as of December 20, 1995 between Cooper and Texas
Commerce Bank National Association, as trustee (the "Trustee"), as supplemented
by a First Supplemental Indenture dated as of December 20, 1995 between Cooper
and the Trustee (the indenture dated as of December 20, 1995, as supplemented
from time to time, the "Indenture"). The following summary of certain provisions
of the Indenture does not purport to be complete and is qualified in its
entirety by reference to the Indenture, a copy of which is filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
GENERAL
The DECS will be unsecured and will rank on a parity with all other
unsecured and unsubordinated indebtedness of Cooper. As of September 30, 1995,
Cooper had no indebtedness senior to the DECS, $151.8 million of indebtedness
effectively ranking senior to the DECS because it is secured or issued by
consolidated subsidiaries, $1,233.4 million of indebtedness ranking pari passu
with the DECS, and $690.5 million of indebtedness subordinated to the DECS. The
aggregate number of DECS to be issued will be 15,000,000 plus such additional
number of DECS as may be issued pursuant to the over-allotment option granted by
Cooper to the Underwriters. The DECS will mature on January 1, 1999. The
Indenture does not limit the amount of Debt Securities which may be issued
thereunder. As a result, Cooper may issue additional Debt Securities or other
securities with terms similar to those of the DECS in the future.
Each DECS, which will be issued with a principal amount of $13.50, will
bear interest at the annual rate of 6.0 percent of the principal amount per
annum (or $0.81 per annum) from December 20, 1995, or
from the most recent Interest Payment Date (as defined below) to which interest
has been paid or provided for until the principal amount thereof is exchanged at
Maturity pursuant to the terms of the DECS. Interest on the DECS will be payable
quarterly in arrears on January 1, April 1, July 1, and October 1, commencing
April 1, 1996 (each, an "Interest Payment Date"), to the persons in whose names
the DECS are registered at the close of business on the 15th day of the calendar
month immediately preceding such Interest Payment Date; provided that interest
payable at Maturity shall be payable to the person to whom the principal is
payable. Interest on the DECS will be computed on the basis of a 360-day year of
twelve 30-day months. If an Interest Payment Date falls on a day that is not a
Business Day (as defined below), the interest payment to be made on such
Interest Payment Date will be made on the next succeeding Business Day with the
same force and effect as if made on such Interest Payment Date, and no
additional interest will accrue as a result of such delayed payment. The DECS
will be traded pursuant to rules and regulations of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act) which are
filed with the Commission pursuant to Section 19(b) of the Exchange Act.
At Maturity (including as a result of acceleration or otherwise), the
principal amount of each DECS will be mandatorily exchanged by Cooper into a
number of shares of Wyman-Gordon Common Stock at the Exchange Rate, and,
accordingly, holders of the DECS will not necessarily receive an amount equal to
the principal amount thereof. The "Exchange Rate" is equal to, subject to
adjustment as a result of certain dilution events (see "-- Dilution Adjustments"
below), (a) if the Maturity Price (as defined below) per share of Wyman-Gordon
Common Stock is greater than or equal to $15.66 per share of Wyman-Gordon Common
Stock (the "Threshold Appreciation Price"), 0.862 shares of Wyman-Gordon Common
Stock per DECS, (b) if the Maturity Price is less than the Threshold
Appreciation Price but is greater than the Initial Price, a fractional share of
Wyman-Gordon Common Stock per DECS so that the value thereof (determined at the
Maturity Price) is equal to the Initial Price or (c) if the Maturity Price is
less than or equal to the Initial Price, one share of Wyman-Gordon Common Stock
per DECS. Accordingly, the value of the Wyman-Gordon Common Stock to be received
by holders of the DECS (or as discussed below, the cash equivalent to be
received in lieu of such shares) at Maturity will not necessarily equal the
principal amount of such DECS. For example, if the Maturity Price of the
Wyman-Gordon Common Stock is less than the Initial Price, the amount receivable
upon exchange will be less than the principal amount paid for the DECS, in which
case an investment in the DECS would result in a loss and, if Wyman-Gordon
11
<PAGE> 12
is insolvent or bankrupt, could result in a total loss. No fractional shares of
Wyman-Gordon Common Stock will be issued at Maturity as provided under
"-- Fractional Shares" below. Cooper may at its option (in accordance with the
terms of the Indenture) deliver cash at Maturity, in lieu of delivering shares
of Wyman-Gordon Common Stock, in an amount equal to the product obtained by
multiplying the value of the number of shares of Wyman-Gordon Common Stock that
would have been delivered at Maturity by the Maturity Price. On or prior to the
seventh Business Day prior to January 1, 1999, Cooper will notify The Depository
Trust Company (the "Depositary") and the Trustee and publish a notice in a daily
newspaper of national circulation stating whether the principal amount of each
DECS will be exchanged for shares of Wyman-Gordon Common Stock or cash. If
Cooper elects to deliver shares of Wyman-Gordon Common Stock, (i) the holders of
the DECS will be responsible for the payment of any and all brokerage costs upon
the subsequent sale of such shares and (ii) the delivery of such shares shall
occur on the floor of, or pursuant to applicable rules and regulations
promulgated by, Nasdaq or, if the Wyman-Gordon Common Stock is not listed for
trading on Nasdaq on the date of any such exchange, the exchange, board of trade
or similar institution on which public market quotations or prices of the
Wyman-Gordon Common Stock are made at the time of such exchange. Although it is
Cooper's current intention to deliver Wyman-Gordon Common Stock at Maturity,
Cooper intends to consider all relevant economic and market factors in
determining whether to deliver cash or shares of Wyman-Gordon Common Stock at
Maturity. Such factors will include, among others, Cooper's liquidity and
prevailing tax rates at Maturity. Cooper does not believe that any one of such
factors is more important in its consideration.
The "Maturity Price" is defined as the average Closing Price per share of
Wyman-Gordon Common Stock on the 20 Trading Days immediately prior to (but not
including) the Maturity Date. The "Closing Price" of any security on any date of
determination means the closing sale price (or, if no closing price is reported,
the last reported sale price) of such security on Nasdaq on such date or, if
such security is not listed for trading on Nasdaq on any such date, as reported
in the composite transactions for the principal United States securities
exchange on which such security is so listed, or if such security is not so
listed on a United States national or regional securities exchange, as reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System, or, if such security is not so reported, the last quoted bid price for
such security in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or, if such bid price is not
available, the market value of such security on such date as determined by a
nationally recognized independent investment banking firm retained for this
purpose by Cooper. A "Trading Day" is defined as a day on which the security the
Closing Price of which is being determined (A) is not suspended from trading on
any national or regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once on the national
or regional securities exchange or association or over-the-counter market that
is the primary market for the trading of such security. "Business Day" means any
day that is not a Saturday, a Sunday or a day on which the New York Stock
Exchange, Nasdaq, banking institutions or trust companies in the City of New
York are authorized or obligated by law or executive order to close.
The Indenture contains a covenant by Cooper to the effect that should
Cooper exercise its option to pay all outstanding DECS in cash, such cash must
be provided by the proceeds from a sale by Cooper of its common stock. Such sale
of common stock by Cooper must have occurred not more than 540 days prior to the
notice by Cooper to holders of DECS of its election to deliver cash in lieu of
Wyman-Gordon Common Stock.
For illustrative purposes only, the following chart shows the number of
shares of Wyman-Gordon Common Stock or, where permitted by applicable law, the
amount of cash that a holder of DECS would receive for each DECS at various
Maturity Prices. The table assumes that there will be no adjustments to the
Exchange Rate described under "-- Dilution Adjustments" below. There can be no
assurance that the Maturity Price will be within the range set forth below.
Given the Initial Price of $13.50 per DECS and the Threshold Appreciation Price
of $15.66, a DECS holder would receive at Maturity the following
12
<PAGE> 13
number of shares of Wyman-Gordon Common Stock or amount of cash (if Cooper
elects to pay the DECS in cash):
<TABLE>
<CAPTION>
NUMBER OF
MATURITY PRICE SHARES
OF WYMAN-GORDON OF WYMAN-GORDON
COMMON STOCK COMMON STOCK AMOUNT OF CASH
--------------- --------------- --------------
<S> <C> <C>
$ 10.00 1.000 $10.00
13.50 1.000 13.50
15.00 0.900 13.50
15.66 0.862 13.50
20.00 0.862 17.24
</TABLE>
As the foregoing chart illustrates, if at Maturity, the Maturity Price is
greater than or equal to $15.66, Cooper is obligated to deliver 0.862 shares of
Wyman-Gordon Common Stock per DECS, resulting in Cooper receiving 13.8 percent
of the appreciation in market value above $15.66 and the DECS holder receiving
86.2 percent of the appreciation in market value above $15.66. If at Maturity,
the Maturity Price is greater than $13.50 and less than $15.66, Cooper is
obligated to deliver only that fraction of a share of Wyman-Gordon Common Stock
equal to $13.50, resulting in Cooper retaining all appreciation in the market
value of the Wyman-Gordon Common Stock from $13.50 to $15.66. If at Maturity,
the Maturity Price is less than or equal to $13.50, Cooper is obligated to
deliver one share of Wyman-Gordon Common Stock per DECS, regardless of the
market price of such share, resulting in the DECS holder realizing the entire
loss on the decline in market value of the Wyman-Gordon Common Stock.
Although it is Cooper's current intention to deliver Wyman-Gordon Common
Stock at Maturity, Cooper may at its option deliver cash, in lieu of delivering
such shares of Wyman-Gordon Common Stock, except that under the Indenture Cooper
will not deliver cash, nor will there have been any offer by Cooper to deliver
cash, where such delivery would violate applicable law. In the event that Cooper
elects to deliver cash in lieu of shares at Maturity, it will be obligated to
deliver cash with respect to all, but not less than all, of the shares of
Wyman-Gordon Common Stock that would otherwise be deliverable, except that
Cooper may deliver shares of Wyman-Gordon Common Stock to any holders with
respect to whom it has determined the delivery of cash may violate applicable
law.
Interest on the DECS will be payable, and delivery of Wyman-Gordon Common
Stock (or, at the option of Cooper, its cash equivalent) in exchange for the
DECS at Maturity will be made upon surrender of such DECS, at the office or
agency of Cooper maintained for such purposes; provided that payment of interest
may be made at the option of Cooper by check mailed or, in the case of a holder
of an aggregate of at least 74,000 DECS, by wire transfer to the persons in
whose names the DECS are registered at the close of business on the 15th day of
the calendar month immediately preceding the applicable Interest Payment Date.
See "-- Book-Entry System." Initially, such office will be the office of the
Trustee, located at 55 Water Street, North Building, Room 234, Windows 20 and
21, New York, New York.
The DECS will be transferable on the books of Cooper at any time or from
time to time at the aforementioned office. No service charge will be made to the
holder for any such transfer except for any tax or governmental charge
incidental thereto.
The Indenture does not contain any restriction on the ability of Cooper to
sell all or any portion of the Wyman-Gordon Common Stock held by it or its
subsidiaries, and no such shares of Wyman-Gordon Common Stock will be pledged or
otherwise held in escrow for use at Maturity of the DECS. Consequently, in the
event of a bankruptcy, insolvency or liquidation of Cooper or its subsidiaries,
the Wyman-Gordon Common Stock, if any, owned by Cooper or its subsidiaries will
be subject to the claims of the creditors of Cooper or its subsidiaries,
respectively. In addition, as described herein, Cooper will have the option,
exercisable in its sole discretion, to satisfy its obligations pursuant to the
mandatory exchange for the principal amount of each DECS at Maturity by
delivering to holders of the DECS either the specified number of shares of
Wyman-Gordon Common Stock or, subject to applicable law, cash in an amount equal
to the value of such number of shares at the Maturity Price. In the event that
Cooper does sell all or a portion of the Wyman-Gordon Common Stock held by it or
its subsidiaries, Cooper may
13
<PAGE> 14
be more likely to deliver cash in lieu of Wyman-Gordon Common Stock. As a
result, there can be no assurance that Cooper will elect at Maturity to deliver
Wyman-Gordon Common Stock or, if it so elects, that it will use all or any
portion of its current holdings of Wyman-Gordon Common Stock to make such
delivery. Consequently, holders of the DECS will not be entitled to any rights
with respect to Wyman-Gordon Common Stock (including without limitation voting
rights and rights to receive any dividends or other distributions in respect
thereof) until such time, if any, as Cooper shall have mandatorily exchanged the
DECS at Maturity for shares of Wyman-Gordon Common Stock and the applicable
record date, if any, for the exercise of such rights occurs after such date. See
"Relationship Between Cooper and Wyman-Gordon" for a discussion of restrictions
on Cooper's ability to transfer its shares of Wyman-Gordon Common Stock.
DILUTION ADJUSTMENTS
The Exchange Rate is subject to adjustment if Wyman-Gordon shall (i) pay a
stock dividend or make a distribution with respect to Wyman-Gordon Common Stock
in shares of such stock, (ii) subdivide or split its outstanding shares of
Wyman-Gordon Common Stock, (iii) combine its outstanding shares of Wyman-Gordon
Common Stock into a smaller number of shares, (iv) issue by reclassification of
its shares of Wyman-Gordon Common Stock any shares of common stock of
Wyman-Gordon, (v) issue rights or warrants to all holders of Wyman-Gordon Common
Stock entitling them to subscribe for or purchase shares of Wyman-Gordon Common
Stock at a price per share less than the market price of the Wyman-Gordon Common
Stock (other than rights to purchase Wyman-Gordon Common Stock pursuant to a
plan for the reinvestment of dividends or interest) or (vi) pay a dividend or
make a distribution to all holders of Wyman-Gordon Common Stock of evidences of
its indebtedness or other assets (excluding any dividends or distributions
referred to in clause (i) above or any cash dividends other than any
Extraordinary Cash Dividends as defined below) or issue to all holders of
Wyman-Gordon Common Stock rights or warrants to subscribe for or purchase any of
its securities (other than those referred to in clause (v) above). In the case
of the events referred to in clauses (i), (ii), (iii) and (iv) above, the
Exchange Rate in effect immediately prior to such event shall be adjusted so
that the holder of any DECS shall thereafter be entitled to receive, upon
mandatory exchange of the principal amount of such DECS at Maturity, the number
of shares of Wyman-Gordon Common Stock that such holder would have owned or been
entitled to receive immediately following any event described above had such
DECS been exchanged immediately prior to such event or any record date with
respect thereto. In the case of the event referred to in clause (v) above, the
Exchange Rate shall be adjusted by multiplying the Exchange Rate in effect
immediately prior to the date of issuance of the rights or warrants referred to
in clause (v) above, by a fraction, of which the numerator shall be the number
of shares of Wyman-Gordon Common Stock outstanding on the date of issuance of
such rights or warrants, immediately prior to such issuance, plus the number of
additional shares of Wyman-Gordon Common Stock offered for subscription or
purchase pursuant to such rights or warrants, and of which the denominator shall
be the number of shares of Wyman-Gordon Common Stock outstanding on the date of
issuance of such rights or warrants, immediately prior to such issuance, plus
the number of additional shares of Wyman-Gordon Common Stock that the aggregate
offering price of the total number of shares of Wyman-Gordon Common Stock so
offered for subscription or purchase pursuant to such rights or warrants would
purchase at the market price (determined as the average Closing Price per share
of Wyman-Gordon Common Stock on the 20 Trading Days immediately prior to the
date such rights or warrants are issued), which shall be determined by
multiplying such total number of shares by the exercise price of such rights or
warrants and dividing the product so obtained by such market price. To the
extent that shares of Wyman-Gordon Common Stock are not delivered after the
expiration of such rights or warrants, the Exchange Rate shall be readjusted to
the Exchange Rate which would then be in effect had such adjustments for the
issuance of such rights or warrants been made upon the basis of delivery of only
the number of shares of Wyman-Gordon Common Stock actually delivered. In the
case of the event referred to in clause (vi) above, the Exchange Rate shall be
adjusted by multiplying the Exchange Rate in effect on the record date by a
fraction of which the numerator shall be the market price per share of the
Wyman-Gordon Common Stock on the record date for the determination of
stockholders entitled to receive the dividend or distribution
14
<PAGE> 15
referred to in clause (vi) above (such market price being determined as the
average Closing Price per share of Wyman-Gordon Common Stock on the 20 Trading
Days immediately prior to such record date), and of which the denominator shall
be such market price per share of Wyman-Gordon Common Stock less the fair market
value (as determined by the Board of Directors of Cooper, whose determination
shall be conclusive, and described in a resolution adopted with respect thereto)
as of such record date of the portion of the assets or evidences of indebtedness
so distributed or of such subscription rights or warrants applicable to one
share of Wyman-Gordon Common Stock. An "Extraordinary Cash Dividend" means, with
respect to any one-year period, all cash dividends on the Wyman-Gordon Common
Stock during such period to the extent such dividends exceed on a per share
basis 10 percent of the average price of the Wyman-Gordon Common Stock over such
period (less any such dividends for which a prior adjustment to the Exchange
Rate was previously made). All adjustments to the Exchange Rate will be
calculated to the nearest 1/10,000th of a share of Wyman-Gordon Common Stock (or
if there is not a nearest 1/10,000th of a share to the next lower 1/10,000th of
a share). No adjustment in the Exchange Rate shall be required unless such
adjustment would require an increase or decrease of at least one percent
therein; provided, however, that any adjustments which by reason of the
foregoing are not required to be made shall be carried forward and taken into
account in any subsequent adjustment.
In the event of (A) any consolidation or merger of Wyman-Gordon, or any
surviving entity or subsequent surviving entity of Wyman-Gordon (a "Wyman-Gordon
Successor"), with or into another entity (other than a merger or consolidation
in which Wyman-Gordon is the continuing corporation and in which the
Wyman-Gordon Common Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or other property of
Wyman-Gordon or another corporation), (B) any sale, transfer, lease or
conveyance to another corporation of the property of Wyman-Gordon or any
Wyman-Gordon Successor as an entirety or substantially as an entirety, (C) any
statutory exchange of securities of Wyman-Gordon or any Wyman-Gordon Successor
with another corporation (other than in connection with a merger or acquisition)
or (D) any liquidation, dissolution, winding up or bankruptcy of Wyman-Gordon or
any Wyman-Gordon Successor (any such event, a "Reorganization Event"), the
Exchange Rate used to determine the amount payable upon exchange at Maturity for
each DECS will be adjusted to provide that each holder of DECS will receive at
Maturity cash in an amount equal to (a) if the Transaction Value (as defined
below) is greater than or equal to the Threshold Appreciation Price, 0.862
multiplied by the Transaction Value, (b) if the Transaction Value is less than
the Threshold Appreciation Price but greater than the Initial Price, the Initial
Price and (c) if the Transaction Value is less than or equal to the Initial
Price, the Transaction Value. "Transaction Value" means (i) for any cash
received in any such Reorganization Event, the amount of cash received per share
of Wyman-Gordon Common Stock, (ii) for any property other than cash or
securities received in any such Reorganization Event, an amount equal to the
market value at Maturity of such property received per share of Wyman-Gordon
Common Stock as determined by a nationally recognized independent investment
banking firm retained for this purpose by Cooper and (iii) for any securities
received in any such Reorganization Event, an amount equal to the average
Closing Price per share of such securities on the 20 Trading Days immediately
prior to Maturity multiplied by the number of such securities received for each
share of Wyman-Gordon Common Stock. Notwithstanding the foregoing, in lieu of
delivering cash as provided above, Cooper may at its option deliver an
equivalent value of securities or other property received in such Reorganization
Event, determined in accordance with clause (ii) or (iii) above, as applicable.
If Cooper elects to deliver securities or other property, holders of the DECS
will be responsible for the payment of any and all brokerage and other
transaction costs upon the sale of such securities or other property. The kind
and amount of securities into which the DECS shall be exchangeable after
consummation of such transaction shall be subject to adjustment as described in
the immediately preceding paragraph following the date of consummation of such
transaction.
Cooper is required, within 10 Business Days following the occurrence of an
event that requires an adjustment to the Exchange Rate (or if Cooper is not
aware of such occurrence, as soon as practicable after becoming so aware), to
provide written notice to the Trustee of the occurrence of such event and a
statement in reasonable detail setting forth the method by which the adjustment
to the Exchange Rate was determined and setting forth the revised Exchange Rate.
15
<PAGE> 16
FRACTIONAL SHARES
No fractional shares of Wyman-Gordon Common Stock will be issued if Cooper
exchanges the DECS for shares of Wyman-Gordon Common Stock. If more than one
DECS shall be surrendered for exchange at one time by the same holder, the
number of full shares of Wyman-Gordon Common Stock which shall be delivered upon
exchange, in whole or in part, as the case may be, shall be computed on the
basis of the aggregate number of DECS so surrendered at Maturity. In lieu of any
fractional share otherwise issuable in respect of all DECS of any holder which
are exchanged at Maturity, such holder shall be entitled to receive an amount in
cash equal to the value of such fractional share at the Maturity Price.
REDEMPTION
The DECS are not subject to redemption prior to Maturity.
BOOK-ENTRY SYSTEM
It is expected that the DECS will be issued in the form of one or more
global securities (the "Global Securities") deposited with the Depositary and
registered in the name of a nominee of the Depositary.
The Depositary has advised Cooper and the Underwriters as follows: The
Depositary is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Exchange Act. The
Depositary was created to hold securities of persons who have accounts with the
Depositary ("participants") and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of certificates. Such participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the Depositary's book-entry system also is
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Upon the issuance of a Global Security, the Depositary or its nominee will
credit the respective DECS represented by such Global Security to the accounts
of participants. The accounts to be credited shall be designated by the
Underwriters. Ownership of beneficial interests in the Global Securities will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Securities will
be shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depositary or its nominee for such Global
Securities. Ownership of beneficial interests in such Global Securities by
persons that hold through participants will be shown on, and the transfer of
that ownership interest within such participant will be effected only through,
records maintained by such participant. The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the DECS for all
purposes under the Indenture. Except as set forth below, owners of beneficial
interests in such Global Securities will not be entitled to have the DECS
registered in their names, will not receive or be entitled to receive physical
delivery of the DECS in definitive form and will not be considered the owners or
holders thereof under the Indenture.
Payment of principal of and any interest on the DECS registered in the name
of or held by the Depositary or its nominee will be made to the Depositary or
its nominee, as the case may be, as the registered owner or the holder of the
Global Security. None of Cooper, the Trustee, any paying agent or any securities
registrar for the DECS will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
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<PAGE> 17
Cooper expects that the Depositary, upon receipt of any payment of
principal or interest in respect of a permanent Global Security, will credit
immediately participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of such Global
Security as shown on the records of the Depositary. Cooper also expects that
payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants.
A Global Security may not be transferred except as a whole by the
Depositary to a nominee or a successor of the Depositary. If the Depositary is
at any time unwilling or unable to continue as depositary and a successor
depositary is not appointed by Cooper within ninety days, Cooper will issue DECS
in definitive registered form in exchange for the Global Security representing
such DECS. In addition, Cooper may at any time and in its sole discretion
determine not to have any DECS represented by one or more Global Securities and,
in such event, will issue DECS in definitive form in exchange for all of the
Global Securities representing the DECS. Further, if Cooper so specifies with
respect to the DECS, an owner of a beneficial interest in a Global Security
representing DECS may, on terms acceptable to Cooper and the Depositary for such
Global Security, receive DECS in definitive form. Moreover, if there shall have
occurred and be continuing an Event of Default, or an event which, with the
giving of notice or lapse of time, or both, would constitute an Event of Default
with respect to any DECS represented by one or more Global Securities, such
Global Securities shall be exchangeable for DECS in definitive form. In any such
instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery in definitive form of DECS represented by such
Global Security equal in number to that represented by such beneficial interest
and to have such DECS registered in its name.
COVENANTS
The Indenture contains the covenants generally summarized below, which are
applicable so long as any of the Debt Securities are outstanding.
Limitations on Secured Indebtedness. Neither Cooper nor any Restricted
Subsidiary (as defined below) will create, assume, guarantee, or incur any
Secured Indebtedness (as defined below), unless immediately thereafter the
aggregate amount of all Secured Indebtedness (exclusive of certain types of
permitted Secured Indebtedness generally described below), together with the
discounted present value of all rentals (not otherwise excluded from the
limitations on Sale and Leaseback Transactions (as defined below) as described
under "Covenants -- Limitations on Sale and Leaseback Transactions") due in
respect of Sale and Leaseback Transactions would not exceed 10 percent of
Shareholders' Equity (as defined below). However, this limitation does not apply
to Secured Indebtedness in respect of: (a) any Lien (as defined below) on
property as to which the Debt Securities are equally and ratably secured with
(or, at the option of Cooper, prior to) such Secured Indebtedness, (b) Liens on
property (including shares or Indebtedness) which is not a Principal Property
(as defined below), (c) Liens on property (including shares or Indebtedness) of
any corporation existing at the time such corporation becomes a Restricted
Subsidiary, (d) Liens on property (including shares or Indebtedness) existing at
the time of acquisition of such property by Cooper or a Restricted Subsidiary,
(e) Liens to secure the payment of all or any part of the purchase price of
property (including shares or Indebtedness) created upon the acquisition of such
property by Cooper or a Restricted Subsidiary, and Liens to secure any Secured
Indebtedness incurred by Cooper or a Restricted Subsidiary prior to, at the time
of, or within one year after the later of the acquisition, the completion of
construction (including any improvements, alterations or repairs to existing
property) or the commencement of commercial operation of such property, which
Secured Indebtedness is incurred for the purpose of financing all or any part of
the purchase price thereof or construction or improvements, alterations or
repairs thereon, (f) Liens securing Secured Indebtedness of any Restricted
Subsidiary owing to Cooper or to another Restricted Subsidiary, (g) Liens on
property of a corporation existing at the time such corporation is merged or
consolidated with Cooper or a Restricted Subsidiary or at the time of a sale,
lease or other disposition of the properties
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<PAGE> 18
of a corporation as an entirety or substantially as an entirety to Cooper or a
Restricted Subsidiary, (h) Liens on property of Cooper or a Restricted
Subsidiary in favor of governmental authorities or any trustee or mortgagee
acting on behalf, or for the benefit, of any such governmental authorities to
secure partial, progress, advance or other payments pursuant to any contract or
statute or to secure any Indebtedness incurred for the purpose of financing all
or any part of the purchase price or the cost of construction of the property
subject to such Liens, and any other Liens incurred or assumed in connection
with the issuance of industrial revenue bonds or private activity bonds the
interest of which is exempt from federal income taxation pursuant to Section
103(b) of the Internal Revenue Code of 1986, as amended (the "Code"), (i) Liens
existing on the first date on which a Debt Security is authenticated by the
Trustee under the Indenture, and (j) any extension, renewal or replacement of
any Lien referred to in clauses (a) through (i) of this paragraph.
Limitations on Sale and Leaseback Transactions. Neither Cooper nor any
Restricted Subsidiary may enter into any Sale and Leaseback Transaction (as
defined below) covering any Principal Property of Cooper or any Restricted
Subsidiary unless (A) immediately thereafter the sum of (i) the discounted
present value of all rentals (determined in accordance with a method of
discounting which is consistent with generally accepted accounting principles)
due pursuant to the proposed Sale and Leaseback Transaction and all Sale and
Leaseback Transactions entered into after the first date on which a Debt
Security is authenticated by the Trustee under the Indenture (except any Sale
and Leaseback Transaction of a Restricted Subsidiary entered into prior to the
time such Restricted Subsidiary became a Restricted Subsidiary or entered into
by a corporation prior to the time such corporation merged or consolidated with
Cooper or a Restricted Subsidiary or prior to the time of a sale, lease or other
disposition of the properties of such corporation as an entirety or
substantially as an entirety to Cooper or a Restricted Subsidiary) and (ii) the
aggregate amount of all Secured Indebtedness (exclusive of Secured Indebtedness
permitted by clauses (a) through (j) of the second sentence under "Limitation on
Secured Indebtedness" above) does not exceed 10 percent of Shareholders' Equity
or (B) an amount equal to the greater of (i) the net proceeds of the sale of
property leased pursuant to the Sale and Leaseback Transaction or (ii) the fair
market value of the property so leased (in the case of clause (i) or (ii), after
repayment of, or otherwise taking into account, as the case may be, the amount
of any Secured Indebtedness secured by a Lien encumbering such property which
Secured Indebtedness existed immediately prior to such Sale and Leaseback
Transaction), is applied within one year to the retirement of Funded Debt (as
defined below). There is excluded from such limitation any Sale and Leaseback
Transaction (x) entered into in connection with the issuance of industrial
revenue or private activity bonds the interest of which is exempt from federal
income taxation pursuant to Section 103(b) of the Code and (y) if Cooper or a
Restricted Subsidiary applies an amount equal to the net proceeds (after
repayment of any Secured Indebtedness encumbering such Principal Property which
Secured Indebtedness existed immediately before such Sale and Leaseback
Transaction) of the sale or transfer of the Principal Property leased pursuant
to such Sale and Leaseback Transaction to investment in another Principal
Property within one year prior or subsequent to such sale or transfer.
Limitation on Merger, Consolidation and Certain Sales of Assets. Cooper
will not merge into or consolidate with or convey or transfer its properties
substantially as an entirety to, any person unless (a) the successor corporation
is a corporation organized and existing under the laws of the United States of
America or any State or the District of Columbia, (b) the successor corporation
assumes on the same terms and conditions the Debt Securities and (c) there is no
Event of Default under the Indenture.
Certain Definitions. The following summarize the definition of the terms
set forth below.
"Board of Directors" means the Board of Directors of Cooper or any
committee of such Board or any committee of officers of Cooper duly authorized
by the Board of Directors to take any action under the Indenture.
"Funded Debt" means (a) any Indebtedness maturing by its terms more than
one year from the date of the issuance thereof, including any Indebtedness
renewable or extendible at the option of the obligor to a date later than one
year from the date of the original issuance thereof, excluding any portion
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<PAGE> 19
of Indebtedness which is included in current liabilities and (b) any
Indebtedness which may be payable from the proceeds of Funded Debt as defined in
clause (a) hereof pursuant to the terms of such Funded Debt.
"Indebtedness" means with respect to any corporation all indebtedness for
money borrowed which is created, assumed, incurred or guaranteed in any manner
by such corporation or for which such corporation is otherwise responsible or
liable.
"Lien" means any mortgage, pledge, security interest, lien, charge or other
encumbrance.
"Principal Property" means (A) any manufacturing plant located in the
continental United States, or manufacturing equipment located in any such
manufacturing plant (together with the land on which such plant is erected and
fixtures comprising a part thereof), owned or leased on the first date on which
a Debt Security is authenticated by the Trustee under the Indenture, or
thereafter acquired or leased by Cooper or any Restricted Subsidiary, other than
(i) any property which the Board of Directors determines is not of material
importance to the total business conducted, or assets owned, by Cooper and its
Subsidiaries as an entirety or (ii) any portion of any such property which the
Board of Directors determines not to be of material importance to the use or
operation of such property and (B) any shares or Indebtedness issued by any
Restricted Subsidiary. Manufacturing plant does not include any plant in which
the aggregate interest of Cooper and its Restricted Subsidiaries does not exceed
50 percent. Manufacturing equipment means manufacturing equipment in such
manufacturing plants used directly in the production of Cooper's or any
Restricted Subsidiary's products and does not include office equipment, computer
equipment, rolling stock and other equipment not directly used in the production
of Cooper's or any Restricted Subsidiary's products.
"Restricted Subsidiary" means any Subsidiary substantially all the property
of which is located in the continental United States, other than (i) a
Subsidiary primarily engaged in financing, including, without limitation,
lending on the security of, purchasing or discounting (with or without recourse)
receivables, leases, obligations or other claims arising from or in connection
with the purchase or sale of products or services; (ii) a Subsidiary primarily
engaged in leasing or insurance; or (iii) a Subsidiary primarily engaged in
financing Cooper's or any Restricted Subsidiaries' operations outside the
continental United States.
"Sale and Leaseback Transaction" means any arrangement with any person
providing for the leasing by Cooper or any Restricted Subsidiary of any
Principal Property of Cooper or any Restricted Subsidiary whether such property
is now owned or hereafter acquired (except for leases for a term of not more
than three years, except for leases between Cooper and a Restricted Subsidiary
or between Restricted Subsidiaries and except for leases of property executed
prior to, at the time of, or within one year after the later of, the
acquisition, the completion of construction, including any improvement or
alterations on real property, or the commencement of commercial operation or
such property), which Principal Property has been or is to be sold or
transferred by Cooper or such Restricted Subsidiary to such person.
