<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1997
REGISTRATION NO. 333-37085
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLEASON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 16-1224655
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1000 UNIVERSITY AVENUE
ROCHESTER, NEW YORK 14692-2970
(716) 473-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN J. PERROTTI
VICE PRESIDENT--FINANCE AND CHIEF FINANCIAL OFFICER
GLEASON CORPORATION
1000 UNIVERSITY AVENUE
ROCHESTER, NEW YORK 14692-2970
(716) 473-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
Copies to:
JUSTIN P. DOYLE, ESQ. JAY BERNSTEIN, ESQ.
NIXON, HARGRAVE, DEVANS & DOYLE LLP ROGERS & WELLS
CLINTON SQUARE 200 PARK AVENUE
ROCHESTER, NEW YORK 14603-1051 NEW YORK, NEW YORK 10166
(716) 263-1000 (212) 878-8000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALES TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE
SECURITIES TO BE NUMBER OF SHARES OFFERING PRICE OFFERING AMOUNT OF
REGISTERED TO BE REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$1.00 per share....... 1,800,000(2) $27.40625 $49,331,250 $14,948(3)
</TABLE>
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---------------
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. Based on the
average of the high and low prices reported for the registrant's common
stock on September 30, 1997.
(2) Includes 1,300,000 shares which were registered under Registration
Statement No. 333-37083.
(3) This amount has been previously paid and includes $10,796 which was paid
in connection with the filing of Registration Statement No. 333-37083.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN, NOR +
+SHALL THERE BE ANY SALE OF SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH +
+OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR +
+QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 3, 1997
PROSPECTUS
LOGO
1,600,000 SHARES
GLEASON CORPORATION
COMMON STOCK
Of the 1,600,000 shares (the "Shares") of common stock, par value $1.00 (the
"Common Stock"), of Gleason Corporation offered hereby (the "Offering"),
400,000 Shares are being sold by Gleason Corporation (the "Company") and
1,200,000 Shares are being sold by certain stockholders (the "Selling
Stockholders"). The Company will not receive any of the proceeds from the sale
of Shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "GLE." On November 10, 1997, the last reported sale price of the Common
Stock was $28.125 per share. Except as indicated to the contrary, all
information in this Prospectus has been restated to reflect the Company's two-
for-one stock split in the form of a stock distribution paid on September 26,
1997 (the "Stock Split").
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR INFORMATION
THAT PROSPECTIVE INVESTORS SHOULD CONSIDER IN CONNECTION WITH THEIR INVESTMENT
DECISION.
-----------
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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<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
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Total(3)........................ $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering estimated at $467,500 which will
be shared proportionately by the Company and each of the Selling
Stockholders based on the number of Shares sold by each.
(3) The Company and one of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to 124,484 additional shares of
Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount,
Proceeds to Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
-----------
The Shares are offered by the several Underwriters, when, as and if delivered
to and accepted by them, and subject to various prior conditions, including the
right to reject orders in whole or in part. It is expected that delivery of
share certificates will be made against payment therefor at the offices of
Furman Selz LLC in New York, New York on or about , 1997.
FURMAN SELZ
MCDONALD & COMPANY
SECURITIES, INC.
ABN AMRO CHICAGO CORPORATION
The date of this Prospectus is , 1997.
<PAGE>
INSIDE FRONT COVER - ARTWORK
[Timeline identifying developments at the Company between 1990 and 1997 which
incorporates Company photographs and artwork.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING.''
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements, including the notes
thereto (the "Consolidated Financial Statements"), appearing elsewhere in this
Prospectus. Unless otherwise indicated, all share, per share and financial
information set forth herein assumes no exercise of the Underwriters' over-
allotment option and is restated to reflect the Stock Split. As used herein,
unless the context otherwise requires, the "Company" and "Gleason" refer to
Gleason Corporation and its subsidiaries, including The Gleason Works, Gleason-
Hurth Maschinen und Werkzeuge GmbH ("Gleason-Hurth"), Gleason-Pfauter
Maschinenfabrik GmbH ("Gleason-Pfauter"), American Pfauter, L.P. and Pfauter-
Maag Cutting Tools L.P. ("Pfauter-Maag"). Except as otherwise indicated, the
information presented in this Prospectus for periods ending prior to July 31,
1997 is based on the Company's actual financial results without giving effect
to the July 1997 acquisition of The Hermann Pfauter Group ("Pfauter"),
including Hermann Pfauter GmbH & Co, American Pfauter, L.P. and Pfauter-Maag.
PHOENIX(R) and G-TECH(R) are registered trademarks of the Company and POWER-
CUTTING(TM) is a trademark of the Company.
THE COMPANY
General. Founded in 1865, Gleason Corporation is a global leader in the
development and manufacture of technologically advanced gear production
machinery and associated tooling products. The gear production market is
comprised of two segments, the bevel gear market and the cylindrical gear
market. Bevel gears transmit power at a right angle, such as from the drive
shaft of a vehicle to its drive-axle. Cylindrical gears transmit power in
parallel axes of rotation and have a wider variety of applications, including
as components in the transmissions of vehicles. Based on its knowledge of the
markets it serves, the Company believes it is the leader in the bevel gear
machinery market and that it has a leading position in the cylindrical gear
equipment market. The Company's extensive product line includes machinery for
the production, finishing and testing of gears. In addition, the Company offers
a global support system providing tooling, replacement parts, field service,
application development services, gear design and inspection software, training
programs, engineering support and machine rebuild and upgrade services. The
Company is also a leader in the theory of gear design and in the application,
testing and analysis of prototype and production gears.
Approximately two-thirds of the Company's aggregate net sales during the five
years from 1992 through 1996 were to customers outside the United States.
Approximately 76% of the Company's net sales for the year ended December 31,
1996 were to customers in the automotive and truck industries. Other segments
served include aerospace, agriculture, construction, industrial machinery,
marine, power tool and jobbers who sell to a variety of industries. For the
year ended December 31, 1996, the Company's top ten customers (which included
subsidiaries of Ford Motor Company, Daimler-Benz AG, Chrysler Corporation,
General Motors Corp. and Dana Corp.) accounted for 44% of the Company's net
sales.
Focus on Core Business. Since 1990, Gleason Corporation has enhanced
shareholder value by strategically focusing on its core business of gear
technology. As part of this strategy, the Company divested its non-core
businesses, invested in new manufacturing technologies, reengineered and
streamlined its business processes and significantly expanded its product
offerings through internal product development and its acquisition of Hurth
Maschinen und Werkzeuge GmbH ("Hurth") in July 1995 and Pfauter in July 1997.
The implementation of the Company's strategies has resulted in significantly
improved financial results. For the year ended December 31, 1996, the Company
reported record net sales of $248.1 million representing a 26% increase from
the year ended December 31, 1995, its operating income (which, as used herein,
means earnings before interest and taxes) increased 45% to $31.3 million and
its net income increased 48% to $19.7 million (adjusted to exclude a one-time
tax benefit in 1995). For the nine-month period ended September 30, 1997, the
Company's net sales increased to $212.4 million, compared to $178.1 million in
the corresponding 1996 period.
3
<PAGE>
Excluding sales of Pfauter, which was acquired on July 31, 1997, sales
increased approximately 7% in the 1997 nine-month period over the corresponding
1996 period. Foreign exchange translation effects negatively impacted sales by
approximately $5.0 million for the 1997 nine-month period due to the weaker
German deutsche mark compared to the U.S. dollar. Operating income during the
first nine months of 1997 rose 17% over the comparable period in 1996 to $24.9
million, and net income increased 20% to $15.8 million.
Acquisitions. On July 1, 1995, the Company acquired, for $10.6 million,
certain assets of Hurth, a leader in the design and production of cylindrical
gear machinery and tooling based in Munich, Germany. The Company acquired, from
receivership, Hurth's patents, trademarks, rights to technology, and machinery
and equipment. The acquisition of Hurth enabled the Company to expand its
presence in the cylindrical gear equipment market by providing complementary
machine models and entry into the cylindrical gear cutting tools segment.
Primarily as a result of the Hurth acquisition, the Company's cylindrical gear
equipment sales increased from $27.6 million in 1994 to $104.2 million in 1996.
On July 31, 1997, the Company completed its acquisition of Pfauter, a
worldwide leader in cylindrical gear production equipment based in Ludwigsburg,
Germany, which included Pfauter-Maag, a leading cutting tool manufacturer based
in Rockford, Illinois. The acquisition of Pfauter positions the Company to be a
worldwide leader in gear production equipment and related technology by
combining Pfauter's extensive line of cylindrical gear production machinery
with the Company's leading position in bevel gear production equipment.
Pfauter-Maag substantially increases the Company's sales of higher-margin
cylindrical gear cutting tools and related services. In addition, the Pfauter
acquisition expands the Company's customer base to include a broad range of
non-automotive customers. The Pfauter acquisition was completed for total
consideration of $91.8 million, including $34.8 million in cash and the
assumption of $57.0 million in bank debt. Management plans to invest
approximately $9.0 million over the next two years to rationalize Pfauter's
operations and estimates that this investment will enable the Company to
achieve subsequent annual cost savings of a similar magnitude.
Growth Strategies. The Company's business and growth strategies are aimed at
enhancing value for its stockholders. The Company intends to maximize value for
its stockholders by continuing to focus on the following growth strategies:
. Capitalize on machine replacement opportunities. Aggressively pursue
sales of the Company's technologically advanced products, such as its
PHOENIX line, to replace the aging installed base of gear production
equipment;
. Increase sales of consumable cutting tools, accessories, tool management
and aftermarket services. Utilize the Company's installed base of
equipment, global marketing network and regional manufacturing
capabilities to increase sales of these products and services, including
the recently-acquired line of Pfauter-Maag cutting tools;
. Leverage new product and process technology. Use the Company's leadership
position in gear and manufacturing technology to enhance both new and
existing product lines and to capitalize on opportunities beyond its
traditional markets;
. Increase sales to customers in emerging markets. Continue expansion
efforts in emerging markets which are expected to present significant
opportunities for sales growth; and
. Pursue growth from acquisitions. Complete the integration of the
Company's acquisitions to fully realize the synergies created by these
businesses and selectively pursue future acquisitions.
Operations. The Company has manufacturing facilities in Rochester, New York
and Rockford, Illinois; Plymouth, England; Munich and Ludwigsburg, Germany;
Bologna and Porretta Terme, Italy; Bangalore, India; and Biel, Switzerland. The
Company has sales and service offices throughout the United States and Europe
and in the Asia-Pacific region. The Company has approximately 2,600 employees
worldwide. Gleason's principal executive offices are located at 1000 University
Avenue, Rochester, New York 14692 and its telephone number at that address is
(716) 473-1000.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.... 400,000 Shares(1)
Common Stock Offered by the Selling
Stockholders.......................... 1,200,000 Shares(1)
Common Stock to be Outstanding after
the Offering.......................... 10,364,897 shares(1)(2)
Use of Proceeds........................ The net proceeds from the sale of Common
Stock by the Company will be used to repay
indebtedness. See "Use of Proceeds."
New York Stock Exchange Symbol......... GLE
</TABLE>
- --------
(1) If the Underwriters' over-allotment option is exercised in full, the total
number of shares to be offered by the Company and the Selling Stockholders
and the total number of shares of Common Stock to be outstanding after the
Offering will be 460,000, 1,264,484 and 10,424,897, respectively.
(2) Based on the number of shares of Common Stock outstanding as of November
10, 1997. Does not include 685,650 shares of Common Stock which may be
issued pursuant to outstanding options under the Company's 1981 and 1992
Stock Plans or 59,099 hypothetical shares credited to directors' accounts
under the Company's Plan for Deferral of Directors' Fees.