"Secured Indebtedness" of any corporation means Indebtedness secured by any
Lien upon property (including shares or Indebtedness issued by any Restricted
Subsidiary) owned by Cooper or any Restricted Subsidiary.
"Shareholders' Equity" means the total assets calculated from a
consolidated balance sheet of Cooper, prepared in accordance with generally
accepted accounting principles, less total liabilities shown on such balance
sheet.
"Subsidiary" means any corporation a majority of the voting shares of which
are at the time owned or controlled, directly or indirectly, by Cooper or by one
or more Subsidiaries, or by Cooper and one or more Subsidiaries and which is
consolidated in Cooper's latest consolidated financial statements filed with the
Commission or provided generally to Cooper's shareholders.
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<PAGE> 20
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to
Debt Securities of any series: (i) default for 30 days in payment of any
interest installment when due; (ii) default in payment of principal of, or
premium, if any, on any of the Debt Securities of such series when due at its
stated maturity, when called for redemption, by declaration or otherwise; (iii)
default in the performance of any covenant in the Indenture with respect to Debt
Securities of such series for 90 days after notice to Cooper by the Trustee or
by holders of 25 percent in principal amount of the outstanding Debt Securities
of such series; (iv) default in the making of any payment for a sinking,
purchase or analogous fund provided for in respect of such series and
continuance of such default for a period of 30 days; and (v) certain events of
bankruptcy, insolvency and reorganization. No Event of Default with respect to a
single series of Debt Securities constitutes an Event of Default with respect to
any other series of Debt Securities. If an Event of Default described above
occurs and is continuing with respect to any series, either the Trustee or the
holders of not less than 25 percent in aggregate principal amount of the Debt
Securities of such series then outstanding (voting separately as a series) may
declare the principal of all outstanding Debt Securities of such series and the
interest accrued thereon, if any, to be due and payable immediately.
In certain cases, the holders of a majority in principal amount of the
outstanding Debt Securities of a series may on behalf of the holders of all Debt
Securities of such series waive any past default or Events of Default with
respect to the Debt Securities of such series or compliance with certain
provisions of the Indenture, except, among other things, a default not
theretofore cured in payment of the principal of, or premium, if any, or
interest, if any, on any of the Debt Securities of such series.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default with respect to the Debt Securities of any series, give
to the holders of the Debt Securities of such series notice of all uncured and
unwaived defaults known to it; provided that, except in the case of default in
the payment of principal of, or premium, if any, or interest, if any, on, any of
the Debt Securities of such series, the Trustee will be protected in withholding
such notice if it in good faith determines that the withholding of such notice
is in the interest of the holders of the Debt Securities of such series. The
term "default" for the purpose of this provision means the happening of any of
the Events of Default specified above, except that any grace period or notice
requirement is eliminated. The Indenture contains provisions entitling the
Trustee, subject to the duty of the Trustee during an Event of Default to act
with the required standard of care, to be indemnified by the holders of Debt
Securities before proceeding to exercise any right or power under the Indenture
at the request of holders of the Debt Securities. The Indenture provides that
subject to the provisions of the Indenture the holders of a majority in
principal amount of the outstanding Debt Securities of any series may direct the
time, method and place of conducting proceedings for remedies available to the
Trustee exercising any trust or power conferred on the Trustee in respect of
such series. The Indenture includes a covenant that Cooper will file annually
with the Trustee a certificate of no default or specifying any default that
exists.
MODIFICATION OF THE INDENTURE
The Indenture provides that Cooper and the Trustee may, without the consent
of any holders of Debt Securities, enter into supplemental indentures for the
purposes, among other things, of adding to Cooper's covenants, adding additional
Events of Default, establishing the form or terms of Debt Securities, curing
ambiguities or inconsistencies in the Indenture or making such other provisions
in regard to matters or questions arising under the Indenture if such action
shall not adversely affect the interests of the holders of any affected series
of Debt Securities.
The Indenture also contains provisions permitting Cooper and the Trustee,
with the consent of the holders of a majority in principal amount of the
outstanding Debt Securities of each series to be affected, to execute
supplemental indentures adding any provisions to or changing or eliminating any
of the provisions of the Indenture or the Debt Securities of a series or
modifying any of the rights of the holders of the Debt Securities of such series
to be affected, provided that no supplemental indenture may, without the consent
of the holder of each Debt Security affected, among other things, change the
fixed
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<PAGE> 21
maturity (which term for these purposes does not include payments due pursuant
to any sinking, purchase or analogous fund) of any Debt Securities, or reduce
the principal amount thereof, or reduce the rate or extend the time of payment
of interest thereon, or reduce any premium payable upon the redemption thereof,
or reduce the aforesaid percentage of Debt Securities of any series the consent
of the holders of which is required for any such supplemental indenture.
THE TRUSTEE
Texas Commerce Bank National Association will be the Trustee under the
Indenture. The Trustee performs certain services for, and transacts other
banking business with (including the extension of credit), Cooper from time to
time in the normal course of business.
LISTING
The DECS have been approved for listing on the NYSE under the symbol "CXW."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax consequences
that may be relevant to a citizen or resident of the United States, a
corporation, partnership or other entity created or organized under the laws of
the United States, or an estate or trust the income of which is subject to U.S.
federal income taxation regardless of its source (any of the foregoing, a "U.S.
Person") who is the beneficial owner of a DECS (a "U.S. Holder"). All references
to "holders" (including U.S. Holders) are to beneficial owners of the DECS. This
summary is based on current U.S. federal income tax law and is for general
information only. It is based upon the advice of Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York 10022, tax counsel to Cooper. Cooper
has not, however, received an opinion of counsel with respect to the specific
tax consequences of owning or disposing of the DECS in light of the
uncertainties described below.
This summary deals only with holders who are initial holders of the DECS
and who will hold the DECS as capital assets. It does not address tax
considerations applicable to investors that may be subject to special U.S.
federal income tax treatment, such as dealers in securities or persons holding
the DECS as a position in a "straddle" for U.S. federal income tax purposes or
as part of a "synthetic security" or other integrated investment, and does not
address the consequences under state, local or foreign law.
No statutory, judicial or administrative authority directly addresses the
characterization of the DECS or instruments similar to the DECS for U.S. federal
income tax purposes. As a result, significant aspects of the U.S. federal income
tax consequences of an investment in the DECS are not certain. No ruling is
being requested from the Internal Revenue Service (the "IRS") with respect to
the DECS and no assurance can be given that the IRS will agree with the
characterization and tax treatment of the DECS described herein. ACCORDINGLY, A
PROSPECTIVE INVESTOR (INCLUDING A TAX-EXEMPT INVESTOR) IN THE DECS SHOULD
CONSULT ITS TAX ADVISOR IN DETERMINING THE TAX CONSEQUENCES OF AN INVESTMENT IN
THE DECS, INCLUDING THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
Pursuant to the terms of the Indenture, Cooper and all holders of the DECS
will be obligated to treat the DECS as a unit (the "Unit") consisting of (i) an
exchange note ("Exchange Note") which is a debt obligation with a fixed
principal amount unconditionally payable at Maturity equal to the principal
amount of the DECS, bearing interest at the stated interest rate on the DECS,
and (ii) a forward purchase contract (the "Purchase Contract") pursuant to which
the holder agrees to use the principal payment due on the Exchange Note to
purchase at Maturity the Wyman-Gordon Common Stock which the holder is entitled
to receive at that time (subject to Cooper's right to deliver cash in lieu of
the Wyman-Gordon Common Stock). The Indenture will require that a U.S. Holder
include currently in income payments
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<PAGE> 22
denominated as interest that are made with respect to the DECS, in accordance
with such holder's method of accounting, and the amount of OID, if any,
attributable to the DECS.
Pursuant to the agreement to treat the DECS as a Unit, a holder will be
required to allocate the purchase price of the DECS between the two components
of the Unit (the Exchange Note and the Purchase Contract) on the basis of their
relative fair market values. The purchase price so allocated will generally
constitute the tax basis for each component. Pursuant to the terms of the
Indenture, Cooper and the holders agree to allocate the entire purchase price of
the DECS to the Exchange Note unless the stated interest on the DECS represents
a yield that is lower than Cooper's normal cost of issuing debt with a similar
term to the DECS ("Cooper's Mid-Term Borrowing Rate"). If the stated interest on
the DECS represents a yield that is lower than Cooper's Mid-Term Borrowing Rate
of 5.79 percent, Cooper and the holders agree to allocate to the Exchange Note
an amount, less than the principal amount of the Exchange Note, calculated by
discounting the cash flows relating to the Exchange Note at a rate equal to
Cooper's Mid-Term Borrowing Rate, and to allocate to the Purchase Contract the
remainder of the purchase price of the DECS.
If the amount allocated to the Exchange Note (its deemed issue price) is
less than the stated principal amount of the DECS, the Exchange Note will be
treated as having OID. In that event, a U.S. Holder will be required to include
in income OID as it accrues, in accordance with a constant-yield method, in an
aggregate amount equal to the difference between the stated principal amount of
the DECS and the deemed issue price of the Exchange Note. However, if the amount
of OID relating to an Exchange Note is less than three-fourths of one percent of
the stated principal amount of the DECS, the amount of OID attributable to the
Exchange Note will constitute "de minimis OID," and a U.S. Holder generally will
include such de minimis OID in income at Maturity (and not over the term of the
DECS). A U.S. Holder's tax basis in the Exchange Note will increase over its
term by the amount of OID included in such holder's income with respect to the
DECS.
Upon the sale or other disposition of a DECS, a U.S. Holder generally will
be required to allocate the amount realized between the two components of the
DECS on the basis of their then relative fair market values. A U.S. Holder will
recognize gain or loss with respect to each component equal to the difference
between the amount realized on the sale or other disposition for each such
component and the U.S. Holder's tax basis in such component. Such gain or loss
generally will be long-term capital gain or loss if the U.S. Holder has held the
DECS for more than a year at the time of disposition.
At Maturity, pursuant to the agreement to treat the DECS as a Unit, on the
repayment of the Exchange Note a U.S. Holder will recognize capital gain or
loss, which will be long-term capital gain or loss unless Maturity occurs within
one year of issuance of the DECS (as a result of acceleration or otherwise)
equal to any difference between its tax basis and the principal amount of the
Exchange Note. If Cooper delivers Wyman-Gordon Common Stock at Maturity, a U.S.
Holder will recognize no additional gain or loss on the exchange, pursuant to
the Purchase Contract, of the principal payment due on the Exchange Note for the
Wyman-Gordon Common Stock. However, a U.S. Holder will recognize additional
capital gain or loss, which should be short-term capital gain or loss, equal to
the difference between the cash received in lieu of fractional shares and the
portion of the principal amount of the Exchange Note allocable to fractional
shares. A U.S. Holder will have a tax basis in such shares of Wyman-Gordon
Common Stock equal to the principal amount of the Exchange Note less the amount
of the portion of the principal amount of the Exchange Note allocable to any
fractional shares. The U.S. Holder will have a holding period for the
Wyman-Gordon Common Stock that begins on the day after the Maturity date, and
will realize short- or long-term capital gain or loss upon the subsequent sale
or disposition of such stock. Alternatively, at Maturity, if Cooper pays the
DECS in cash, a U.S. Holder will have additional gain or loss (which might be
ordinary income or loss rather than capital gain or loss) equal to the
difference between the principal amount of the Exchange Note and the amount of
cash received from Cooper.
Due to the absence of authority as to the proper characterization of the
DECS, no assurance can be given that the IRS will accept or that a court will
uphold the characterization agreed to in the Indenture or the tax treatment
described above. Proposed Treasury regulations with respect to "contingent
payment"
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<PAGE> 23
debt instruments (the "Proposed Regulations") would provide for a different tax
result under some circumstances for instruments having characteristics similar
to the DECS, but the Proposed Regulations would be effective only for
instruments issued 60 days or more after their publication as final regulations.
Under the Proposed Regulations, the amount of interest included in a holder's
taxable income for any year would generally be determined by projecting the
amounts of contingent payments (which might include the value of the
Wyman-Gordon Common Stock to be delivered at Maturity) and the yield on the
instrument. Taxable interest income would be measured with reference to the
projected yield, which might be less than or greater than the stated interest
rate under the instrument. In the event that the amount of an actual contingent
payment differed from the projected amount of that payment, the difference would
generally increase or reduce taxable interest income, or create a loss. Because
of their prospective effective date, the Proposed Regulations, if finalized in
their current form, would not apply to the DECS.
Even in the absence of regulations applicable to the DECS, the DECS may be
characterized under current law in a manner that results in tax consequences
different from those reflected in the agreement pursuant to the Indenture and as
described above. Under alternative characterizations of the DECS, it is
possible, for example, that (i) a U.S. Holder may be taxed upon the receipt of
Wyman-Gordon Common Stock with a value in excess of the principal amount of the
Exchange Note, rather than upon the sale of such stock, (ii) any gain recognized
at Maturity (whether a U.S. Holder receives Wyman-Gordon Common Stock or cash)
may be treated as ordinary income rather than capital gain, (iii) all or part of
the interest income on the Exchange Note may be treated as nontaxable,
increasing the gain (or decreasing the loss) at Maturity or upon disposition of
the DECS (or disposition of the Wyman-Gordon Common Stock) or (iv) if the stated
interest rate exceeds Cooper's Mid-Term Borrowing Rate, the Exchange Notes could
be considered as issued at a premium which, if amortized, would reduce the
amount of interest income currently includible in income by a holder and
increase the taxable gain (or decrease the loss) realized at Maturity or upon
disposition of the DECS (or disposition of the Wyman-Gordon Common Stock).
The Revenue Reconciliation Act of 1993 added Section 1258 to the Code,
which may require certain holders of the DECS who have entered into hedging
transactions or offsetting positions with respect to the DECS to recognize
ordinary income rather than capital gain upon the disposition of the DECS.
Holders should consult their tax advisors regarding the applicability of this
legislation to an investment in the DECS.
NON-UNITED STATES PERSONS
In the case of a holder of the DECS that is not a U.S. Person, payments
made with respect to the DECS should not be subject to U.S. withholding tax;
provided that such holder complies with applicable certification requirements.
Any capital gain realized upon the sale or other disposition of the DECS by a
holder that is not a U.S. Person will generally not be subject to U.S. federal
income tax if (i) such gain is not effectively connected with a U.S. trade or
business of such holder and (ii) in the case of an individual, such individual
is not present in the United States for 183 days or more in the taxable year of
the sale or other disposition and the gain is not attributable to a fixed place
of business maintained by such individual in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of the DECS may be subject to information reporting requirements
and to backup withholding at a rate of 31 percent of certain amounts paid to the
holder unless such holder provides proof of an applicable exemption or a correct
taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules.
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PLAN OF DISTRIBUTION
The Underwriters have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from Cooper the aggregate
number of DECS set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS DECS
------------ ---------
<S> <C>
Salomon Brothers Inc ...................................... 3,687,500
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 3,687,500
Schroder Wertheim & Co. Incorporated....................... 3,687,500
CS First Boston Corporation................................ 562,500
Dillon, Read & Co. Inc. ................................... 562,500
Lehman Brothers Inc. ...................................... 562,500
J.P. Morgan Securities Inc. ............................... 562,500
NatWest Securities Limited................................. 562,500
Smith Barney Inc. ......................................... 562,500
S.G. Warburg & Co. Inc..................................... 562,500
----------
Total............................................ 15,000,000
==========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
DECS if any are purchased.
Cooper has been advised: that the Underwriters propose to offer the DECS to
the public initially at the offering price set forth on the cover of this
Prospectus and to certain dealers at such price less a selling concession of
$0.24 per DECS; that the Underwriters may allow, and each such dealer may
reallow, to other dealers a concession not exceeding $0.10 per DECS; and that,
after the initial public offering, such public offering price and such
concession and reallowance may be changed.
Cooper and Wyman-Gordon have agreed not to offer for sale, sell or
otherwise dispose of, except as described below, without the prior written
consent of the Underwriters, any shares of Wyman-Gordon Common Stock or any
securities convertible into or exchangeable for, or warrants to acquire, Wyman-
Gordon Common Stock for a period of 90 days after the date of this Prospectus;
provided, however, that such restriction shall not affect the ability of Cooper
or Wyman-Gordon or their respective subsidiaries to take any such actions in
connection with the offering of the DECS made hereby or any exchange at Maturity
pursuant to the terms of the DECS. In addition, Wyman-Gordon retains the right
to issue Wyman-Gordon Common Stock in connection with acquisition transactions
and certain transactions that are exempt from the registration requirements of
the Securities Act. However, Wyman-Gordon has informed the Underwriters that it
has no current intention to issue Wyman-Gordon Common Stock in connection with
any such transaction.
In connection with the offering of the DECS, Cooper or an affiliate
thereof, referred to herein as the "Lender," and Salomon intend to enter into a
Securities Loan Agreement (the "Securities Loan Agreement") which provides that,
subject to certain restrictions and with the agreement of the Lender, Salomon
may from time to time borrow, return and reborrow shares of Wyman-Gordon Common
Stock from the Lender (the "Borrowed Securities"); provided, however, that the
number of Borrowed Securities at any time may not exceed 750,000 shares in the
twelve-month period beginning December 20, 1995; 1,000,000 shares in the
twelve-month period beginning December 20, 1996; and 1,250,000 in the period
beginning December 20, 1997 and terminating on the maturity of the DECS, subject
to adjustment to provide anti-dilution protection. The Securities Loan Agreement
contains limitations on the amount of Borrowed Securities which Salomon can
borrow on any day and from time to time and requires Salomon to return Borrowed
Securities within a specified period of time from the date of borrowing and
prior to any record date. The Securities Loan Agreement is intended to
facilitate market-making activity in the DECS by Salomon. Salomon may from time
to time offer shares of Wyman-Gordon Common Stock
24
<PAGE> 25
borrowed from the Lender under the Securities Loan Agreement directly to one or
more purchasers at negotiated prices, at market prices prevailing at the time of
sale or at prices related to such market prices, in connection with such
market-making activities. The availability of shares of Wyman-Gordon Common
Stock under the Securities Loan Agreement, if any, at any time is not assured
and any such availability does not assure market-making activity with respect to
the DECS and any market-making actually engaged in by Salomon may cease at any
time. The foregoing description of the Securities Loan Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which the Prospectus is a part.
Cooper has granted to the Underwriters an option, exercisable for 30 days
from the date of this Prospectus (or, if such 30th day shall not be a Business
Day, on the next Business Day thereafter), to purchase up to an additional
1,500,000 DECS, at the per DECS price to the public less the aggregate
underwriting discount set forth on the cover of this Prospectus. The
Underwriters may exercise such right of purchase only for the purpose of
covering over-allotments, if any, incurred in connection with the sale of DECS
offered hereby. To the extent that the Underwriters exercise such option, each
of the Underwriters will become obligated, subject to certain conditions, to
purchase a number of such additional DECS proportionate to such Underwriter's
initial commitment.
In connection with the offering of the DECS, the Underwriters and selling
group members (if any) and their respective affiliates may engage in passive
market-making transactions in the Wyman-Gordon Common Stock on Nasdaq in
accordance with Rule 10b-6A under the Exchange Act. The passive market-making
transactions will comply with applicable volume and price limits and will be
identified as such.
Cooper and Wyman-Gordon have agreed in the Underwriting Agreement to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, or contribute to payments the Underwriters may be
required to make in respect thereof.
The Underwriters will reimburse Cooper for certain expenses related to the
offering.
As of September 30, 1995, 1,027,600 shares of Wyman-Gordon Common Stock
(representing 2.9% of the issued and outstanding shares of Wyman-Gordon Common
Stock) were owned by accounts over which an affiliate of Schroder Wertheim & Co.
Incorporated exercises discretionary authority.
Salomon has provided financial advisory services to Wyman-Gordon in the
past, for which it has received customary fees. Merrill Lynch & Co. has provided
financial advisory services to Cooper in the past, for which it has received
customary fees.
ERISA MATTERS
Cooper, Wyman-Gordon or any of their affiliates may be considered a "party
in interest" or a "disqualified person" with respect to some employee benefit
plans ("Plans") that are subject to ERISA, or Section 4975 of the Code. The
purchase of DECS by a Plan that is subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of Section 4975 of
the Code (including individual retirement arrangements and other plans described
in Section 4975(e)(1) of the Code) and with respect to which Cooper,
Wyman-Gordon or any of their affiliates is a "party in interest" within the
meaning of ERISA or a "disqualified person" within the meaning of Section 4975
of the Code may constitute or result in a prohibited transaction under ERISA or
the Code, unless such DECS are acquired pursuant to and in accordance with an
applicable exemption, such as Prohibited Transaction Class Exemption ("PTCE")
84-14 (an exemption for certain transactions determined by an independent
qualified professional asset manager), PTCE 91-38 (an exemption for certain
transactions involving bank collective investment funds) or PTCE 90-1 (an
exemption for certain transactions involving insurance company pooled separate
accounts). Any pension or other employee or other employee benefit plan
proposing to acquire DECS should consult with its counsel.
25
<PAGE> 26
LEGAL MATTERS
The validity of the DECS will be passed upon for Cooper by Skadden, Arps,
Slate, Meagher & Flom, New York, New York and for the Underwriters by Cravath,
Swaine & Moore, New York, New York. Certain attorneys of Skadden, Arps, Slate,
Meagher & Flom and members of their immediate families have investment
discretion with respect to an aggregate of 1,300 shares of common stock of
Cooper.
EXPERTS
The consolidated financial statements of Cooper for the year ended December
31, 1994, incorporated by reference in Cooper's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph with respect to changes in methods of accounting for
postretirement benefits other than pensions, income taxes and postemployment
benefits as discussed in Note 4 to the consolidated financial statements)
incorporated therein and herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
26
<PAGE> 27
APPENDIX A
PROSPECTUS
15,000,000 SHARES
[LOGO] WYMAN-GORDON COMPANY
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
This Prospectus relates to 15,000,000 shares of Common Stock, par value $1.00
per share (the "Common Stock"), of Wyman-Gordon Company (the "Company"), which
may be delivered by Cooper Industries, Inc. ("Cooper"), at its option, pursuant
to the terms of the 6.0% Exchangeable Notes Due January 1, 1999 (the "Debt
Exchangeable for Common StockSM" or "DECSSM" ). This Prospectus is Appendix A to
a prospectus of Cooper (the "DECS Prospectus") covering the sale of 15,000,000
DECS (the "DECS Offering"). The Company will not receive any of the proceeds
from the offering contemplated hereby.
Cooper has granted the Underwriters of the DECS a 30-day option to purchase up
to an additional 1,500,000 DECS, which may be exchangeable at their maturity for
additional shares of Common Stock. Such option has been granted solely to cover
over-allotments, if any. To the extent that the over-allotment option is not
exercised by the Underwriters in full, Cooper may, subject to certain
limitations, sell up to 1,500,000 shares of Common Stock pursuant to this
Prospectus. See "Plan of Distribution."
PROSPECTIVE INVESTORS ARE ADVISED TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED UNDER "RISK FACTORS" ON PAGE 7.
In connection with market-making activities in the DECS, Salomon Brothers Inc
("Salomon") may, subject to certain limitations, from time to time borrow,
return and reborrow up to 1,250,000 shares of Common Stock from Cooper. Salomon
is not under any obligation to engage in any market-making transactions with
respect to the DECS, and any market-making in the DECS actually engaged in by
Salomon may cease at any time. In addition, the Common Stock is traded on The
Nasdaq Stock Market's National Market ("Nasdaq") under the symbol WYMN. On
December 14, 1995, the last reported sale price of Common Stock was $13.50 per
share. See "Price Range of Common Stock and Dividend Policy."
The Company and Cooper have agreed not to sell, without the prior written
consent of the Underwriters, any shares of Common Stock or any securities
convertible into or exchangeable for Common Stock for a period of 90 days after
the date of this Prospectus, subject to certain exceptions described herein. See
"Plan of Distribution."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December 14, 1995.
<PAGE> 28
THE COMPANY HAS BEEN ADVISED THAT IN CONNECTION WITH THE OFFERING BY COOPER
OF THE DECS, THE UNDERWRITERS OF THE DECS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DECS OR THE COMMON STOCK OF
THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE "PLAN
OF DISTRIBUTION."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance with the Exchange Act files reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). The
Company has filed a registration statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the SEC with respect to the Common Stock offered hereby. This Prospectus,
which constitutes part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and reference is made to the
Registration Statement and the exhibits thereto for further information with
respect to the Company and the Common Stock. Such reports, proxy statements,
Registration Statement and exhibits and other information omitted from this
Prospectus can be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549 and at the SEC's Regional Offices located at Seven World Trade Center,
Suite 1300, New York, NY 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, IL 60661-2511. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. Such reports, proxy statements
and other information concerning the Company can also be inspected at The Nasdaq
Stock Market at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended June 3,
1995, the Annual Report on Form 10-K/A for the fiscal year ended June 3, 1995,
the Quarterly Report on Form 10-Q for the fiscal quarter ended September 2,
1995, the proxy statement dated August 30, 1995, and the Company's Current
Report on Form 8-K filed on June 9, 1994, including the financial statements of
Cameron (as defined herein) contained therein, are incorporated by reference in
this Prospectus. All documents filed by the Company pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made hereby shall be
deemed to be incorporated by reference into this Prospectus and to be made a
part hereof from the respective dates of filing of such documents. Any statement
in any document incorporated or deemed to be incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement contained herein or
in any subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.
Copies of the above documents (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference in such documents) may
be obtained upon written or oral request without charge from the Company, 244
Worcester Street, Grafton, Massachusetts 01536, Attention: Clerk, telephone
(508) 839-4441.
2
<PAGE> 29
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the consolidated financial statements appearing
elsewhere in this Prospectus as well as the information incorporated herein by
reference.
THE COMPANY
Wyman-Gordon Company (the "Company"), founded in 1883, is a leading
producer of highly engineered, technically advanced components, primarily for
the aerospace industry as well as for other markets including power generation.
The Company uses forging, casting and composites technologies to produce
components to exacting customer specifications for technically demanding
applications such as jet turbine engines, airframe structures, land-based gas
turbines, and extruded seamless pipe. Components manufactured by the Company are
utilized in most of the major commercial and United States defense aerospace
programs. The Company believes that it is the only firm to provide the aerospace
industry with a combination of forging, casting and composites capabilities for
the production of high quality components and that it produces the broadest
offering of aerospace forgings available on the market.
The Company manufactures components from sophisticated titanium and
nickel-based superalloys 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. The Company's airframe structural components,
such as landing gear, bulkheads and wing spars, are used on the entire fleet of
airplanes manufactured by The Boeing Company ("Boeing"), including the new 777,
as well as the McDonnell Douglas Corporation ("McDonnell Douglas") MD-11 and the
Airbus Industrie S.A. ("Airbus") A330 and A340, and on a number of military
aircraft and other defense-related applications including the McDonnell Douglas
C-17 transport and the new F-22 air superiority fighter being jointly developed
by Lockheed Martin Corporation ("Lockheed") and Boeing. Recently the Company has
expanded its product offerings by focusing on the land-based gas turbine market
through products sold primarily to GE and on the power generation markets
through pipe and valve bodies sold to a variety of customers.
In recent years the Company has experienced losses as a result of declines
in customer demand caused by a combination of defense spending cutbacks, reduced
orders for new commercial aircraft and reductions in customer inventory levels.
In response, the Company's senior management implemented a series of strategic
initiatives designed to (i) lower the Company's cost structure, (ii) consolidate
its forgings operations, (iii) lower inventory requirements, and (iv) solidify
customer relations.
In further response to the continuing overcapacity in the industry, the
Company acquired all of the stock of Cameron Forged Products Company ("Cameron")
from Cooper in May 1994 (the "Acquisition"). Prior to the Acquisition, Cameron
was the Company's principal competitor in the production of forgings for use in
critical aerospace applications. For the year ended December 31, 1993, Cameron
had revenues of $149.5 million, an operating loss of ($22.2) million and total
assets of $151.8 million. As part of the consideration for the Acquisition, the
Company issued 16.5 million shares of Common Stock to Cooper, which shares are
being registered in connection with the DECS Offering. Currently, these shares
represent approximately 47% of the outstanding Common Stock of the Company.
As a result of the Acquisition, the Company has achieved cost savings,
which total more than $26.0 million on an annualized basis to date. In addition,
the Company has achieved the following production efficiencies.
Focused Factories. The Company has substantially completed the
consolidation of the manufacture of rotating parts for jet engines from Grafton,
Massachusetts into Cameron's Houston, Texas facility. At the same time, the
Grafton facility has been focused on the production of large airframe structures
and large turbine parts such as components for the GE90 engine and land-based
gas turbines. The result has been the elimination of duplicative facilities,
improved throughput, and efficiencies of scale.
3
<PAGE> 30
Rationalization of Forging Operations. Subsequent to the Acquisition the
Company closed one of the two Cameron forging plants in Houston, Texas. In
addition, the Company has closed its ring-roll operations and is in the process
of closing its hammer forging operations at its Worcester, Massachusetts
facility. The result has been improved manufacturing efficiencies, higher
utilizations and better inventory management.
Best Practices. The Company is in the process of adopting the best
manufacturing practices of the Company and Cameron. The improved manufacturing
practices have resulted in cost reductions from lower material input weights on
certain forgings, improved machining practices and more efficient testing
procedures. Substantial raw material cost savings in certain of the Company's
forging processes have resulted from utilization of material produced in
Cameron's Brighton, Michigan powder metal facility and Cameron's Houston, Texas
vacuum arc remelting facility. From 1991 through 1995 average production cycle
times at Cameron's Houston facility were reduced from approximately 22 weeks to
seven weeks and the Company is seeking to achieve similar reductions at its
Grafton, Massachusetts facility.
As a result of these realized production efficiencies and cost savings the
Company's operating results improved in each quarter of fiscal year 1995 and
continued at improved levels in the first quarter of fiscal year 1996 as shown
by the following table.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------
SEPTEMBER 3, DECEMBER 3, MARCH 4, JUNE 3, SEPTEMBER 2,
1994 1994 1995 1995 1995
------------ ----------- -------- -------- ------------
(000'S, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 95,725 $94,974 $ 96,238 $109,702 $114,077
Gross profit............ 9,575 9,869 12,615 17,329 18,180
Gross margin............ 10.0% 10.4% 13.1% 15.8% 15.9%
Operating income........ $ 3 $ 768 $ 3,620 $ 9,327 8,083
Operating margin........ 0.0% 0.8% 3.8% 8.5% 7.1%
Annualized revenues per
employee.............. $ 129 $ 129 $ 130 $ 146 $ 151
</TABLE>
In addition to the benefits the Company has realized from the Acquisition
and expects to realize in the future, the Company has in place several programs
designed to strengthen its position in the aerospace market and to enter new
markets through its expertise in high performance materials.
Focus on Large Aerospace Components. The Company believes that its
extensive installed asset base, technological leadership in manufacturing
large-scale components and experience in producing and utilizing sophisticated
alloys will enable the Company to capitalize on the industry trend toward
widebody aircraft with larger and more sophisticated engines. These aircraft,
which include the new Boeing 777, require larger airframe structural parts and
their engines require high-purity alloys, both of which are particular strengths
of the Company.
Strategic Alliances with Key Customers. The Company has entered into joint
development programs with its two largest customers, GE and Pratt & Whitney, for
the production of (i) forged rotating parts for the new GE90 jet engine and (ii)
nickel-based superalloy ingots in Perth, Australia for use in forging and
casting applications (the "Australian Joint Venture"), respectively. Management
believes that alliances such as these strengthen existing relationships, and in
some cases allow the Company to become involved in the design phases for new
components and applications, thereby enhancing the Company's chances of
obtaining future orders.
New Applications and Markets. The Company believes that its expertise in
the manufacture of highly specialized metal components with enhanced fatigue and
temperature resistant properties gives it the ability to design new applications
for existing technologies in its current markets and to utilize existing
technologies in new markets. For example, the Company has been able to enter the
power generation market where the Company's knowledge of nickel-based
superalloys and manufacturing technology
4
<PAGE> 31
utilized for aircraft engines can be applied to manufacture energy efficient,
high strength, temperature resistant gas turbines.
Management believes that the combination of the Company's technological
capabilities, installed asset base and close customer relationships, together
with its improved cost structure, will allow the Company to operate profitably
in an environment of relatively low commercial aircraft deliveries and to
benefit from increases in delivery rates. At the same time the Company seeks to
expand into new product and geographic markets. No assurances can be given that
such strategic initiatives will be successful in producing long-term
profitability. See "Risk Factors -- History of Recent Losses."
THE OFFERING OF THE DECS
This Prospectus relates to 15.0 million shares of Common Stock, and up to
1.5 million additional shares of Common Stock to cover over-allotments, which
may be delivered by Cooper, at its option, pursuant to the terms of the DECS,
which are being offered by Cooper pursuant to the Cooper Prospectus. To the
extent that the over-allotment option is not exercised by the Underwriters,
Cooper may, subject to certain limitations, sell up to 1.5 million shares of
Common Stock pursuant to this Prospectus. The Company is registering the shares
of Common Stock pursuant to the Investment Agreement, dated January 10, 1994
(the "Investment Agreement"), between the Company and Cooper, which Investment
Agreement provides Cooper with certain rights to have the shares of Common Stock
held by Cooper registered by the Company under the Securities Act. The Company
has also agreed to indemnify Cooper and the Underwriters of the DECS against
certain liabilities, including civil liabilities under the Securities Act.
The Company and Cooper have agreed not to sell, without the prior written
consent of the Underwriters, any shares of Common Stock or any securities
convertible into or exchangeable for Common Stock for a period of 90 days after
the date of this Prospectus, subject to certain exceptions described herein. See
"Plan of Distribution."
5
<PAGE> 32
<TABLE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth summary consolidated financial and other data
for the Company for the respective periods indicated based on the Company's
audited and unaudited financial statements. The following tables should be read
in conjunction with the Consolidated Financial Statements, related notes and
other financial information included elsewhere in this Prospectus.
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
---------------------------- ------------------------------------------
SEPTEMBER 2, SEPTEMBER 3, JUNE 3, MAY 28, DECEMBER 31,
1995 1994 1995 1994 (1) 1993 (2)
------------- ------------ ------------ ------------ ------------
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (3):
Revenues............................... $114,077 $ 95,725 $396,639 $224,694 $239,761
Gross profit........................... 18,180 9,575 49,388 6,878 20,673
Other charges (credits) and
environmental charges (4)............ 900 -- (710) 35,003 2,453
Income (loss) from operations.......... 8,083 3 13,718 (63,657) (8,428)
Net income (loss) (5).................. 5,101 (3,321) 1,039 (72,403) (60,004)
PER SHARE DATA:
Income (loss) per share before taxes
and
cumulative effect of changes in
accounting principles................ $ 0.14 $ (0.10) $ 0.03 $ (4.02) $ (0.95)
Net income (loss) per share (5)........ 0.14 (0.10) 0.03 (4.02) (3.34)
Dividends paid per share............... -- -- -- -- --
Shares used to compute income (loss)
per share............................ 35,889 34,715 35,148 17,992 17,965
BALANCE SHEET DATA:
(at end of period)(3):
Working capital........................ $103,943 $ 91,109 $ 93,062 $ 91,688 $ 90,685
Total assets........................... 370,619 368,868 369,064 394,747 286,634
Long-term debt......................... 90,308 90,385 90,308 90,385 90,461
Stockholders' equity................... 85,768 69,920 80,855 72,483 88,349
OTHER DATA:
Order backlog (at end of period)....... $476,944 $400,110 $468,761 $389,407 $256,259
EBITDA (6)............................. 11,816 3,649 30,188 (45,380) 9,388
<FN>
- ---------------
(1) On May 24, 1994, the Company's Board of Directors voted to change the
Company's fiscal year end from December 31 to the Saturday nearest to May
31. The Statement of Operations Data for the year ended May 28, 1994 is
unaudited.
The following table sets forth Summary Consolidated Statement of Operations
Data, which has been derived from the Company's audited financial
statements, for the five months ended May 28, 1994 (000's omitted, except
per share amounts):
<S> <C>
Revenues....................................................................... $ 86,976
Other charges (credits) and environmental charges.............................. 32,550
Income (loss) from operations.................................................. (55,805)
Net income (loss).............................................................. (61,370)
Per share data:
Net income (loss) per share.................................................. $ (3.32)
Dividends paid per share..................................................... --
(2) Including Cameron's financial results for fiscal year 1993, the Company's
pro forma unaudited revenues, loss before the cumulative effect of changes
in accounting principles and net loss would have been $389.3 million,
($39.3) million and ($82.3) million, respectively.
(3) On May 26, 1994, the Company acquired Cameron from Cooper. The Summary
Consolidated Financial and Other Data include the accounts of Cameron from
the date of the Acquisition. Cameron's operating results from May 26, 1994
to May 28, 1994 are not material to the consolidated statement of operations
for the year and five months ended May 28, 1994.
(4) In November 1993, the Company sold substantially all of the net assets and
business operations of Wyman-Gordon Composites, Inc. and recorded a non-cash
charge on the sale of $2.5 million.
In May 1994, the Company recorded charges of $6.5 million related to the
closing of a castings facility, $24.1 million related to restructuring and
integration of Cameron and $2.0 million for environmental investigation and
remediation costs.
During the first quarter of fiscal year 1996, the Company provided $0.8
million in order to recognize its 25.0% share of the net losses of the
Australian Joint Venture and to reserve for amounts loaned to the Australian
Joint Venture during the first quarter of fiscal year 1996. Additionally,
the Company provided $0.1 million relating to expenditures for an investment
in an additional joint venture.
(5) Includes a charge of $43.0 million or $2.39 per share in fiscal year 1993
related to the Company's adoption of SFAS 106, "Employers' Accounting for
Postretirement Benefits other than Pensions" ("SFAS 106") and SFAS 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 106 requires postretirement
benefits obligations to be accounted for on an accrual basis rather than the
"expense as incurred" basis formerly used. The Company elected to recognize
the cumulative effect of these accounting changes in fiscal year 1993.
(6) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization and changes in accounting principles. EBITDA is presented
because it may be used as one indicator of a company's ability to service
debt. The Company believes that EBITDA, while providing useful information,
should not be considered in isolation or as 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.
</TABLE>
6
<PAGE> 33
RISK FACTORS
Prospective investors should carefully consider the specific risk factors
set forth below as well as the other information contained in this Prospectus
and the information incorporated herein by reference.
HISTORY OF RECENT LOSSES
Although the Company reported net income of $1.0 million for fiscal year
1995, the Company reported a net loss for the five months ended May 28, 1994,
and for two of the three previous fiscal years. For the year ended December 31,
1993, the Company reported a net loss (before the cumulative effect of changes
in accounting principles) of ($17.0) million. Cameron reported a net loss of
($20.1) million for the same period, its last fiscal year prior to the
Acquisition. The Company has implemented structural changes designed to improve
its cost structure and increase efficiency and productivity at its Houston
facilities. The Company is now implementing similar changes at its Grafton
facility, which has been operating at a loss in recent years. If these
objectives cannot be successfully achieved, the Company may implement further
restructuring measures which could result in write-offs and reduced earnings or
losses. There can be no assurance that the Company's operations will be
profitable in the future. See the Consolidated Financial Statements.
VOLATILITY IN THE COMMERCIAL AEROSPACE INDUSTRY
Approximately 52% of the Company's revenues during fiscal year 1995 was
derived from the commercial aerospace industry, an industry that is cyclical in
nature and subject to changes based on general economic conditions and airline
profitability. Although the United States economy entered a period of slow
growth in 1989 and 1990, the aerospace industry made record deliveries of
commercial aircraft, based on revenue, during those years, and aircraft
deliveries continued to grow through 1991 and decreased only slightly in 1992.
In 1990 through 1992, domestic airlines suffered significant operating losses.
As a result of these losses, the high levels of debt incurred to purchase new
aircraft and the excess capacity within the commercial airline sector, the
commercial aerospace industry has since experienced reduced new orders for
commercial aircraft and related spare parts as well as deferrals, and in some
cases cancellations, of deliveries of previously ordered aircraft. While the
Company's customers are now reporting increased orders for spare parts, aircraft
deliveries continue at historically low rates. Although it appears that the
health of the airline industry is improving, based on profitability, there can
be no assurance that any improvement in the commercial aerospace market will be
substantial or that improved conditions would be sustained. See "Business --
Markets" and "Business -- Customers."
REDUCTIONS IN DEFENSE SPENDING
Approximately 24% of the Company's revenues during fiscal year 1995 was
derived from the defense aerospace industry, an industry that is dependent upon
government defense budgets and, in particular, the United States' defense
budget. In general, defense budgets in the United States have been declining in
recent years, resulting in reduced demand for new aircraft and spare parts.
While the effect of United States defense budget reductions may be offset in
part by foreign military sales, such sales are affected by United States
governmental regulation, regulation by the purchasing government and political
uncertainties in the United States and abroad. There can be no assurance that
United States defense budgets and the related demand for defense equipment will
not continue to decline or that sales of defense equipment to foreign
governments will continue at present levels.
DEPENDENCE ON MAJOR CUSTOMERS
The Company is dependent upon a few large aerospace contractors for a
significant percentage of its revenue. Five customers accounted for
approximately 50% of the Company's revenues during the Company's fiscal year
1995, and two of the five, GE and United Technologies, accounted for 26% and 15%
of total revenues, respectively. In addition, many of the Company's sales to its
smaller customers are eventually incorporated into components sold to its major
customers. The loss of, or significant reduction
7
<PAGE> 34
in, purchases by any of the Company's major customers would adversely affect the
Company. In addition, 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. See "Business --
Customers."
COMPETITION
The Company is subject to intense competition for supplying its customers
with products. Many of the Company's products are sold under long-term contracts
which are bid upon by several suppliers. Because of reductions in demand for
aerospace products in recent years, there exists excess productive capacity in
the market for a number of the Company's principal products which results in
intense price competition for orders. There can be no assurance that the Company
can maintain its share of the market for any of its products. See "Business --
Competition."
RISK OF FLUCTUATIONS IN PRICE AND AVAILABILITY OF RAW MATERIALS
The Company's results of operations are affected by significant
fluctuations in the prices of raw materials used by the Company. 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. In
addition, during periods of increasing raw materials prices, metals suppliers,
who are subject to increased raw materials costs, may be unable to make timely
deliveries or may experience quality problems. During the past year the Company
has experienced a doubling of the delivery times for its principal raw
materials, nickel-based alloys and titanium alloys. Due to these and other
factors, significant increases in the prices or scarcity of supply of raw
materials used by the Company may well have an adverse impact on the Company's
results of operations. See "Business -- Raw Materials."
LIQUIDITY
The Company anticipates making cash expenditures during fiscal year 1996 of
approximately $35 to $38 million of which approximately $25 million will be for
ongoing capital expenditures, and the balance will be for expenditures relating
to the consolidation of the Company's forging operations with Cameron, for costs
associated with prior restructuring activities, and for environmental management
and remediation projects. The Company expects that its cash expenditures will
continue at close to the same level for fiscal years 1997 and 1998. There can be
no assurances that the Company will be able to generate the cash flow from its
operations and from improved inventory management necessary to meet its
anticipated cash requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS
The Company's operations are subject to extensive environmental, health and
safety laws and regulations promulgated by federal, state and local governments.
Many of these laws and regulations provide for substantial fines and criminal
sanctions for violations. The nature of the Company's business exposes the
Company to risks of liability due to the use and storage of materials that can
cause contamination or personal injury if released into the environment. In
addition, environmental laws may have a significant effect on the nature, scope
and cost of cleanup of contamination at operating facilities. It is difficult to
predict the future development of such laws and regulations or their impact on
future earnings and operations, but the Company anticipates that these standards
will continue to require increased capital expenditures. There can be no
assurance that material costs or liabilities will not be incurred.
8
<PAGE> 35
Based upon information presently available, the Company does not expect
that costs for future environmental compliance and remediation will have a
material adverse effect on its competitive or financial position or its ongoing
results of operations. However, it is not possible to predict accurately the
amount or timing of costs of any future environmental remediation requirements.
Such costs could be material to future quarterly or annual results of
operations. In addition, the "Superfund" statutes may impose joint and several
liability for the costs of remedial investigations and actions on the entities
that arranged for disposal of the wastes, the waste transporters that delivered
materials to the disposal sites and the past and present owners and operators of
such sites; responsible parties (or any one of them, including the Company) may
be required to bear all of such costs regardless of fault, legality of the
original disposal or ownership of the disposal site. In such event, the amount
owed by the Company for liabilities at Superfund sites could be significantly
greater. See "Business -- Environmental Regulations" and Footnote G to the
Consolidated Financial Statements.
PRODUCT LIABILITY EXPOSURE
The Company produces many critical engine and structural parts for
commercial and military aircraft. As a result, the Company has an inherent risk
of exposure to product liability claims. The Company maintains product liability
insurance, 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 incurred. See "Business -- Product Liability Exposure."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ADVERSE EFFECTS OF ISSUANCE OF PREFERRED
STOCK
The Company's Restated Articles of Organization (the "Articles"), By-Laws
and Rights Agreement (as defined herein), as well as Massachusetts law, contain
provisions that could discourage a proxy contest, make more difficult the
acquisition of a substantial block of the Common Stock, which could make the
payment of a premium to shareholders in connection with a change in control less
likely, and increase the difficulty of removing incumbent management and board
members. In addition, such provisions could limit the price that investors might
be willing to pay in the future for shares of the Common Stock. The Board of
Directors of the Company is authorized to issue, without stockholder approval,
Preferred Stock with voting, conversion and other rights and preferences that
could adversely affect the voting power or other rights of the holders of Common
Stock. The issuance of Preferred Stock or rights to purchase Preferred Stock
could be used to discourage an unsolicited acquisition proposal. Pursuant to the
Rights Agreement the Company has issued Rights (as defined herein) which provide
that under certain circumstances each holder of a Right will have the right to
receive a number of shares of common stock of an Acquiring Person (as defined
herein) having a market value of two times the Exercise Price (as defined
herein) of the Right. The Rights will cause substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the
Company's Board of Directors. See "Description of the Company's Capital Stock --
Rights Agreement." The Board of Directors is divided into three "staggered"
classes, with each class serving for a term of three years. Dividing the Board
of Directors in this manner could increase the difficulty of removing incumbent
members and could discourage a proxy contest or the acquisition of a substantial
block of the Common Stock. The Articles also contain a "fair price provision"
that could impede certain business combinations involving the Company.
Massachusetts law contains certain anti-takeover provisions, including Chapter
110F of the Massachusetts General Laws (the "MGL"), a so-called "Business
Combination Statute" that restricts certain stockholders that own (together with
their affiliates) 5% or more of the outstanding voting stock of a Massachusetts
corporation from engaging in certain business combinations with such corporation
("Chapter 110F"), and Chapter 110D of the MGL, a so-called "Control Share
Statute" that limits any person or entity that has acquired 20% or more of a
corporation's stock from voting such shares unless the corporation's
stockholders, other than such acquiring person or entity, authorize such voting
rights by a vote of the holders of the majority of stock of the corporation
entitled to vote on such matters ("Chapter 110D"). Although the Company has
presently selected to "opt-out" of Chapter 110D, the Company remains subject to
Chapter 110F. Such provisions of Massachusetts law could have the effect of
discouraging a potential acquiror from making an offer for the Common Stock,
which would make the payment of a premium to stockholders in connection with a
change in control less likely, and could
9
<PAGE> 36
increase the difficulty of removing incumbent management and board members. See
"Description of the Company's Capital Stock."
In addition, the Investment Agreement with Cooper creates certain obstacles
to a takeover of the Company. See "Restrictions on Voting Control" below.
RESTRICTIONS ON VOTING CONTROL
The Investment Agreement with Cooper, which relates to Cooper's ownership
of 16.5 million shares of Common Stock or 47% of the Common Stock outstanding,
includes provisions (i) requiring Cooper to vote its shares of Common Stock as
recommended by the Company's Board of Directors or at Cooper's option in the
same proportion to votes of the other shareholders, (ii) restricting Cooper's
ability to sell or encumber its shares of Common Stock, and (iii) preventing
Cooper from joining in any proxy contest, making any proposal with respect to
the acquisition of any securities or assets of the Company, initiating or
soliciting proxies for the approval of any shareholder proposals, and tendering
shares of Common Stock that Cooper owns in a tender offer unless the Company's
Board of Directors approves such tender or takes a neutral position on the
offer. See "Relationship Between the Company and Cooper -- Investment
Agreement." Such "standstill" agreements give the Company's Board of Directors
effective voting control over 47% of the Company's outstanding shares of Common
Stock which could make it substantially more difficult for owners of shares of
Common Stock to affect the outcome of shareholder votes.
IMPACT OF THE DECS ON THE MARKET FOR THE COMPANY'S COMMON STOCK
It is not possible to predict accurately how or whether the DECS will trade
in the secondary market or whether such market will be liquid. Any market that
develops for the DECS is likely to influence and be influenced by, the market
for the Common Stock. For example, the price of the Common Stock could become
more volatile and could be depressed by investors' anticipation of the potential
distribution into the market of substantial additional amounts of Common Stock
at the maturity of the DECS, by possible sales of Common Stock by investors who
view the DECS as a more attractive means of equity participation in the Company
and by hedging or arbitrage trading activity that may develop involving the DECS
and the Common Stock.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock of the Company is listed on Nasdaq under the symbol WYMN.
The following table sets forth the high and low sales price of the Common Stock
for the calendar periods listed below as reported on Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
First Quarter.......................................................... $7 1/8 $4 5/8
Second Quarter......................................................... 6 7/8 4 1/2
Third Quarter.......................................................... 7 5 3/4
Fourth Quarter......................................................... 6 1/2 4 3/4
1995
First Quarter.......................................................... 8 5 1/4
Second Quarter......................................................... 12 3/8 7 5/8
Third Quarter.......................................................... 14 1/8 10 5/8
Fourth Quarter (through December 14, 1995)............................. 15 1/8 12 1/4
</TABLE>
On December 14, 1995, the last reported sale price of the Common Stock was
$13.50 per share.
The Company discontinued dividends on the Common Stock beginning in the
fourth quarter of 1991. While it is the intention of the Board of Directors to
consider the resumption of dividends on the Common Stock from time to time, the
declaration of future dividends will be dependent upon the Company's earnings,
financial condition, and other relevant factors.
The Company is limited in the amount of dividends it may pay under the
terms of the indenture dated March 16, 1993, pursuant to which it issued $90.0
million principal amount of 10 3/4% Senior Notes due
10
<PAGE> 37
2003 (the "Senior Note Indenture"). Such limitation is provided by the Senior
Note Indenture's limitation on restricted payments, including dividends. The
Senior Note Indenture provides that the Company will not, and will not permit
any of its subsidiaries to, pay dividends or make any other restricted payment
if, after giving effect thereto, the aggregate amount of all restricted payments
made from and after the date of the Senior Note Indenture would exceed the sum
of (a) 50% of consolidated net income of the Company accrued for the period
(taken as one accounting period) commencing with March 29, 1993, to and
including the date of such calculation (or, in the event consolidated net income
is a deficit, then minus 100% of such deficit); (b) the aggregate net proceeds,
including the fair market value of property other than cash, received by the
Company from the issuance or sale of its capital stock, including the issuance
of its capital stock upon conversion of securities other than its capital stock,
and options, warrants and rights to purchase its capital stock (other than
redeemable stock) from and after the date of the Senior Note Indenture; and (c)
$5.0 million. As of June 3, 1995, the Company was not eligible to pay dividends
under the terms of the Senior Note Indenture. The Senior Note Indenture also
contains certain other covenants including limitations on indebtedness, liens,
and disposition of assets.
As of December 11, 1995, the Common Stock was held by 1,360 holders of
record. The number of record holders may not be representative of the number of
beneficial holders because many shares are held by depositories, brokers, or
other nominees.
11
<PAGE> 38
<TABLE>
CAPITALIZATION
The following table sets forth as of September 2, 1995 and June 3, 1995,
the capitalization of the Company. The Company will receive no proceeds from the
sale of the DECS or from sales of Common Stock by Cooper pursuant to this
Prospectus, if any. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto
appearing elsewhere in this Prospectus. See "Selected Consolidated Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<CAPTION>
SEPTEMBER 2, JUNE 3,
1995 1995
------------ --------
(000'S OMITTED)
<S> <C> <C>
Borrowings Due Within One Year.................................... $ 4,812 $ 3,915
======== ========
Long-Term Debt:
10 3/4% Senior Notes Due 2003................................... $ 90,000 $ 90,000
Other........................................................... 308 308
-------- --------
Total Long-Term Debt............................................ 90,308 90,308
-------- --------
Stockholders' Equity:
Preferred Stock, No Par Value:
Authorized 5,000,000 Shares; None Issued..................... -- --
Common Stock, Par Value $1.00
Authorized 70,000,000 Shares; Issued 37,052,720.............. 37,053 37,053
Capital in Excess of Par Value.................................. 38,699 40,118
Retained Earnings............................................... 44,801 39,700
Equity Adjustments.............................................. (714) 63
-------- --------
119,839 116,934
Less Treasury Stock at Cost..................................... (34,071) (36,079)
-------- --------
Total Stockholders' Equity................................... 85,768 80,855
-------- --------
Total Capitalization.............................................. $176,076 $171,163
======== ========
</TABLE>
12
<PAGE> 39
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated balance sheet data as of June 3, 1995, May 28, 1994 and
December 31, 1993, 1992, 1991 and 1990 and consolidated statement of operations
data for the year ended June 3, 1995, five months ended May 28, 1994 and years
ended December 31, 1993, 1992, 1991 and 1990 have been derived from the
Company's audited consolidated financial statements. The consolidated balance
sheet data as of September 2, 1995 and September 3, 1994 and the consolidated
statement of operations data for the three months ended September 2, 1995 and
September 3, 1994 and for the year ended May 28, 1994, have been derived from
the Company's unaudited consolidated financial statements. The financial data
set forth below should be read in conjunction with the Consolidated Financial
Statements of the Company and related notes thereto, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and other
financial information included elsewhere in this Prospectus.
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
------------------------- ------------------------------------------------------------------------------
SEPTEMBER 2, SEPTEMBER 3, JUNE 3, MAY 28, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994(1) 1993(2) 1992 1991(3) 1990(3)
------------ ------------ -------- -------- ------------ ------------ ------------ -------------
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA(4):
Revenues............... $114,077 $ 95,725 $396,639 $224,694 $239,761 $298,881 $ 355,390 $405,381
Gross profit........... 18,180 9,575 49,388 6,878 20,673 55,590 28,362 56,295
Other charges (credits)
and environmental
charges(5)............ 900 -- (710) 35,003 2,453 -- 106,464 --
Income (loss)
from operations....... 8,083 3 13,718 (63,657) (8,428) 27,275 (115,160) 21,319
Net income (loss)(6)... 5,101 (3,321) 1,039 (72,403) (60,004) 21,795 (99,681) 8,696
PER SHARE DATA:
Income (loss) per share
before cumulative
effect of changes
in accounting
principles............ $ 0.14 $ (0.10) $ 0.03 $ (4.02) $ (0.95) $ 1.21 $ (5.59) $ 0.49
Net income (loss) per
share (6)............. 0.14 (0.10) 0.03 (4.02) (3.34) 1.21 (5.59) 0.49
Dividends paid per share -- -- -- -- -- -- 0.30 0.80
Shares used to compute
income (loss)
per share............. 35,889 34,715 35,148 17,992 17,965 18,078 17,831 17,831
BALANCE SHEET DATA
(at end of period)(4):
Working capital........ $103,943 $ 91,109 $ 93,062 $ 91,688 $ 90,685 $ 96,057 $ 110,859 $124,030
Total assets........... 370,619 368,868 369,064 394,747 286,634 295,156 339,154 421,886
Long-term debt......... 90,308 90,385 90,308 90,385 90,461 70,538 90,615 73,892
Stockholders' equity... 85,768 69,920 80,855 72,483 88,349 149,516 128,088 232,157
OTHER DATA:
Order backlog (at end of
period)............... $476,944 $400,110 $468,761 $389,407 $256,259 $309,679 $ 386,905 $392,857
EBITDA (7)............. 11,816 3,649 30,188 (45,380) 9,388 45,191 (89,960) 50,599
</TABLE>
13
<PAGE> 40
[FN]
- ---------------
(1) On May 24, 1994, the Company's Board of Directors voted to change the
Company's fiscal year end from one which ended on December 31 to the
Saturday nearest to May 31. The Statement of Operations Data for the year
ended May 28, 1994 is unaudited.
The following table sets forth Summary Consolidated Statement of Operations
Data, which has been derived from the Company's audited financial
statements, for the five months ended May 28, 1994 (000's omitted, except
per share amounts):
<TABLE>
<S> <C>
Revenues..................................................... $ 86,976
Other charges (credits) and environmental charges............ 32,550
Income (loss) from operations................................ (55,805)
Net income (loss)............................................ (61,370)
Per share data:
Net income (loss) per share................................ $ (3.32)
Dividends paid per share................................... --
</TABLE>
(2) Including Cameron's financial results for fiscal year 1993, the Company's
pro forma unaudited revenues, loss before the cumulative effect of changes
in accounting principles and net loss would have been $389.3 million,
($39.3) million and ($82.3) million, respectively.
(3) In fiscal year 1991, the Company divested its automotive crankshaft
operations. Revenues pro forma for the exclusion of such operations are
$306.6 million and $344.0 million for fiscal years 1991 and 1990,
respectively, assuming the divestiture of the automotive crankshaft
operations had taken place as of the beginning of each of the periods.
(4) On May 26, 1994, the Company acquired Cameron from Cooper. The Selected
Consolidated Financial Data include the accounts of Cameron from the date
of the Acquisition. Cameron's operating results from May 26, 1994 to May
28, 1994 are not material to the consolidated statement of operations for
the year and five months ended May 28, 1994.
(5) During fiscal year 1991 the Company incurred charges of approximately $88.0
million and $11.5 million in connection with a restructuring program
primarily at its forging operations and disposition of its automotive
crankshaft forging division, respectively. Additionally, $7.0 million was
provided with respect to environmental investigation and remediation costs
at one of the Company's facilities.
In November 1993, the Company sold substantially all of the net assets and
business operations of Wyman-Gordon Composites, Inc. and recorded a
non-cash charge on the sale of $2.5 million.
In May 1994, the Company recorded charges of $6.5 million related to the
closing of a castings facility, $24.1 million related to restructuring and
integration of Cameron and $2.0 million for environmental investigation and
remediation costs.
During the first quarter of fiscal year 1996, the Company provided $0.8
million in order to recognize its 25.0% share of the net losses of the
Australian Joint Venture and to reserve for amounts loaned to the
Australian Joint Venture during the first quarter of fiscal year 1996.
Additionally, the Company provided $0.1 million relating to expenditures
for an investment in an additional joint venture.
(6) Includes a charge of $43.0 million or $2.39 per share in fiscal year 1993
relating to the Company's adoption of SFAS 106, "Employers' Accounting for
Postretirement Benefits other than Pensions" ("SFAS 106") and SFAS 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 106 requires
postretirement benefits obligations to be accounted for on an accrual basis
rather than the "expense as incurred" basis formerly used. The Company
elected to recognize the cumulative effect of these accounting charges in
fiscal year 1993.
(7) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization and changes in accounting principles. The presentation of
EBITDA is presented because it may be used as one indicator of a company's
ability to service debt. The Company believes that EBITDA, while providing
useful information, should not be considered in isolation or as 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.
14
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis presents management's assessment of
material developments affecting the Company's results of operations, liquidity
and capital resources during the first quarter of fiscal year 1996 and the first
quarter of fiscal year 1995, and during fiscal years 1995, 1994 and 1993. These
discussions should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto. Comparisons of fiscal 1995 results
with results prior to the Acquisition of Cameron may not be meaningful.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED SEPTEMBER 2, 1995 ("FIRST QUARTER OF FISCAL YEAR 1996")
COMPARED TO THREE MONTHS ENDED SEPTEMBER 3, 1994 ("FIRST QUARTER OF FISCAL YEAR
1995")
The Company's revenues increased 19.2% to $114.1 million in the first
quarter fiscal year 1996 from $95.7 million in the first quarter fiscal year
1995 due to higher sales volume at the Company's Forgings and Castings
Divisions. These sales volume increases during the first quarter of fiscal year
1996 as compared to the first quarter of fiscal year 1995 are reflected by
market as follows: a $9.3 million (12.8%) increase in aerospace, a $8.3 million
(57.2%) increase in power generation and a $0.8 million (9.1%) increase in
other. Revenues in the first quarters of fiscal years 1996 and 1995 were limited
by raw material shortages and production delays caused by capacity constraints
of the Company's suppliers. While the severity of the raw material shortages was
not as extensive in the first quarter of fiscal year 1996 as compared to the
first quarter of fiscal year 1995, the Company is seeking to improve upon its
ability to receive raw material such that there is no disruption to its
production schedule. The revenue increases mentioned above have occurred while
the Company's backlog has grown steadily to $477.0 million at September 2, 1995
from $400.1 million at September 3, 1994.
The Company's gross margins were 15.9% in the first quarter of fiscal year
1996 as compared to 10.0% in the first quarter of fiscal year 1995. This
improvement resulted from higher production volumes and productivity gains
resulting from the Company's efforts toward focusing forging production of
rotating parts for jet engines in its Houston, Texas facility and forging
production of airframe structures and large turbine parts in its Grafton,
Massachusetts facility. Additionally, continuing realization of cost reductions
from synergies associated with the integration of Cameron contributed to this
higher ratio. Gross margins benefitted from LIFO credits of $1.1 million during
the first quarter of fiscal year 1995. There were no LIFO credits recorded
during the first quarter of fiscal year 1996.
Selling, general and administrative expenses decreased 3.9% to $9.2 million
during the first quarter of fiscal year 1996 from $9.6 million during the first
quarter of fiscal year 1995. Selling, general and administrative expenses as
percentage of revenues improved to 8.1% in the first quarter of fiscal year 1996
from 10.0% in the first quarter of fiscal year 1995. The improvement as a
percent of revenues is the result of cost reductions associated with the
integration of Cameron with the Company's Forgings operations and higher
revenues.
During the first quarter of fiscal year 1996, the Company provided $0.8
million in order to recognize its 25.0% share of the net losses of the
Australian Joint Venture and to reserve for amounts loaned to the Australian
Joint Venture during the first quarter of fiscal year 1996. Additionally, the
Company provided $0.1 million relating to expenditures for an investment in an
additional joint venture.
Interest expense was $2.9 million in both the first quarter of fiscal year
1996 and the first quarter of fiscal year 1995.
Miscellaneous, net was an expense of $0.1 million in the first quarter of
fiscal year 1996 as compared to an expense of $0.4 million in the first quarter
of fiscal year 1995. Miscellaneous, net in the first quarter of fiscal year 1996
includes a $0.2 million gain on the sale of marketable securities.
15
<PAGE> 42
The Company recorded no provision for income taxes in the first quarter of
fiscal years 1996 and 1995.
Net income was $5.1 million, or $.14 per share, in the first quarter of
fiscal year 1996 and net loss was $(3.3) million, or $(.10) per share in the
first quarter of fiscal year 1995. The $8.4 million improvement results from the
items described above.
YEAR ENDED JUNE 3, 1995 ("FISCAL YEAR 1995") COMPARED TO
YEAR ENDED MAY 28, 1994 ("FISCAL YEAR 1994")
The Company's results of operations for fiscal year 1995 include the
results of Cameron which the Company acquired from Cooper in May 1994. As a
result of the Acquisition, the Company has broadened its revenue base and
expanded into new markets. The Company is also realizing substantial operating
and processing efficiencies through the consolidation of systems and facilities
and the reduction of personnel performing duplicate functions.
The Company's revenues increased 76.5% to $396.6 million in fiscal year
1995 from $224.7 million in fiscal year 1994. Approximately $151.0 million of
this increase was due to the Acquisition of Cameron, which provides a broader
revenue base in the Company's traditional markets of commercial and defense
aerospace and provides diversification into the power generation market. The
remainder of the revenue increase was due to higher sales volume at the
Company's forgings and castings divisions. The increase in revenues was limited
by raw material shortages and production delays caused by capacity constraints
of the Company's suppliers. Although this situation improved during the second
half of fiscal year 1995, it had a negative impact on overall revenues.