5
<PAGE>
SUMMARY CONSOLIDATED AND PRO FORMA CONSOLIDATED FINANCIAL DATA(1)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(2) NINE MONTHS
NINE MONTHS ENDED PRO FORMA(2)
ENDED SEPTEMBER 30, YEAR ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ---------------------- DECEMBER 31, ----------------------------------
1997 1997 1996 1996 1996 1995 1994
------------- ---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales............... $ 298,044 $ 212,432 $ 178,134 $ 426,306 $ 248,089 $ 197,046 $ 128,462
Costs and expenses
Cost of products sold.. 211,962 146,783 120,581 301,332 167,958 137,461 94,935
Selling, general and
administrative
expenses.............. 53,234 35,781 31,546 76,379 42,614 33,789 24,539
Research and
development expenses.. 7,746 5,628 5,618 11,254 7,243 5,617 4,729
Interest expense--net.. 3,253 282 660 6,113 513 527 11
Other (income)--net.... (1,555) (679) (851) (1,563) (982) (1,328) (909)
---------- ---------- ---------- ---------- ---------- ---------- ----------
274,640 187,795 157,554 393,515 217,346 176,066 123,305
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations before
income taxes........... 23,404 24,637 20,580 32,791 30,743 20,980 5,157
Provision (benefit) for
income taxes(3)........ 8,291 8,871 7,477 11,738 11,083 (9,402) 825
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations(3).......... 15,113 15,766 13,103 21,053 19,660 30,382 4,332
Gain on disposal of
discontinued
operations............. -- -- -- -- -- 445 2,956
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.............. $ 15,113 $ 15,766 $ 13,103 $ 21,053 $ 19,660 $ 30,827 $ 7,288
========== ========== ========== ========== ========== ========== ==========
Primary earnings per
common share:
Income from continuing
operations(3)......... $ 1.46 $ 1.53 $ 1.22 $ 1.97 $ 1.84 $ 2.87 $ .42
Gain on disposal of
discontinued
operations............ -- -- -- -- -- .04 .29
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............. $ 1.46 $ 1.53 $ 1 .22 $ 1.97 $ 1.84 $ 2.91 $ .71
========== ========== ========== ========== ========== ========== ==========
Fully diluted earnings
per common share:
Income from continuing
operations(3)......... $ 1.45 $ 1.52 $ 1.22 $ 1.97 $ 1.84 $ 2.85 $ .42
Gain on disposal of
discontinued
operations............ -- -- -- -- -- .04 .29
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............. $ 1.45 $ 1 .52 $ 1.22 $ 1.97 $ 1.84 $ 2.89 $ .71
========== ========== ========== ========== ========== ========== ==========
Weighted average number
of common shares
outstanding:
Primary................ 10,326,069 10,326,069 10,731,260 10,681,644 10,681,644 10,600,234 10,325,754
Fully diluted.......... 10,394,860 10,394,860 10,746,766 10,681,644 10,681,644 10,679,742 10,325,754
Cash dividends declared
per common share....... $ .1875 $ .1875 $ .1875 $ .25 $ .25 $ .25 $ .20
</TABLE>
See footnotes on following page.
6
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31,
----------------------- --------------------------
AS ADJUSTED(4) ACTUAL 1996 1995 1994
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents....... $ 12,109 $ 12,109 $ 7,199 $ 9,926 $ 3,173
Net working capital........ 72,602 72,602 53,834 60,409 28,596
Total assets............... 353,567 353,567 190,674 197,198 122,016
Total debt, including
current portion........... 66,540 77,142 4,841 26,810 3,283
Pension plans and other
retiree benefits,
including current
portion................... 64,378 64,378 41,180 44,048 46,059
Total stockholders'
equity.................... 105,936 95,334 84,864 73,291 42,199
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(2) NINE MONTHS
NINE MONTHS ENDED PRO FORMA(2)
ENDED SEPTEMBER 30, YEAR ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------ DECEMBER 31, ----------------------------
1997 1997 1996 1996 1996 1995 1994
------------- -------- -------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Orders.................. $300,800 $209,600 $184,600 $407,400 $246,352 $226,107 $156,962
Gross margin(5)(6)...... 28.9% 30.9% 32.3% 29.3% 32.3% 30.2% 26.1%
Selling, general and
administrative expenses
(as a % of sales)...... 17.9% 16.8% 17.7% 17.9% 17.2% 17.1% 19.1%
Operating margin(6)(7).. 8.9% 11.7% 11.9% 9.1% 12.6% 10.9% 4.0%
Earnings before interest
and income taxes(8).... $ 26,657 $ 24,919 $ 21,240 $ 38,904 $ 31,256 $ 21,507 $ 5,168
Capital expenditures.... $ 11,144 $ 8,196 $ 5,123 $ 19,955 $ 10,281 $ 8,309 $ 3,527
Depreciation and
amortization........... $ 14,500 $ 9,527 $ 8,296 $ 20,170 $ 10,707 $ 9,992 $ 9,293
</TABLE>
- --------
(1) All share and per share data have been restated to reflect the Stock Split.
(2) The pro forma data reflect the combined operations of the Company and
Pfauter as if the acquisition, which was completed on July 31, 1997, had
been completed as of the beginning of the periods presented. See Note 20 of
"Notes to Consolidated Financial Statements" and the "Pro Forma
Consolidated Financial Statements of Gleason Corporation and Hermann
Pfauter GmbH & Co."
(3) For the year ended December 31, 1995, income from continuing operations
included positive adjustments to record deferred tax assets not previously
recognized. Income from continuing operations for 1995 using normalized tax
rates would have been approximately $12.9 million, or $1.22 per share. See
Note 10 of "Notes to Consolidated Financial Statements."
(4) Adjusted to give effect to the sale of 400,000 Shares offered by the
Company (at an assumed offering price of $28.125 per share) and the
application of the estimated net proceeds therefrom as set forth under "Use
of Proceeds."
(5) Gross margin is calculated by dividing the difference of net sales minus
the cost of products sold by net sales.
(6) The gross margin and operating margin data for 1994, 1995 and 1996 reflect
the improved operating performance of the Company resulting from the
implementation of its strategic initiatives. The pro forma gross margin and
operating margin data for the nine months ended September 30, 1997 and the
year ended December 31, 1996 give effect to the acquisition of Pfauter,
which has historically had lower gross margins and operating margins than
those of the Company. The Company intends to invest approximately $9.0
million over the next two years to rationalize Pfauter's operations and
estimates that this investment will enable to the Company to achieve
subsequent annual cost savings of a similar magnitude.
(7) Operating margin is calculated by dividing earnings before interest and
income taxes ("EBIT") by net sales. Management believes that operating
margin is a meaningful indicator of the effectiveness of the Company's
operations because it provides a relative measure of profitability
generated directly by operations (excluding financing costs and income
taxes).
(8) EBIT and earnings before interest, income taxes and depreciation and
amortization ("EBITDA") are presented in this Prospectus because they are
commonly used by industry analysts to measure a company's operating
performance and historical ability to service debt. EBIT and EBITDA are not
indicative of cash (used) provided by operating activities, should not be
used as a measure of operating income and cash flows from operations as
determined under generally accepted accounting principles, and should not
be considered in isolation or as an alternative to, or more meaningful
than, measures of performance determined in accordance with generally
accepted accounting principles. EBIT and EBITDA, as computed by the
Company, may not be comparable to similarly titled information provided by
other companies or analysts.
7
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the risk factors described
below, as well as the other information contained in this Prospectus, before
deciding whether to invest in the Common Stock offered hereby. Certain
information included or incorporated herein contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which represent the Company's
expectations or beliefs, including, but not limited to, statements concerning
industry performance, the Company's operations, performance, financial
condition, growth and acquisition objectives, margins and growth in sales of
the Company's products. For this purpose, any statements contained in this
Prospectus that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "estimate" or "continue" or the negative or other variations thereof
or comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control, and actual results may
differ materially depending on a variety of important factors, including those
described below.
CYCLICALITY OF MARKETS
The primary markets for the Company's products include the automotive,
truck, aerospace, agriculture, construction, industrial machinery, marine and
power tool industries. The Company's sales to these industries have
historically been subject to cyclical variation extending over a number of
years, based on general economic conditions. The demand for, price of and
margins for the Company's products may be adversely impacted by decreases in
its customers' capital spending during periods of economic contraction.
DEPENDENCE ON AUTOMOTIVE AND TRUCK INDUSTRIES
Customers in the automotive and truck industries accounted for approximately
76% of the Company's net sales for the year ended December 31, 1996. For the
year ended December 31, 1996, the Company's top ten customers, all of which
were affiliated with the automotive or truck industries, accounted for
approximately 44% of the Company's net sales. In particular, sales to Ford
Motor Company and its subsidiaries represented approximately 14.5% of the
Company's net sales for the year ended December 31, 1996. A decline in
automotive or truck sales and production could result in a decline in the
Company's results of operations or a deterioration in the Company's financial
position. The loss of, or reduced demand for products from, one or more of the
Company's significant customers could have a material adverse effect on the
Company's business, financial condition or results of operations.
IMPACT AND RISKS OF ACQUISITIONS
Generally, acquisitions involve significant potential risks, including but
not limited to those associated with: (i) the ability to identify and
consummate potential acquisitions; (ii) the diversion of management's
attention to the assimilation of the businesses to be acquired; (iii) the risk
that the acquired business will fail to maintain the operating performance it
achieved historically; (iv) the need to implement financial and other systems
and add management resources; (v) the risk that key employees of the acquired
business will leave after the acquisition; (vi) potential liabilities of the
acquired business; (vii) adverse short-term effects on the Company's operating
results; (viii) lack of success in assimilating or integrating the operations
of acquired businesses with those of the Company; (ix) the incurrence of
additional debt; (x) the amortization of goodwill and other intangible assets
for acquisitions that are accounted for using the purchase method of
accounting; and (xi) unforeseen difficulties in the acquired operations.
On July 31, 1997, the Company acquired Pfauter. On a combined pro forma
basis, Pfauter would have accounted for 42% of the Company's net sales for the
year ended December 31, 1996. There can be no assurance when or the extent to
which the Company will be able to successfully integrate the operations of
Pfauter or that the Company will be able to do so with any future
acquisitions.
8
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RISKS OF INTERNATIONAL OPERATIONS AND FOREIGN EXCHANGE FLUCTUATIONS
The Company has substantial operations and sales outside of the United
States. Approximately two-thirds of the Company's aggregate net sales during
the five years from 1992 through 1996 were to customers in overseas markets.
Foreign operations are subject to special risks that can materially affect the
sales, profits, cash flows and financial position of the Company, including
taxes on distributions or deemed distributions from subsidiaries, currency
exchange rate fluctuations, inflation, maintenance of minimum capital
requirements, import and export controls, exchange controls, social (labor)
programs and/or changes in the regulatory or political environment. Exchange
rates may affect the Company's pricing in local currencies, possibly impairing
its ability to effectively compete with other companies in such markets. Since
the Company's financial statements are denominated in U.S. dollars, changes in
exchange rates between the U.S. dollar and other currencies have had and will
have an impact on the reported results of the Company. The Company generally
enters into foreign currency forward contracts to hedge transactions involving
foreign currencies primarily for firm commitments to buy or sell goods;
however, there can be no assurances regarding the effectiveness or adequacy of
such transactions to protect the Company from changes in exchange rates
between the U.S. dollar and other currencies.
COMPETITION
The markets in which the Company participates are competitive. Many of the
programs for which the Company competes require bids or proposals from
multiple vendors. The Company's competitors include manufacturers of gear
production equipment, principally in Europe and Japan, some of which have
greater financial resources than the Company. In addition, the Company may
face competition from new entrants into these markets and increased
competition from existing competitors that may develop products which are
superior to those offered by the Company. While the Company believes its
product lines compete effectively in their markets, there can be no assurance
that they will continue to do so. Competition is also encountered from
alternative manufacturing processes for the production of gears, such as
forging, forming and molding of plastic or powder metal.
TECHNOLOGICAL CHANGE
Industrial manufacturing, in general, and the gear production machinery
sector, in particular, are subject to technological change, evolving industry
specifications and regulatory requirements, changing customer requirements and
improvements in and expansion of product offerings. The Company's ability to
meet changes in technology, industry specifications, customer requirements and
competitive product offerings, as well as to introduce new and enhanced
products on a timely basis which are accepted in the market, are significant
factors in the Company's competitive position and its prospects for growth.
Although the Company believes that it has the technological capabilities to
remain competitive, there can be no assurance that developments by competitors
will not render the Company's products or technologies noncompetitive or
obsolete. Failure by the Company to anticipate or respond rapidly to
technological advances, new products and enhancements by competitors, or
changes in customer requirements could have a material adverse effect on the
Company. In addition, technological developments may increase the productivity
or performance of gear production equipment or diminish the need for gears in
certain applications, in either case potentially reducing the level of demand
for the Company's products.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation, Bylaws and Shareholder Rights
Plan contain certain provisions that could hamper the acquisition of the
Company by means of a tender offer, a proxy contest or otherwise. These
provisions include staggered terms for members of the Company's Board of
Directors, advance notice procedures for stockholders to designate nominees
for election as directors of the Company and for stockholders to submit
proposals for consideration at stockholders' meetings and a voting requirement
that 85% of the stockholders entitled to vote must approve certain mergers or
acquisition transactions. In addition, Delaware corporate law contains certain
provisions that restrict certain business combinations. All of the foregoing
may have the effect
9
<PAGE>
of deterring certain potential acquisitions of the Company or making more
difficult a change in control of the Company or the removal of incumbent
management or the Board of Directors of the Company, which may thereby inhibit
a change in control of the Company under circumstances that could give the
stockholders the opportunity to realize a premium over the then-prevailing
market prices. See "Certain Anti-Takeover Provisions."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has increased substantially
over the past year. See "Price Range of Common Stock." The market price of the
Common Stock could continue to fluctuate substantially due to a variety of
factors, including illiquidity due to limited trading volume, quarterly
fluctuations in results of operations, the impact of acquisitions, adverse
circumstances affecting the introduction or market acceptance of new products
and services offered by the Company or its customers, changes in the general
economic climate, changes in earnings estimates by analysts, changes in
accounting principles, sales of Common Stock by existing stockholders, loss of
key personnel and other events. The market price for the Common Stock may also
be affected by the Company's ability to meet analysts' expectations, and any
failure to meet such expectations, even if minor, could have a material
adverse effect on the market price of the Common Stock. In addition, market
conditions in the industrial manufacturing and automotive industries, or
forecasts related thereto, may have an impact on the market price of the
Common Stock. The stock market historically has experienced volatility which
has affected the market price of securities of many companies and which has
sometimes been unrelated to their operating performance.
FLUCTUATIONS IN QUARTERLY RESULTS
In general, the Company recognizes net sales when products have been shipped
or services have been provided. The Company's quarterly results can be subject
to significant fluctuation based on the timing of its shipments. Shipments are
dependent upon customer delivery requirements and the Company's ability to
satisfy order specifications on a timely basis. In addition, orders for
certain of the Company's products can be large, and a relatively limited
number of orders can constitute a meaningful percentage of the Company's net
sales in any quarterly period.
DEPENDENCE ON SUPPLIERS
Certain of the components used in the Company's products are purchased from
third parties and are available from a limited number of sources. The loss of
any one supplier or an inability of suppliers to provide the Company with the
required quantity or quality of these components could have an interruptive
effect on the Company's business until such time as an alternative source of
supply is found.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS
The Company's ability to compete effectively will depend, in part, on its
ability to protect its intellectual property, including its patents,
trademarks, copyrights and trade secrets, and on its ability to obtain future
patents. In addition to patents, the Company relies on a combination of
trademark registrations, copyrights and confidentiality agreements to protect
its proprietary rights in intellectual property. The Company's ability to
compete effectively also depends on its ability to avoid infringing on the
proprietary rights of others. Because pending U.S. patent applications are
confidential for a period of time after they are filed, it is impossible to
anticipate all potential patent infringement issues for products under
development. There can be no assurance that the steps taken by the Company to
protect its intellectual property will be adequate to prevent misappropriation
or that others will not independently develop technologies or products that
compete with or are superior to the products of the Company. Likewise, there
can be no assurance that the Company will not inadvertently infringe on the
intellectual property rights of others.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 400,000 Shares offered
by the Company, after deducting underwriting discounts, commissions and
estimated offering expenses and assuming a public offering price of $28.125
per share, are estimated to be approximately $10.6 million (approximately
$12.2 million if the Underwriters' over-allotment option is exercised in
full). The Company will use its net proceeds from the Offering to repay a
portion of the outstanding indebtedness under its revolving credit and term
loan facility which was incurred in connection with the Pfauter acquisition.
After such payment, the Company will have approximately $70 million of
available credit under the revolving credit and term loan facility which it
may use for working capital and general corporate purposes. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Liquidity and Capital Resources." The facility matures on July 1, 2002 and
bears interest at a floating rate which, on a weighted average basis, was
4.71% per year as of September 30, 1997. The Company will not receive any of
the proceeds from the sale of Shares by the Selling Stockholders.
CAPITALIZATION
The following table sets forth as of September 30, 1997 (i) the actual
capitalization of the Company and (ii) the capitalization as adjusted to give
effect to the sale of 400,000 Shares offered hereby at an assumed offering
price of $28.125 per share and the application of the net proceeds therefrom
as described under "Use of Proceeds." In addition, the following table is
restated to reflect the Stock Split. This table should be read in conjunction
with "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and the "Consolidated Financial Statements."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Short-term debt:
Short-term borrowing.............................. $ 7,337 $ 7,337
Current portion of long-term debt................. 1,513 1,513
----------- -----------
Total short-term debt........................... 8,850 8,850
Long-term debt, less current portion:
Revolving credit and term loan facility........... 67,348 56,746
Other............................................. 944 944
----------- -----------
Total long-term debt............................ 68,292 57,690
----------- -----------
Total debt...................................... 77,142 66,540
Stockholders' equity:
Preferred Stock, par value $1.00 per share; 500,000
shares authorized; none issued
Common Stock, par value $1.00 per share; 20,000,000
shares authorized; 11,594,140 shares issued and
9,964,912 shares outstanding and 10,364,912 shares
outstanding, as adjusted(1)........................ 11,594 11,594
Additional paid-in capital........................ 5,438 12,509
Retained earnings................................. 100,091 100,091
Cumulative foreign currency translation
adjustment....................................... (4,555) (4,555)
Minimum pension liability adjustment.............. (461) (461)
----------- -----------
112,107 119,178
Less treasury stock of 1,629,228 shares (1,229,228
as adjusted), at cost(2)......................... 16,773 13,242
----------- -----------
Total stockholders' equity...................... 95,334 105,936
----------- -----------
Total capitalization............................ $ 172,476 $ 172,476
=========== ===========
</TABLE>
- --------
(1) Does not include 685,650 shares of Common Stock which may be issued
pursuant to outstanding options under the Company's 1981 and 1992 Stock
Plans or 58,889 hypothetical shares credited to directors' accounts under
the Company's Plan for Deferral of Directors' Fees.
(2) Assumes that the 400,000 Shares offered by the Company are issued from
treasury stock.
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the New York Stock Exchange under the symbol
"GLE." The following table sets forth for the periods indicated the high and
low sale prices of the Common Stock as reported on the New York Stock Exchange
Composite Tape and the dividends declared by the Company, as adjusted for the
Stock Split.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
------ ------ --------
<S> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1995
First Quarter.......................................... $ 9.50 $ 7.31 $.0625
Second Quarter......................................... 12.75 8.88 .0625
Third Quarter.......................................... 18.63 11.00 .0625
Fourth Quarter......................................... 17.94 13.69 .0625
FISCAL YEAR ENDED DECEMBER 31, 1996
First Quarter.......................................... $21.50 $13.63 $.0625
Second Quarter......................................... 21.38 18.00 .0625
Third Quarter.......................................... 20.50 15.50 .0625
Fourth Quarter......................................... 19.88 14.13 .0625
FISCAL YEAR ENDING DECEMBER 31, 1997
First Quarter.......................................... $18.94 $16.13 $.0625
Second Quarter......................................... 23.25 15.56 .0625
Third Quarter.......................................... 29.66 23.13 .0625
Fourth Quarter (through November 10, 1997)............. 29.25 26.88 .0625(1)
</TABLE>
- --------
(1) On November 4, 1997, the Company's Board of Directors declared a dividend
payable on November 28, 1997 to holders of record of the Common Stock on
November 18, 1997.
On November 10, 1997, the last reported sale price for the Common Stock on
the New York Stock Exchange Composite Tape was $28.125 per share and the
number of stockholders of record was approximately 3,000.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The information contained in this section should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing in this
Prospectus or incorporated herein. All share and per share figures have been
adjusted to reflect the Stock Split.
OVERVIEW
Founded in 1865, Gleason Corporation is a global leader in the development
and manufacture of technologically advanced gear production machinery and
associated tooling products. Since 1990, the Company has enhanced shareholder
value by strategically focusing on its core business of gear technology. As
part of this strategy, the Company divested its non-core businesses, invested
in new manufacturing technologies, reengineered and streamlined its business
processes and significantly expanded its product offerings through internal
product development and selective acquisitions. The Company acquired Hurth in
July 1995 and Pfauter in July 1997. See "Business--Acquisitions" and "Risk
Factors--Impact and Risks of Acquisitions." While the Company expects to
continue to maintain its leadership position in bevel gear production
machinery, the Company believes that cylindrical gear production machinery,
particularly as a result of the acquisition of Pfauter, will represent an
increasingly important component of the Company's orders, backlog and net
sales.
Sales are generally recognized when products are shipped or services have
been provided. Sales are reported net of returns and allowances. Because
certain of the Company's orders can be large and since shipments are dependent
upon customer delivery requirements, a relatively limited number of orders can
constitute a meaningful percentage of the Company's net sales in any quarter.
See "Risk Factors--Fluctuations in Quarterly Results."
The Company has historically had a high percentage of sales to the
automotive and truck industries. Customers in the automotive and truck
industries accounted for approximately 76% of the Company's net sales for the
year ended December 31, 1996. The Company's major customers in 1996 included
Ford Motor Company, Daimler-Benz AG, Chrysler Corporation, General Motors
Corp. and Dana Corp. Giving pro forma effect to the acquisition of Pfauter,
which has a more diversified customer base, the automotive and truck
industries accounted for approximately 65% of net sales for the year ended
December 31, 1996. See "Risk Factors--Dependence on Automotive and Truck
Industries."
Operating margins have varied from period to period, depending upon the
Company's product mix. In general, cutting tool, accessory and aftermarket
service revenues have generated higher gross margins than those of machine
sales. Historically, bevel gear machine sales have produced higher gross
margins than those of cylindrical gear machine sales. Selling, general and
administrative expenses also vary as a percentage of sales. Sales to Japan,
Korea and South America are generally conducted through independent dealers,
to whom the Company pays commissions. In periods when these regions
represented a higher percentage of net sales, selling, general and
administrative expenses have been higher as a percentage of total net sales.
Order and backlog levels have varied from quarter to quarter due to the
receipt of large orders and the production times required to fill such orders.
Orders in backlog are typically shipped within twelve months of receipt.
The Company has substantial operations and sales outside the United States.
For the years ended December 31, 1994, 1995 and 1996, the Company's net sales
to customers outside the United States represented 53%, 65% and 73%,
respectively, of total net sales. All asset and liability accounts of foreign
operations are translated at the current exchange rate, income statement items
are translated at average exchange rates and the resulting translation
adjustments are made to a separate component of stockholder's equity,
cumulative foreign currency translation adjustment. Gains and losses from
foreign currency transactions are reported in operations and have historically
had minimal impact.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Earnings. Net income for the nine months ended September 30, 1997 was $15.8
million, or $1.53 per share, compared to $13.1 million, or $1.22 per share,
for the 1996 nine-month period. Operating income (EBIT)
13
<PAGE>
for the 1997 nine-month period was $24.9 million, an increase of 17% compared
to the 1996 period. Operating results included two months of activity from the
Pfauter operations, which the Company acquired on July 31, 1997. The Pfauter
operating results and related effects of the acquisition slightly lowered the
Company's net income for the period.
Orders and Backlog. Orders for the 1997 nine-month period were $209.6
million compared to $184.6 million in 1996. Order levels for the nine-month
period of 1997, excluding Pfauter, were 2% lower than the comparable 1996
period due to negative foreign exchange translation effects of approximately
$8.0 million, primarily due to the stronger U.S. dollar versus the German
deutsche mark.
Order levels for machine products, excluding Pfauter, for the comparative
nine-month periods were approximately equal. Excluding Pfauter, orders for
cylindrical gear production machines increased 43% in the 1997 nine-month
period versus the comparable period in 1996. Cylindrical gear production
machine orders, excluding Pfauter, accounted for 56% of total machine orders
in the 1997 nine-month period versus 39% in the comparable 1996 period.