Additionally, fiscal year 1994 contained $4.7 million of revenues from
Wyman-Gordon Composites, Inc. which was sold by the Company during November
1993.
The Company's gross margins were 12.5% in fiscal year 1995, as compared to
3.1% in fiscal year 1994. Higher production volumes, particularly in the
Company's castings division, productivity gains in factory operations and
realization of certain synergies associated with the integration of Cameron with
the Company's forgings operations contributed to this higher ratio. In addition,
the gross margins at the Company's composites divisions for fiscal year 1995
were well above fiscal year 1994 levels. These favorable trends were offset
somewhat by production delays resulting from raw material shortages experienced
most significantly in the first half of fiscal year 1995. Gross margins
benefited from LIFO credits of $6.2 million in fiscal 1995 as compared to $8.1
million in fiscal year 1994. Gross margin in fiscal year 1994 was negatively
impacted by significant charges totaling $8.7 million related mainly to a change
in accounting estimate for workers' compensation of $4.2 million and excess
inventories of $2.8 million.
Selling, general and administrative expenses increased 2.4% to $36.4
million in fiscal year 1995 from $35.5 million in fiscal year 1994. Selling,
general and administrative expenses improved as a percentage of revenues to 9.2%
in fiscal year 1995 from 15.8% in fiscal year 1994. Fiscal year 1994 selling,
general and administrative expenses include $7.6 million of significant charges.
Absent the significant charges, fiscal year 1994 selling, general and
administrative expenses were 12.4% of revenues. The improvement as a percent of
revenues is the result of certain savings associated with the integration of
Cameron with the Company's forgings operations, and higher revenues.
During fiscal year 1995, the Company recognized $1.4 million of other
charges for its 25.0% equity share of the losses of its Australian Joint Venture
for the production of nickel-based superalloy.
In fiscal year 1994, the Company recognized other charges of $35.0 million,
which included $24.1 million for Cameron integration costs, $6.5 million for
castings division restructuring costs, $2.0 million for anticipated
environmental charges, and $2.4 million related to the disposition of production
facilities. The Company recognized a $2.1 million credit in fiscal year 1995
after determining that Cameron integration costs, including severance and other
personnel costs, were lower than originally estimated. The Company believes that
most of the integration activities have been completed or adequate reserves have
been provided. As of June 3, 1995, unused reserves for Cameron integration costs
amount to $8.6 million.
Interest expense decreased 1.0% to $11.0 million in fiscal year 1995 from
$11.1 million in fiscal year 1994. Fiscal year 1995 interest expense includes
higher financing fees associated with the establishment
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<PAGE> 43
in May 1994 of a receivables backed credit facility. Fiscal year 1994 interest
expense includes the write-off of financing fees relating to the Company's prior
credit facility amounting to $1.2 million.
Miscellaneous, net was an expense of $1.7 million in fiscal year 1995 and
income of $2.4 million in fiscal year 1994. Miscellaneous, net in fiscal year
1994 includes a $3.3 million gain on the sale of marketable securities.
The Company recorded no provision for income taxes in fiscal years 1995 and
1994. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Net income was $1.0 million, or $.03 per share, in fiscal year 1995
compared to a net loss of ($72.4) million, or ($4.02) per share, in fiscal year
1994. The $73.4 million improvement results from the items described above.
YEAR ENDED DECEMBER 31, 1993 ("FISCAL YEAR 1993") COMPARED TO
YEAR ENDED DECEMBER 31, 1992 ("FISCAL YEAR 1992")
The Company's revenues decreased 19.8% to $239.8 million in fiscal year
1993 from $298.9 million in fiscal year 1992. This decline in revenues was
primarily attributable to continued sluggishness in the commercial aerospace
industry during fiscal year 1993.
The Company's gross margins were 8.6% in fiscal year 1993 as compared to
18.6% in fiscal year 1992. The decline in gross margins was a result of (1)
lower production volume, (2) lower LIFO credits recorded in fiscal year 1993 as
compared to fiscal year 1992 and (3) competitive pricing which continued to
place pressure on the Company's gross margins. LIFO credits, which include both
LIFO liquidation and deflation effects, of $7.9 million and $22.8 million were
recognized in fiscal year 1993 and fiscal year 1992, respectively.
Selling, general and administrative expenses decreased 5.9% to $26.6
million in fiscal year 1993 from $28.3 million in fiscal year 1992. The decrease
in selling, general and administrative expenses is mainly due to lower payroll
costs from reductions in personnel. Selling, general and administrative expenses
increased as a percent of revenues to 11.1% in fiscal year 1993 from 9.4% in
fiscal year 1992 as a result of the revenue decline.
In November 1993, the Company sold substantially all of the net assets and
business operations of its Wyman-Gordon Composites, Inc. operations. The Company
recorded a non-cash charge on the sale in fiscal year 1993 of $2.5 million.
Interest expense increased 43.9% to $10.8 million in fiscal year 1993 from
$7.5 million in fiscal year 1992 primarily as a result of higher interest rates
on the 10 3/4% Senior Notes due 2003 as compared to that on the debt retired
with the proceeds of the 10 3/4% Senior Notes. The average debt balance was
$87.7 million and $84.8 million in fiscal year 1993 and fiscal year 1992,
respectively. Additionally, the Company wrote off financing fees relating to a
prior credit facility amounting to $1.7 million in fiscal year 1993.
Miscellaneous income was $2.2 million in fiscal year 1993 as compared to
$2.0 million in fiscal year 1992. Miscellaneous income in fiscal year 1993
reflects primarily the gain of $3.3 million on the sale of marketable
securities. Miscellaneous income in fiscal year 1992 reflects primarily the gain
of $0.9 million on the sale of marketable securities and a gain of $0.6 million
from a settlement of an overfunded pension plan terminated in a prior year.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106"), and No. 109, "Accounting for Income Taxes"
("SFAS 109"). The Company elected to recognize the cumulative effect of these
accounting changes, resulting in a noncash reduction in earnings in 1993 of
$43.0 million or $2.39 per share.
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<PAGE> 44
Net loss was ($60.0) million, or ($3.34) per share, in fiscal year 1993 and
net income was $21.8 million, or $1.21 per share, in fiscal year 1992. The
change results from the items described above.
LIQUIDITY AND CAPITAL RESOURCES
The increase in the Company's cash of $7.5 million to $21.4 million as of
September 2, 1995 from $13.9 million as of June 3, 1995 resulted primarily from
cash provided by operating activities of $6.6 million.
The increase in the Company's working capital of $10.9 million to $103.9
million as of September 2, 1995 from $93.1 million as of June 3, 1995 resulted
primarily from net income of $5.1 million, an increase in income taxes and other
of $2.8 million, net reductions of fixed assets of $4.3 million and net proceeds
from the issuance of Common Stock of $0.6 million, offset by a net increase in
other assets of $0.6 million and a decrease in long-term restructuring,
integration, disposal and environmental of $0.8 million.
Earnings before interest, taxes, depreciation, amortization and changes in
accounting principles ("EBITDA") was $30.2 million in fiscal year 1995. EBITDA
increased $8.2 million to $11.8 million in the first quarter of fiscal year 1996
from $3.6 million in the first quarter of fiscal year 1995. This improvement
reflects primarily the $8.4 million improvement in the Company's net income in
the first quarter of fiscal year 1996 as compared to the first quarter of fiscal
year 1995.
During fiscal year 1994, the Company recognized costs to be incurred for
the integration of Cameron totalling $24.1 million of which $12.7 million were
estimated to require cash outlays. Additionally, the Company estimated $12.2
million in cash outlays from direct costs associated with the Acquisition and
integration. Therefore, combined reserves for Cameron integration costs totalled
$36.3 million of which $24.9 million were estimated to require cash. The
projects undertaken for the integration of Cameron into the Company include (i)
consolidating the manufacture of rotating parts for jet engines from the
Company's Grafton, Massachusetts facility into Cameron's Houston facility, while
the Grafton facility has been focused on the production of large airframe
structures and large turbine parts, (ii) closing of one of the two Cameron
forging plants in Houston, (iii) closing the Company's ring-roll and hammer
forging operations at its Worcester, Massachusetts facility and (iv) adopting
the best manufacturing practices of the Company and Cameron. As a result of such
projects, the Company has eliminated duplicative facilities, improved
manufacturing efficiencies, improved inventory management and realized cost
reductions. During May 1994, $11.4 million of non-cash asset write-offs were
charged to these reserves. During fiscal year 1995, the Company incurred $11.1
million in charges on the integration of Cameron which were charged to these
reserves, $6.7 million of which required the use of cash. Additionally, the
Company reduced its estimates of costs to be incurred for the integration of
Cameron and direct costs associated with the acquisition by a total of $7.3
million. Such reduction is reflected by an adjustment in the purchase price of
$5.2 million and a credit to income of $2.1 million on the fiscal year 1995
Statement of Operations. See Footnote F to the Consolidated Financial Statements
for a summary of cash outlays relating to restructuring charges.
As of June 3, 1995, the Company estimates the remaining cash requirements
for the integration of Cameron and direct costs associated with the Acquisition
to be $8.6 million, and expects to spend approximately $6.5 million during its
fiscal year ending June 1, 1996 ("fiscal year 1996") and $2.1 million
thereafter. In the first quarter of fiscal year 1996, spending related to the
integration of Cameron and associated direct costs amounted to $1.5 million.
The 1991 restructuring plan is substantially complete. See Footnote F to
the Consolidated Financial Statements. The Company incurred cash charges of $2.7
million related to the 1991 restructuring plan during fiscal year 1995 and
expects to expend an additional $3.8 million over the next several years,
approximately $1.9 million in fiscal year 1996 and $1.9 million thereafter. For
fiscal year 1996 and thereafter, these expenditures are anticipated to include
payments for consolidation and reconfiguration of existing facilities of $1.7
million in fiscal year 1996 and $0.6 million thereafter, and payments under a
deferred compensation agreement of approximately $1.5 million. In the first
quarter of fiscal year 1996, spending related to the 1991 restructure plan
amounted to $0.4 million.
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<PAGE> 45
As of June 3, 1995, the Company expects to spend $1.8 million in fiscal
year 1996 and $15.1 million thereafter on non-capitalizable environmental
activities. In the first quarter of fiscal year 1996, no amounts were expended
for non-capitalizable environmental projects. The Company has completed all
environmental projects within established timetables and is continuing to do so
at the present time.
The Company from time to time expends cash on capital expenditures for more
cost effective operations, environmental projects and joint development programs
with customers. Capital expenditures amounted to $18.7 million, $2.4 million,
$13.9 million and $11.2 million in fiscal year 1995 the five months ended May
28, 1994 and fiscal years 1993 and 1992, respectively. Capital expenditures in
the foreseeable future are expected to increase from fiscal year 1995 levels. In
the first quarter of fiscal year 1996, capital expenditures amounted to $1.8
million.
As of June 3, 1995, the Company had invested $4.1 million in cash towards
its share of the capital requirements of the Australian Joint Venture for the
production of nickel-based superalloy. The Company is committed to invest an
additional $3.4 million in the Joint Venture. The Australian Joint Venture has
entered into a credit agreement with an Australian bank under which it has $17.3
million in borrowings outstanding. The Company has guaranteed 25.0% of the
Australian Joint Venture's obligations under the credit agreement. This
guarantee expires at such time as the Australian Joint Venture demonstrates its
ability to produce commercially acceptable products. The Australian Joint
Venture has not generated sufficient cash flow to service its debt, and if the
operations do not become profitable in the future, the Company may be required
to write off all or a portion of the remaining book value of its investment and
repay up to 25.0% of the Joint Venture's $17.3 million debt, which is guaranteed
by the Company. The book value of the Company's investment in the Australian
Joint Venture as of September 2, 1995 is approximately $2.3 million.
On May 20, 1994, the Company entered into a revolving receivables-backed
credit facility (the "Receivables Financing Program") among the Company, certain
subsidiaries and Wyman-Gordon Receivables Company ("WGRC") and a Revolving
Credit Agreement dated as of May 20, 1994 among WGRC and the financial
institutions party thereto. WGRC is a separate corporate entity from the Company
and its other subsidiaries with its own separate creditors. WGRC purchases
accounts receivable from the Company and certain other selling subsidiaries
("Sellers") and using those receivables as collateral borrows from the lending
banks. WGRC's creditors have a claim on its assets prior to those assets
becoming available to any creditors of any of the Sellers. Borrowings are
subject to a formula which is dependent upon certain reserves relating to the
accounts receivable purchased by WGRC and bear interest at fluctuating rates
tied to Eurodollar rates or the lending banks' prime rates. The aggregate
maximum borrowing capacity under the Receivables Financing Program is $65.0
million, with a letter of credit sub-limit of $35.0 million. The term of the
Receivables Financing Program is five years, with an evergreen feature. As of
June 3, 1995, under this credit facility, the total availability based on
eligible receivables was $44.8 million, there were no borrowings and letters of
credit amounting to $10.0 million were outstanding. As of September 2, 1995,
under the credit facility, the total availability based on eligible receivables
was $42.0 million, there were no borrowings and letters of credit amounting to
$9.7 million were outstanding.
Wyman-Gordon Limited, the Company's subsidiary located in Livingston,
Scotland, entered into a credit agreement effective November 28, 1994 (the "U.K.
Credit Agreement"). The maximum borrowing capacity under the U.K. Credit
Agreement is L3.0 million with a separate letter of credit or guarantee limit of
L1.0 million. The term of the U.K. Credit Agreement is one year with an
evergreen feature. There were L2.4 million or $3.8 million of borrowings
outstanding at June 3, 1995 and the Company had issued L0.4 million or $0.6
million of letters of credit or guarantees under the U.K. Credit Agreement.
There were L3.0 million or $4.7 million of borrowings outstanding as of
September 2, 1995 and the Company had issued L0.9 million or $1.5 million of
letters of credit or guarantees under the U.K. Credit Agreement.
The primary sources of liquidity available to the Company in fiscal year
1996 to fund operations, anticipated expenditures in connection with the
integration of Cameron, planned capital expenditures and planned environmental
expenditures include available cash ($21.4 million as of September 2, 1995 and
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<PAGE> 46
$13.9 million as of June 3, 1995), 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.
Cash from operations and debt are expected to be the Company's primary
sources of liquidity beyond fiscal year 1996. The Company believes that it has
adequate resources to provide for its operations and the funding of
restructuring, integration, capital and environmental expenditures.
The Company's current plans to improve operating results include completing
the integration of Cameron, further reductions of personnel and various other
cost reduction measures. Programs to expand the Company's revenue base include
participation in new aerospace programs and expansion of participation in the
land-based gas turbine and extruded pipe markets and other markets in which the
Company has not traditionally participated. The Company anticipates that, in
addition to the growth in commercial aviation, the aging current commercial
airline fleet will require future orders for its replacement.
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.
ACCOUNTING, TAX AND OTHER MATTERS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121") which must be adopted by the Company no
later than fiscal year 1997. 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 Company has not determined the impact of
adopting SFAS 121 on its financial position or results of operations.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). This standard provides that the Company follow an
accrual method of accounting, rather than the as-incurred basis formerly used
for benefits payable to employees when they leave the Company for reasons other
than retirement. The adoption, including the cumulative effect, has not had a
material affect on earnings or the financial position of the Company.
As of June 3, 1995, the Company had net operating loss carryforwards
("NOLs") of approximately $67.0 million, which begin expiring in year 2006. The
Company is seeking to utilize a substantial portion of such NOLs to obtain a
refund in excess of $20.0 million of prior years' taxes. To the extent that the
Company is not successful in recovering a refund of prior years' taxes, the NOLs
will be available to offset future taxable income, if any. A reasonable
estimation of the potential recovery cannot be made at this time and,
accordingly, no adjustment has been made in the financial statements with
respect to the claim for such refund.
The Company's ability to utilize its NOLs in the future may be affected by
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), which
generally limits the use of a corporation's NOLs following a more than 50
percentage point change in the ownership of the corporation's equity within any
three-year period (an "ownership change"). An ownership change could result in
the imposition of limitations on the Company's ability to offset future taxable
income with the Company's NOL's.
The Australian Joint Venture has reported continued operating losses and
has not generated sufficient cash flow to service its debt. In fiscal year 1995,
the Company provided $1.4 million to
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<PAGE> 47
recognize the Company's 25.0% share of the net losses of this Joint Venture. The
Company provided an additional $0.8 million in the first quarter of fiscal year
1996. The book value of the Company's investment in the Australian Joint Venture
as of September 2, 1995 is approximately $2.3 million. If the Joint Venture's
operations do not become profitable in the future, the Company may be required
to make further provisions or to write off all or a portion of the remaining
book value of its investment and repay up to 25.0% of the Joint Venture's $17.3
million debt, which is guaranteed by the Company.
The Company for several years maintained a program of company-owned life
insurance ("COLI") for certain of its employees. As of September 2, 1995 the
Company is named as beneficiary on approximately 1,650 COLI policies with an
aggregate cash surrender value of approximately $9.0 million, issued by
Confederation Life Insurance Company (U.S.), which is currently in
rehabilitation. Confederation Life Insurance Company is continuing to pay
benefits under the policies but has ceased to redeem cash surrender values. No
assurances can be given regarding to what extent the Company will be able to
realize such cash surrender values in the future.
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<PAGE> 48
BUSINESS
GENERAL
Wyman-Gordon Company is a leading producer of highly engineered,
technically advanced components for both the commercial and defense aerospace
market and the commercial power generation market. The Company uses die forging,
extrusion and investment casting processes to produce metal components to
exacting customer specifications for technically demanding applications such as
jet turbine engines, airframes and land-based gas turbine engines. The Company
also extrudes seamless heavy-wall steel pipe for use primarily in commercial
power generation plants, and designs and produces prototype aircraft using
composite technologies. The Company produces components for most of the major
commercial and U.S. defense aerospace programs. Metallurgical skills, an unique
asset base and a broad offering of capabilities allow the Company to serve
competing customers effectively and to lead the development and use of new metal
technologies for its customers' uses.
The Company is the leading producer of rotating components for use in
turbine aircraft engines. These parts are forged from purchased ingots converted
to billet in the Company's cogging presses and from superalloy metal powders
which are produced, consolidated and extruded into billet entirely at the
Company's facilities. Forging is conducted in Massachusetts, Texas and Scotland
on a number of hydraulic presses with capacities ranging from 8,000 to 55,000
tons. The Company forges these engine components primarily from alloys of
high-temperature nickel. Additionally, the Company uses modern, automated,
high-volume production equipment and both air-melt and vacuum-melt furnaces in
its investment casting operations to produce complex non-rotating jet engine
parts from high-temperature nickel-based alloys.
Structural airframe components are produced from alloys of steel, aluminum
and titanium on the Company's forging presses and by its investment casting
process. The Company uses its metallurgical and manufacturing capabilities to
design new products to accommodate its customers' needs for larger, stronger
structural parts forged from new superalloy metals. The Company produces
smaller, near net-shape structural parts for aircraft through its investment
castings business.
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 power generation markets, which include nuclear and fossil fueled
power plants, cogeneration projects and retrofit and life extension
applications. These tubular forged products also have ordnance and other
military applications. Aluminum, steel, titanium and superalloy 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 7 inches in wall thickness and bar stock from 6 to 32 inches in
diameter. Lengths of pipe and bar stock vary from 10 to 45 feet with a maximum
forged weight of 20 tons. Similar equipment and capabilities are in operation at
the Company's Livingston, Scotland forging facility. Additionally, the Houston
press extrudes powder billets for use in aircraft turbine engine forgings.
The Company's composite operation, Scaled Composites, Inc., plans, designs,
fabricates and tests composite airframe structures for the aerospace market.
The Company's acquisition of Cameron from Cooper in May 1994 united two of
the country's largest and most technically advanced forging companies and had a
pervasive impact on the Company. As a result of the Acquisition, the Company has
broadened its revenue base and expanded into new markets. The Company is also
realizing substantial operating and processing efficiencies through the
consolidation of systems and facilities and the reduction of personnel
performing duplicate functions. At the time of the Acquisition in May 1994
Cameron and the Company's Forgings operations employed a combined total of 2,030
people. As of October 31, 1995 this number had been reduced by 9.4% to 1,840.
The Company estimates that this reduction in personnel and the Company's ability
to increase production with fewer employees as evidenced by the increase in
revenues per employee has resulted in improved operating results. See
"Prospectus Summary" on page 3. Areas where the Company has combined
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<PAGE> 49
operations include sales and marketing, testing, research and development and
management information systems.
BUSINESS STRATEGY
In recent years the Company experienced losses as a result of declines in
customer demand caused by a combination of defense spending cutbacks, reduced
orders for new commercial aircraft and reductions in customer inventory levels.
In response the Company's senior management implemented a series of strategic
initiatives designed to (i) lower the Company's cost structure, (ii) consolidate
its forging operations, (iii) lower inventory requirements, and (iv) solidify
customer relations.
In further response to the continuing overcapacity in the industry, the
Company acquired all of the stock of Cameron from Cooper in May 1994. Prior to
the Acquisition, Cameron was the Company's principal competitor in the
production of forgings for use in critical aerospace applications. For the year
ended December 31, 1993, Cameron had revenues of $149.5 million, an operating
loss of ($22.2) million and total assets of $151.8 million. As part of the
consideration for the Acquisition, the Company issued 16.5 million shares of
Common Stock to Cooper, which shares are being registered in connection with the
DECS Offering. Currently, these shares represent approximately 47% of the
outstanding Common Stock of the Company.
As a result of the Acquisition, the Company has achieved cost savings,
which total more than $26.0 million on an annualized basis to date. In addition,
the Company has achieved the following production efficiencies.
Focused Factories. The Company has substantially completed the
consolidation of the manufacture of rotating parts for jet engines from Grafton,
Massachusetts into Cameron's Houston, Texas facility. At the same time, the
Grafton facility has been focused on the production of large airframe structures
and large turbine parts such as components for the GE90 engine and land-based
gas turbines. The results have been the elimination of duplicative facilities,
improved throughput, and efficiencies of scale.
Rationalization of Forging Operations. Subsequent to the Acquisition the
Company closed one of the two Cameron forging plants in Houston, Texas. In
addition, the Company has closed its hammer forging operations and is in the
process of closing its ring-roll operations at its Worcester, Massachusetts
facility. The result has been improved manufacturing efficiencies, higher
utilizations and better inventory management.
Best Practices. The Company is in the process of adopting the best
manufacturing practices of the Company and Cameron. The improved manufacturing
practices have resulted in cost reductions from lower material input weights on
certain forgings, improved machining practices and more efficient testing
procedures. Substantial raw material cost savings in certain of the Company's
forgings processes have resulted from utilization of material produced in
Cameron's Brighton, Michigan powder metal facility and Cameron's Houston, Texas
vacuum arc remelting facility. From 1991 through 1995 average production cycle
times at Cameron's Houston facility were reduced from approximately 22 weeks to
seven weeks and the Company is seeking to achieve similar reductions at its
Grafton, Massachusetts facility.
In addition to the benefits the Company has realized from the Acquisition
and expects to realize in the future, the Company has in place several programs
to strengthen its position in the aerospace market and to enter new markets
utilizing its expertise in high performance materials.
Focus on Large Aerospace Components. The Company believes that its
extensive installed asset base, technological leadership in manufacturing
large-scale components and experience in producing and utilizing sophisticated
alloys will enable the Company to capitalize on the industry trend toward
widebody aircraft with larger and more sophisticated engines. These aircraft,
which include the new Boeing 777, require larger airframe structural parts and
their engines require high-purity alloys, both of which are particular strengths
of the Company.
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<PAGE> 50
Strategic Alliances with Key Customers. The Company has entered into joint
development programs with its two largest customers, GE and Pratt & Whitney, for
the production of (i) forged rotating parts for the new GE90 jet engine and (ii)
nickel-based superalloy ingots through the Australian Joint Venture,
respectively. Management believes that alliances such as these strengthen
existing relationships, and in some cases allow the Company to become involved
in the design phases for new components and applications, thereby enhancing the
Company's chances of obtaining future orders.
New Applications and Markets. The Company believes that its expertise in
the manufacture of highly specialized metal components with enhanced fatigue and
temperature resistant properties gives it the ability to design new applications
for existing technologies in its current markets and to utilize existing
technologies in new markets. For example, the Company has been able to enter the
power generation market where the Company's knowledge of nickel-based
superalloys and manufacturing technology utilized for aircraft engines can be
applied to manufacture energy efficient, high strength, temperature resistant
gas turbines.
Management believes that the combination of the Company's technological
capabilities, installed asset base and close customer relationships, together
with its improved cost structure, will allow the Company to operate profitably
in an environment of relatively low commercial aircraft deliveries and to
benefit from increases in delivery rates. However, the Company's results of
operations could be adversely affected by a variety of factors. See "Risk
Factors". At the same time the Company seeks to expand into new product and
geographic markets.
MARKETS AND PRODUCTS
The principal markets served by the Company are aerospace and power
generation. Revenue by market for the respective periods were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
------------------- ----------------------------------------------------------------------------------
SEPTEMBER 2, 1995 DECEMBER 31, DECEMBER 31,
------------------- JUNE 3, 1995 MAY 28, 1994 1993 1992
---------------- ---------------- ---------------- ----------------
% OF % OF % OF % OF % OF
REVENUE TOTAL REVENUE TOTAL REVENUE TOTAL REVENUE TOTAL REVENUE TOTAL
--------- ------- -------- ----- -------- ----- -------- ----- -------- -----
(000'S OMITTED, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace........... $ 82,211 72% $300,143 76% $188,518 84% $205,077 85% $263,961 88%
Power generation.... 22,823 20 66,892 17 15,616 7 14,719 6 17,401 6
Other............... 9,043 8 29,604 7 20,560 9 19,965 9 17,519 6
-------- -- -------- --- -------- --- -------- --- -------- ---
Total.............. $114,077 100% $396,639 100% $224,694 100% $239,761 100% $298,881 100%
======== === ======== ==== ======== === ======== === ======== ===
</TABLE>
AEROSPACE
The Company manufactures products utilized in general aviation, defense and
business jet aircraft. The Company manufactures numerous forged and cast
components for jet engines produced by all of the major manufacturers, including
GE, Pratt & Whitney and Rolls-Royce. 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. Jet engines may produce in excess of
100,000 pounds of thrust and may subject parts produced by the Company to
temperatures reaching 1,350 degrees Fahrenheit. Components for such extreme
conditions require precision manufacturing and expertise with high-purity
titanium and nickel-based superalloys. Rotating parts such as fan, compressor
and turbine discs must be manufactured to precise quality specifications.
The Company manufactures forged and cast structural parts for fixed-wing
aircraft and helicopters. These products include wing spars, engine mounts,
struts, landing gear beams, landing gear, wing hinges, wing and tail flaps,
housings, and bulkheads. These parts may be made of titanium, steel, aluminum
and other alloys, as well as composite materials. The Company also produces
dynamic rotor forgings for helicopters. Forging is particularly well-suited for
airframe parts because of its ability to impart
24
<PAGE> 51
greater proportional strength to metal than other manufacturing processes.
Investment casting can produce complex shapes to precise, repeatable dimensions.
The Company has been a major supplier of the beams that support the main
landing gear assemblies on the Boeing 747 for many years and has recently begun
shipping main landing gear beams for the new Boeing 777 widebody. The Company
forges landing gear and other airframe structural components for the Boeing 737,
747, 757, 767 and 777, the McDonnell Douglas MD-11 and the Airbus A330 and A340.
The Company produces structural forgings for the F-15, F-16 and F-18 fighter
aircraft and the Black Hawk helicopter produced by the Sikorsky Division of
United Technologies ("Sikorsky"). The Company also produces large, one-piece
bulkheads for Lockheed/Boeing for the F-22 next generation air superiority
fighter aircraft.
POWER GENERATION
The Company is a major supplier of extruded seamless heavy wall pipe for
the critical piping systems in both fossil fuel and nuclear commercial power
plants worldwide, as well as offshore petroleum exploration applications. The
Company believes it is a leading supplier in the U.S. and the U.K. of large
diameter, seamless heavy wall pipe. The Company produces components for steam
turbine and gas turbine generators and forged valves for land-based power
generation applications. The Company also manufactures shafts, cases, and
compressor and turbine discs for marine gas turbines.
OTHER PRODUCTS
The Company supplies products to builders of military missiles. Examples of
these products include breech block and breech rings for large cannon and forged
steel casings for bombs, rockets and expendable launch vehicles. The Company
participates in a variety of U.S. Government programs including the Standard,
Harm, Patriot and Aegis programs. For naval defense applications, the Company
supplies components for propulsion systems for nuclear submarine and aircraft
carriers as well as pump, valve, structural and non-nuclear propulsion forgings.
The Company also manufactures extruded missile, rocket and bomb cases and
supplies extruded products for nuclear submarines and aircraft carriers
including heavy wall piping for nuclear propulsion systems, torpedo tubes and
catapult launch tubes.
The Company's investment castings operations produce products for
commercial applications such as: components for golf clubs, pistol frames,
bicycles, food processing equipment, diesel turbo-chargers, land-based military
equipment such as tanks, and various other applications.
The Company also supplies extruded powders for other superalloy powder
manufacturers. The Company is actively seeking to identify alternative
applications for its capabilities, such as in the automotive and other
commercial markets.
25
<PAGE> 52
CUSTOMERS
<TABLE>
The Company has approximately 150 active customers that purchase forgings,
approximately 550 active customers that purchase investment castings and
approximately 20 active customers that purchase composite structures. The
Company's principal customers are similar across all of these production
processes. Five customers accounted for 52% of the Company's revenues for the
three months ended September 2, 1995, 50% of the Company's revenues for the year
ended June 3, 1995, 51% for the year ended May 28, 1994, and 56% and 53% for the
years ended December 31, 1993 and 1992, respectively. GE and United Technologies
(primarily Pratt & Whitney and Sikorsky) each accounted for more than 10% of
revenues for the year ended June 3, 1995, the year ended May 28, 1994, and the
years ended December 31, 1993 and 1992, respectively, as follows:
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
------------------ -------------------------------------------------------------------------------------
SEPTEMBER 2, 1995 JUNE 3, 1995 MAY 28, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------- ------------------ ------------------ ------------------
% OF % OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL
REVENUE REVENUE REVENUE REVENUE REVENUE REVENUE REVENUE REVENUE REVENUE REVENUE
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
(000'S OMITTED, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GE.............. $32,106 28% $101,261 26% $48,286 22% $55,585 23% $62,740 21%
United
Technologies... 12,953 11 58,873 15 39,100 17 37,060 16 48,920 17
</TABLE>
Boeing, McDonnell Douglas 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 organized its operations into product groups which focus on
specific customers or groups of customers with similar needs. The Company has
become actively involved with its aerospace customers through joint development
relationships and cooperative research and development, engineering, quality
control, just-in-time inventory control and computerized design programs. This
involvement begins with the design of the tooling and processes to manufacture
the customer's components to its precise specifications.
MARKETING AND SALES
The Company markets its products principally through its own sales
engineers and makes only limited use of manufacturers' representatives.
Substantially all sales are made directly to original equipment manufacturers.
The Company's sales are not subject to significant seasonal fluctuations.
A substantial portion of the Company's revenues are 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.
BACKLOG
The Company's firm backlog includes the sales price of all undelivered
units covered by customers' orders for which the Company has production
authorization.
26
<PAGE> 53
<TABLE>
The Company's firm backlog in the various markets served by the Company has
been as follows:
<CAPTION>
SEPTEMBER 2, 1995 JUNE 3, 1995 MAY 28, 1994
------------------- ------------------- -------------------
% OF % OF % OF
BACKLOG TOTAL BACKLOG TOTAL BACKLOG TOTAL
--------- ----- --------- ----- --------- -----
(000'S OMITTED, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Aerospace....................... $385,625 81% $382,982 82% $342,007 88%
Power generation................ 59,234 13 57,248 12 33,700 9
Other........................... 28,549 6 28,531 6 13,700 3
-------- --- -------- --- -------- ---
Total......................... $476,950 100% $468,761 100% $389,407 100%
======== === ======== === ======== ===
</TABLE>
At June 3, 1995 approximately $365.0 million of total firm backlog was
scheduled to be shipped within one year and the remainder in subsequent years.