Incoming orders for the nine months of 1997 were higher primarily due to
increased orders for PHOENIX gear hobbing machines and Gleason-Hurth gear
honing machines. Order levels for bevel gear production machines were 30%
lower in 1997 than for the comparative nine-month period in 1996, primarily
due to lower order levels from U.S. customers. In the second quarter of 1996,
the Company received large orders totaling $24 million from two U.S. vehicle
and axle manufacturers. The Company expects that 1997 fourth quarter orders
for bevel gear production machines will be higher than in any other quarter of
the current year, although orders for bevel gear production machines are
expected to be lower for the 1997 full year than the 1996 full year.
Orders for tooling products, including gear cutting tools and workholding
equipment, excluding Pfauter, were lower for the 1997 nine-month period versus
the comparable period in 1996. Order levels for these products decreased
principally due to foreign currency translation effects and lower order
volumes for gear cutting tools from Europe and the Asia-Pacific region.
Consolidated backlog was $194.9 million at September 30, 1997 compared to
$122.8 million at December 31, 1996 and $131.0 million at September 30, 1996.
The Pfauter operations accounted for $81.2 million of the September 30, 1997
backlog.
Net Sales. Net sales were $212.4 million for the nine-month period ended
September 30, 1997 versus $178.1 million in the comparable prior year period.
Net sales for the nine-month period of 1997, when compared to the 1996 period,
were negatively impacted by foreign currency translation effects of
approximately $5.0 million, primarily due to the stronger U.S. dollar versus
the German deutsche mark.
Net sales of machine products, excluding Pfauter, increased 12% for the 1997
nine-month period compared to the 1996 nine-month period. Bevel gear
production machine sales increased 35% for the 1997 nine-month period over the
comparable 1996 period, primarily due to higher shipments of PHOENIX gear
equipment to customers in the United States. Bevel gear production machine
sales in the 1997 nine-month period included shipments associated with the
large orders received in the second quarter of 1996. Cylindrical gear
production machine sales, excluding Pfauter, were 8% lower for the 1997 nine-
month period versus the comparable 1996 period. The decrease in sales of
cylindrical gear production machines in the 1997 nine-month period was
primarily due to lower shipments of Gleason-Hurth gear shaving machines and
foreign currency translation effects, partially offset by higher shipments of
PHOENIX gear hobbing machines and cylindrical gear grinding machines. Net
sales in the 1996 nine-month period included a large program for Gleason-Hurth
gear shaving machines associated with an order received in the 1995 third
quarter.
Net sales of tooling products, excluding Pfauter, for the 1997 nine-month
period were approximately 5% lower than for the comparable 1996 period
primarily due to the negative foreign currency translation effect on sales of
Gleason-Hurth tooling and lower shipments of workholding equipment during the
first half of 1997. Other products sales, including spare parts, service and
software, excluding Pfauter, in the 1997 nine-month period were slightly
higher than in the comparable 1996 period.
14
<PAGE>
Costs and Expenses. Cost of products sold as a percentage of sales was 69.1%
for the 1997 nine-month period versus 67.7% for the comparable period in 1996.
Margins can be significantly impacted by the mix of products sold. For
example, machines generally tend to carry higher cost of sales percentages
than tooling or other products. Margins were lower for the 1997 nine-month
period because of the higher percentage of machine shipments in the overall
sales mix, lower margins on tooling sales and the effect of Pfauter's lower
margins. Tooling margins were lower due to a less favorable product mix and
increased price discounting in certain markets.
Selling, general and administrative expenses for the 1997 nine-month period
were 16.8 percent of sales compared to 17.7 percent of sales for the
comparable 1996 nine-month period. The lower spending as a percentage of sales
for the 1997 nine-month period was primarily attributable to lower commissions
paid to outside dealers, partially offset by higher selling expenses as a
percentage of sales for the Pfauter operations. The reduction in commission
expense was due to decreased sales to South Korea and Brazil, where the
Company is represented by independent dealers.
Research and development expenses for the comparative nine-month periods of
1997 and 1996 were relatively unchanged at $5.6 million. Development spending
in 1997 included new product development for both bevel and cylindrical gear
production equipment and manufacturing technology initiatives for the
Company's tooling operations.
Other income(net) totaled $0.7 million in the first nine months of 1997
compared to $0.9 million in the comparable 1996 nine-month period. Other
income(net) for the 1997 nine-month period included $0.4 million of costs
related to the relocation of the Company's sales office in Stuttgart, Germany
to the Pfauter offices in Ludwigsburg, Germany. The 1997 nine-month period
also included a $0.4 million gain on the sale of property associated with one
of the Company's former Components Group businesses which had been leased to
the purchaser since the sale of that business in 1992.
Net interest expense totaled $0.3 million for the 1997 nine-month period
versus $0.7 million in the comparable 1996 period. The decrease in interest
expense for the 1997 nine-month period was due to lower average borrowings
outstanding under the Company's revolving credit facilities and higher
balances in cash and equivalents during the first half of 1997.
Income Taxes. The Company's provision for income taxes as a percentage of
income before taxes for the 1997 nine-month period was 36.0%, and 36.3% for
the comparable 1996 period. These percentages for both the 1997 and 1996 nine-
month periods approximated the U.S. statutory rate. The impact of the higher
statutory rates on foreign earnings (primarily in Germany) was offset by the
utilization of certain foreign tax credits and foreign operating loss
carryforwards in 1997 and 1996.
1996 COMPARED TO 1995
Earnings. Operating income increased 45% in 1996 to $31.3 million, or 12.6%
of sales, compared to $21.5 million, or 10.9% of sales, in 1995. This
improvement in operating income was primarily attributable to benefits from
higher operating volumes, improved margins and incremental earnings from
Gleason-Hurth.
Net income for 1996 was $19.7 million, or $1.84 per share, compared to $30.8
million, or $2.91 per share, in 1995. Net income for 1995 was increased by
significant tax benefits related to the recognition of deferred tax assets
associated with charges recorded in prior years. Management estimates that net
income for 1995 using normalized tax rates would have been approximately $13.3
million, or $1.26 per share. Net income for 1995 also included a gain on the
disposal of discontinued operations of $0.4 million, or $.04 per share.
Orders and Backlog. Order levels in 1996 were $246.4 million, an increase of
9% from 1995. New orders, excluding the Company's Gleason-Hurth subsidiary
which was acquired in mid-1995, increased 5% compared to 1995. Order volumes
were higher, primarily due to a 25% increase in orders for bevel gear
production
15
<PAGE>
machinery, partially offset by lower incoming orders for cylindrical gear
production equipment and tooling products. Bevel gear machinery orders
increased with the continued strong demand for rear-wheel and all-wheel drive
vehicles, which use bevel gears, and the advantages for these vehicle
producers of replacing their older installed base of bevel gear production
equipment with the Company's newer PHOENIX line of products. Order levels for
cylindrical gear machinery were lower than in 1995 primarily due to a
reduction in orders from Europe. Orders in 1995 included multiple machine
orders from European vehicle producers related to transmission production
expansion programs. The order rate for cylindrical gear production machines
increased during 1996, with orders in the second half of 1996 more than double
those of the first half. Tooling orders, excluding orders from the Company's
Gleason-Hurth subsidiary, were down 7% in 1996 due to lower orders for bevel
gear cutting tools.
Backlog was $122.8 million at December 31, 1996 compared to $124.5 million
at December 31, 1995. Bevel gear production machinery accounted for about 60%
of total machine backlog at December 31, 1996 compared to 42% at 1995 year-
end.
Net Sales. Net sales were $248.1 million in 1996, a 26% increase from 1995.
Sales, excluding Gleason-Hurth, increased 8% compared to the prior year. This
increase in sales was primarily a result of higher shipments of gear
production machines.
Machine product sales, excluding Gleason-Hurth machines, increased 15%
compared to 1995. Higher shipments of bevel gear machinery more than offset
lower shipments of cylindrical gear production machines. Bevel gear production
machine sales were higher largely due to increased sales to the Asian market.
The majority of this increase was attributable to capital spending programs
associated with new or expanding capacity requirements for vehicle producers
in that region. The reduction in cylindrical gear production machine sales,
excluding Gleason-Hurth, was primarily due to lower shipments of the Company's
G-TECH gear hobbing machines. Sales of these products were negatively impacted
by the introduction, in 1996, of a new PHOENIX medium-sized gear hobbing
machine, for which shipments began in early 1997. Shipments of the Company's
PHOENIX cylindrical gear cutting machines increased 13% in 1996 compared to
1995.
Sales of the Company's tooling products, excluding Gleason-Hurth, were
comparable to those in 1995. Workholding equipment sales, which increased 10%,
were offset by a decrease in shipments of bevel gear cutting tools to
customers in the United States. Sales of other products including spare parts,
field service and software were down slightly from 1995.
Costs and Expenses. Cost of goods sold as a percentage of sales in 1996 was
67.7% compared to 69.8% in 1995. The lower cost of sales percentage for 1996
was primarily due to increased gross margins across all major machine product
lines and a more favorable sales mix of higher margin machine products
including bevel gear and cylindrical gear shaving machines. Margins on machine
products, in general, were positively impacted by the higher production
volumes which increased the coverage of fixed operating costs. This was
partially offset by a higher percentage of machines in the overall sales mix.
Generally, machine products have lower margins than tooling or other products.
Selling, general and administrative expenses in 1996 were $42.6 million, or
17.2% of sales, compared to $33.8 million, or 17.1% of sales, in 1995.
Spending as a percentage of sales was basically flat year over year; however,
commission expense as a percentage of sales increased compared to 1995.
Commissions paid to dealers increased due to higher shipments into the Asia-
Pacific and South American regions where the Company is represented by
independent machine dealers.
Research and development spending in 1996 was $7.2 million, or 2.9% of
sales, compared to $5.6 million, or 2.9% of sales, in 1995. Development
spending in 1996 exceeded 1995 levels because of increased spending for new
product development for both bevel and cylindrical gear production equipment
and manufacturing technology initiatives for the Company's tooling operations.
Other income(net) decreased to $1.0 million in 1996 from $1.3 million in
1995 primarily due to lower outside commission income.
16
<PAGE>
Income Taxes. In 1996, the Company recorded a tax provision of $11.1 million
on pre-tax income of $30.7 million, or an effective rate of 36.1%. In 1995,
the Company recorded a net tax benefit of $9.4 million for continuing
operations on pre-tax income of $21.0 million. In 1995, income taxes were
lowered by significant deferred tax benefits resulting from a reduction in the
valuation allowance recorded for deferred tax assets. This reduction in the
valuation allowance resulted in an increase in the net deferred tax asset
recorded on the Company's Consolidated Balance Sheet at December 31, 1995 to
$18.2 million from $2.8 million at December 31, 1994. The Company had
previously been limited, under the provisions of FASB Statement No. 109, in
the amount of the deferred tax asset it had been able to record.
1995 COMPARED TO 1994
Earnings. Operating income in 1995 improved to $21.5 million, or 10.9% of
sales, from $5.2 million, or 4.0% of sales, in 1994. The improvement in
operating income from 1994 resulted from higher sales, improved margins and
incremental earnings from the Gleason-Hurth operation acquired on July 1,
1995.
The Company reported income from continuing operations of $30.4 million, or
$2.87 per share, in 1995, compared to $4.3 million, or $0.42 per share, in
1994. Income from continuing operations for 1995 was increased by positive
adjustments related to the recognition of deferred tax assets associated with
charges recorded in prior years. Management estimates that income from
continuing operations for 1995 using normalized tax rates would have been
approximately $12.9 million, or $1.22 per share. Net income for the year was
$30.8 million, or $2.91 per share, including an after-tax gain from
discontinued operations of $0.4 million, or $.04 per share. Net income for
1994 was $7.3 million, or $0.71 per share, which included an after-tax gain
from discontinued operations of $3.0 million, or $0.29 per share.
Orders and Backlog. Order levels in 1995 increased 44% over 1994 to $226.1
million. Orders for the Gleason-Hurth operation totaled $41.2 million for the
six-month period from the acquisition to December 31, 1995. New orders,
excluding Gleason-Hurth, increased 18% compared to 1994. This increase
primarily resulted from higher order levels for PHOENIX bevel gear machinery
and bevel gear cutting tools. The higher order rate was attributable to
improved demand in the Company's overseas markets.
Backlog was $124.5 million at December 31, 1995, compared to $54.7 million
at December 31, 1994. This increase in backlog of $69.8 million included $49.3
million for the Gleason-Hurth operation. The remaining increase of $20.5
million in backlog was principally for bevel gear machinery.
Net Sales. Net sales were $197.0 million in 1995, a 53% increase from 1994.
Sales for the Gleason-Hurth operation totaled $32.8 million, accounting for
approximately 48% of the total increase. The remaining increase in sales of
$35.8 million, represented a 28% improvement from 1994 shipment levels. Sales
of all product lines increased compared to 1994 with higher machine sales
accounting for the largest portion of the improvement.
Machine product sales, excluding Gleason-Hurth machines, increased $26.8
million compared to 1994. This increase was divided relatively equally between
bevel and cylindrical gear machinery. Higher shipments of the Company's
PHOENIX gear hobbing machines accounted for the majority of the increase in
cylindrical gear machine sales. Shipments to customers in the United States
accounted for approximately 60% of the 1995 full year total cylindrical gear
machine sales and the largest portion of the year over year increase. Bevel
gear production machine sales were higher largely due to increased sales to
the Asian market, primarily China and India.
Sales of the Company's tooling products also showed strong improvement.
Tooling sales were $8.1 million higher, excluding the Gleason-Hurth operation,
with the greatest increase coming from overseas markets which accounted for
approximately 70% of the increase.
Costs and Expenses. Cost of goods sold as a percentage of sales in 1995 was
69.8% compared to 73.9% in 1994. The lower percentage was primarily
attributable to improved gross margins on machine products.
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Margin improvement on these products resulted from lower direct product costs
on most machine product lines and the effect of higher production volumes,
which increased capacity utilization and coverage of fixed operating costs.
Margins on tooling products also increased compared to 1994. The Gleason-Hurth
operation contributed favorably to the overall gross margin percentage from
its acquisition through December 31, 1995.
Selling, general and administrative expenses in 1995 were $33.8 million, or
17.1% of sales, compared to $24.5 million, or 19.1% of sales, in 1994.
Spending decreased as a percentage of sales due to the higher sales volumes.
Total spending increased in 1995 with the inclusion of the Gleason-Hurth
operation in the second half of 1995 and increased variable selling expenses,
including warranty costs and commissions. Variable selling expenses as a
percentage of sales were in line with 1994 levels.
Research and development spending in 1995 was $5.6 million, or 2.9% of
sales, compared to $4.7 million, or 3.7% of sales, in 1994. Major development
programs in 1995 included a new computer-numerically-controlled gear testing
machine, shipments of which began in the 1995 fourth quarter. In addition,
spending for development programs associated with new product design and
manufacturing technology initiatives for the Company's tooling operations
increased in 1995 compared to 1994.
Income Taxes. In 1995, the Company recorded a net tax benefit of $9.4
million for continuing operations on pre-tax income of $21.0 million. In 1994,
the Company recorded a tax provision of $0.8 million for continuing operations
on pre-tax income of $5.2 million. The 1995 tax benefit included a net
deferred benefit of $14.8 million primarily resulting from a reduction in the
valuation allowance recorded for deferred tax assets. This reduction in the
valuation allowance resulted in an increase in the net deferred tax asset
recorded on the Company's Consolidated Balance Sheet at December 31, 1995 to
$18.2 million from $2.8 million at December 31, 1994. Under the provisions of
FASB Statement No. 109, the Company had been limited, primarily due to its
prior domestic operating losses, in the amount of the deferred tax asset it
had been able to record. Significant improvements in domestic operating
performance and available tax planning strategies provided the necessary
positive evidence that it was more likely than not that future income would be
sufficient to fully realize the deferred tax asset recorded at December 31,
1995. A valuation allowance for deferred tax assets of $7.0 million remained
at December 31, 1995 for certain tax credits and net foreign operating loss
carryforwards for which realization could not be anticipated at that time.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents increased $4.9 million in the nine months of 1997 to
$12.1 million at September 30, 1997. Borrowings under the Company's revolving
credit facilities increased to $67.3 million at September 30, 1997 from $3.9
million at December 31, 1996. Borrowings under these facilities increased due
to the cash paid for the acquisition of Pfauter and the repayment of most of
Pfauter's outstanding bank debt. Dividend payments to stockholders totaled
$1.9 million in the nine months ended September 30, 1997.
Effective July 31, 1997 the Company entered into a new $170 million
revolving and term loan credit facility providing for multi-currency
borrowings and standby letters of credit and bank guarantees. The revolving
credit portion of the facility is $110 million and matures on July 1, 2002.
The term loan portion was $60 million and requires repayment in equal
quarterly installments beginning October 1, 1999. Effective October 31, 1997,
the Company reduced the total amount of the facility from $170 million to $160
million, with the term loan portion decreasing from $60 million to $50
million. All other terms and conditions remain the same. Up to $40 million of
the revolving credit portion of the facility is available for issuance of
letters of credit or bank guarantees. The credit facility is unsecured (except
for pledges of 65% of the stock of certain designated foreign subsidiaries of
the Company) and there are no prepayment penalties. The interest rate on the
credit facility is LIBOR plus 35 basis points through March 31, 1998.
Thereafter, the rate is based on a spread over LIBOR as determined by certain
financial ratios. Facility fees are calculated on the entire credit facility,
regardless of usage, and are 15 basis points through March 31, 1998 and adjust
on the same basis as interest rates for periods which follow. The credit
facility provides for average borrowing costs which are approximately 25 basis
points lower than the Company's former revolving credit facility and
approximately 100 basis points lower than Pfauter's average
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borrowing costs on its former secured credit facilities. The Credit Agreement
relating to the facility contains customary financial ratio covenants and
provisions which restrict the Company's ability to pay dividends in the event
of a default.
The Company intends to use the proceeds from the Offering to pay down a
portion of the outstanding balance of this facility, which will further reduce
the commitment under this facility to $150 million. After such payment, the
Company will have approximately $70 million of available credit under the
revolving credit and term loan facility which it may use for working capital
and general corporate purposes. See "Use of Proceeds."
Operating activities provided cash of $32.6 million in the first nine months
of 1997 compared to $30.6 million in the comparable 1996 period. Operating
cash flows were higher in the 1997 period due to higher earnings before
depreciation and amortization expense. Cash provided from reductions in
working capital during the first nine months of 1997 was slightly lower than
during the comparable 1996 period as decreases in trade accounts receivable
were less because of substantially higher 1997 third quarter sales. Future
uses of cash for operating activities are expected to include approximately
$9.0 million which management plans to spend over the next two years to
rationalize Pfauter's operations. Management estimates that this investment
will enable the Company to achieve subsequent annual cost savings of a similar
magnitude.
Investing activities used $36.3 million of cash in the 1997 nine-month
period versus $5.0 million in the comparable prior year period. Investing
activities for 1997 included cash used of $29.8 million, net of cash acquired
of $6.4 million, for the acquisition of Pfauter. Capital expenditures during
the first nine months of 1997 totaled $8.2 million, compared to $5.1 million
in the comparable 1996 period. The Company expects that 1997 and 1998 full
year capital expenditures will be greater than the 1996 level of $10.3
million, with the majority of the spending planned for further investments to
upgrade existing production capabilities. Cash flows from investing activities
in 1997 also included $1.5 million in cash received from the sale of the
property of one of the Company's former businesses.
During the first nine months of 1997, the Company used $1.4 million in cash
to repurchase shares of its Common Stock under a program authorized by its
Board of Directors in July 1996. As of September 30, 1997, the Company had
used approximately $7.6 million in cash to repurchase 491,600 shares under
this program.
Management believes that the Company's cash balances, borrowing capacity
under its lines of credit, and anticipated funds from operations will be
sufficient to meet its near-term operating and investing activities or that it
will be able to obtain additional long-term financing if such financing is
required.
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BUSINESS
THE COMPANY
Founded in 1865, Gleason Corporation is a global leader in the development
and manufacture of technologically advanced gear production machinery and
associated tooling products. The gear production market is comprised of two
segments, the bevel gear market and the cylindrical gear market. Bevel gears
transmit power at a right angle, such as from the drive shaft of a vehicle to
its drive-axle. Cylindrical gears transmit power in parallel axes of rotation
and have a wider variety of applications, including as components in the
transmissions of vehicles. Based on its knowledge of the markets it serves,
the Company believes it is the leader in the bevel gear machinery market and
that it has a leading position in the cylindrical gear equipment market. The
Company's extensive product line includes machinery for the production,
finishing and testing of gears. In addition, the Company offers a global
support system providing tooling, replacement parts, field service,
application development services, gear design and inspection software,
training programs, engineering support and machine rebuild and upgrade
services. The Company is also a leader in the theory of gear design and in the
application, testing and analysis of prototype and production gears.
Approximately two-thirds of the Company's aggregate net sales during the
five years from 1992 through 1996 were to customers outside the United States.
Approximately 76% of the Company's net sales for the year ended December 31,
1996 were to customers in the automotive and truck industries. Other segments
served include aerospace, agriculture, construction, industrial machinery,
marine, power tool and jobbers who sell to a variety of industries. For the
year ended December 31, 1996, the Company's top ten customers (which included
subsidiaries of Ford Motor Company, Daimler-Benz AG, Chrysler Corporation,
General Motors Corp. and Dana Corp.) accounted for 44% of the Company's net
sales.
The Company has manufacturing facilities in Rochester, New York and
Rockford, Illinois; Plymouth, England; Munich and Ludwigsburg, Germany;
Bologna and Porretta Terme, Italy; Bangalore, India; and Biel, Switzerland.
The Company has sales and service offices throughout the United States and
Europe and in the Asia-Pacific region. The Company has approximately 2,600
employees worldwide.
Since 1990, Gleason Corporation has enhanced shareholder value by
strategically focusing on its core business of gear technology. As part of
this strategy, the Company divested its non-core businesses, invested in new
manufacturing technologies, reengineered and streamlined its business
processes and significantly expanded its product offerings through internal
product development and selective acquisitions.
Between 1991 and 1994, the Company divested its non-gearing businesses,
which manufactured industrial products including powder metal parts, metal
stampings and precision plastic parts, and also sold its less profitable gear
equipment operations in Belgium. During this period, the Company made
significant investments to upgrade and modernize its manufacturing technology
and processes. Most notably, the Company invested approximately $30 million to
create a state-of-the-art manufacturing facility in Rochester, New York. As a
result of its investment and reengineering initiatives, the Company reduced
overhead costs, excluding depreciation expense, by approximately $12 million
over this period and reduced the lead times for its principal machine models
from an average of 40 weeks in 1992 to as low as fourteen weeks, currently.
The Company has expanded the breadth of its product line through both
internal development and, more recently, selective acquisitions. In 1989, the
Company introduced its first PHOENIX machine, a computer-numerically-
controlled ("CNC") gear production machine, which is considered to be among
the most flexible and productive gear manufacturing equipment on the market.
Since then, the Company has extended this technology across its bevel and
cylindrical gear machinery product lines. Excluding sales from acquired
businesses, sales of PHOENIX and other recently introduced CNC machines
accounted for over 75% of the Company's cumulative net sales of machines since
1993. In 1993, the Company introduced the PHOENIX 125GH cylindrical gear
hobbing machine which provided the Company with a highly competitive product
in the cylindrical gear equipment market in which the Company historically had
a modest presence. Within the first three years of its introduction, sales of
this machine had more than tripled the Company's former sales levels of
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cylindrical gear hobbing machines. To further expand its cylindrical gear
product offerings and enhance its global presence in this market, the Company
acquired Hurth in July 1995 and Pfauter in July 1997.