(Sales during any period include sales which 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 due to market
fluctuations in the commercial aerospace industry. However, in certain cases the
Company is entitled to an adjustment in contract amounts.
MANUFACTURING PROCESSES
The Company employs three manufacturing processes: forging, investment
casting and composites production.
Forging
Forging is the process by which desired shapes, metallurgical
characteristics, and mechanical properties are imparted to metal by heating and
shaping it through pressing or extrusion. The Company forges alloys of titanium,
aluminum and steel as well as high temperature nickel-based superalloys.
The Company manufactures most of its forgings at its facilities in Grafton
and Worcester, Massachusetts; Houston, Texas and Livingston, Scotland. The
Company also operates a superalloy powder metal facility in Brighton, Michigan
and vacuum arc remelting facilities in Houston, Texas and Millbury,
Massachusetts which produce steel, nickel and titanium ingots, and a plasma arc
melting facility for the production of high quality titanium ingots and nickel
powder in Millbury, Massachusetts. The Company has six large closed die
hydraulic forging presses rated as follows: 18,000 tons, 35,000 tons and 50,000
tons in Grafton Massachusetts; 29,000 tons and 35,000 tons in Houston, Texas and
30,000 tons in Livingston, Scotland. The 35,000 ton vertical extrusion press in
Houston can be modified to a 55,000 ton hydraulic forging press. The Company
also operates an open die cogging press rated at 2,000 tons at its Grafton,
Massachusetts location and a hydraulic isothermal forging press rated at 8,000
tons at its Worcester, Massachusetts location.
The Company employs all major forging processes, including the following:
Open-Die Forging. In this process, the metal is forged between dies that
never completely surround the metal, thus allowing the metal to be observed
during the process. Typically, open-die forging is used to create relatively
simple, preliminary shapes 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 exert three dimensional control on the metal. In hot-die
forging, a type of closed-die process, the dies are heated to a temperature
approaching the transformation temperature of the materials being forged so as
to allow the metal to flow more easily within the die cavity which produces
forgings with superior surface conditions, metallurgical structures, tighter
tolerances, enhanced repeatability of the part shapes and greater metallurgical
control. Both titanium and nickel-based superalloys are forged using this
process, in which the dies are heated to a temperature of approximately 1,300
degrees Fahrenheit.
27
<PAGE> 54
Conventional/Multi-Ram. The closed-die, multiple-ram process featured on
the Company's 30,000 ton press enables the Company to produce extremely complex
forgings with multiple cavities in a single heating and pressing cycle. Dies may
be split either on a vertical or a horizontal plane and shaped punches may be
operated by side rams, piercing rams, or both. Multi-ram forging enables the
Company to produce a wide variety of shapes, sizes, and configurations utilizing
less input weight. The process also optimizes grain flow and uniformity of
deformation, reduces machining requirements, and minimizes overall costs.
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-based superalloy powders. Because of the extreme temperatures necessary
for forming these alloys, the dies must be made of refractory metal (such as
molybdenum) so that the die retains its strength and shape during the forging
process. Because the dies may oxidize at these elevated temperatures, the
forging process is carried on in a vacuum or inert gas atmosphere. The Company's
isothermal press also allows it to produce near-net shape components (requiring
less machining by the customer) made from titanium alloys, which can be an
important competitive advantage in times of high titanium prices. The Company
carries on this process in its 8,000-ton isothermal press.
Extrusion. The Company's 35,000 ton vertical extrusion press is one of the
largest and most advanced 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. It is capable of producing
heavy wall seamless pipe with outside diameters up to 48 inches and wall
thicknesses from 1/2 inch up to 7 inches or more. Solid extrusions can be
manufactured from 6 to 32 inches in diameter. Typical lengths vary from 10 to 45
feet. Powder materials can also be compacted and extruded into forging billets
utilizing this press. The 30,000 ton press has similar extrusion capabilities in
addition to its multi-ram forging capabilities.
Titanium and Superalloy Production. The Company utilizes vacuum arc
remelting technology to produce titanium alloy suitable for structural and
turbine aerospace applications. Titanium produced in this manner is utilized in
both the Company's forging and castings operations.
The Company's Brighton, Michigan powder metal facility has the capability
to atomize, process, and consolidate (by hot isostatic pressing) superalloy
metal powders for use in aerospace, medical implant, petrochemical, hostile
environment oil and gas drilling and production, and other high technology
applications. This facility has an annual production capacity of up to 500,000
pounds of superalloy powder. In addition, the Company has the capacity to
consolidate powdered metals by extrusion using its 30,000 ton and 35,000 ton
presses. Extruded billets are further processed and either sold to other forge
shops or forged into critical jet engine components on the Company's 8,000 ton
isothermal press.
The Company's Plasma Arc Melting "PAM" facility in Millbury, Massachusetts
is capable of producing high quality titanium ingot and nickel-based superalloy
powder. The Company is currently pursuing certifications by certain customers
for use of this technology in high performance jet engines.
The Company's vacuum arc remelt ("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 severe
applications. In addition, the VAR furnaces are used for toll melting. These
vacuum metallurgy techniques provide consistently high levels of purity, low gas
content, and precise control over the solidification process. This minimizes
segregation in complex alloys and results in improved mechanical properties, as
well as hot and cold workability.
The Company has entered into the Australian Joint Venture with Pratt &
Whitney and certain Australian investors to produce nickel-based superalloy
ingots in Perth, Australia. These ingots will be utilized as raw materials for
the Company's forging and casting products.
28
<PAGE> 55
Support Operations. The Company manufactures its own forging dies out of
high-strength steel and molybdenum. These dies can weigh in excess of 100 tons
and can be up to 25 feet in length. In manufacturing its dies, the Company
utilizes its customers' drawings and engineers the dies using CAD/CAM equipment
and sophisticated metal flow computer models that simulate metal flow during the
forging process. This activity improves die design and process control and
permits the Company to enhance the metallurgical characteristics of the forging.
The Company also has at its three major forging locations machine shops
with computer aided profiling equipment, vertical turret lathes and other
equipment that it employs to rough machine products to a shape allowing
inspection of the products. The Company also operates rotary and car-bottom heat
treating furnaces that enhance the performance characteristics of the forgings.
These furnaces have sufficient capacity to handle all the Company's forged
products. The Company subjects its products to extensive quality inspection and
contract qualification procedures involving zyglo, chemical etching, ultrasonic,
red dye, and electrical conductivity testing facilities.
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 ("SPC") techniques are also applied throughout the entire manufacturing
process.
Investment Casting
The Company's investment castings operations use modern, automated, high
volume production equipment and both air-melt and vacuum-melt furnaces to
produce a wide variety of complex investment castings. Castings are made of a
range of metal alloys including aluminum, magnesium, steel, titanium and
nickel-based superalloys.
The Company's castings operations are conducted in facilities located in
Connecticut, New Hampshire, Nevada and California. These plants house air and
vacuum-melt furnaces, wax injection machines and investment dipping tanks.
Because of the growth in demand for the Company's high quality titanium
castings, the Company is in the process of restarting its Franklin, New
Hampshire facility which it closed in 1993. The Company has ordered a new
state-of-the-art titanium melting furnace for installation in the Franklin
plant. Additionally, the Company has expanded its Groton, Connecticut facility
for the production of high quality titanium castings.
Investment castings are produced in four major stages. First, molten wax is
injected into an aluminum mold, known as a "tool," in the shape of the ultimate
component to be produced. 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. In the second stage, the
wax patterns are mechanically coated with a sand and silicate-bonded slurry in a
process known as investment. This forms a ceramic shell which is subsequently
air-dried under controlled environmental conditions. The wax inside this shell
is then melted and removed in a high temperature steam autoclave and the molten
wax is recycled. In the third, or foundry stage, metal is melted in an electric
furnace in either an air or vacuum environment and poured into the ceramic
shell. After cooling, the ceramic shells are removed by vibration. The metal
parts are then cleaned in a high temperature caustic bath, followed by water
rinsing. In the fourth, or finishing stage, the castings are finished to remove
excess metal. The final product then undergoes a lengthy series of testing
(radiography, fluorescent penetrant, magnetic particle and dimensional) to
ensure quality and consistency.
Composites
The Company's composites operation, Scaled Composites, Inc., plans,
designs, fabricates and tests composite airframe structures for the aerospace
market. Customers include Lawrence Livermore Laboratories and Orbital Sciences
Corp.
29
<PAGE> 56
FACILITIES
<TABLE>
The following table sets forth certain information with respect to the
Company's major facilities at June 3, 1995, all of which are owned. The Company
believes that its facilities are well-maintained, are suitable to support the
Company's business and are adequate for the Company's present and anticipated
needs. On average during the Company's fiscal year 1995, the Company's forging,
investment castings and composites facilities were operating at approximately
60%, 70% and 90% of their total productive capacity, respectively.
<CAPTION>
APPROX.
SQUARE
LOCATION FOOTAGE PRIMARY FUNCTION
-------- ------- ----------------
<S> <C> <C>
FORGINGS:
Brighton, Michigan................................. 34,500 Superalloy Powder Production
Grafton, Massachusetts............................. 85,420 Administrative Offices
Grafton, Massachusetts............................. 843,200 Forging
Houston, Texas..................................... 1,283,800 Forging
Livingston, Scotland............................... 405,200 Forging
Livingston, Scotland............................... 112,000 Currently idle
Millbury, Massachusetts............................ 104,125 Research and Development,
Metals Production
Worcester, Massachusetts........................... 43,200 Currently idle
Worcester, Massachusetts........................... 22,300 Forging
Worcester, Massachusetts........................... 301,400 Closing 1995
CASTINGS:
Carson City, Nevada................................ 46,000 Casting
Franklin, New Hampshire............................ 43,200 Casting
Groton, Connecticut (2 plants)..................... 162,550 Casting
San Leandro, California............................ 45,000 Casting
Tilton, New Hampshire.............................. 94,000 Casting
COMPOSITES:
Mojave, California................................. 67,000 Composites
</TABLE>
RAW MATERIALS
Raw materials used by the Company in its forgings and castings include
alloys of titanium, nickel, steel, aluminum, magnesium and other
high-temperature alloys. The composites operation uses high strength fibers such
as fiberglass or graphite, as well as materials such as foam and epoxy, to
fabricate composite structures. The major portion of metal requirements for
forged and cast products are purchased from major metal suppliers producing
forging and casting quality material as needed to fill customer orders. The
Company has two or more sources of supply for all significant raw materials. The
Company satisfies some of its nickel and titanium requirements internally by
producing titanium alloy from titanium scrap and "sponge." The Company's powder
metal facility and PAM units produce nickel-based superalloy powder and high
quality titanium ingot. The Company has experienced delays in the delivery of
its raw materials.
The titanium and nickel-based superalloys 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.
30
<PAGE> 57
In the event of customer cancellation, the Company may, under certain
circumstances, obtain reimbursement from the customer if the material cannot be
diverted to other uses. Costs of material already on hand, along with any
conversion costs incurred, are generally billed to the customer unless
transferable to another order. As demand for the Company's products grew during
fiscal year 1995, and prices of raw materials rose, the Company experienced
certain raw material shortages and production delays. Although this situation
improved during the second half of fiscal year 1995, it had a negative impact on
overall revenues. The Company's most significant raw materials consist of nickel
and titanium alloys. Its principal suppliers of nickel alloys include Special
Metals Corporation, Teledyne Allvac Corporation, and Carpenter Technologies
Corporation. Its principal suppliers of titanium alloys are Titanium Metals
Corporation of America, Oregon Metallurgical Corp., and Reactive Metals, Inc.
Each of these suppliers has experienced increases in the market prices of the
elements (e.g. nickel, titanium, cobalt), that they use in fabricating their
products. The Company often has fixed-price contracts with its suppliers.
Because the Company's suppliers generally have alternative markets for their
products where they may have greater ability to increase their prices,
production has in some cases been diverted to alternative markets. As a result
the Company's lead time for deliveries from its suppliers has expanded from 20
weeks to 40 weeks in the case of titanium alloys and from 22 weeks to 44 weeks
in the case of nickel-based alloys. The Company has sought price increases and
other financial considerations from its customers which would permit it to
increase the price it pays to suppliers; and is considering producing a greater
amount of its requirements in its own facilities, including the Australian Joint
Venture; and has sought alternative sources of supply such as from the Republics
formerly comprising the Soviet Union. In addition, the Company, its customers
and suppliers have undertaken active programs for supply chain management which
should reduce the overall lead times.
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 materials after forging and casting, operating forging presses,
melting furnaces, die-sinking, mechanical manipulation and pollution control
equipment and space heating. The Company uses natural gas, oil and electricity
in varying amounts at its manufacturing facilities. Supplies of natural gas, oil
and electricity have been sufficient and there is no anticipated shortage for
the future.
<TABLE>
EMPLOYEES
As of June 3, 1995, the Company had approximately 3,100 employees of whom
850 were executive, administrative, engineering, research, sales and clerical
and 2,250 were production and craft. Approximately 61% 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:
<CAPTION>
NUMBER OF
EMPLOYEES
COVERED BY
BARGAINING INITIATION EXPIRATION
LOCATION AGREEMENTS DATE DATE
-------- ---------- ---------------- -----------------
<S> <C> <C> <C>
Grafton and Worcester, Massachusetts... 562 March 27, 1995 March 30, 1997
Houston, Texas......................... 505 August 7, 1995 August 9, 1998
32 August 7, 1995 Sept. 27, 1998
Livingston, Scotland................... 200 December 1, 1993 November 30, 1995
55 February 1, 1994 January 31, 1996
-----
Total.................................. 1,354
=====
</TABLE>
The Company believes it has good relations with its employees although it
experienced a one week strike in August 1995 in connection with the negotiation
of its current collective bargaining agreement
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<PAGE> 58
with the union representing most of its factory workforce in Houston, Texas. The
strike involved approximately 505 union personnel. Because of the short nature
of the strike and the fact that the Company was able to continue to operate the
plant with non-union personnel, the strike did not have a significant impact on
the Company's operations.
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 composites operation conducts research and development related to
aerospace composite structures at the Mojave, California facility. The Company
spent approximately $2.2 million, $0.7 million, $2.8 million, and $3.0 million
on applied research and development work during fiscal year 1995, the five
months ended May 28, 1994, and fiscal years 1993 and 1992, 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 is intense among the companies currently involved in
the industry. Competitive advantages are afforded to those with high quality
products, low cost manufacturing, excellent customer service and delivery and
engineering and production expertise. The Company considers that it is in a
leading position in these areas.
ENVIRONMENTAL REGULATIONS
The Company is subject to extensive, stringent and changing federal, state
and local environmental laws and regulations, including those regulating the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of alleged environmental contamination. Accordingly, the Company is
involved from time to time in administrative and judicial inquiries and
proceedings regarding environmental matters. Nevertheless, the Company believes
that compliance with these laws and regulations will not have a material adverse
effect on the Company's operations as a whole. The Company continues to design
and implement a system of programs and facilities for the management of its raw
materials, production processes and industrial waste to promote compliance with
environmental requirements. In the fourth quarter of 1991, the Company recorded
a pre-tax charge of $7.0 million with respect to environmental investigation and
remediation costs at the Grafton facility and a pre-tax charge of $5.0 million
against potential environmental remediation costs upon the eventual sale of the
Worcester facility. During the five-month fiscal period ended May 28, 1994 the
Company provided an additional $2.0 million for potential environmental
investigation and remediation costs and established a $3.5 million purchase
accounting reserve related to environmental issues at Cameron.
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 the site during the period 1982 through 1999, of
which $6.1 million remained as of June 3, 1995. These expenditures will not
resolve 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 $3.5 million, to comply with
current federal and state environmental requirements governing the investigation
and remediation of contamination at the site. In connection with these
requirements, the Company is
32
<PAGE> 59
evaluating and planning for closure of 46 solid waste management units on the
site. In addition, the Company is subject to an administrative consent order
issued by the Environmental Protection Agency in 1991 that requires the Company
to close several wastewater and water treatment facilities and construct a
Runoff Management Facility to treat process water and stormwater, which was
completed in January 1995 at a cost of $5.5 million.
The Company's Grafton facility is included in the U.S. Nuclear Regulatory
Commission's ("NRC") May 1992 Site Decommissioning Management Plan for low-level
radioactive waste. In a draft 1992 long-range dose assessment the NRC determined
that the site should be remediated. As a result the Company has challenged the
draft assessment, believing it to be flawed. The Company has provided $1.5
million for the estimated cost of remediation and disposal if the NRC requires
it to take these actions. However, the Company may be required to dispose of the
wastes at a more expensive disposal facility, which could increase the
remediation and disposal costs beyond the provision that the Company has
established. The Company believes that it may have meritorious claims for
contribution from the U.S. Air Force in respect of any liabilities it may have
for such remediation.
The Company, together with numerous other parties, has been named a
potentially responsible party ("PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") for the cleanup of the
following four Superfund sites: Operating Industries, Monterey Park, California;
Cedartown Municipal Landfill, Cedartown, Georgia; PSC Resources, Palmer,
Massachusetts; and the Gemme site, Leicester, Massachusetts. The Company
believes that any liability it may incur with respect to these sites will not be
material.
At the Gemme 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 $6.0 and $7.0 million in cleanup
expenses upon the planned sale of its Worcester, Massachusetts facility to
remedy certain contamination discovered on-site.
PRODUCT LIABILITY EXPOSURE
The Company produces many critical engine and structural parts for
commercial and military aircraft. As a result, the Company faces an inherent
business risk of exposure to product liability claims. The Company maintains
insurance against product liability claims, but there can be no assurance that
such coverage will continue to be available on terms acceptable to the Company
or that such coverage will be adequate for liabilities actually incurred. The
Company has not experienced any material loss from product liability claims and
believes that its insurance coverage is adequate to protect it against any
claims to which it may be subject.
LEGAL PROCEEDINGS
At June 3, 1995, 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.
33
<PAGE> 60
<TABLE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John M. Nelson....................... 64 Chairman of the Board
David P. Gruber...................... 54 President, Chief Executive Officer and Director
Andrew C. Genor...................... 53 Vice President, Chief Financial Officer and Treasurer
Sanjay N. Shah....................... 45 Vice President, Corporate Strategy Planning and
Business Development
J. Douglas Whelan.................... 56 President, Forging Division
Wallace F. Whitney, Jr. ............. 52 Vice President, General Counsel and Clerk
Frank J. Zugel....................... 50 President, Investment Castings Division
E. Paul Casey........................ 65 Director
Dewain K. Cross...................... 58 Director
Warner S. Fletcher................... 50 Director
Robert G. Foster..................... 57 Director
Russell E. Fuller.................... 69 Director
M Howard Jacobson.................... 62 Director
Judith S. King....................... 61 Director
George S. Mumford, Jr. .............. 67 Director
H. John Riley, Jr. .................. 55 Director
Jon C. Strauss....................... 55 Director
Charles A. Zraket.................... 71 Director
</TABLE>
JOHN M. NELSON was elected Chairman of the Company in May 1994 having
previously served as the Company's Chairman of the Board and Chief Executive
Officer since May 1991. Prior to that time he served for many years in a series
of executive positions with Norton Company, a manufacturer of abrasives and
ceramics based in Worcester, Massachusetts, and was Norton's Chairman and Chief
Executive Officer from 1988 to 1990 and its President and Chief Operating
Officer from 1986 to 1988. Mr. Nelson is also Chairman of the Board of Directors
of the TJX Companies, Inc., a Director of Brown & Sharpe Manufacturing Company,
Cambridge Biotechnology, Inc., Commerce Holdings, Inc. and Stocker & Yale, Inc.
He is also Chairman of the Board of Trustees of Worcester Polytechnic Institute
and Vice President of the Worcester Art Museum.
DAVID P. GRUBER was elected President and Chief Executive Officer of the
Company in May 1994 having previously served as President and Chief Operating
Officer since he joined the Company in October 1991. 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 Trustee of the
Manufacturers' Alliance for Productivity and Innovation, and is a member of the
Mechanical Engineering Advisory Committee of Worcester Polytechnic Institute.
ANDREW C. GENOR joined the Company as Vice President, Chief Financial
Officer and Treasurer in January 1995. Prior to joining the Company, Mr. Genor
was Chief Financial and Operating Officer of HNSX Supercomputers, Inc., a
company he co-founded in 1987 to provide support to supercomputer users and
vendors. Prior to that time, he spent 20 years at Honeywell, Inc., including
service as Vice President and Corporate Treasurer and Vice President, Finance,
Administration and Business Development for Honeywell Europe.
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.
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J. DOUGLAS WHELAN joined the Company in March 1994 and was elected
President, Forgings in May 1994. 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 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.
WALLACE F. WHITNEY, JR. joined the Company in 1991. Prior to that time, he
had been Vice President, General Counsel and Secretary of Norton Company since
1988, where he had been employed in various legal capacities since 1973.
FRANK J. ZUGEL joined the Company in June 1993 when he was elected Vice
President -- General Manager, Investment Castings. Prior to that time he had
served as President of Stainless Steel Products, Inc., a metal fabricator for
aerospace applications, since 1992 and before then as Vice President of Pacific
Scientific Company, a supplier of components to the aerospace industry, since
1988.
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. 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.
DEWAIN K. CROSS, Retired Senior Vice President, Finance of Cooper, has been
a Director of the Company since 1994. He is a former member of the Financial
Council II of the Manufacturers' Alliance for Productivity and Innovation and is
a member of the American Institute of Certified Public Accountants.
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. 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., (a venture capital company engaged in
biotechnology) has been a Director of the Company since 1989. Mr. Foster was
President and Chairman of Ventrex Laboratories, Inc. from 1976 to 1987 when he
assumed his present position. He is also a Director of United Timber Corp., Carr
Separations, Phytera, Neptune Pharmaceuticals, ActiMed Laboratories, Inc.,
Brunswick Biomedical Corp. and Watson Technologies. He is also a member of the
Science & Technology Board for the State of Maine.
RUSSELL E. FULLER, Chairman of REFCO, Inc., (a supplier of specialty
industrial products), has been a Director of the Company since 1988. Mr. Fuller
is Chairman and Treasurer of The George F. and Sybil H. Fuller Foundation and a
Trustee of The Medical Center of Central Massachusetts. He is also Trustee of
the Massachusetts Biotechnology Research Institute and the Worcester County
Horticultural Society.
M HOWARD JACOBSON, Senior Advisor, Bankers Trust, New York, has been a
Director of the Company since 1993. Mr. Jacobson was for many years Chief
Executive Officer, President and Treasurer and a Director of Idle Wild Foods,
Inc. until that company was sold in 1986. From 1989 to 1991 he was a Senior
Advisor to Prudential Bache Capital Funding. Mr. Jacobson is a Director of
Allmerica Property & Casualty Cos., Inc., ImmuLogic Pharmaceutical Corporation,
Stoneyfield Farm, Inc. and Boston Chicken, Inc. He is Vice Chairman of the Board
of Trustees of the Medical Center of Central Massachusetts, Chairman of the
Overseers of WGBH/National Public Broadcasting, a Trustee of the Worcester
Foundation for Experimental Biology, a Trustee of the Worcester Polytechnic
Institute, and a member of the Harvard University Overseers' Committee on
University Resources.
JUDITH S. KING, Trustee and Treasurer of The Stoddard Charitable Trust, has
been a Director of the Company since 1990.
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GEORGE S. MUMFORD, JR., Professor, Department of Physics and Astronomy,
Tufts University, has been a Director of the Company since 1968. Mr. Mumford
formerly served as Dean of the Graduate School of Arts and Sciences at Tufts
University. He is a former member of the Board of Directors of the Council of
Graduate Schools in the United States and Past President of the Northeast
Association of Graduate Schools. He is a Director of the Charles River Watershed
Association.
H. JOHN RILEY, JR., President and Chief Executive Officer of Cooper, has
been a Director of the Company since 1994. Mr. Riley was elected Chief Executive
Officer of Cooper effective September 1, 1995, having previously served as
President and Chief Operating Officer since 1992 and as Executive Vice
President, Operations of Cooper since 1982. Prior to that time he held various
executive positions at Crouse-Hinds Company, which was acquired by Cooper in
1982. He is also Director and Chairman of Junior Achievement of Southeast Texas,
a Director of Central Houston, Inc., a Director of Houston Symphony, a member of
the Corporate Advisory Council of Syracuse University School of Management, and
a Trustee of the Manufacturers' Alliance for Productivity and Innovation.
JON C. STRAUSS, Vice President and Chief Financial Officer of Howard Hughes
Medical Institute, Chevy Chase, Maryland (a medical research institute and the
largest private philanthropic organization in the United States) has been a
Director of the Company since 1989. Prior to assuming his current position in
1994, Dr. Strauss served as President of Worcester Polytechnic Institute,
Worcester, Massachusetts since 1985 and, before then, as Chief Administrative
Officer at the University of Southern California. He is a Director of
Computervision Corporation.
CHARLES A. ZRAKET, Trustee and Former President and Chief Executive Officer
of MITRE Corporation, (a not-for-profit corporation engaged in systems
engineering and research primarily for the United States government), has been a
Director of the Company since 1990. Mr. Zraket is a Trustee of Northeastern
University, Beth Israel Hospital and the Hudson Institute.
RELATIONSHIP BETWEEN THE COMPANY AND COOPER
STOCK PURCHASE AGREEMENT
Pursuant to a Stock Purchase Agreement dated as of January 10, 1994 (the
"Stock Purchase Agreement"), between the Company and Cooper, the Company
acquired from Cooper on May 26, 1994 (the "Closing Date"), all of the
outstanding shares of common stock of Cameron Forged Products Company
("Cameron") in consideration for 16.5 million shares of the Company's Common
Stock and $5.0 million (the "Cash Purchase Price"). The market price of the
Common Stock on the Closing Date was $6.25 per share.
The Cash Purchase Price consisted of (1) $400,000 in cash paid by the
Company to Cooper on the Closing Date and (2) a promissory note in the principal
amount of $4.6 million (the "Note") executed and delivered to Cooper by the
Company on the Closing Date. The principal amount of the Note is payable in
annual installments, beginning on June 30, 1997 and on each June 30 thereafter
until paid in full, in an amount equal to the lesser of (a) $2.3 million, (b) 25
percent of the Company's Free Cash Flow (as defined in the Note) for the
12-month period ending on the April 30 immediately preceding such June 30 and
(c) the unpaid principal balance of the Note. The Note will not bear interest
until May 1, 1998, from which date it will bear interest at a floating rate
equal to the 90-day commercial paper rate for high grade unsecured notes sold
through dealers by major corporations, as published by The Wall Street Journal
on that portion of the principal amount of the Note equal to the sum of all
amounts of unpaid principal that would have been payable but for mandatory debt
payments by the Company. The Company may from time to time prepay all or any
portion of the outstanding balance of the Note without penalty or premium.
Cooper may declare the Note to be immediately due and payable in the event that
(i) the Company does not pay any portion of the principal or interest on the
Note within 10 days after such payment becomes due or (ii) a Trigger Event (as
defined below in the discussion of the Investment Agreement) occurs.
In the Stock Purchase Agreement the parties agreed to a cash adjustment in
the Cash Purchase Price based on certain changes in the balance sheet of Cameron
between September 26, 1993, and the
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Closing Date. Since there was an increase in the Net Asset Value of Cameron (as
defined in the Stock Purchase Agreement) during that period, the Company paid
Cooper $3.6 million in full satisfaction of this adjustment on September 19,
1994.
Pursuant to the Stock Purchase Agreement, (i) Cooper agreed to indemnify
the Company and its subsidiaries against all taxes of Cameron and its
subsidiaries for any taxable year or taxable period ending on or before the
Closing Date. The Stock Purchase Agreement further provides that any taxes for a
taxable period beginning before the Closing Date and ending after the Closing
Date with respect to Cameron or any of its subsidiaries will be apportioned
between the Company and Cooper based on the actual operations of Cameron or the
subsidiary, as the case may be, during the portion of such period ending on the
Closing Date and the portion of such period following the Closing Date.
Pursuant to the Stock Purchase Agreement, Cooper agreed to retain and
indemnify the Company and its affiliates against (i) certain liabilities under
ERISA with respect to employee benefit plans or arrangements, other than
employee benefit plans or arrangements maintained for the benefit of employees
and former employees of the Business (as defined below), and (ii) pension
benefits under designated plans for periods prior to the Closing Date.
Pursuant to the Stock Purchase Agreement, Cameron assumed Cooper's Cameron
Obligations (as defined below), effective on the Closing Date. For purposes of
the Stock Purchase Agreement, "Cooper's Cameron Obligations" means any
obligation, commitment, liability or responsibility of Cooper, its affiliates or
their predecessors (whether or not also an obligation, commitment, liability, or
responsibility of or claim against, in whole or in part, Cameron or its
subsidiaries C.F.P., Ltd. (the "U.K. Sub") or Cameron Pipeline Inc. (the
"Pipeline Sub")), arising, undertaken or created before the Closing Date in
connection with, on behalf of or for the benefit of any of certain entities, to
the extent that such entities conducted all or part of the Business (as defined
below) (the "Cameron Entities"), or arising from the conduct of the Business,
including without limitation (i) any consulting, employment or severance
agreements, guarantees, letters of credit, performance bonds, or indemnities, or
obligations or indemnities to officers or directors of any Cameron Entity, (ii)
any agreements with any transferors to Cooper, its affiliates, or their
predecessors, of any assets of any Cameron Entity or of the Business, (iii) any
labor or collective bargaining agreements relating to any Cameron Entity, (iv)
any governmental contracts relating to any Cameron Entity, (v) any sales or
purchase agreements relating to any Cameron Entity, (vi) any leases of real or
personal property relating to any Cameron Entity, and (vii) any other agreements
or commitments relating to any Cameron Entity under which Cooper, its affiliates
or predecessors will have any liability after the Closing Date, except that
Cooper's Cameron Obligations exclude the matters that Cooper is required to
indemnify as described herein. "Business" means research, development,
engineering, melting, refining, remelting, forging, extrusion, machining,
manufacturing, distribution, sales, marketing, service or repair operations
associated with the Products. "Products" means closed die forgings (including
rotating parts for aircraft engines or industrial turbines, aircraft landing
gear, structural airframe parts, ordnance and related parts, military and power
plant nuclear forgings, valves, heavy wall pipe and fittings, power generation
forgings and oil field equipment forgings), extrusions (including for aircraft
engines, pipe, oil field equipment, bar stock and ordnance), super alloy powder
products, thermal rail products for steel support member in push slab furnaces
and custom-shaped insulators, other forged products, skid rail reheat systems,
and high velocity burners.
In the Stock Purchase Agreement, the Company and Cooper made customary
representations and warranties to each other. Each of the Company and Cooper
represented to the other that to its knowledge, its representations and
warranties were, subject in certain cases to materiality and supplemental
disclosure schedules, true and correct as of the Closing Date (except for those
representations and warranties that expressly relate only to some other time)
(the "Accuracy Representations"). The parties' representations and warranties
expired at the Closing except that the Accuracy Representations remain in full
force and effect until November 28, 1995. Any claim for indemnification with
respect to the Accuracy Representations not asserted by notice by that date may
not be pursued and will be irrevocably waived and released.
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Subject to certain terms and conditions set forth in the Stock Purchase
Agreement, (i) Cooper agreed to indemnify the Company, its affiliates, and their
directors, officers or employees (collectively, the "Company's Group") against
all Losses (as defined in the Stock Purchase Agreement) resulting from (a) any
inaccuracy in the Accuracy Representations given by Cooper or (b) any breach of
Cooper's covenants in the Stock Purchase Agreement and (ii) the Company agreed
to indemnify Cooper, its affiliates, and their directors, officers or employees
(collectively, the "Cooper Group") against all Losses resulting from (a) any
inaccuracy in the Accuracy Representations given by the Company, (b) any breach
of the Company's covenants in the Stock Purchase Agreement and (c) Cooper's
Cameron Obligations.