The implementation of the Company's strategies has resulted in significantly
improved financial results. For the year ended December 31, 1996, the Company
reported record net sales of $248.1 million, representing a 26% increase from
the year ended December 31, 1995; its operating income increased 45% to $31.3
million and its net income increased 48% to $19.7 million (adjusted to exclude
a one-time tax benefit in 1995). For the nine-month period ended September 30,
1997, the Company's net sales increased to $212.4 million, compared to $178.1
million in the 1996 period. Excluding sales of Pfauter, which was acquired on
July 31, 1997, sales increased approximately 7% in the 1997 nine-month period
over 1996. Foreign exchange translation effects negatively impacted sales by
approximately $5.0 million for the 1997 nine-month period due to the weaker
German deutsche mark compared to the U.S. dollar. Operating income during the
first nine months of 1997 rose 17% over the comparable period in 1996 to $24.9
million, and net income increased 20% to $15.8 million. The quarter ended
September 30, 1997 marked the fifteenth consecutive quarter in which the
Company reported increased operating earnings on a comparative year-over-year
basis. See footnote 8 to "Prospectus Summary-- Summary Consolidated and Pro
Forma Consolidated Financial Data" for a discussion of EBIT and certain
factors that should be considered when analyzing EBIT.
ACQUISITIONS
Hurth. On July 1, 1995, the Company acquired, for $10.6 million, certain
assets of Hurth, a leader in the design and production of cylindrical gear
machinery and tooling based in Munich, Germany. The Company acquired, from
receivership, Hurth's patents, trademarks, rights to technology, and machinery
and equipment. The acquisition of Hurth enabled the Company to expand its
presence in the cylindrical gear equipment market by providing complementary
machine models and entry into the cylindrical gear cutting tools segment.
Primarily as a result of the Hurth acquisition, the Company's cylindrical gear
equipment sales increased from $27.6 million in 1994 to $104.2 million in
1996.
The Company streamlined Hurth's operations by discontinuing its unprofitable
product lines, eliminating operating redundancies and retaining only 280 of
its 420 employees, thereby significantly reducing Hurth's cost structure.
Gleason enhanced the distribution of Hurth's products by utilizing the
Company's established global sales network and realized savings by eliminating
most of Hurth's sales and distribution infrastructure. The Company also
realized savings by utilizing global sourcing supplier relationships for
requirements ranging from purchased components to corporate services and
consolidating certain activities such as advertising and promotion. In
addition, the Company has benefited from synergies generated by sharing
product and process technologies. The acquisition was immediately accretive to
the Company's earnings and has positively affected the Company's consolidated
operating margins.
Pfauter. On July 31, 1997, the Company completed its acquisition of Pfauter,
including, among other operations, Hermann Pfauter GmbH & Co., a worldwide
leader in cylindrical gear production equipment based in Ludwigsburg, Germany,
and Pfauter-Maag, a leading cutting tool manufacturer based in Rockford,
Illinois. Pfauter was founded in 1900 and has major operations in Germany,
Italy and the United States.
The acquisition of Pfauter positions the Company to be a worldwide leader in
gear production equipment and related technology by combining Pfauter's
extensive line of cylindrical gear production machinery with the Company's
leading position in bevel gear production equipment. Pfauter-Maag
substantially increases the Company's sales of higher-margin cylindrical gear
cutting tools and related services. In addition, the Pfauter acquisition
expands the Company's customer base to include a broad range of non-automotive
customers, from small-gear machine users such as power tool and precision
instrument manufacturers to producers of large gears utilized in off-highway
equipment and heavy industrial applications. Approximately 48% of Pfauter's
consolidated sales for the year ended December 31, 1996 were to customers
outside the automotive and truck industries.
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The acquisition was completed for a total consideration of $91.8 million,
including $34.8 million in cash and the assumption of $57.0 million in bank
debt. The acquisition was funded through the Company's $160 million revolving
and term loan credit facility. Management estimates that the acquisition will
result in pre-tax costs totaling $9.0 million, related to the rationalization
of Pfauter's operations, which will be accounted for as part of the purchase
price. Management believes that the Company will be able to achieve annual
cost savings of a similar magnitude after the initial two years following the
acquisition. For the year ended December 31, 1996, Pfauter generated sales of
approximately $178.2 million, had EBITDA of approximately $16.8 million and
had net cash provided by (used in) operating activities, investing activities
and financing activities of approximately $18.7 million, $(9.5) million and
$(8.7) million, respectively. See footnote 8 to "Prospectus Summary-- Summary
Consolidated and Pro Forma Consolidated Financial Data" for a discussion of
EBITDA and certain factors that should be considered when analyzing EBITDA.
GROWTH STRATEGIES
The Company's business and growth strategies are aimed at enhancing value
for its stockholders. Management believes that its best internal benchmark for
measuring the long-term creation of stockholder value is Economic Value Added
("EVA"). EVA is calculated by multiplying a company's average net operating
assets by the excess of its return on average net operating assets over its
estimated weighted average cost of capital. For the year ended December 31,
1996, the Company generated EVA in excess of $8 million as its return on
average net operating assets approximated 17%, compared to its estimated
weighted average cost of capital of 11%. The Company intends to maximize its
EVA by continuing to focus on the following growth strategies: capitalizing on
machine replacement opportunities; increasing sales of consumable cutting
tools, accessories and aftermarket services; leveraging new product and
process technology; increasing sales to customers in emerging markets and
pursuing growth from acquisitions.
Capitalize on Machine Replacement Opportunities. Gleason's estimated
worldwide installed base of more than 15,000 bevel gear machines has an
average age in excess of 25 years. Technologically, these machines are at
least two or three generations behind the capabilities of the Company's
current PHOENIX bevel gear production machines. The growing market for sport
utility, light-weight trucks and all-wheel drive vehicles, most of which use
bevel gears, has motivated automotive manufacturers to accelerate the
replacement of older gear production equipment with more flexible, efficient
CNC machines. In 1996, certain large producers of bevel gears began the
process of modernizing and upgrading their production facilities by installing
the Company's PHOENIX line of equipment to keep pace with the rapidly
increasing requirements for higher quality and productivity. Management
believes that there continues to be a significant growth opportunity in
replacement sales since products in its PHOENIX line represented less than
five percent of Gleason's estimated worldwide installed base of bevel gear
production equipment as of September 30, 1997.
The Company also has attractive opportunities related to the replacement of
the installed base of cylindrical gear machines. While the average age of the
installed base of cylindrical gear machines is not as great as that of bevel
gear machines, the Company believes that technological advances provide
customers with potential returns on investment that should accelerate the
replacement of the installed machine base. Management believes that it is
well-positioned to capitalize on these opportunities because of its broad
range of products, leading technology and full range of customer support.
Increase Sales of Consumable Cutting Tools, Accessories and Aftermarket
Services. The Company's large base of installed equipment represents a
meaningful source of potential revenues from consumable products and
accessories such as cutting tools, workholding devices and spare parts. The
Company also offers aftermarket services including field service, application
development services, gear design and inspection software, training programs,
engineering support and machine rebuild and upgrade services. The Company's
revenues derived from consumable cutting tools, accessories and aftermarket
services, which accounted for approximately 35% of the Company's net sales for
the year ended 1996, have typically generated higher margins than those of
machine sales.
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The Company believes that Pfauter-Maag is a market leader in cylindrical
gear cutting tools in the United States. The Company plans to leverage
Pfauter-Maag's product and process technology in overseas markets where the
Company presently has established bevel cutting tool manufacturing operations
and proven distribution channels. The Company also sees a significant growth
opportunity, both in the United States and abroad, for tool management and
reconditioning services, including such services as ordering and managing
customers' tool inventories and sharpening and recoating tools.
Leverage New Product and Process Technology. One of the Company's
fundamental goals is to be the technology leader in the markets which it
serves. To compete successfully, the Company must bring new technology to
market quickly. The Company has substantially reduced the lead time required
to introduce new products from approximately 30 months in 1990 to
approximately one year currently. The Company reduced its lead times as a
result of initiatives such as concurrent engineering, in which highly focused
cross-functional groups from engineering, manufacturing, outside suppliers and
others work closely together with common objectives.
Management plans to further reduce the time required to bring a new product
to market by using a "modular platform" for the design and production of its
machines. Under this approach, one design platform typically supports multiple
machine models. Additional benefits of using modular platforms include lower
development costs, more common parts, and lower production costs. The
Company's new parametric-based computer aided design and manufacturing
software, which is being used in all new product development projects,
provides leading-edge tools to further extend these benefits. The Company also
sees opportunities in designing and manufacturing many of the new products
from Pfauter across common Company-wide platforms.
Gleason believes that it is distinct from other machinery manufacturers in
that it is a world leader in the advanced design of machinery as well as in
the theory, design and optimization of the end-product, gears. Gear processing
solutions require an in-depth understanding of all the variables in the
production process, including the machine, cutting tools, workholding
equipment and characteristics of the workpiece. Gleason's recent acquisitions,
coupled with its comprehensive product and process knowledge, strengthen the
Company's position as a technological leader in its markets. In addition, the
Company believes that it will be able to leverage its expertise in the design
and manufacture of complex parts and advanced machinery to pursue other market
opportunities in the future.
Increase Sales to Customers in Emerging Markets. One of the first phases in
the construction of a developing nation's infrastructure is the creation of a
transportation network. For the Company, this has meant new demand for gear-
making equipment used in the production of construction equipment, trucks,
buses and passenger vehicles. According to Ward's 1996 World Vehicle Forecasts
and Strategies, three-quarters of all vehicles are owned by only 16% of the
world's population. Also, according to that same publication, twice as many
new cars and trucks are expected to be sold over the next 20 years than in the
past two decades, with annual sales reaching 92 million units by the year 2015
from 51 million in 1995. Ward's projects that developing countries will
account for approximately 71% of this increase.
The Company has long recognized the opportunity presented by emerging
markets and has established an installed base of over 800 of its machines in
each of China and India. For the years ended December 31, 1996 and 1995, over
20% of the Company's net sales were to customers in developing countries,
including China, India and Brazil. Management is committed to strengthening
its local presence in these and other selected regions. For example, the
Company began operations in Bangalore, India in 1996 to produce bevel gear
cutting tools for the Indian market and to provide its own sales and service
support to the Company's growing base of customers in that region. The Company
believes that its initiatives have positioned it to be able to capitalize on
the opportunities presented by these emerging markets.
Pursue Growth from Acquisitions. The Company considers selective
acquisitions to be an important aspect of its strategy for long-term growth.
Consistent with this strategy, the Company acquired Hurth in 1995 and Pfauter
in 1997. The Company believes that it has successfully assimilated Hurth into
its operations and that it
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will continue to benefit from synergies generated by this combination. The
Company believes that its experience with Hurth will help it to successfully
restructure and integrate Pfauter. In addition to realizing future benefits
from the synergies of Hurth and Pfauter, the Company intends to pursue future
acquisitions that complement its existing operations.
INDUSTRY
The gear production machinery industry serves businesses which manufacture
gears for use as components in such products as automobiles, trucks,
industrial machinery, power tools and aerospace, agricultural, construction
and marine equipment. The majority of gear production is conducted by original
equipment manufacturers which incorporate gears into their finished products.
Demand. Historically, the automotive and truck industries have been the
largest consumers of gears and related production equipment. According to
Ward's 1996 World Vehicle Forecasts and Strategies, twice as many new cars and
trucks will be sold over the next 20 years than in the past two decades, with
annual sales reaching 92 million units by the year 2015 from 51 million in
1995.
A number of factors in the automotive industry have contributed to the
increase in demand for gears, and consequently, for the latest generation of
gear production machinery. In light vehicle applications, the most notable
change in recent years has been the increase in the number of speeds in both
manual and automatic transmissions. Driven by higher performance and fuel
economy standards, automatic transmissions have risen from three to four
speeds and manual transmissions have increased from four to five speeds. Since
each incremental speed requires additional gears, this trend has resulted in
higher demand for gears in general.
Increased demand for light-weight trucks has also fueled demand for gears
and gear production machinery. According to Automotive News Data Center,
light-weight trucks and sport utility vehicles accounted for nearly 44% of
light vehicle sales in the United States during 1996, compared to 36% during
1992. The increase in light-weight truck production is especially important to
the bevel gear market because the majority of these vehicles are equipped with
all-wheel or rear-wheel drive, both of which utilize bevel gears. Management
believes that the growing market for sport utility, light-weight trucks and
all-wheel drive vehicles has motivated automotive manufacturers to accelerate
the replacement of older gear production equipment with more flexible,
efficient CNC machines.
Demand for gears by other industries such as aerospace, agriculture,
construction, industrial machinery, marine and power tools are expected to
vary with demand for end-use products and are dependent on general economic
conditions.
Competition. The markets in which the Company participates are competitive.
Many of the customer programs for which the Company competes require bids or
proposals from multiple vendors. The Company's competitors include
manufacturers of gear production equipment, principally in Europe and Japan,
most of which are privately-held entities or subsidiaries of larger companies.
Management believes that a relatively small number of companies account for a
large percentage of sales to the global gear production equipment market. Due
to the geographic dispersion of the customer base and the demand for
aftermarket services, most of these companies possess worldwide production and
distribution capabilities. Management believes that the Company is well-
positioned to compete effectively within this market.
Substitute Technology. Gears can be manufactured using a number of
materials, although metal gears are generally preferred for their durability,
price and performance advantages. Metal gears can be produced through a
variety of methods including: machining, powder metal processing, cold forming
and forging. Although a number of these processes can be used to produce
simple or light-weight gears, metal machining is preferred for applications
which require precision, durability, strength and complex geometry. Higher
fuel economy standards have led to gear boxes with thinner walls which require
gear sets to operate with less vibration and noise. In
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addition, engineering improvements require gears to handle higher revolutions
per minute with greater durability, higher load-bearing capacity and
efficiency. Metal machining techniques produce gear sets which are able to
meet these stringent requirements.
PRODUCTS
The Company offers a complete array of machines, tools and accessories for
producing bevel and cylindrical gears of all types and sizes. In general,
three basic steps are involved in the production of gears: soft manufacturing,
heat treatment and hard manufacturing. The first step in gear processing, soft
manufacturing, cuts gear teeth into a metal blank. The gear is then prepared
for and subjected to heat treatment, where it is hardened. The final process,
hard manufacturing, refines the gear to remove the distortions caused by heat
treatment and finishes the gear to meet design specifications. The following
is a brief discussion of the basic gear production process and the products
offered by the Company to serve each function for the bevel and cylindrical
gear markets:
BEVEL GEARS
Soft Manufacturing. Bevel gears are cut via one of two methods, face milling
or face hobbing. Face milling is an indexed process in which gears are formed
by cutting each tooth, one at a time, to its full depth. Face hobbing involves
the synchronous rotation of both the cutting tool and the workpiece, with all
gear teeth being gradually cut at the same time. Earlier generations of
machines were dedicated to one process or the other. The Company's PHOENIX
bevel gear cutting machines, however, have the flexibility to be programmed
for either face hobbing or face milling. Management believes that the recent
increase in demand for all-wheel drive vehicles has induced many manufacturers
to replace outdated bevel gear machines with the Company's latest PHOENIX
models. This technology upgrade has also provided manufacturers with the
option to convert from face milling to face hobbing, which has become
increasingly preferred due to its flexibility and cost efficiency.
Hard Manufacturing. Following soft manufacturing procedures, the gears are
hardened through a heat treatment process. Hard manufacturing processes
correct the distortions caused by heat treatment and finish gears to meet
final specifications. For bevel gears, hard manufacturing is typically
accomplished through two basic processes, lapping or grinding. Lapping is used
primarily in the automotive industry to refine the contact between mating
gears. In this process, the gears are mounted in a machine in their
approximate operating positions, and are run together in a mesh with a mildly
abrasive lapping compound that refines the area of contact between the gears,
leading to improved noise characteristics and longer life.
Gear grinding is used as a hard finishing operation for face-milled gears
where greater accuracy is required in the application than can be provided by
cutting alone. Instead of a cutting tool, a wheel which is coated with
abrasives is used to remove stock from between gear teeth. Gear grinding has
long been a prerequisite for aircraft-quality applications and has more
recently been applied to rear-wheel drive automotive applications,
particularly in European luxury vehicles. The Company manufactures bevel gear
lapping and grinding machines under both the Gleason and PHOENIX brand names.
Other. In addition to the gear production machines outlined above, the
Company also manufactures PHOENIX inspection and testing equipment for bevel
gears. The Company provides aftermarket products and services such as cutting
tools, workholding devices, spare parts, software development, engineering
support, machine rebuilds and upgrades, tool management, and other repair and
maintenance services.
CYLINDRICAL GEARS
Soft Manufacturing. Soft manufacturing for cylindrical gears can be
accomplished through hobbing or shaping. Gear hobbing is the most common
method of producing cylindrical gears. Gear teeth are formed when a rotating
tool (hob) is gradually fed into a rotating gear blank. The Company
manufactures cylindrical gear
25
<PAGE>
hobbing machines under the PHOENIX and Pfauter brand names. With the
acquisition of Pfauter, the Company now offers hobbing machines capable of
producing gears as small as 25 millimeters and larger than two meters in
outside diameter. Gear shaping, which forms a tooth in an axial direction, is
used when a part's geometry creates interferences that preclude the use of
gear hobbing. The acquisition of Pfauter also provided the Company with the
ability to serve this market segment.
Prior to heat treatment, cylindrical gears which have been hobbed are often
subjected to a shaving procedure, whereby a serrated cutting tool removes a
modest amount of stock from the gear in anticipation of the distortion which
will be caused by heat treatment. Gears completed by this process may not
require any corrective finishing after heat treatment. The Company markets
cylindrical gear shaving machines under the Gleason-Hurth brand name.
Hard Manufacturing. After heat treatment, cylindrical gears are typically
finished by grinding or honing or some combination thereof. Profile or form
grinding is an indexed process in which the teeth are refined one at a time
and the tooth takes the shape of the tool. Since the tool or grinding wheel is
dedicated to a specific gear design, this process tends to be more efficient
for high-volume applications where relatively few teeth are involved. The
Company acquired the ability to manufacture large profile grinders with
Pfauter, which has recently introduced a smaller gear profile grinder. The
Company also manufactures a threaded wheel grinding machine under the Gleason
brand name. Threaded wheel grinders are preferred by manufacturers who need to
finish gears with a high number of teeth or who require greater flexibility.
Honing is another finishing procedure for cylindrical gears in which an
abrasive tool is run in mesh with a cylindrical gear to remove a modest amount
of stock to improve surface finish and noise characteristics. The Company
entered the gear honing market with its acquisition of Hurth.
Other. In addition to the machines outlined above, the Company also markets
an array of cutting tools, accessories (such as workholding devices) and
aftermarket services under the Gleason, Gleason-Hurth, Gleason-Pfauter and
Pfauter-Maag brands. The acquisition of Pfauter-Maag significantly expanded
the Company's offerings in consumable cutting tools and related services for
the cylindrical gear tool market.
26
<PAGE>
PRODUCT LINES
The following chart demonstrates the manufacturing processes involved in the
production of bevel and cylindrical gears and the respective products and
services provided by the Company to support each of these processes:
GEAR PRODUCTION COMPANY OFFERINGS BY BRAND
GLEASON-
PFAUTER/
GLEASON PFAUTER/
GEAR TYPE PROCESS PRODUCT/SERVICE GLEASON PHOENIX HURTH MAAG
- --------------------------------------------------------------------------------
Soft Face Hobbing .
Manufacturing Face Milling . .
Heat Treatment
Hard Lapping . .
Manufacturing Grinding .
BEVEL Cutting Tools .
GEARS Inspecting &
Testing . .
Workholding
Other Equipment .
Tool Sharpening .
Spare Parts and
Services . .
Hobbing . .
Soft Shaping .
Manufacturing Shaving .
Heat Treatment
Hard Grinding . .
CYLINDRICAL Manufacturing Honing .
GEARS Cutting Tools . .
Workholding
Other Equipment . . .
Tool Sharpening . .
Spare Parts and
Services . . . .
. Indicates that the Company provides the applicable product or service under
the indicated brand name.
NEW TECHNOLOGY
At the EMO international machine tool show in Hannover, Germany in September
1997, the Company introduced important new products and technologies for gear
processing. For bevel gear production, the new PHOENIX 450HC bevel gear
cutting machine with POWER-CUTTING was demonstrated for the first time. This
27
<PAGE>
process, through the use of carbide steel cutting tools and higher spindle
speeds, may eliminate the need for coolants in the cutting process and can
increase the metal-removal rate on a typical ring gear by up to five times the
rate of existing machine models using conventional cutting tools. While the
initial cutting tool costs are higher, the savings in machining time and
extended tool lives should provide a strong economic incentive for many bevel
gear producers to convert to this new technology. Gleason, with its strong
leadership in this market both for machines and cutting tools, is favorably
positioned to capitalize on opportunities created by this technology.
For cylindrical gear production, the Company presented a variety of new
machines at this international trade show, including its new P200G CNC gear
profile grinding machine and its ZH125 CNC gear honing machine. The profile
grinding machine, developed by Gleason-Pfauter, represents a completely new
product offering for the Company. Pfauter, which for many years has been
recognized as a leader in profile grinding machines for large cylindrical
gears, has now transferred this technology to smaller sized gearing
applications. This fast growing market represents an incremental sales
opportunity for the Company, as gear producers, including automotive
companies, are aggressively seeking more cost-effective ways to manufacture
higher quality gearing. This new machine model offers impressive productivity
and quality results compared to competitive product offerings and is designed
and manufactured in a manner which permits it to be sold below existing market
prices for similar machines.
The ZH125 CNC gear honing machine represents one of the most versatile,
compact honing machines on the market today. The honing process, the principal
purposes of which are to improve the gear surface finish and reduce noise in a
gear set, has experienced increased demand resulting from more stringent
quality requirements for gears. The ZH125 CNC machine was developed by the
Company's Gleason-Hurth subsidiary and represents the Company's second product
offering in this field. This machine, for which the Company has already
received multiple orders, should extend the Company's leadership in this
emerging area of gear processing.
SALES & MARKETING
The Company's machines and tooling are currently in worldwide use in
approximately 50 countries by a variety of gear manufacturers. Sales and
service functions in North America and Europe are performed directly by
employees of the Company, while such functions in Japan, South America and
Korea are performed primarily by independent dealers. The Company services
North American customers from offices throughout the United States and
services European customers from offices in England, France, Germany, Italy,
Spain and Sweden. In the Asia-Pacific region, the Company maintains offices in
Australia, India and the People's Republic of China. The Company owns a 20%
interest in the dealer which serves Japan and Taiwan. In other countries, the
sales and service function is performed by a combination of independent
dealers and employees of the Company.
Overseas markets are important to the Company. Sales outside the United
States, during the five years from 1992 through 1996, comprised approximately
71%, 57%, 53%, 65% and 73%, respectively, of consolidated net sales. In 1996,
significant overseas sales were made, in order of magnitude, to Germany,
Korea, Brazil and Japan. Foreign sales are made both directly by the Company
and its subsidiaries and through independent foreign dealers. Generally,
foreign sales are not significantly more or less profitable than domestic
sales, except that the cost of commissions paid to independent dealers in
certain regions tend to exceed the expense that the Company incurs through
direct sales transactions. The regional diversity of the Company's sales base
minimizes the effect of economic cycles in any one particular market.
Machine sales have accounted for an average of approximately 60% of the
Company's annual net sales from 1994 through 1996. Other sales are generated
principally from consumable cutting tools, accessories and aftermarket
services.
The Company's sales are not dependent on any one customer, although they are
dependent upon the domestic and foreign automotive and truck industries in
general. Those industries are the largest user of the Company products,
accounting for approximately 76% of net sales (65% of net sales pro forma with
Pfauter) for
28
<PAGE>
the year ended December 31, 1996. During this period, consolidated net sales
included $36.0 million, or 14.5% of total net sales, to various divisions of
Ford Motor Company and its subsidiaries in this country and abroad. Direct
sales to U.S. governmental agencies are insignificant. The Company's sales are
not seasonal in nature, but have historically been subject to quarterly
fluctuations.
Because of the varying and complex requirements of its customers and the
technical nature of gear design, a close working relationship exists between
the Company and its customers. The Company's engineers and service
technicians, as well as its foreign dealer personnel, travel extensively to
customers' plants to assist in the design and application of gears, in the
selection of equipment to meet customers' production and testing requirements
and to provide services. The Company has a worldwide reputation as an
authority on gear engineering and provides customer access to its proprietary
computer-aided gear design and analysis system. To assure the competence of
its technical personnel, the Company mandates training programs in gear
design, machine operation and maintenance. The Company's customers from around
the world also avail themselves of these training programs to upgrade their
gear engineering and manufacturing expertise.