In addition, the Company agreed in the Stock Purchase Agreement to
indemnify the Cooper Group against all Losses resulting from any liabilities or
obligations of or relating to, or claims against, any Cameron Entity or the
Business (other than the Losses that Cooper is required to indemnify) on, before
or after the Closing Date, including without limitation (i) all Losses resulting
from any Product Liability Claims (as defined in the Stock Purchase Agreement)
arising out of or resulting from Products sold or furnished by Cooper, any of
its affiliates or any Cameron Entity (including without limitation any product
liability assumed in connection with the acquisition of any business or product
line) on, before or after the Closing Date; (ii) all Losses resulting from (A)
any noncompliance of the operations, properties or business activities of any
Cameron Entity or the Business with any environmental law on, before or after
the Closing Date or (B) any liabilities or obligations of or relating to, or
claims against, any Cameron Entity or the Business based upon any environmental
law, or arising from the disposal of any regulated materials, on, before, or
after the Closing Date; and (iii) all Losses resulting from (A)any workers'
compensation claim filed against any Cameron Entity on, before or after the
Closing Date, and (B) any employment or severance agreements entered into by
Cooper or Cameron relating to employees of Cameron on, before or after the
Closing Date, other than severance payments under a specified employment
agreement.
Cooper agreed in the Stock Purchase Agreement, other than losses that the
Company is required to indemnify, (i) to indemnify the Company's Group against
all Losses resulting from any liabilities or obligations of or relating to, or
claims against, Cooper or Cooper's subsidiaries to the extent that such
liabilities, obligations or claims (x) do not relate to the Business and (y)
arise from the activity of (a) any Cameron Entity (other than the Company or the
Pipeline Sub) before the Closing Date, or (b) Cooper or any of Cooper's
subsidiaries other than the Cameron Entities, (ii) except to the extent the
actions of the Company, Cameron or their affiliates may cause or increase any
such Losses after the Closing Date, to indemnify the Company's Group against all
Losses resulting from any regulated materials disposed of on, or discharged into
the environment at, a specified manufacturing facility of Cooper or at a
specified Superfund location on or before the Closing Date; and (iii) to
indemnify the Company's Group against all Losses resulting from severance
payments under a specified employment agreement.
Notwithstanding any contrary provision of the Stock Purchase Agreement, no
claim by either party against the other for indemnification will be valid unless
the aggregate amount of Losses associated with such claim exceeds $100,000.
Further, any claims by the indemnified party will be determined net of any tax
benefit actually recognized and utilized to offset or reduce the tax liability
of the indemnified party or the other members of its group.
Cooper agreed in the Stock Purchase Agreement that, until the later to
occur of (i) Cooper's ceasing to own at least 10 percent of the outstanding
shares of the Company's Common Stock and (ii) May 26, 1997, Cooper will not, and
Cooper will not permit any of its subsidiaries (regardless of whether such
person is a subsidiary of Cooper on the date hereof) to, engage in the
manufacturing or marketing of the Products currently manufactured or marketed by
Cameron or the U.K. Sub in competition with the Company or any subsidiary of the
Company (a "Competing Business"), except that (i) Cooper or any affiliate of
Cooper (other than Cameron and the Cameron Subsidiaries) may continue any
existing nonaerospace forging operations and may make any reasonable
maintenance, improvements and refinements thereto and (ii) Cooper or any
affiliate of Cooper may acquire any business that includes ancillary forging
operations in support of its main business. In addition, this
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noncompetition provision will not prevent Cooper or its affiliates from
acquiring shares in or the business or assets of any company, business or entity
(the "Target") having a Competing Business (i) if no more than $10.0 million of
the Target's sales revenue (as recorded in the then-latest available audited
accounts) arises from the Competing Business or (ii) if the sales revenue of the
Competing Business is greater than $10.0 million of the Target's sales revenue,
if Cooper uses its reasonable commercial efforts to dispose of the Competing
Business within a two-year period from the date of acquisition of the Target. If
Cooper cannot dispose of the Competing Business on terms reasonably acceptable
to it during such two-year period, Cooper will be free to retain and operate the
Competing Business without any restriction of the Stock Purchase Agreement.
INVESTMENT AGREEMENT
In connection with the Stock Purchase Agreement the Company and Cooper
entered into an Investment Agreement dated as of January 10, 1994, which governs
Cooper's ownership of the 16.5 million shares of Common Stock that were issued
to Cooper under the Stock Purchase Agreement. The Investment Agreement is
unaffected by the DECS offering.
In the Investment Agreement, Cooper agreed that, so long as the Investment
Agreement remains in effect, Cooper will not sell or otherwise dispose of or
encumber any Company Voting Securities (as hereinafter defined), except: (a) to
any wholly-owned subsidiary of Cooper which agrees to be bound by the Investment
Agreement; (b) pursuant to a bona fide underwritten offering or other
distribution of such Company Voting Securities registered under the Securities
Act; (c) pursuant to a bona fide underwritten offering or other distribution of
securities of Cooper convertible into or exercisable or exchangeable for Company
Voting Securities registered under the Securities Act; (d) pursuant to Rule 144
of the General Rules and Regulations under the Securities Act, or any successor
rule of similar effect ("Rule 144"); or (e) pursuant to a tender offer or
exchange offer if the board of directors of the Company has (i) recommended that
the shareholders of the Company accept such offer and such recommendation has
not been withdrawn or (ii) expressed no opinion and remains neutral toward such
offer; (f) pursuant to a merger or consolidation in which the Company is
acquired, or a sale of all or substantially all of the Company's assets to
another corporation or any other transaction approved by the board of directors
of the Company. For purposes of the Investment Agreement "Company Voting
Securities" means (i) shares of Common Stock, (ii) any other Company securities
entitled to vote generally for the election of directors of the Company, or
(iii) any securities of the Company convertible into or exchangeable for or
exercisable for Common Stock or any Company securities entitled to vote
generally for the election of directors of the Company.
In any registered offering or Rule 144 transaction, the seller of Company
Voting Securities or securities of Cooper convertible into or exercisable or
exchangeable for Company Voting Securities will be required under the Investment
Agreement to use its reasonable best efforts to effect the sale or transfer of
such securities in a manner which will effect the broadest possible
distribution. Such seller of Company Voting Securities will also be required to
use its reasonable best efforts to avoid making any sales or transfers of such
Company Voting Securities to any one person or group within the meaning of the
Exchange Act who or which after such transfer will own Company Voting Securities
representing more than 4 percent of the voting power for the election of
directors represented by all of the then-outstanding Company Voting Securities
(whether directly or indirectly).
In the Investment Agreement, Cooper agreed to cause all Company Voting
Securities beneficially owned by it or any wholly-owned subsidiary to which it
has transferred any Company Voting Securities, and agrees to use reasonable
efforts to cause all Company Voting Securities known by the Cooper to be
beneficially owned by "affiliates" (as defined in Rule 12b-2 promulgated under
the Exchange Act) of Cooper over which Cooper has control, to be present at all
shareholder meetings of the Company at which the vote of common shareholders is
sought so that they may be counted for the purpose of determining the presence
of a quorum at such meetings.
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Cooper also agreed in the Investment Agreement to vote or cause to be voted
all Company Voting Securities beneficially owned by it or any wholly-owned
subsidiary to which it has transferred any Company Voting Securities, and agrees
to use reasonable efforts to cause to be voted all Company Voting Securities
known by Cooper to be beneficially owned by its affiliates over which it has
control, on all matters (including the election of directors) either in the
manner recommended to shareholders by the board of directors of the Company, or,
at Cooper's election, in the same proportion as the vote of the other
shareholders of the Company. Notwithstanding the foregoing, Cooper, such
wholly-owned subsidiaries of Cooper and such affiliates of Cooper over which it
has control will not be obligated so to vote if the matter being voted on by the
shareholders of the Company would, if approved, result in a breach of the
Investment Agreement.
Pursuant to the Investment Agreement, so long as the Investment Agreement
remains in effect, Cooper and its controlled affiliates will not, directly or
indirectly, acting alone or in concert with others, unless specifically
requested or approved in advance by the board of directors of the Company:
(1) in any manner acquire or agree, attempt, seek or propose to acquire (or
make any request for permission with respect thereto), by purchase, merger,
through the acquisition of control of another person, by joining a partnership,
limited partnership, syndicate or other "group" (within the meaning of Section
13(d)(3) of the Exchange Act), or otherwise, ownership (including, but not
limited to, beneficial ownership as defined in Rule 13d-3 under the Exchange
Act) of any of the assets or businesses of the Company or any securities issued
by the Company (the "Company Securities"), or any rights or options to acquire
such ownership (including from a third party), except (i) as expressly permitted
by the Investment Agreement or the Stock Purchase Agreement, or (ii) pursuant to
customary business transactions in the ordinary course of the Company's and
Cooper's business or (iii) in the case of Company Securities, in connection with
(A) a stock split or reverse stock split or other reclassification affecting
outstanding Company Securities, or (B) a stock dividend or other pro rata
distribution by the Company to holders of outstanding Company Securities;
(2) make, or cause to be made any proposal for the acquisition of the
Company or any assets or business of the Company or Company Securities or for
any other extraordinary transaction involving the Company, including, without
limitation, any merger, or other business combination, restructuring,
recapitalization, liquidation or similar transaction, except (i) as expressly
permitted by the Investment Agreement or the Stock Purchase Agreement or (ii)
proposals pursuant to customary business transactions in the ordinary course of
the Company's and Cooper's business;
(3) form, join or in any way participate in a "group" (within the meaning
of Section 13(d)(3) of the Exchange Act) with respect to any Company Securities;
(4) make, or in any way cause or participate in, any "solicitation" of
"proxies" to vote (as such terms are defined in Regulation 14A under the
Exchange Act) with respect to the Company, or communicate with, seek to advise,
encourage or influence any person or entity, in any manner, with respect to the
voting of, any Company Securities, or become a "participant" in any "election
contest" (as such terms are defined or used in Rule 14a-11 under the Exchange
Act) with respect to the Company, or execute any written consent with respect to
the Company;
(5) initiate, propose or otherwise solicit shareholders for the approval of
one or more shareholder proposals with respect to the Company or induce or
attempt to induce any other person to initiate any shareholder proposal, or
(except as expressly permitted by the Investment Agreement) seek election to or
seek to place a representative on the board of directors of the Company or seek
the removal of any member of the board of directors of the Company;
(6) in any manner, agree, attempt, seek or propose (or make any request for
permission with respect thereto) to deposit any Company Securities, directly or
indirectly, in any voting trust or similar arrangement or to subject any Company
Voting Securities to any other voting or proxy agreement, arrangement or
understanding;
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(7) disclose any intention, plan or arrangement, or make any public
announcement (or request permission to make any such announcement), or induce
any third party to take any action, inconsistent with the foregoing;
(8) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing; or
(9) advise, assist or encourage or finance (or assist or arrange financing
to or for) any other person in connection with any of the foregoing.
Pursuant to the Investment Agreement, the Company agreed that it will use
its best efforts to cause two persons designated by Cooper and reasonably
acceptable to the Company to be elected to the board of directors of the Company
and to serve as directors of the Company until their successors are duly elected
and qualified. Cooper has designated H. John Riley, Jr., its President and Chief
Executive Officer, and Dewain K. Cross, its retired Senior Vice President,
Finance, as its current representatives on the Company's board. In the event
that any such designee will cease to serve as a director for any reason, the
Company agreed in the Investment Agreement that it will use its best efforts to
cause such vacancy resulting thereby to be filled by a designee of Cooper
reasonably acceptable to the Company. The Investment Agreement provides that the
Company will vote all shares for which the Company's management or board of
directors holds proxies or is otherwise entitled to vote in favor of the
election of the designees of Cooper except as may otherwise be provided by
shareholders submitting such proxies.
The Investment Agreement provides that the Company will not amend (i)
Article 6(e)(2) (the "Fair Price Provision") of its Articles (except pursuant to
the Fair Price Amendment as defined below) in any manner that adversely affects
Cooper or any other person to whom any of the Common Stock acquired by Cooper
under the Stock Purchase Agreement has been transferred in accordance with the
terms of the Investment Agreement or (ii) the provision of its By-Laws pursuant
to which it has opted out of Chapter 110D of the MGL. Under the Fair Price
Provision, a Business Combination (as defined in the Company's Articles) between
the Company or a subsidiary of the Company and an Interested Stockholder (as
defined in the Company's Articles) requires the approval of at least 85 percent
of the outstanding voting stock of the Company, unless either (i) the Business
Combination has been approved by at least two-thirds of the Company's Continuing
Directors (as defined in the Company's Articles) or (ii) certain minimum price
requirements are satisfied. The Fair Price Amendment exempts Cooper and its
affiliates and associates for so long as such group beneficially owns at least
10 percent or more of the outstanding shares of Common Stock continuously from
and after May 26, 1995, unless such group acquires beneficial ownership of
additional shares of Common Stock in breach of the Investment Agreement. The
Investment Agreement also provides that the Company will not amend its Rights
Agreement (described below under "Description of the Company's Capital Stock")
or adopt any other rights or similar agreement, except that following prior
consultation with Cooper, the Company may amend the Rights Agreement in
accordance with the terms thereof if such amendment does not adversely affect
Cooper or any other person to whom any of the Common Stock acquired by Cooper
under the Stock Purchase Agreement has been transferred in accordance with the
terms of the Investment Agreement.
The Investment Agreement provides that, among others, the limitations on
Cooper and its affiliates described above with respect to restrictions on sales
of shares by Cooper, voting, ownership and certain other matters and the
limitations on the Company described above with respect to amendments to the
Company's Articles and By-Laws will terminate immediately and be of no further
force and effect on the date that a Trigger Event (as defined below) occurs. For
these purposes, "Trigger Event" means the occurrence of one or more of the
following events, without Cooper's prior written consent:
(1) in connection with the issuance of Company Voting Securities (other
than (x) issuances pursuant to the Company's current employee benefit plans or
other customary employee benefit plans of the Company or (y) issuances in
connection with bona fide capital raising programs pursuant to which the
securities are sold for fair value, as approved by the board of directors of the
Company, and the proceeds of which are invested in the businesses in which the
Company or one or more of its subsidiaries are then engaged or (z) issuances for
fair value, as determined by the board of directors of the
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Company, in connection with acquisitions by the Company or one of its
wholly-owned subsidiaries primarily involving one or more Similar Businesses (as
defined below)), the failure to provide Cooper with the right to purchase, at
the same price as Company Voting Securities are being issued, that number or
amount of Company Voting Securities which would enable Cooper to maintain its
proportionate interest in the Company following such issuance;
(2) a Change in Control of the Company (as defined below);
(3) a material acquisition or investment by the Company or one of its
subsidiaries, other than an acquisition or investment by the Company or one of
its wholly-owned subsidiaries primarily involving one or more Similar
Businesses;
(4) a decline of at least 35% in the Consolidated Net Worth of the Company
(as defined in the Investment Agreement) from the Consolidated Net Worth of the
Company immediately following the consummation of the Acquisition after giving
effect to the Acquisition (including the issuance of 16.5 million shares of
Common Stock to Cooper), but not taking into account (A) any reduction in the
Company's Consolidated Net Worth attributable to or taken in connection with or
as a result of the Acquisition or the combination of the business acquired from
Cooper with the Company's business and recorded in the Company's financial
statements for any period ending on (and including) the end of the first full
fiscal year of the Company after the consummation of the Acquisition or (B) any
adjustments following the date of consummation of the Acquisition as a result of
any changes in generally accepted accounting principles (including the
implementation of SFAS 106) or any other regulatory changes or requirements
applicable to the Company or its financial statements or (C) any adjustment
resulting from any liability arising from or growing out of any matter or
circumstance existing as of the time of the consummation of the Acquisition and
relating to the business or assets acquired by the Company from Cooper but not
reflected on the balance sheet of such business and assets or (D) any change in
the translation component of shareholders' equity or (E) adjustments as a result
of sales of the Company's accounts receivables pursuant to a bona fide
receivables securitization program pursuant to which fair value is received for
receivables so sold (as determined by the Company's board of directors, taking
into account, among other things, any discount or credit enhancement features
required by any securities rating agency) or (F) any adjustment resulting from a
SFAS 109 valuation allowance recorded or reserved by the Company with respect to
deferred tax assets that were included in or excluded from the Company's final
Accounting Principles Bulletin No. 16, "Business Combinations," acquisition date
balance sheet;
(5) any default or defaults by the Company or one of its subsidiaries under
any indebtedness of the Company or its subsidiaries for money borrowed with a
principal amount then outstanding, individually or in the aggregate, in excess
of $5.0 million, which default will constitute a failure to pay any portion of
the principal of each indebtedness at final maturity or will have resulted in
such indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable without such
indebtedness having been discharged, or such acceleration having been rescinded
or annulled within a period of 30 days after maturity or acceleration;
(6) an Event of Bankruptcy (as defined in the Investment Agreement); or
(7) the failure of the board of directors of the Company to nominate at
least two of Cooper's representatives for election to the Company's board of
directors.
The Investment Agreement further provides that the Company may not issue
any securities having more than one vote per share (other than pursuant to the
Company's Rights Agreement) without the prior written consent of Cooper.
For purposes of the Investment Agreement, (1) a "Change in Control of the
Company means (A) a merger or consolidation involving the Company or a sale of
all or substantially all of the assets of the Company, in each case except for a
transaction in which the Company's shareholders receive at least 50 percent of
the stock of the surviving, resulting or acquiring corporation, (B) the
acquisition by an individual, entity or group (excluding the Company or an
employee benefit plan of the Company or a corporation controlled by the
Company's shareholders) of shares of capital stock of the Company entitled to
cast a majority of the votes entitled to be cast on matters submitted to the
shareholders of the
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<PAGE> 69
Company, or (C) a change in a majority of the members of any class of the
Company's board of directors in connection with an "election contest" (as used
in Rule 14a-11 under the Exchange Act); and (2) "Similar Businesses" means (A)
businesses in which the Company or one or more of its subsidiaries are engaged,
(B) any businesses involving products related to or complementary to the
products of the Company or one or more of its subsidiaries or (C) any similar
businesses providing customers of the Company or one or more of its subsidiaries
with products or services similar to those provided by the Company or one or
more of its subsidiaries.
Pursuant to the Investment Agreement, Cooper and certain of its transferees
have the right to require the Company to file under the Securities Act up to
three demand registrations of the shares of Common Stock acquired by Cooper
under the Stock Purchase Agreement (and any other of the Company's securities
issued in respect thereof) at the Company's expense (except that the Company
will not be responsible for underwriting discounts and commissions or transfer
taxes). Cooper also has the right to an unlimited number of additional demand
registrations under the Securities Act at Cooper's expense. Cooper also has the
right, under certain circumstances, to "piggyback" registrations in the event
that the Company registers securities for its own account or for the account of
third parties. Cooper's demand and piggyback registration rights are subject to
customary restrictions and limitations. In connection with any registration
statement filed pursuant to these registration rights, Cooper and the Company
will indemnify each other against certain liabilities, including certain
liabilities under the Securities Act.
The description of the Stock Purchase Agreement and the Investment
Agreement is a summary of the material terms thereof. Copies of the Stock
Purchase Agreement and the Investment Agreement have been filed as exhibits to
the Registration Statement of which this Prospectus is a part.
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
GENERAL
The Company has the authority to issue 70,000,000 shares of Common Stock
and 5,000,000 shares of Preferred Stock, no par value (the "Preferred Stock").
The Company's Board of Directors has authority (without action by shareholders)
to issue the authorized and unissued shares of Preferred Stock in one or more
series and, within certain limitations, to determine the voting rights
(including the right to vote as a series on particular matters), preference as
to dividends and in liquidation, conversion, redemption and other rights of each
such series. The ability of the Board of Directors to issue Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. There are no shares of
Preferred Stock issued or outstanding and the Company has no present plans to
issue any of the Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by shareholders, including the election of directors.
Shareholders are not entitled to cumulative voting rights, and, accordingly, the
holders of a majority of the shares voting for the election of directors can
elect the entire Board if they choose to do so and, in that event, the holders
of the remaining shares of Common Stock will not be able to elect any person to
the Board of Directors. Pursuant to the Company's By-Laws, the number of
directors of the Company may be not less than seven nor more than 13, as
determined from time to time by the directors. The number of directors is
currently 13. The By-Laws provide that the Board of Directors is divided into
three classes in respect of term of office, each class to contain as near as may
be one-third of the whole number of the Board. At each annual meeting of
shareholders, one class of directors is elected to serve until the annual
meeting of shareholders held three years next following and until their
successors are elected and qualify. In the event any vacancy occurs on the Board
of
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<PAGE> 70
Directors, the bylaws give the remaining directors the power to fill the vacancy
for the balance of the term of office, except that any vacancy occurring because
of an increase in the number of directors may be filled only until the next
annual meeting of shareholders, at which time the vacancy shall be filled by
vote of the shareholders.
The holders of shares of Common Stock are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors, in its discretion, from funds legally available therefor and subject
to the prior dividend rights of holders of any shares of Preferred Stock which
may be outstanding. Upon liquidation or dissolution of the Company, subject to
prior liquidation rights of the holders of Preferred Stock, the holders of
shares of Common Stock are entitled to receive on a pro rata basis the remaining
assets of the Company available for distribution. Holders of shares of Common
Stock have no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with respect to such
shares.
RIGHTS AGREEMENT
On October 19, 1988, the Board of Directors of the Company declared a
dividend distribution of one right (a "Right") for each outstanding share of
Common Stock to shareholders of record at the close of business on November 30,
1988 (the "Rights Record Date") pursuant to a Rights Agreement dated as of
October 19, 1988 between the Company and The First National Bank of Boston (the
"Original Rights Agreement"). On January 10, 1994, in connection with the Stock
Purchase Agreement, the Original Rights Agreement was amended and restated. The
description and terms of the Rights are set forth in an Amended and Restated
Rights Agreement, dated as of January 10, 1994 (the "Rights Agreement"), between
the Company and State Street Bank & Trust Company, as Rights Agent ("Rights
Agent"). Each Right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Junior Participating Preferred Stock,
no par value (the "Series A Shares"), of the Company at a price of $50 per one
one-hundredth of a Series A Share (the "Exercise Price"), subject to adjustment.
Until the earlier to occur of (i) ten days following a public announcement
that a person or group of affiliated or associated persons has become an
Acquiring Person (as defined below) or (ii) ten business days (or such later
date as may be determined by action of the Board of Directors prior to such time
as any person or group of affiliated persons becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in a person or
group becoming an Acquiring Person (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced by the certificates
representing the shares of Common Stock, with either a copy of the Summary of
Rights that was sent to shareholders in connection with the original issuance of
the Rights (the "Summary of Rights") attached thereto or a notation
incorporating the Rights Agreement by reference. For purposes of the Rights
Agreement, an "Acquiring Person" generally means a person or group of affiliated
or associated persons who have acquired beneficial ownership of 20% or more of
the outstanding shares of Common Stock. For purposes of the Rights Agreement, a
person shall generally (subject to certain exceptions) be deemed the "beneficial
owner" of, and shall be deemed to "beneficially own," any Common Stock which
such person or any of such person's affiliates or associates, directly or
indirectly, has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options or otherwise.
However, Cooper and its affiliates and associates (together the "Cooper Group")
will not be deemed to be an Acquiring Person for so long as (A) the Cooper Group
beneficially owns at least 10% or more of the outstanding shares of Common Stock
continuously from and after the Closing Date and (B) the Cooper Group does not
acquire beneficial ownership of any shares in breach of the Investment Agreement
(other than an inadvertent breach which is remedied as promptly as practicable
by a transfer of the Shares so acquired to a person which is not a member of the
Cooper Group). In addition, for purposes of applying certain provisions of the
Rights Agreement, no person or entity owning more than 5% of the shares of
Common Stock as of October 19, 1988 will be deemed to be
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<PAGE> 71
the beneficial owner of, or to beneficially own, any shares of Common Stock in
excess of 5% of the shares of Common Stock owned by such person or entity as of
October 19, 1988.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the shares of Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), share certificates issued after the
Rights Record Date upon transfer or new issuance of shares of Common Stock will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for shares of Common Stock
outstanding as of the Rights Record Date, even without such notation or a copy
of the Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the shares of Common Stock represented by
such certificate. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the shares of Common Stock as of the close of
business on the Distribution Date and such separate Right Certificates alone
will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on November 30, 1998 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Exercise Price payable, and the number of Series A Shares or other
securities or property issuable, upon the exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Series A
Shares, (ii) upon the grant to holders of the Series A Shares of certain rights
or warrants to subscribe for or purchase Series A Shares at a price, or
securities convertible into Series A Shares with a conversion price, less than
the then-current market price of the Series A Shares or (iii) upon the
distribution to holders of the Series A Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Series A Shares) or subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Series A Shares issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the shares of Common Stock or a
stock dividend on the shares of Common Stock payable in shares or subdivisions,
consolidations or combinations of the shares of Common Stock occurring, in any
case, prior to the Distribution Date.
Series A Shares purchasable upon exercise of the Rights will not be
redeemable. Each Series A Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per share of Common Stock. In the
event of liquidation, the holders of the Series A Shares will be entitled to a
minimum preferential liquidation payment of $100 per share but will be entitled
to an aggregate payment of 100 times the payment made per share of Common Stock.
Each Series A Share will have 100 votes, voting together with the shares of
Common Stock. Finally, in the event of any merger, consolidation or other
transaction in which Shares are exchanged, each Series A Share will be entitled
to receive 100 times the amount received per share of Common Stock. These rights
are protected by customary antidilution provisions.
Because of the nature of the Series A Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Series A Share
purchasable upon exercise of each Right should approximate the value of one
share of Common Stock.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
Exercise Price of the Right.
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<PAGE> 72
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of Common Stock, the Board of Directors of the Company may exchange the
Rights (other than Rights owned by such person or group which will have become
void), in whole or in part, at an exchange ratio of one share of Common Stock,
or one one-hundredth of a Series A Share (or of a share of a class or series of
the Company's preferred stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Exercise Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Exercise Price. No fractional Series A Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Series A Share,
which may, at the election of the Company, be evidenced by depository receipts)
and in lieu thereof, an adjustment in cash will be made based on the market
price of the Series A Shares on the last trading day prior to the date of
exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
Shares, the Board of Directors of the Company may redeem the Rights in whole,
but not in part, at a price of $.02 per Right (the "Redemption Price"). The
redemption of the Rights may be made effective at such time on such basis with
such conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower certain thresholds described above to not less than the greater of (i)
the sum of .001% and the largest percentage of the outstanding Shares then known
to the Company to be beneficially owned by any person or group of affiliated or
associated persons (other than the Cooper Group for so long as the Cooper Group
is deemed not to be an Acquiring Person) and (ii) 10% except that from and after
such time as any person or group of affiliated or associated persons becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of the Rights. Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of the Company, including without
limitation, the right to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors since the Rights may be redeemed by the Company at the
Redemption Price prior to the time that a person or group has become an
Acquiring Person.
A copy of the Rights Agreement has been filed with the SEC as an exhibit to
a Registration Statement on Form 8-A/A dated January 21, 1994. A copy of the
Rights Agreement is available to any holder of Common Stock free of charge from
the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
MASSACHUSETTS LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS;
ANTI-TAKEOVER EFFECTS
The Company is subject to Chapter 110F of the MGL, an anti-takeover law.
Under Chapter 110F, a Massachusetts corporation with more than 200 stockholders
may not engage in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless (i) the interested stockholder obtains
the approval of the Board of Directors prior to becoming an interested
stockholder, (ii) the interested stockholder acquires 90% of the outstanding
voting stock of the corporation (excluding shares held by certain affiliates of
the corporation) at the time it becomes an interested stockholder or (iii) the
business
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<PAGE> 73
combination is approved by both the Board of Directors and the holders of
two-thirds of the outstanding voting stock of the corporation (excluding shares
held by the interested stockholder). An "interested stockholder" is a person
who, together with affiliates and associates, owns (or, in certain cases, at any
time within the prior three years did own) 5% or more of the outstanding voting
stock of the corporation. A "business combination" includes a merger, certain
stock or asset sales, and certain other specified transactions resulting in a
financial benefit to the interested stockholder.
The By-Laws of the Company include a provision excluding the Company from
the applicability of Chapter 110D of the MGL, which regulates the acquisition of
so-called "control shares." A control share acquisition is the acquisition of
shares which, when added to shares already owned, would (but for the statute)
entitle the acquiring person to vote at least 20% of a corporation's stock.
Shares acquired in such a transaction would, under the statute, have no voting
rights unless a majority of noninterested stockholders voted to grant such
voting rights. In general, the person acquiring such shares, officers of the
Company and those directors of the Company who are also employees, are not
permitted to vote on whether such voting rights shall be granted. The Board of
Directors may amend the By-Laws at any time to subject the Company to this
statute prospectively.
MGL Chapter 156B, Section 50A requires that a publicly held Massachusetts
corporation have a classified board of directors consisting of three classes as
nearly equal in size as possible, unless the corporation elects not to be
covered by Section 50A. The Company's By-Laws contain provisions which give
effect to Section 50A.
The By-Laws also provide that the directors and officers of the Company
generally shall be indemnified by the Company to the fullest extent authorized
by Massachusetts law, as it now exists or may in the future be amended, against
all expenses and liabilities reasonably incurred in connection with service for
or on behalf of the Company. In addition, the Articles provide that the
directors of the Company will not be personally liable to the Company or its
stockholders for monetary damages for certain breaches of their fiduciary duty
as directors, unless they violated their duty of loyalty to the Company or its
stockholders, acted in bad faith, knowingly or intentionally violated the law,
authorized illegal dividends or redemptions, approved certain loans to insiders
or derived an improper benefit from their action as directors.
The Company's By-Laws further provide that special meetings of stockholders
may be called only by the Chief Executive Officer, by the Board of Directors or
by the Clerk upon the written request of the holders of at least 10% of the
Company's outstanding Common Stock.
In addition, under the fair price provision of the Articles, a Business
Combination (as defined in the Articles) between the Company or a subsidiary of
the Company and an Interested Stockholder (as defined in the Articles) requires
the approval of at least 85% of the outstanding voting stock of the Company,
unless either (i) the Business Combination has been approved by at least
two-thirds of the Company's Continuing Directors (as defined in the Articles) or
(ii) certain minimum price requirements are satisfied. See "Relationship Between
the Company and Cooper -- Investment Agreement."
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock is State Street Bank
& Trust Company, 2 Heritage Drive, North Quincy, Massachusetts, telephone number
(617) 985-3024.
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COMMON STOCK OWNERSHIP OF COOPER
Cooper beneficially owns 16.5 million shares of Common Stock, representing
approximately 47% of the outstanding shares of Common Stock. Immediately
following the sale of the DECS pursuant to the DECS Prospectus, the ownership
interest of Cooper will remain at approximately 47% of the outstanding shares of
Common Stock. Pursuant to the terms of the DECS, Cooper may, at its option,
consummate the mandatory exchange at maturity thereof by delivering to holders
thereof shares of Common Stock. Cooper's ownership interest after maturity of
the DECS could remain at 47% of the presently outstanding number of shares of
Common Stock if it elects to deliver cash or could be reduced to less than one
percent of the presently outstanding shares of Common Stock if (a) at maturity
of the DECS the Maturity Price is less than or equal to the Initial Price (each
as defined in the DECS Prospectus), (b) the Underwriters elect to exercise their
over-allotment option in full and (c) Cooper elects to deliver its shares of
Common Stock instead of cash and does not acquire any additional shares of
Common Stock. However, Cooper is under no obligation to, and there can be no
assurance that Cooper will, elect to exercise its option to deliver Common Stock
pursuant to the terms of the DECS or, if it so elects, that it will use all or
any portion of its current holdings of Common Stock to make such delivery.
<TABLE>
PLAN OF DISTRIBUTION
The Underwriters have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from Cooper the aggregate
number of DECS set forth opposite their names below:
<CAPTION>
NUMBER OF
UNDERWRITERS DECS
------------ -----------
<S> <C>
Salomon Brothers Inc ....................................... 3,687,500
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 3,687,500
Schroder Wertheim & Co. Incorporated........................ 3,687,500
CS First Boston Corporation................................. 562,500
Dillon, Read & Co. Inc. .................................... 562,500
Lehman Brothers Inc. ....................................... 562,500
J.P. Morgan Securities Inc. ................................ 562,500
NatWest Securities Limited.................................. 562,500
Smith Barney Inc. .......................................... 562,500
S.G. Warburg & Co. Inc...................................... 562,500
----------
Total.................................................. 15,000,000
==========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
DECS if any are purchased.
The Company has been advised that the Underwriters propose to offer the
DECS to the public initially at the offering price set forth on the cover of the
Cooper Prospectus and to certain dealers at such price less a selling concession
of $0.24 per DECS; that the Underwriters may allow, and each such dealer may
reallow, to other dealers a concession not exceeding $0.10 per DECS; and that,
after the initial public offering, such public offering price and such
concession and reallowance may be changed.
The Company and Cooper have agreed not to offer for sale, sell or otherwise
dispose of, except as described below, without the prior written consent of the
Underwriters, any shares of Common Stock or any securities convertible into or
exchangeable for, or warrants to acquire Common Stock for a period of 90 days
after the date of this Prospectus; provided, however, that such restriction
shall not affect the ability of the Company or Cooper or their respective
subsidiaries to take any such actions in connection with the offering of the
DECS made hereby or any exchange at Maturity pursuant to the terms of the DECS.
In addition, the Company retains the right to issue Common Stock in connection
with acquisition transactions and certain transactions that are exempt from the
registration requirements of the Securities
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<PAGE> 75
Act. However, the Company has informed the Underwriters that it has no current
intention to issue Common Stock in connection with any such transaction.
In connection with the DECS Offering, Cooper or an affiliate thereof,
referred to herein as the "Lender", and Salomon Brothers Inc ("Salomon") intend
to enter into a Securities Loan Agreement (the "Securities Loan Agreement")
which provides that, subject to certain restrictions and with the agreement of
the Lender, Salomon may from time to time borrow, return and reborrow shares of
Common Stock from the Lender (the "Borrowed Securities"); provided, however,
that the number of Borrowed Securities at any time may not exceed 750,000 shares
in the twelve-month period beginning December 20, 1995; 1,000,000 shares in the
twelve-month period beginning December 20, 1996; and 1,250,000 in the period
beginning December 20, 1997 and terminating on the maturity of the DECS, subject
to adjustment to provide antidilution protection. The Securities Loan Agreement
contains limitations on the amount of Borrowed Securities that Salomon can
borrow on any day and from time to time and requires Salomon to return Borrowed
Securities within a specified period of time from the date of borrowing and
prior to any record date. The Securities Loan Agreement is intended to
facilitate market-making activity in the DECS by Salomon. Salomon may from time
to time offer shares of Common Stock borrowed from the Lender under the
Securities Loan Agreement directly to one or more purchasers at negotiated
prices, at market prices prevailing at the time of sale or at prices related to
such market prices, in connection with such market making activities. The
availability of shares of Common Stock under the Securities Loan Agreement, if
any, at any time is not assured and any such availability does not assure
market-making activity with respect to the DECS and any market-making actually
engaged in by Salomon may cease at any time. The foregoing description of the
Securities Loan Agreement does not purport to be complete and is qualified in
its entirety by reference to the Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which the Prospectus is a part.
Cooper has granted to the Underwriters an option, exercisable for 30 days
from the date of this Prospectus (or, if such 30th day shall not be a Business
Day, on the next Business Day thereafter), to purchase up to an additional
1,500,000 DECS, at the per DECS price to the public less the aggregate
underwriting discount set forth on the cover of the Cooper Prospectus. The
Underwriters may exercise such right of purchase only for the purpose of
covering overallotments, if any, incurred in connection with the sale of DECS
being offered. To the extent that the Underwriters exercise such option, each of
the Underwriters will become obligated, subject to certain conditions, to
purchase a number of such additional DECS proportionate to such Underwriter's
initial commitment.
The Company and Cooper have agreed in the Underwriting Agreement to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, or contribute to payments the Underwriters may be
required to make in respect thereof.
In connection with the offering of the DECS, the Underwriters and selling
group members (if any) and their respective affiliates may engage in passive
market making transactions in the Common Stock on Nasdaq in accordance with Rule
10b-6A under the Exchange Act. The passive market making transactions will
comply with applicable volume and price limits and will be identified as such.
As of September 30, 1995, 1,027,600 shares of Common Stock (representing
2.9% of the issued and outstanding shares of Common Stock) were owned by
accounts over which an affiliate of Schroder Wertheim & Co. Incorporated
exercises discretionary authority.
Salomon has provided financial advisory services to the Company in the
past, for which it has received customary fees. Merrill Lynch & Co. has provided
financial advisory services to Cooper in the past, for which it has received
customary fees.
To the extent that the over-allotment option is not exercised by the
Underwriters, Cooper may, subject to the Investment Agreement and Underwriting
Agreement, sell up to 1.5 million shares of Common Stock pursuant to this
Prospectus. Any such distribution hereunder of the Common Stock by Cooper may be
effected from time to time in one or more of the following transactions: (a)
through brokers, acting as agent in transactions (which may involve block
transactions), in special offerings, in
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<PAGE> 76
the over-the-counter market, or otherwise, at market prices obtainable at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices, (b) to underwriters who will acquire the shares of
Common Stock for their own account and resell them in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale (any public offering price and any
discount or concessions allowed or reallowed or paid to dealers may be changed
from time to time), (c) directly or through brokers or agents in private sales
at negotiated prices, (d) to lenders pledged as collateral to secure loans,
credit or other financing arrangements and any subsequent foreclosure, if any,
thereunder, or, (e) by any other legally available means. Also, offers to
purchase Common Stock may be solicited by agents designated by Cooper from time
to time. Underwriters or other agents participating in an offering made pursuant
to this Prospectus (as amended or supplemented from time to time) may receive
underwriting discounts or commissions under the Securities Act and discounts or
concessions may be allowed or reallowed or paid to dealers, and brokers or
agents participating in such transactions may receive brokerage or agent's
commissions or fees.
At the time a particular offering of any share of Common Stock is made by
Cooper hereunder, to the extent required by law, a Prospectus Supplement will be
distributed which will set forth the amount of Common Stock being offered and
the terms of the offering, including the purchase price or public offering
price, the name or names of any underwriters, dealers or agents, the purchase
price paid by any underwriter for any Common Stock purchased from Cooper, any
discounts, commissions and other items constituting compensation from Cooper and
any discounts, commission or concessions allowed or filed or paid to dealers.
LEGAL MATTERS
Certain legal matters have been passed upon for the Company by Wallace F.
Whitney, Jr., Vice President, General Counsel and Clerk of the Company. As of
November 22, 1995, Mr. Whitney was the beneficial owner of 3,145 shares of
Common Stock of the Company and held options to purchase 103,000 shares of
Common Stock. The Underwriters have been represented by Cravath, Swaine & Moore.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in its Annual Report (Form 10-K) for the year ended June 3, 1995 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of Cameron Forged Products Division (a
division of Cooper Industries, Inc.) included in the Company's Current Report
(Form 8-K) dated May 26, 1994 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such combined financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
50
<PAGE> 77
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.......................................................... F-1
Consolidated Statements of Operations for the years ended June 3, 1995, May 28, 1994
(unaudited), December 31, 1993 and December 31, 1992 and the five months ended May 28,
1994.................................................................................. F-2
Consolidated Balance Sheets at June 3, 1995 and May 28, 1994............................ F-3
Consolidated Statement of Cash Flows for the Years ended June 3, 1995, May 28, 1994
(unaudited), December 31, 1993 and December 31, 1992 and the five months ended May 28,
1994.................................................................................. F-4
Consolidated Statement of Stockholders' Equity for the year ended June 3, 1995, the five
months ended May 28, 1994 and the two years ended December 31, 1993 and 1992.......... F-5
Notes to Consolidated Financial Statements.............................................. F-6
</TABLE>
51
<PAGE> 78
WYMAN-GORDON COMPANY
REPORT OF 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 June 3, 1995 and May 28, 1994, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year ended June 3, 1995, for the five months ended May 28, 1994,
and for each of the two years in the period ended December 31, 1993. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wyman-Gordon
Company and Subsidiaries at June 3, 1995 and May 28, 1994, and the consolidated
results of their operations and their cash flows for the year ended June 3,
1995, for the five months ended May 28, 1994, and for each of the two years in
the period ended December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Notes I and J to the consolidated financial statements, in
1993 the company changed its method of accounting for postretirement benefits
other than pensions and income taxes.
Ernst & Young LLP
Boston, Massachusetts
June 26, 1995
F-1
<PAGE> 79
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEAR ENDED FIVE MONTHS YEAR ENDED
---------------------- ENDED DECEMBER 31,
JUNE 3, MAY 28, MAY 28, -------------------
1995 1994 1994 1993 1992
------- -------- ----------- -------- --------
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue............................. $396,639 $224,694 $ 86,976 $239,761 $298,881
-------- -------- -------- -------- --------
Cost of goods sold.................. 347,251 217,816 91,907 219,088 243,291
Selling, general and administrative
expenses.......................... 36,380 35,532 18,324 26,648 28,315
Other charges (credits)............. (710) 33,003 30,550 2,453 --
Environmental charge................ -- 2,000 2,000 -- --
-------- -------- -------- -------- --------
382,921 288,351 142,781 248,189 271,606
-------- -------- -------- -------- --------
Income (loss) from operations....... 13,718 (63,657) (55,805) (8,428) 27,275
-------- -------- -------- -------- --------
Other deductions (income):
Interest expense.................. 11,027 11,135 5,383 10,823 7,521
Miscellaneous, net................ 1,652 (2,389) 182 (2,247) (2,041)
-------- -------- -------- -------- --------
12,679 8,746 5,565 8,576 5,480
-------- -------- -------- -------- --------
Income (loss) before cumulative
effect of changes in accounting
principles........................ 1,039 (72,403) (61,370) (17,004) 21,795
Cumulative effect of changes in
accounting principles............. -- -- -- (43,000) --
-------- -------- -------- -------- --------
Net income (loss)................... $ 1,039 $(72,403) $(61,370) $(60,004) $ 21,795
======== ======== ======== ======== ========
INFORMATION PER SHARE
Income (loss) before cumulative
effect of changes in accounting
principles........................ $ .03 $ (4.02) $ (3.32) $ (.95) $ 1.21
Cumulative effect of changes in
accounting principles............. -- -- -- (2.39) --
-------- -------- -------- -------- --------
Net income (loss)................... $ .03 $ (4.02) $ (3.32) $ (3.34) $ 1.21
======== ======== ======== ======== ========
Shares used to compute earnings per
share............................. 35,148 17,992 18,490 17,965 18,078
======== ======== ======== ======== ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these financial statements.
F-2
<PAGE> 80
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 3, MAY 28,
1995 1994
--------- ---------
(000'S OMITTED)
<S> <C> <C>
ASSETS
Cash and cash equivalents......................................... $ 13,856 $ 42,179
Accounts receivable............................................... 79,219 77,019
Inventories....................................................... 78,813 65,737
Prepaid expenses.................................................. 15,671 15,192
-------- --------
Total current assets........................................... 187,559 200,127
-------- --------
Property, plant and equipment, net................................ 141,397 139,689
Intangible assets................................................. 25,295 27,759
Other assets...................................................... 14,813 27,172
-------- --------
Total assets................................................... $369,064 $394,747
======== ========
LIABILITIES
Borrowings due within one year.................................... $ 3,915 $ 77
Obligation to Cooper Industries................................... -- 20,561
Accounts payable.................................................. 34,729 27,650
Accrued liabilities and other..................................... 55,853 60,151
-------- --------
Total current liabilities...................................... 94,497 108,439
-------- --------
Restructuring, integration, disposal and environmental............ 19,648 26,201
Long-term debt.................................................... 90,308 90,385
Pension liability................................................. 9,589 14,462
Deferred income taxes and other................................... 21,699 30,929
Postretirement benefits........................................... 52,468 51,848
-------- --------
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 and 36,902,720
shares at June 3, 1995 and May 28, 1994....................... 37,053 36,903
Capital in excess of par value.................................... 40,118 43,884
Retained earnings................................................. 39,700 38,661
Equity adjustments................................................ 63 (5,408)
Treasury stock, 2,044,178 shares at June 3, 1995 and 2,354,540
shares at May 28, 1994......................................... (36,079) (41,557)
-------- --------
Total stockholders' equity..................................... 80,855 72,483
-------- --------
Total liabilities and stockholders' equity..................... $369,064 $394,747
======== ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these financial statements.
F-3
<PAGE> 81
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED FIVE MONTHS YEAR ENDED
---------------------- ENDED DECEMBER 31,
JUNE 3, MAY 28, MAY 28, -------------------
1995 1994 1994 1993 1992
-------- ----------- ----------- -------- --------
(UNAUDITED)
(000'S OMITTED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................................... $ 1,039 $(72,403) $(61,370) $(60,004) $ 21,795
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization....................... 18,122 15,888 6,782 15,569 15,875
Loss from disposal of production facilities......... -- 2,453 -- 2,453 --
Environmental and other charges (credits)........... (2,100) 32,550 32,550 -- --
Losses of equity investment......................... 1,390 -- -- -- --
Cumulative effect of changes in accounting
principles........................................ -- -- -- 43,000 --
Changes in assets and liabilities net of purchase
price activity:
Accounts receivable................................. (2,200) 9,545 3,228 15,139 14,699
Inventories......................................... (13,076) 16,219 4,215 8,474 16,345
Prepaid expenses and other assets................... 11,542 5,078 2,255 (7,114) 986
Accrued restructuring, integration, disposal and
environmental..................................... (14,646) (8,224) (1,352) (9,653) (25,735)
Income and other taxes.............................. 628 (623) 585 (940) 2,789
Accounts payable and accrued liabilities............ 7,073 5,515 6,429 311 (15,951)
Deferred income taxes............................... -- 1,009 1,009 (58) --
-------- -------- -------- -------- --------
Net cash provided (used) by operating
activities...................................... 7,772 7,007 (5,669) 7,177 30,803
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Investment in acquired subsidiaries................. (3,591) (3,450) (3,450) -- (3,700)
Capital expenditures................................ (18,714) (11,888) (2,404) (13,866) (11,156)
Deferred program costs.............................. -- 16,408 16,063 (22) (2,086)
Proceeds from disposal of production
facilities........................................ -- 4,345 -- 4,345 451
Proceeds from sale of fixed assets.................. 1,563 62 -- 393 2,282
Other, net.......................................... (415) 4,071 2,137 1,650 742
-------- -------- -------- -------- --------
Net cash provided (used) by investing
activities...................................... (21,157) 9,548 12,346 (7,500) (13,467)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Cash received from Cooper Industries for factored
accounts receivable............................... -- 20,561 20,561 -- --
Cash paid to Cooper Industries for factored accounts
receivable........................................ (20,561) -- -- -- --
Payment of debt..................................... (77) (77) (77) (70,077) (22,077)
Issuance of debt.................................... 3,838 -- -- 84,680 --
Net proceeds from issuance of common stock.......... 1,862 572 201 537 220
-------- -------- -------- -------- --------
Net cash provided (used) by financing
activities...................................... (14,938) 21,056 20,685 15,140 (21,857)
-------- -------- -------- -------- --------
Increase (decrease) in cash........................... (28,323) 37,611 27,362 14,817 (4,521)
Cash, beginning of period............................. 42,179 4,568 14,817 -- 4,521
-------- -------- -------- -------- --------
Cash, end of period................................... $ 13,856 $ 42,179 $ 42,179 $ 14,817 $ --
======== ======== ======== ======== ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these financial statements.
F-4
<PAGE> 82
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
COMMON STOCK CAPITAL
---------------- IN EXCESS
SHARES PAR OF PAR RETAINED EQUITY TREASURY
ISSUED VALUE VALUE EARNINGS ADJUSTMENTS STOCK
------ ------- --------- -------- ----------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991....... 20,403 $20,403 $16,616 $138,240 $(1,788) $(45,383)
Net income..................... 21,795
Stock plans.................... (567) 735
Pension equity adjustment...... (535)
------ ------- ------- -------- ------- --------
Balance, December 31, 1992....... 20,403 20,403 16,049 160,035 (2,323) (44,648)
Net loss....................... (60,004)
Stock plans.................... (984) 1,250
Savings/Investment Plan
match....................... (769) 1,040
Pension equity adjustment...... (1,700)
------ ------- ------- -------- ------- --------
Balance, December 31, 1993....... 20,403 20,403 14,296 100,031 (4,023) (42,358)
Net loss....................... (61,370)
Stock plans.................... (429) 546
Savings/Investment Plan
match....................... (171) 255
Pension equity adjustment...... (1,385)
Issuance of common stock....... 16,500 16,500 30,188
------ ------- ------- -------- ------- --------
Balance, May 28, 1994............ 36,903 36,903 43,884 38,661 (5,408) (41,557)
Net income..................... 1,039
Stock plans.................... 150 150 (2,354) 3,355
Savings/Investment Plan
match....................... (1,412) 2,123
Pension equity adjustment...... 3,952
Currency translation........... 1,519
------ ------- ------- -------- ------- --------
Balance, June 3, 1995............ 37,053 $37,053 $40,118 $ 39,700 $ 63 $(36,079)
====== ======= ======= ======== ======= ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these financial statements.
F-5
<PAGE> 83
WYMAN-GORDON COMPANY AND SUBSIDIARIES
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.
On May 24, 1994, the company's Board of Directors voted to change the
company's fiscal year end from one which ended on December 31 to one which ends
on the Saturday nearest to May 31.
On May 26, 1994, the Company acquired Cameron Forged Products Company
("Cameron") from Cooper Industries. The accompanying consolidated financial
statements include the accounts of Cameron from the date of the acquisition.
Cameron's operating results from May 26, 1994 to May 28, 1994 are not material
to the consolidated statement of operations for the five month period ended May
28, 1994. The unaudited statement of operations and cash flows for the year
ended May 28, 1994 are presented for comparative purposes only.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the company and all subsidiaries. All intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION: Sales and income are recognized at the time products are
shipped.
RECLASSIFICATIONS: Where appropriate, prior year amounts have been reclassified
to permit comparison.
CASH AND CASH EQUIVALENTS: Cash equivalents include short-term investments with
maturities of less than three months at the time of investment.
INVENTORIES: Inventories are valued at both the lower of first-in, first-out
(FIFO) cost or market, or for certain forgings and castings 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 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. As part of the company's acquisition of Cameron on
May 26, 1994, loss reserves on backlog and long-term pricing agreements are
included on the balance sheet (see Footnote C).
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 revenue and
depreciated over 5 years.
BANK FEES: Bank fees and related costs of obtaining credit facilities are
recorded as other assets and amortized over the term of the facilities.
EARNINGS (LOSS) PER SHARE: Per-share data are computed based on the weighted
average number of common shares outstanding during each year. Common stock
equivalents related to outstanding stock options are included in per-share
computations unless their inclusion would be antidilutive.
F-6
<PAGE> 84
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 550 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 50.0%
of the company's revenues during the year ended June 3, 1995, 50.6% for the five
months ended May 28, 1994, 55.6% for the year ended December 31, 1993 and 52.7%
for the year ended December 31, 1992. General Electric Company ("GE") and United
Technologies Corporation ("UT") each accounted for more than 10% of the
company's revenues as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED MAY YEAR ENDED DECEMBER 31,
JUNE 3, 28, ----------------------------------
1995 % 1994 % 1993 % 1992 %
---------- --- ----------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
($000'S OMITTED)
GE........................... $ 101,261 26 $ 17,226 20 $ 55,585 23 $ 62,740 21
UT........................... 58,873 15 13,930 16 37,060 16 48,920 17
</TABLE>
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 operations items are translated at the average exchange
rates for the year. Translation adjustments are reported in equity adjustments
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 $2,213,000, $733,000, $2,778,000 and $3,013,000 for
the year ended June 3, 1995, five months ended May 28, 1994 and for the years
ended December 31, 1993 and 1992, respectively.
INTANGIBLE ASSETS: Intangible assets consists primarily of costs of acquired
businesses in excess of net assets acquired and are amortized on a straightline
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.
F-7
<PAGE> 85
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. ACQUISITION
On May 26, 1994, the company acquired all of the outstanding stock of
Cameron from Cooper Industries Inc. for 16,500,000 shares of the company's
common stock valued at $46,687,000, direct costs of $3,050,000, a note payable
to Cooper Industries, Inc. of $3,186,000 net of discount of $1,414,000, $400,000
in cash at closing and a final cash settlement of $3,591,000. Cameron and its
subsidiaries operate forging facilities in Houston, Texas and Livingston,
Scotland, as well as a powder metal operation in Brighton, Michigan. The
integration of Cameron's operations with the company's is progressing
substantially as planned. The acquisition was accounted for as a purchase
transaction. The company's results of operations for fiscal 1995 include the
accounts of Cameron. The final allocation of the purchase price of this
transaction is reflected in the May 28, 1994 balance sheet as follows:
<TABLE>
<CAPTION>
(000'S OMITTED)
<S> <C>
Cost of acquisition:
Issuance of 16,500 shares of common stock to Cooper, direct expenses of
$3,050 and $3,591 final price adjustment................................ $53,328
Note payable to Cooper net of discount of $1,414 (included in other
long-term liabilities on the balance sheet)............................. 3,186
Cash paid to Cooper at closing............................................. 400
-------
56,914
Estimated costs to integrate Cameron into the company........................ 6,993
-------
$63,907
=======
Allocation of cost of acquisition:
Fair value of property, plant and equipment................................ $81,183
Less excess of fair value of net assets acquired over purchase price....... (30,712)
-------
50,471
Other assets acquired and liabilities assumed.............................. 13,436
-------
$63,907
=======
</TABLE>
The allocation of the cost of the acquisition has been made on the basis of
the fair market value of the individual assets and liabilities acquired. Direct
costs of the acquisition of Cameron and liabilities assumed are $5,200,000 and
$900,000, respectively, lower than originally estimated at May 28, 1994.
The Unaudited Pro Forma Combined financial data of the company with Cameron
as though Cameron had been acquired as of the beginning of each period presented
are as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
MAY 28, DECEMBER 31,
1994 1993
----------- ------------
(000'S OMITTED,
EXCEPT PER-SHARE DATA)
<S> <C> <C>
Revenue....................................................... $151,834 $389,295
======== ========
Income (loss) before cumulative effect of changes in
accounting principles....................................... $(71,525) $(39,271)
======== ========
Net income (loss)............................................. $(71,525) $(82,271)
======== ========
Income (loss) per share before cumulative effect of changes in
accounting principles....................................... $ (2.07) $ (1.14)
======== ========
Net income (loss) per share................................... $ (2.07) $ (2.38)
======== ========
</TABLE>
F-8
<PAGE> 86
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. BALANCE SHEET INFORMATION
Components of selected captions in the consolidated balance sheets follow:
<TABLE>
<CAPTION>
JUNE 3, MAY 28,
1995 1994
--------- ---------
(000'S OMITTED)
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements.................................... $100,399 $ 92,150
Machinery and equipment............................................. 278,691 272,429
Under construction.................................................. 6,282 4,722
-------- --------
385,372 369,301
Less accumulated depreciation....................................... 243,975 229,612
-------- --------
$141,397 $139,689
======== ========
INTANGIBLE ASSETS:
Pension intangible.................................................. $ 5,568 $ 6,527
Costs in excess of net assets acquired.............................. 28,786 29,586
Less: Accumulated amortization...................................... (9,059) (8,354)
-------- --------
$ 25,295 $ 27,759
======== ========
OTHER ASSETS:
Cash surrender value of company-owned life insurance policies....... $ 7,974 $ 12,341
Other............................................................... 6,839 14,831
-------- --------
$ 14,813 $ 27,172
======== ========
ACCRUED LIABILITIES AND OTHER:
Accrued payroll and benefits........................................ $ 11,511 $ 9,900
Restructuring, integration, disposal and environmental reserves..... 10,219 19,082
Payroll and other taxes............................................. 3,139 2,511
Loss on long-term contracts......................................... 7,407 8,334
Other............................................................... 23,577 20,324
-------- --------
$ 55,853 $ 60,151
======== ========
DEFERRED INCOME TAXES AND OTHER:
Deferred income taxes............................................... $ 2,623 $ 2,623
Loss on long-term contracts......................................... 3,413 12,000
Other long-term liabilities......................................... 15,663 16,306
-------- --------
$ 21,699 $ 30,929
======== ========
</TABLE>
F-9
<PAGE> 87
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
D. INVENTORIES
Inventories consisted of the following:
<CAPTION>
JUNE 3, MAY 28,
1995 1994
-------- --------
(000'S OMITTED)
<S> <C> <C>
Raw material........................................................ $ 26,440 $ 13,706
Work-in-process..................................................... 54,310 54,570
Other............................................................... 3,228 2,286
83,978 70,562
Less progress payments.............................................. 5,165 4,825
$ 78,813 $ 65,737
</TABLE>
If all inventories valued at LIFO cost had been valued at FIFO cost or
market which approximates current replacement cost, inventories would have been
$21,584,000 and $27,758,000 higher than reported at June 3, 1995 and May 28,
1994, respectively.
LIFO inventory quantities were reduced in each of the periods presented
below, resulting in the liquidation of LIFO inventories carried at the lower
costs prevailing in prior years compared with the cost of current purchases
which has a favorable effect on income from operations. Inflation and deflation
have negative and positive effects on income from operations, respectively. The
effects of lower quantities, inflation or deflation were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
YEAR ENDED FIVE MONTHS 31,
JUNE 3, ENDED MAY ---------------------
1995 28, 1994 1993 1992
---------- ----------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Lower quantities.......................... $ 7,567 $2,050 $5,469 $18,388
(Inflation) deflation..................... (1,393) 1,085 4,450 2,448
------- ------ ------ -------
Net increase to income from operations.... $ 6,174 $3,135 $9,919 $20,836
======= ====== ====== =======
</TABLE>
E. SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 3, MAY 28,
1995 1994
-------- --------
(000'S OMITTED)
<S> <C> <C>
Borrowings due within one year:
Current portion of long-term debt................................. $ 77 $ 77
Borrowings under U.K. Credit Agreement............................ 3,838 --
------- -------
Total borrowings due within one year........................... $ 3,915 $ 77
======= =======
Long-term debt:
Senior Notes...................................................... $90,000 $90,000
Other............................................................. 308 385
------- -------
Total long-term debt........................................... $90,308 $90,385
======= =======
</TABLE>
F-10
<PAGE> 88
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1993, the company issued $90,000,000 of 10 3/4% Senior Notes due
March 2003 (the "Senior Notes") under an indenture between the company and a
bank as trustee. The Senior Notes pay interest semi-annually. The Senior Notes
are general unsecured obligations of the company, are non-callable for a five
year period, and are senior to any future subordinated indebtedness of the
company. The indenture contains certain covenants including limitations on
indebtedness, restrictive payments including dividends, liens, and disposition
of assets.
The estimated fair value of the Senior Notes was $86,400,000 and
$88,200,000 at June 3, 1995 and May 28, 1994 based on third party valuations.
On May 20, 1994, the company initiated, through a new 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 subfacility of up to $35,000,000.
There were no borrowings outstanding at June 3, 1995 and May 28, 1994, but
the company had issued $10,009,000 and $5,139,000 of letters of credit under the
Receivables Financing Program, respectively. As of June 3, 1995 and May 28,
1994, total availability based on eligible receivables was $44,816,000 and
$15,418,000, respectively. Cameron's accounts receivable became eligible on
October 21, 1994.
Wyman-Gordon Limited, the company's subsidiary located in Livingston,
Scotland, entered into a credit agreement ("U.K. Credit Agreement") with a bank
("the Bank") effective November 28, 1994. The maximum borrowing capacity under
the U.K. Credit Agreement is 3,000,000 pound sterling with a separate letter of
credit or guarantee limit of 1,000,000 pound sterling. Borrowings bear interest
at 1% over the Bank'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 2% over the Bank's base rate. The
company is obligated to pay a commitment fee of .75% on letters of credit issued
under the U.K. Credit Agreement. The U.K. Credit Agreement is secured by a
debenture from Wyman-Gordon Limited and is senior to any intercompany loans. The
term of the U.K. Credit Agreement is one year with an evergreen feature. There
were 2,415,000 pound sterling or $3,838,000 borrowings outstanding at June 3,
1995 and the company had issued pound sterling 380,000 or $604,000 of letters of
credit or guarantees under the U.K. Credit Agreement.
For the year ended June 3, 1995, the weighted average interest rate on
short-term borrowings was 7.3%.
F-11
<PAGE> 89
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Annual maturities of long-term debt in the next five years amount to
$77,000 per year and $90,000,000 thereafter. The company's promissory note to
Cooper Industries, Inc. in the principal amount of $4,600,000, will be payable
in annual installments beginning on June 30, 1997 and each June 30 thereafter
until paid in full in amounts provided under the terms of the "Stock Purchase
Agreement" with Cooper Industries, Inc.
<CAPTION>
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER 31,
JUNE 3, MAY 28, ---------------------
1995 1994 1993 1992
---------- ----------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Interest on debt.......................... $ 9,929 $3,973 $ 8,741 $5,171
Capitalized interest...................... (397) (152) (544) (218)
Amortization of financing fees and
other................................... 1,495 1,562 2,626 2,568
------- ------ ------- ------
Interest expense.......................... $11,027 $5,383 $10,823 $7,521
======= ====== ======= ======
</TABLE>
Total interest paid approximates "Interest on debt" stated in the table
above.
F. RESTRUCTURING OF OPERATIONS
1991 RESTRUCTURING:
During 1991, the company incurred charges of $87,966,000 and $11,498,000 in
connection with a restructuring program primarily at its forging operations and
disposition of its automotive crankshaft forging division, respectively.
A significant portion of this charge related to the consolidation of
forging operations, including severance and other personnel costs. The company
has nearly completed its 1991 restructuring plan. Some consolidation activities
still remain to be completed requiring cash outlays of approximately $1,700,000
and $600,000 in fiscal 1996 and 1997, respectively. Deferred compensation of
approximately $1,500,000 will be payable over the next several years under the
terms of a severance agreement. The divestiture of the company's automotive
crankshaft forging division is virtually complete with minor costs remaining.
1993 DISPOSITION:
In 1993, the company sold substantially all of the net assets and business
operations of Wyman-Gordon Composites, Inc. and recorded a non-cash charge on
the sale in the fourth quarter of 1993 of $2,453,000.
1994 RESTRUCTURING:
The company recorded a charge of $6,450,000 in May 1994, $5,200,000 for
closing a castings facility, of which $1,100,000 required cash, and $1,250,000
to write-down castings fixed assets to their net realizable value. The non-cash
items amounting to $5,350,000 were charged against the reserve in May 1994. A
$600,000 cash charge was made against the reserve in fiscal 1995 and cash
charges of $500,000 are expected to be incurred in fiscal 1996.
1994 CAMERON INTEGRATION COSTS:
Based on the company's plans for the integration of Cameron, in May 1994,
the company recorded an integration restructuring charge totalling $24,100,000
which consisted of estimated cash costs of
F-12
<PAGE> 90
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$12,700,000 and estimated non-cash charges of $11,400,000 for asset
revaluations. Cash costs include relocating machinery, equipment, tooling and
dies of the company as well as relocation and severance costs related to
personnel of the company. Non-cash charges included the write-down of certain
assets of the company, including portions of metal production facilities and
certain forging, machining and testing equipment to net realizable value as a
result of consolidating certain systems and facilities, idling certain machinery
and equipment, and eliminating certain processes, departments and operations as
a result of the acquisition.
In the fourth quarter of fiscal 1995, after a year of evaluating the
combined forgings operations and concluding that most of its integration
activities had been completed or were adequately provided for within the
remaining integration restructuring reserves, the company determined that
severance and other personnel costs were $1,900,000 lower and movement of
machinery, equipment and tooling and dies costs were $2,500,000 lower than
originally estimated. Additionally, the company had originally identified
certain machinery and equipment expected to become redundant as a result of the
integration of Cameron's operations with those of the company's. These
redundancies were $2,300,000 higher than the company's original estimates. As a
result, the company took into income from operations, an integration
restructuring credit in the amount of $2,100,000. At June 3, 1995, the company
estimates the remaining integration activities will require cash outlays of
approximately $4,100,000 in fiscal 1996 and $1,600,000 thereafter. Most of these
future expenditures represent costs associated with consolidation and
reconfiguration of production facilities and relocation or severance costs.
CAMERON PURCHASE CASH COSTS:
Included as part of the Cameron purchase price allocation the company
recorded $12,200,000 for direct cash costs related to the acquisition and
integration of Cameron for relocation of Cameron machinery and dies, severance
of Cameron personnel and other costs. At June 3, 1995, it was determined that
the cash costs of the acquisition were $5,200,000 lower than originally
estimated. The company made $4,100,000 of cash charges against these reserves in
fiscal 1995, and the remaining activities will require estimated cash outlays of
$2,900,000.
F-13
<PAGE> 91
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
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:
<CAPTION>
FIVE
YEAR ENDED MONTHS YEAR ENDED
DECEMBER 31, ENDED -----------------
------------------------------ MAY 28, JUNE 3, JUNE 1, THERE-
TOTAL 1991 1992 1993 1994 1995 1996 AFTER
------- -------- -------- -------- ------- ------- ------- ------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 RESTRUCTURING:
CASH:
Consolidation and reconfiguration of
facilities................................... $32,600 $ 700 $21,100 $4,800 $ 1,400 $ 2,300 $1,700 $ 600
Severance and deferred compensation............ 6,400 -- 2,200 2,000 300 400 200 1,300
------- ------- ------- ------ ------- ------- ------ ------
Total cash charges........................... 39,000 700 23,300 6,800 1,700 2,700 1,900 1,900
------- ------- ------- ------ ------ ------- ------ ------
NON-CASH:
Asset revaluation.............................. 56,000 51,900 2,400 $1,700 $ -- $ -- $ -- $ --
------- ------- ------- ------ ------- ------- ------ ------
Total 1991 Other Charges..................... $95,000 $52,600 $25,700 $8,500 $ 1,700 $ -- $1,900 $1,900
======= ======= ======= ====== ======= ======= ====== ======
1993 DISPOSITION:
NON-CASH:
Disposition of production facilities........... $ 2,453 $ -- $ -- $2,453 $ -- $ -- $ -- $ --
------- ------- ------- ------ ------- ------- ------ ------
Total 1993 Other Charges..................... $ 2,453 $ -- $ -- $2,453 $ -- $ -- $ -- $ --
======= ======= ======= ====== ======= ======= ====== =======
1994 RESTRUCTURING:
CASH:
Casting facility closure....................... $ 1,100 $ -- -- $ -- $ -- $ 600 $ 500 $ --
------- ------- ------- ------ ------- ------- ------ ------
NON-CASH:
Casting facility closure....................... 4,100 -- -- -- 4,100 -- -- --
Other.......................................... 1,250 -- -- -- 1,250 -- -- --
------- ------- ------- ------ ------- ------- ------ ------
Total non-cash charges....................... 5,350 -- -- -- 5,350 -- -- --
------- ------- ------- ------ ------- ------- ------ ------
Total 1994 Restructuring..................... 6,450 -- -- -- 5,350 600 500 --
1994 CAMERON INTEGRATION COSTS:
CASH:
Movement of machinery, equipment and tooling
and dies..................................... 4,300 -- -- -- -- 800 2,100 1,400
Severance and other personnel costs............ 4,000 -- -- -- -- 1,800 2,000 200
------- ------- ------- ------ ------- ------- ------ ------
Total cash charges........................... 8,300 -- -- -- -- 2,600 4,100 1,600
------- ------- ------- ------ ------- ------- ------ ------
NON-CASH:
Asset revaluation.............................. 13,700 -- -- -- 11,400 2,300 -- --
Credits to reserves............................ 2,100 -- -- -- -- 2,100 -- --
------- ------- ------- ------ ------- ------- ------ ------
Total non-cash charges....................... 15,800 -- -- -- 11,400 4,400 -- --
------- ------- ------- ------ ------- ------- ------ ------
Total 1994 Cameron integration costs......... 24,100 -- -- -- 11,400 7,000 4,100 1,600
------- ------- ------- ------ ------- ------- ------ ------
Total 1994 Other Charges..................... $30,550 $ -- $ -- $ -- $16,750 $ 7,600 $4,600 $1,600
======= ======= ======= ====== ======= ======= ====== ======
CAMERON PURCHASE CASH COSTS:
Cost of relocating Cameron's machinery and
equipment and tooling and dies............... $ 3,200 $ -- $ -- $ -- $ -- $ 1,700 $1,100 $ 400
Severance of Cameron personnel................. 3,800 -- -- -- -- 2,400 1,300 100
------- ------- ------- ------ ------- ------- ------ ------
Total Cameron Purchase Cash Costs............ $ 7,000 $ -- $ -- $ -- $ -- $ 4,100 $2,400 $ 500
======= ======= ======= ====== ======= ======= ====== ======
1995 OTHER CHARGES:
NON-CASH:
Credits to 1994 Cameron integration costs...... $(2,100) $ -- $ -- $ -- $ -- $(2,100) $ -- $ --
------- ------- ------- ------ ------- ------- ------ ------
Total 1995 Other Charges..................... $(2,100) $ -- $ -- $ -- $ -- $(2,100) $ -- $ --
------- ------- ------- ------ ------- ------- ------ ------
Total Cash..................................... $55,400 $ 700 $23,300 $6,800 $ 1,700 $10,000 $8,900 $4,000
------- ------- ------- ------ ------- ------- ------ ------
Total Non-cash................................. $77,503 $51,900 $ 2,400 $4,153 $16,750 $ 2,300 $ -- $ --
======= ======= ======= ====== ======= ======= ====== ======
</TABLE>
F-14
<PAGE> 92
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. ENVIRONMENTAL MATTERS
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. 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. In 1991, the
company recorded a charge of $7,000,000 with respect to environmental
investigation and remediation costs at one of the company's facilities. During
the five months ended May 28, 1994, the company provided an additional
$2,000,000 to the current estimated cost of remediation and established a
$3,500,000 purchase accounting reserve related to environmental issues at
Cameron. Additionally, a charge of $5,000,000 against potential environmental
remediation costs upon the eventual sale of another facility was included in the
1991 restructuring charge. As of June 3, 1995, aggregate environmental reserves
amounted to $16,967,000 and have been provided for expected cleanup expenses
estimated between $6,000,000 and $7,000,000 upon the planned sale of a facility,
certain environmental issues at Cameron amounting to approximately $3,500,000
and the exposures noted in the following paragraphs, which include certain
capitalizable amounts for environmental management and remediation projects.
Pursuant to an agreement entered into with the U.S. Air Force upon the
acquisition of a facility from the federal government in 1982, the company
agreed to make additional expenditures for environmental management and
remediation projects at that site during the period 1982 through 1999.
Approximately $6,100,000 of future expenditures remain as of June 3, 1995. The
company, together with numerous other parties, has also been alleged to be a
potentially responsible party at four federal or state Superfund sites. The
company does not believe that liabilities related to such sites will be material
in the aggregate.
The company's Grafton, Massachusetts plant location is included in the U.S.
Nuclear Regulatory Commission's ("NRC") May 1992 Site Decommissioning Management
Plan for low-level radioactive waste as a "Priority C" (lowest priority) site.
The NRC conducted a long range dose assessment in 1992, and concluded that the
site should be remediated. However, the company believes the NRC's draft
assessment was flawed and has challenged that draft assessment. The company has
provided $1,500,000 for the estimated cost of the remediation. The company
believes that it may have meritorious claims for reimbursement from the U.S. Air
Force in respect of any liabilities it may have for such remediation.
The company has been named in a suit which relates to the clean-up of a
privately owned site in Massachusetts formerly used as an impoundment lagoon
from which hazardous material is alleged to have spilled. A proposed agreement
would allocate 33% of the clean-up costs to the company. An insurance company is
defending the company's interests, and the company believes that any recovery
against the company would be covered by insurance. A consulting firm retained by
the PRP group has recently made a preliminary remediation cost estimate of
$300,000 to $9,900,000, depending on the level of toxicity found and the method
of remediation ultimately used.
H. BENEFIT PLANS
The company and its subsidiaries have pension plans covering substantially
all employees. Benefits are generally based on years of service and a fixed
monthly rate or average earnings during the last years of employment. Pension
plan assets are invested in equity and fixed income securities, pooled funds
including real estate funds and annuities. Company contributions are determined
based upon the funding requirements of U.S. and other governmental laws and
regulations.
F-15
<PAGE> 93
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation between the amounts recorded on the consolidated balance
sheets and the summary tables of the funding status of the pension plans are as
follows:
<TABLE>
<CAPTION>
JUNE 3, MAY 28,
1995 1994
--------- ---------
(000'S OMITTED)
<S> <C> <C>
Pension liability per balance sheet................................. $(9,589) $(14,462)
Prepaid pension expense included in prepaid expenses in the balance
sheet............................................................. 1,639 2,769
UK pension liability................................................ 789 750
------- --------
Net pension liability............................................... $(7,161) $(10,943)
======= ========
</TABLE>
U.S. PENSION PLANS
Pension expense for the U.S. pension plans included the following
components:
<TABLE>
<CAPTION>
YEAR ENDED
FIVE MONTHS DECEMBER 31,
YEAR ENDED ENDED ---------------------
JUNE 3, 1995 MAY 28, 1994 1993 1992
---------- ------------ -------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Service cost.............................. $ 2,938 $ 917 $ 1,720 $ 1,937
Interest cost on projected benefit
obligation.............................. 10,842 4,373 10,955 11,083
Actual return on assets................... (8,205) (2,248) (18,107) (6,849)
Net amortization and deferral of actuarial
gains (losses).......................... (1,385) (1,798) 8,208 (3,403)
-------- ------- -------- -------
Net pension expense....................... $ 4,190 $ 1,244 $ 2,776 $ 2,768
======== ======= ======== =======
Assumed long-term rate of return on plan
assets.................................. 9.0% 9.0% 9.0% 9.0%
======== ======= ======== =======
</TABLE>
F-16
<PAGE> 94
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the funding status of the U.S. pension plans and a
reconciliation to the amounts recorded in the consolidated balance sheets are as
follows:
<CAPTION>
JUNE 3, 1995
-----------------------------------------
ASSETS ACCUMULATED
EXCEEDING BENEFITS
ACCUMULATED EXCEEDING
BENEFITS ASSETS TOTAL
----------- ----------- ---------
(000'S OMITTED)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested......................................... $ 82,042 $ 46,202 $128,244
Nonvested...................................... 349 324 673
------- ------- --------
Accumulated benefit obligation................. 82,391 46,526 128,917
Impact of forecasted salary increases during
future periods.............................. 5,737 339 6,076
------- ------- --------
Projected benefit obligation for employee
service to date............................. 88,128 46,865 134,993
Current fair market value of plan assets......... 101,933 30,967 132,900
------- ------- --------
Excess (shortfall) of plan assets over (under)
projected benefit obligation................... 13,805 (15,898) (2,093)
Unrecognized net (gain) loss..................... (10,261) 1,771 (8,490)
Unrecognized net (asset) obligation at
transition..................................... (455) 4,912 4,457
Unrecognized prior service cost.................. 5,290 2,456 7,746
Adjustment required to recognize minimum
liability...................................... -- (8,800) (8,800)
Net periodic pension cost April 1, 1995 to June
3, 1995........................................ (48) (650) (698)
Contributions April 1, 1995 to June 3, 1995...... -- 717 717
-------- -------- --------
Net prepaid pension expense (pension
liability)..................................... $ 8,331 $(15,492) $ (7,161)
======== ======== ========
Estimated annual increase in future salaries..... 3-5%
Weighted average discount rate................... 9.0%
--------
</TABLE>
F-17
<PAGE> 95
<TABLE>
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<CAPTION>
MAY 28, 1994
-----------------------------------------
ASSETS ACCUMULATED
EXCEEDING BENEFITS
ACCUMULATED EXCEEDING
BENEFITS ASSETS TOTAL
----------- ----------- ---------
(000'S OMITTED)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested......................................... $ 91,533 $ 50,639 $142,172
Nonvested...................................... 341 398 739
-------- -------- --------
Accumulated benefit obligation................. 91,874 51,037 142,911
Impact of forecasted salary increases during
future periods.............................. 6,798 235 7,033
-------- -------- --------
Projected benefit obligation for employee
service to date............................. 98,672 51,272 149,944
Current fair market value of plan assets......... 103,349 31,390 134,739
-------- -------- --------
Excess (shortfall) of plan assets over (under)
projected benefit obligation................... 4,677 (19,882) (15,205)
Unrecognized net (gain) loss..................... (1,274) 5,121 3,847
Unrecognized net (asset) obligation at
transition..................................... (522) 5,965 5,443
Unrecognized prior service cost.................. 5,706 2,860 8,566
Adjustment required to recognize minimum
liability...................................... -- (13,712) (13,712)
Net periodic pension cost April 1, 1994 to May
28, 1994....................................... 34 (507) (473)
Contributions April 1, 1994 to May 28, 1994...... -- 591 591
-------- -------- --------
Net prepaid pension expense (pension
liability)..................................... $ 8,621 $(19,564) $(10,943)
======== ======== ========
Estimated annual increase in future salaries..... 3-5%
Weighted average discount rate................... 7.5%
--------
</TABLE>
A measurement date of March 31 has been used for determining the disclosure
information. Expense recognition and contributions received during the period
April 1 through fiscal year-end are then recognized to bring the accrued or
prepaid expense to June 3, 1995 and May 28, 1994 balances.
<TABLE>
U.K. PENSION PLAN
Pension expense for the U.K. pension plan included the following:
<CAPTION>
YEAR ENDED
JUNE 3, 1995
---------------
(000'S OMITTED)
<S> <C>
Service cost.............................................. $ 692
Interest cost............................................. 1,189
Expected return on assets................................. (1,084)
-------
Net pension expense..................................... $ 797
=======
</TABLE>
F-18
<PAGE> 96
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
The U.K. pension plan's assets and liabilities were rolled over from the
former Cameron plan during fiscal 1995. The funded status of the U.K. pension
plan is as follows:
<CAPTION>
JUNE 3, 1995
---------------
(000'S OMITTED)
<S> <C>
Fair value of plan assets................................. $14,682
Projected benefit obligation.............................. 15,247
-------
Plan assets less than projected benefit obligation........ (565)
Unrecognized net gain loss................................ 498
-------
Accrued pension cost...................................... $ (67)
=======
Accumulated benefits...................................... $13,472
=======
Vested benefits........................................... $13,472
=======
Assumed long-term rate of return on plan assets........... 9.0%
Weighted average discount rate............................ 9.0%
Rate of salary increase................................... 6.0%
</TABLE>
The company also maintains a 401K plan for most full-time salaried
employees. Employer contributions to the defined contribution plan are made at
the company's discretion and are reviewed periodically. Such contributions
amounted to $136,000 for the year ended June 3, 1995, $591,000 for the five
months ended May 28, 1994, and $134,000 and $375,000 for the years ended
December 31, 1993 and 1992, respectively. Additionally, for the year ended June
3, 1995, the five months ended May 28, 1994 and the years ended December 31,
1993 and 1992, the company contributed 120,261; 14,432; 58,927 and 0 shares of
common stock from Treasury to its defined contribution plan, respectively, and
recorded expense relating thereto of $711,000, $84,000, $271,000 and $0,
respectively.
I. OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the company and its subsidiaries
provide most retired employees with health care and life insurance benefits. The
majority of these health care and life insurance benefits are provided through
insurance companies, some of whose premiums are computed on a cost plus basis.
The annual cost of these benefits on the expense-as-incurred basis amounted to
$4,849,000 in 1992.
Effective January 1, 1993, the company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This standard
requires companies to accrue postretirement benefits during the years the
employees are working and earning benefits for retirement, as contrasted to the
expense-as-incurred basis that the company followed in 1992 and prior years. The
company elected to recognize the cumulative effect of the accounting change,
resulting in a non-cash reduction in earnings in 1993 of $43,000,000 or $2.39
per share.
Most of the Forgings Division and Corporate retirees and full-time
employees are or become eligible for these postretirement health care and life
insurance benefits if they meet minimum age and service requirements. There are
certain retirees for which company cost and liability are affected by future
increases in health care cost. The liabilities have been developed assuming a
medical trend rate for growth in future health care claim levels from the
assumed 1994 level. The change to the accumulated postretirement benefit
obligation for each 1.0% change in these assumptions is $850,000. The change in
the annual SFAS 106 expense for each 1.0% change in these assumptions is
$78,000. The weighted average discount rate used in determining the amortization
of the accumulated postretirement benefit
F-19
<PAGE> 97
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
obligation was 9.0% and 7.5% at June 3, 1995 and May 28, 1994, respectively, and
the average remaining service life was 20 years.
<TABLE>
Net periodic benefit expense consists of the following components:
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 3, MAY 28, DECEMBER 31,
1995 1994 1993
---------- ----------- ------------
(000'S OMITTED)
<S> <C> <C> <C>
Service cost.................................... $ 350 $ 85 $ 170
Interest on the accumulated benefit
obligation.................................... 3,990 1,540 3,660
------ ------- ------
Total postretirement benefit expense.......... $4,340 $1,625 $3,830
====== ====== ======
</TABLE>
<TABLE>
The company has no plans for funding the liability and will continue to pay
for retiree medical costs as they occur. The components of the accumulated
postretirement benefit obligation are as follows:
<CAPTION>
JUNE 3, MAY 28,
1995 1994
-------- --------
(000'S OMITTED)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................ $41,323 $43,285
Fully eligible active plan participants............................. 5,180 5,239
Other active plan participants...................................... 7,023 6,778
------- -------
53,526 55,302
Plan assets at fair value............................................. -- --
------- -------
Accumulated postretirement benefit obligation in excess of plan
assets.............................................................. 53,526 55,302
Unrecognized net gain (loss) from past experience different from that
assumed and from changes in assumptions............................. 901 (3,454)
Prior service cost not yet recognized in net periodic postretirement
benefit cost........................................................ (2,000) --
------- -------
Accrued postretirement benefit cost................................... $52,427 $51,848
======= =======
</TABLE>
J. FEDERAL, FOREIGN AND STATE INCOME TAXES
As of January 1, 1993, the company adopted financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes" ("SFAS 109"). As
permitted under SFAS 109, the company has elected not to restate the financial
statements of prior years. The impact of this change on the results of
operations for the year ended December 31, 1993 was immaterial.
The company has not recognized an income tax benefit (provision) during the
year ended June 3, 1995, the five months ended May 28, 1994, or the years ended
December 31, 1993 and 1992, respectively.
The company received income tax refunds of $0, $138,000, $282,000 and
$3,725,000 during the years ended June 3, 1995, the five months ended May 28,
1994, and the years ended December 31, 1993 and 1992, respectively.
F-20
<PAGE> 98
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
The benefit (provision) for income taxes is at a rate other than the
federal statutory tax rate for the following reasons:
<CAPTION>
YEAR ENDED DECEMBER
YEAR ENDED FIVE MONTHS 31,
JUNE 3, ENDED MAY ---------------------
1995 28, 1994 1993 1992
---------- ----------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C>
U.S. federal statutory tax rate........... $ (363) $ 21,480 $ 5,781 $(7,410)
Recognition of previously unrecognized
deferred tax assets..................... 1,749 -- -- 7,410
Tax carryforwards without current tax
benefits (foreign in 1995 and U.S.
federal in 1994 and 1993)............... (1,386) (21,480) (5,781) --
-------- -------- ------- -------
Income tax benefit (provision)............ $ -- $ -- $ -- $ --
======== ======== ======= =======
</TABLE>
Tax net operating loss carryforwards of $67,000,000 begin expiring in the
year 2006. The company has experienced significant operating losses and there is
no assurance that the net operating loss carryforwards will be utilized,
therefore, a valuation allowance of $67,731,000 and $69,716,000 at June 3, 1995
and May 28, 1994 has been recognized, respectively.
<TABLE>
The principal components of deferred tax assets and liabilities were as
follows:
<CAPTION>
JUNE 3, 1995 MAY 28, 1994
------------ ------------
(000'S OMITTED)
<S> <C> <C>
DEFERRED TAX ASSETS
Provision for postretirement benefits......................... $ 21,512 $ 21,228
Net operating loss carryforwards.............................. 23,585 19,230
Restructuring provisions...................................... 26,602 35,804
Other......................................................... 6,496 5,768
-------- --------
78,195 82,030
Valuation allowance........................................... (67,731) (69,716)
-------- --------
10,464 12,314
-------- --------
DEFERRED TAX LIABILITIES
Accelerated depreciation...................................... 9,393 10,069
Other......................................................... 3,694 4,868
-------- --------
13,087 14,937
-------- --------
Net deferred tax liability...................................... $ 2,623 $ 2,623
======== ========
</TABLE>
The net deferred tax liability is included in "Deferred income taxes and
other" on the accompanying consolidated balance sheets.
The company is seeking refunds of prior year's federal taxes paid, which,
if fully realized, could have a material favorable impact on the company's
financial position. A reasonable estimation of the potential recovery cannot be
made at this time and, accordingly, no adjustment has been made in the financial
statements with respect to the claim.
F-21
<PAGE> 99
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. STOCK OPTION PLANS
The company's Long-Term Incentive Plan (the "Plan") is administered by the
Management Resources and Compensation Committee of the Board (the "Committee"),
which has plenary authority to interpret the Plan and to adopt rules relating
thereto. The Committee may also determine the number, frequency and timing of
awards, as well as the type of award and its exercise price, if any, prescribe
any performance criteria to be met and any restrictions on exercise and
determine any other terms or conditions, including schedules for vesting and
exercisability and the conditions under which vesting and exercisability may be
accelerated, such as in the event of a change in control of the company.
The Committee may grant awards in the form of non-qualified stock options
or incentive stock options to those key employees of the company and its
subsidiaries, including executive officers, it selects to purchase in the
aggregate up to 1,750,000 shares of newly issued or treasury common stock. The
exercise price of non-qualified stock options may not be less than 50% of the
fair market value of such shares on the date of grant or, in the case of
incentive stock options, 100% of the fair market value on the date of grant.
Awards of stock appreciation rights ("SAR's") may also be granted, either in
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 or are
denominated in or payable in shares or that are valued by reference to shares,
including, for example, restricted shares, phantom shares, performance units,
performance bonus awards or other awards payable in cash, shares or a
combination thereof at the Committee's discretion. During fiscal 1995, awards of
150,000 shares of the company's common stock were made subject to restrictions
based upon continued employment for a period of five years and the performance
of the company. Compensation expense totalling $330,000 relating to the awards
was recorded during the year ended June 3, 1995.
The 1975 Executive Long-Term Incentive Program (the "Program"), as amended,
provided for the granting of stock options, alternative common stock
appreciation rights and performance bonus award units to key employees of the
company and its subsidiaries. The 1975 program expired on December 31, 1992,
except as to outstanding grants.
F-22
<PAGE> 100
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Option activity under the 1975 Program and the 1991 Plan in the year ended
June 3, 1995, the five months ended May 28, 1994 and the years ended December
31, 1993 and 1992 was as follows:
<CAPTION>
OPTION
PRICE RANGE SHARES
----------- ---------
<S> <C> <C>
Outstanding at December 31, 1991................................. 3.75-29.00 1,839,246
Granted........................................................ 5.00 321,502
Terminated..................................................... 3.75 (185,001)
Exercised...................................................... 3.75 (16,666)
Cancelled...................................................... 3.75-29.00 (65,895)
---------
Outstanding at December 31, 1992................................. 3.75-29.00 1,893,186
Granted........................................................ 5.00- 6.00 285,500
Terminated..................................................... 3.75-29.00 (372,480)
Exercised...................................................... 3.75 (70,831)
---------
Outstanding at December 31, 1993................................. 1,735,375
Granted........................................................ 5.13- 5.63 88,008
Terminated..................................................... 3.75-19.00 (28,185)
Exercised...................................................... 3.75- 5.00 (30,943)
---------
Outstanding at May 28, 1994...................................... 1,764,255
Granted........................................................ 5.63-10.63 365,000
Terminated..................................................... 3.75-21.50 (103,922)
Exercised...................................................... 3.75- 6.25 (190,098)
---------
Outstanding at June 3, 1995...................................... 1,835,235
=========
</TABLE>
Options for 1,203,000; 930,000; 867,000 and 677,000 shares, were
exercisable at June 3, 1995, May 28, 1994 and December 31, 1993 and 1992,
respectively. At June 3, 1995, 105,000 shares were available for future grants.
L. STOCK PURCHASE RIGHTS
In August 1988, the company adopted a Rights Agreement (the "Rights
Agreement"), and in October 1988, the company declared a dividend distribution
of one common stock purchase Right on each outstanding share of common stock.
The Rights will become exercisable at a purchase price of $50 each on the
distribution date which occurs if a person or group acquires or makes an offer
to acquire 20% or more of the company's common stock.
In the event that at any time following the distribution date, (i) a person
or group becomes the beneficial owner of 20% or more of the then outstanding
shares of common stock (except pursuant to an offer for all outstanding shares
of common stock which the continuing Directors determine to be fair to and
otherwise in the best interests of the company and its stockholders), (ii) the
company is not the surviving corporation in a merger and its common stock is not
changed or exchanged, (iii) an acquiring person engages in one or more
self-dealing transactions as set forth in the Rights Agreement, or (iv) during
such time as there is an acquiring person, an event occurs which results in such
person's ownership interest being increased by more than 1%, each holder of a
Right will thereafter have the right to receive, upon exercise of the Right and
payment of the purchase price, common stock or a
F-23
<PAGE> 101
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
combination of common stock, cash, preferred stock or debt having a value equal
to two times the purchase price of the Right. Alternatively, in such event and
with the approval of the continuing Directors, each holder of a Right will have
the right, or may be permitted only, to receive shares of common stock having a
value equal to the purchase price upon surrender of the Right to the company and
without payment of the purchase price. Notwithstanding any of the foregoing,
following the occurrence of any of the events set forth in this paragraph, all
Rights that are beneficially owned by the acquiring person will be null and
void. However, Rights are not exercisable following the occurrence of any of the
events set forth above until such time as the Rights are no longer redeemable by
the company.
In the event that, at any time following the date on which a person or
group acquires 20% or more of the company's outstanding shares (i) the company
is acquired in a merger or other business combination transaction in which the
company is not the surviving corporation (other than certain exceptions
mentioned in the Rights agreement) or (ii) 50% or more of the company's assets
or earning power is sold or transferred, each holder of a Right which has not
been previously voided shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the purchase price of the Right. The Rights may generally be redeemed by
the company at a price of $.02 per Right and they expire in November 1998.
M. COMMITMENTS AND CONTINGENCIES
At June 3, 1995, certain lawsuits arising in the normal course of business
were pending. The company denies all material allegations of these complaints.
In the opinion of management, the outcome of legal matters will not have a
material adverse effect on the company's financial position, results of
operations or liquidity.
As of June 3, 1995, the company had invested $4,100,000 in cash towards its
share of the capital requirements of its Australian joint venture for the
production of nickel-based superalloy. The company is committed to an additional
investment of $3,400,000 to the joint venture. The joint venture has entered
into a credit agreement with an Australian bank. The company has guaranteed 25%
of the joint venture's obligations under the credit agreement totalling
$17,300,000. This guarantee expires at such time as the joint venture
demonstrates its ability to produce commercially acceptable products.
The company enters 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 foreign
exchange contracts were not significant at June 3, 1995. The company had foreign
exchange contracts totalling $11,600,000 at June 3, 1995. Such contracts include
forward contracts of $9,100,000 for the sale of U.K. pounds and $2,500,000 for
the purchase of U.K. pounds. These contracts hedge certain normal operating
purchase and sales transactions. The 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. Translation and transaction
gains and losses included in fiscal 1995's Consolidated Statements of Operations
were not significant.
F-24
<PAGE> 102
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
N. GEOGRAPHIC AND OTHER INFORMATION
Prior to May 28, 1994 the company operated solely in the United States.
Transfers between U.S. and international operations, principally inventory
transfers, are charged to the receiving organization at prices sufficient to
recover manufacturing costs and provide a reasonable return.
<TABLE>
Certain information on a geographic basis follows:
<CAPTION>
YEAR ENDED FIVE MONTHS
JUNE 3, ENDED MAY
1995 28, 1994
---------- -----------
(000'S OMITTED)
<S> <C> <C>
REVENUES FROM UNAFFILIATED CUSTOMERS:
United States (including direct export sales)................... $365,666 $ 86,976
United Kingdom.................................................. 30,973 --
-------- --------
$396,639 $ 86,976
======== ========
INTER AREA TRANSFERS:
United States................................................... $ 373 $ --
United Kingdom.................................................. 2,528 --
-------- --------
$ 2,901 $ --
======== ========
EXPORT SALES:
United States direct export sales............................... $ 81,208 $ 13,254
======== ========
INCOME (LOSS) FROM OPERATIONS:
United States................................................... $ 14,931 $(55,805)
United Kingdom.................................................. (1,213) --
-------- --------
$ 13,718 $(55,805)
======== ========
IDENTIFIABLE ASSETS (EXCLUDING INTERCOMPANY):
United States................................................... $289,649 $312,462
United Kingdom.................................................. 47,547 39,457
General corporate............................................... 31,868 42,828
-------- --------
$369,064 $394,747
======== ========
</TABLE>
F-25
<PAGE> 103
WYMAN-GORDON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
Selected quarterly financial data for fiscal 1995 and fiscal 1994 were as
follows:
<CAPTION>
QUARTER FIRST SECOND THIRD FOURTH
- ------- --------- --------- --------- ---------
(000'S OMITTED, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 3, 1995
Revenue...................................... $95,725 $94,974 $96,238 $109,702
Cost of goods sold........................... 86,150 85,105 83,623 92,373
Other charges (credits) and environmental
charges.................................... -- -- -- (710)
Income (loss) from operations................ 3 768 3,620 9,327
Net income (loss)............................ (3,321) (2,021) 556 5,825
Net income (loss) per share.................. (.10) (.06) .02 .17
YEAR ENDED MAY 28, 1994
Revenue...................................... $58,452 $56,233 $50,896 $59,113
Cost of goods sold........................... 50,433 53,014 50,375 63,994
Other charges (credits) and environmental
charges.................................... -- 2,366 87 32,550
Income (loss) from operations................ 1,886 (6,298) (8,447) (50,798)
Net income (loss)............................ (816) (5,642) (11,282) (54,663)
Net income (loss) per share.................. (.05) (.31) (.63) (3.02)
<FN>
- ---------------
(a) Income (loss) from operations during the third quarter of the year ended May
28, 1994 reflects charges of $2,400 resulting from a change in estimated
cash surrender values provided by the company's insurance actuaries on
company-owned life insurance policies.
(b) Income (loss) from operations during the fourth quarter of the year ended
May 28, 1994 reflects significant charges amounting to $17,450,000.
</TABLE>
F-26
<PAGE> 104
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 2
Prospectus Summary................... 3
Risk Factors......................... 7
Price Range of Common Stock and
Dividend Policy.................... 10
Capitalization....................... 12
Selected Consolidated Financial
Data............................... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 15
Business............................. 22
Management........................... 34
Relationship between the Company and
Cooper............................. 36
Description of the Company's Capital
Stock.............................. 43
Common Stock Ownership of Cooper..... 48
Plan of Distribution................. 48
Legal Matters........................ 50
Experts.............................. 50
Index to Consolidated Financial
Statements......................... 51
</TABLE>
15,000,000 SHARES
WYMAN-GORDON COMPANY
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
[LOGO]
PROSPECTUS
DATED DECEMBER 14, 1995
<PAGE> 105
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY COOPER OR
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF COOPER SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 3
Risk Factors........................... 4
Cooper Industries, Inc................. 6
Wyman-Gordon Company................... 7
Relationship between Cooper and
Wyman-Gordon......................... 7
Price Range of Wyman-Gordon Common
Stock and Dividend Policy............ 9
Use of Proceeds........................ 9
Selected Financial Data................ 10
Description of the DECS................ 11
Certain United States Federal Income
Tax Considerations................... 21
Plan of Distribution................... 24
ERISA Matters.......................... 25
Legal Matters.......................... 26
Experts................................ 26
Prospectus Relating to Common Stock of
Wyman-Gordon Company.............Appendix A
</TABLE>
15,000,000 DECS(SM)
(DEBT EXCHANGEABLE FOR
COMMON STOCK(SM))
COOPER INDUSTRIES, INC.
6.0% EXCHANGEABLE NOTES
DUE JANUARY 1, 1999
[COOPER LOGO]
SALOMON BROTHERS INC
MERRILL LYNCH & CO.
SCHRODER WERTHEIM & CO.
PROSPECTUS
DATED DECEMBER 14, 1995