BACKLOG
Backlog (unshipped orders) is a measure of short-term business activity.
Because of the nature of the industry, backlog is subject to fluctuation. As
of September 30, 1997, backlog totaled $194.9 million compared to $131.0
million as of September 30, 1996 and $122.8 million as of December 31, 1996.
The Pfauter operations accounted for $81.2 million of the September 30, 1997
backlog. The Company expects substantially all of the September 30, 1997
backlog to be shipped within twelve months of such date.
RESEARCH AND DEVELOPMENT
The Company considers product development to be an important factor in
maintaining and improving its market position and strives to provide its
customers with equipment which incorporates new technology and results in
manufacturing costs savings. Many advancements in the gear design field have
been first described in technical papers published by the Company and have
subsequently been adopted by the American Gear Manufacturers Association in
their standards of gear design and specifications.
The Company works closely with its customers to develop new gear designs for
their applications and to determine the feasibility of manufacturing
particular gears. The Company assists its customers in determining the best
machinery, cutting tools and configuration for their application, customizing
machines and tools, as necessary. As a result of frequent contact with its
customers, the Company is able to assess the need and market demand for new
products to meet its customers' requirements. These efforts have been the
primary stimulus for the introduction and expansion of the Company's PHOENIX
product line.
The Company has been a leader in the development of gearing technology by
maintaining an active research and development program. During the year ended
December 31, 1996, the Company expended approximately $7.2 million on research
and development activities, compared to $5.6 million during the year ended
December 31, 1995. These activities were conducted exclusively by the Company.
The Company owns over 375 U.S. and foreign patents and presently has over
125 patent applications pending. While the Company expects to continue its
policy of obtaining patents as appropriate, it does not consider any single
patent to be a significant factor in the successful conduct of its business.
See "Risk Factors--Dependence on Intellectual Property Rights."
EMPLOYEES
At September 30, 1997, the Company had approximately 2,600 employees. Many
of the Company's employees possess a high degree of engineering, technical and
mechanical skills. Management believes its relationships with its employees
are good. With the exception of government-mandated employee representation in
Germany and Italy, the Company's employees are not represented by any
collective bargaining agent.
PROPERTIES
The Company's corporate office is located in Rochester, New York and its
manufacturing operations are conducted at plants in Rochester, New York;
Rockford, Illinois; Munich and Ludwigsburg, Germany; Plymouth, England;
Bologna and Porretta Terme, Italy; Bangalore, India; and Biel, Switzerland.
29
<PAGE>
The following table sets forth certain information regarding the Company's
major facilities:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE PRINCIPAL PRODUCTS
- -------- -------------- ------------------
<S> <C> <C>
Owned Facilities:
Rochester, New York..... 721,000 Bevel and cylindrical gear production machines
and workholding equipment
Ludwigsburg, Germany.... 285,000 Cylindrical gear production machines
Rockford, Illinois...... 250,000 Cylindrical gear cutting tools, gear production
machine assembly
Plymouth, England....... 106,000 Bevel gear cutting tools
Leased Facilities:
Munich, Germany......... 248,000 Cylindrical gear production machines and cutting
tools
Bologna, Italy.......... 202,000 Cylindrical gear production machines
Porretta Terme, Italy... 46,000 Cylindrical gear production machines
Bologna, Italy.......... 15,000 Cylindrical gear cutting tools
Biel, Switzerland....... 11,000 Cylindrical gear production machine assembly
Bangalore, India........ 9,000 Bevel gear cutting tools
</TABLE>
The Munich, Germany facility is being leased for a term ending in 2001. The
lease for the 202,000-square foot facility in Bologna, Italy expires in
September, 1998. The Company owns approximately 250 acres of undeveloped land
in Monroe County, New York and leases office space for its sales and service
offices in various locations around the world. The Company leases the land and
building of a former subsidiary to the new owners of that business.
ENVIRONMENTAL AND RELATED MATTERS
The Company generates hazardous and nonhazardous wastes in the normal course
of its manufacturing operations. As a result, the Company is subject to a wide
range of federal, state, local and foreign environmental laws and regulations,
including the Comprehensive Environmental Response, Compensation and Liability
Act, that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as
handling and disposal practices for hazardous and nonhazardous wastes, and
(ii) impose liability for the costs of cleaning up, and certain damages
resulting from, sites of past spills, disposals or other releases of hazardous
substances. Compliance with such laws and regulations requires expenditures by
the Company on a continuing basis. The Company does not expect that these
expenditures will have a material adverse effect on its financial condition or
results of operations.
LEGAL
The Company is involved in routine litigation in the normal course of its
business. The Company does not believe that any pending or threatened
litigation or claims will have a material effect on the Company's financial
condition or results of operations.
30
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the executive
management and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James S. Gleason............ 63 Chairman of the Board, Chief Executive Officer,
President and Director
David J. Burns.............. 43 Executive Vice President and Director
David W. Goodfellow......... 51 Senior Vice President--Worldwide Sales (The
Gleason Works) and President of Pfauter-Maag
Cutting Tools L.P.
John J. Perrotti............ 37 Vice President--Finance and Chief Financial
Officer
Ralph E. Harper............. 63 Vice President, Secretary and Treasurer
John B. Kodweis............. 55 Vice President--Administration and Human
Resources
John W. Pysnack............. 35 Controller
Martin L. Anderson.......... 48 Director
Julian W. Atwater........... 66 Director
Robert W. Bjork............. 71 Director
J. David Cartwright......... 58 Director
John W. Guffey, Jr.......... 59 Director
Donald D. Lennox............ 78 Director
William P. Montague......... 50 Director
Robert A. Sherman........... 78 Director
Robert L. Smialek........... 53 Director
</TABLE>
James S. Gleason has been President and Chief Executive Officer of the
Company since 1985. He received his AB degree from Princeton University and
his MBA degree from the William E. Simon Graduate School of Business
Administration of the University of Rochester. He is the 1997 Chairman of the
Association for Manufacturing Technology and is a Trustee of the Rochester
Institute of Technology. He is also the President and a director of Gleason
Foundation.
David J. Burns has been Executive Vice President of the Company since 1995,
and from 1992 to 1995 was Vice President of the Machine Products Group of the
Company. He received his BA degree from St. John Fisher College and his MBA
degree from the William E. Simon Graduate School of Business Administration of
the University of Rochester.
David W. Goodfellow has been Senior Vice President--Worldwide Sales (The
Gleason Works) since 1997. He has also been President and Chairman of Pfauter-
Maag since 1987 and President of American Pfauter, L.P. since 1976. He has
been a director of the American Gear Manufacturers Association since 1992.
John J. Perrotti has been Vice President of Finance and Chief Financial
Officer of the Company since 1995 and from 1993 to 1995 was Vice President--
Controller of the Company. He received his BS degree from Rochester Institute
of Technology and his MBA degree from the William E. Simon Graduate School of
Business Administration of the University of Rochester and is a Certified
Public Accountant.
Ralph E. Harper has been Vice President, Secretary and Treasurer of the
Company since 1993. Prior thereto, he was Corporate Counsel of the Company. He
received his BA degree from the University of Rochester and his LLB degree
from George Washington University.
John B. Kodweis has been Vice President--Administration and Human Resources
of the Company since 1992. He received his BS degree from John Carroll
University and his MBA degree from Rochester Institute of Technology.
31
<PAGE>
John W. Pysnack has been Controller of the Company since 1995. Previously,
he was Director of Accounting of the Company. He received his BS degree from
St. John Fisher College and is a Certified Public Accountant.
Martin L. Anderson has been Director of Supply Chain Programs, Babson
College, since 1996. He has been Affiliate Director of the International Motor
Vehicle Program, Massachusetts Institute of Technology, since 1996.
Previously, he was Associate Director of that Program and prior thereto was
Vice President of Gemini Consulting.
Julian W. Atwater, P.C. is a partner in Nixon, Hargrave, Devans & Doyle llp,
one of the Company's principal outside counsel. See "Legal Matters."
Robert W. Bjork has been a personal investment and private consultant with
Jefferson Financial Corp. since 1995, and previously was a Vice President of
Schaenen Wood & Associates, Inc., an investment management firm.
J. David Cartwright has been President of Cooper Hand Tools, a division of
Cooper Industries, Inc., since 1994 and previously was President of Champion
Spark Plug Company, a division of Cooper Industries, Inc.
John W. Guffey Jr. has been Chairman, President and Chief Executive Officer
of Coltec Industries since 1995 and previously was President and Chief
Operating Officer of Coltec Industries.
Donald D. Lennox was Chairman of the Board of International Imaging
Materials, Inc., a manufacturer of thermal transfer ribbons for office
equipment, from 1990 through 1997. Previously, he was Chairman and Chief
Executive Officer of Schlegel Corporation and prior thereto was Chairman,
President and Chief Executive Officer of Navistar International Corporation.
He is a director of Prudential Mutual Fund Management Corporation.
William P. Montague has been President of Mark IV Industries, Inc. since
1996. Previously, he was Executive Vice President and Chief Financial Officer
of Mark IV, whose core technologies include power transmission, fluid transfer
and filtration systems, and components for global industrial and automotive
markets. He is a director of Mark IV Industries, Inc. and of Gibraltar Steel
Corporation.
Robert A. Sherman, now retired, was Senior Vice President-Finance and
Administration of Eastman Kodak Company.
Robert L. Smialek has been President, Chief Executive Officer and Chairman
of Insilco Corp., a diversified manufacturer of industrial and specialty
consumer products, since 1993. Previously, he was President and Chief
Operating Officer of Siebe plc Controls Group. He is also a director of
Thermalex, Inc.
32
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The Retirement Plan of The Gleason Works is selling its Shares in order to
liquify its assets in anticipation of settling the Plan's liabilities. Gleason
Foundation is selling a portion of its shares of Common Stock to increase the
diversification of its holdings. The following table sets forth certain
information concerning the beneficial ownership of the Common Stock as of
November 10, 1997 and as adjusted to reflect the sale of 400,000 Shares by the
Company and the sale of 1,200,000 Shares by the Selling Stockholders, by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each of the Selling Stockholders, (iii)
each director of the Company, (iv) each of the Company's five most highly
compensated executive officers in 1996 and (v) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING(1) SHARES TO OFFERING(1)
----------------------- BE SOLD -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT IN OFFERING NUMBER PERCENT
- ------------------------ ------------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Gleason Foundation(2)... 1,359,126 13.6% 429,896 929,230 9.0%
The Retirement Plan of
The Gleason Works...... 770,104 7.7% 770,104 -- --
Dimensional Fund
Advisors, Inc.(3)...... 668,000 6.7% -- 668,000 6.4%
James S. Gleason(4)-
(7).................... 462,518 4.5% -- 462,518 4.3%
David J.
Burns(5)(6)(7)......... 72,238 * -- 72,238 *
John B.
Kodweis(5)(6)(7)....... 70,064 * -- 70,064 *
Robert A.
Sherman(5)(6)(8)....... 59,595 * -- 59,595 *
Ralph E.
Harper(5)(6)(7)........ 51,256 * -- 51,256 *
John J.
Perrotti(5)(6)(7)...... 50,732 * -- 50,732 *
Donald D.
Lennox(5)(6)(8)........ 41,124 * -- 41,124 *
Julian W.
Atwater(5)(6)(8)....... 31,295 * -- 31,295 *
Robert W.
Bjork(5)(6)(8)......... 30,261 * -- 30,261 *
J. David
Cartwright(5)(6)(8).... 20,181 * -- 20,181 *
John W. Guffey,
Jr.(5)(6)(8)........... 18,222 * -- 18,222 *
Martin L.
Anderson(5)(6)(8)...... 14,303 * -- 14,303 *
William P.
Montague(5)(6)(8)...... 4,601 * -- 4,601 *
Robert L.
Smialek(5)(6)(8)....... 601 * -- 601 *
All directors and
executive officers as a
group
(16 persons)(2)(4)-
(9).................... 3,071,815 28.9% 1,200,000 1,871,815 17.0%
</TABLE>
- --------
* Less than 1% of the outstanding shares of Common Stock.
(1) Sole dispositive and voting powers unless otherwise indicated by footnote.
(2) If the over-allotment option is exercised, the number of shares that
Gleason Foundation will sell in the Offering, the number of shares
beneficially owned by Gleason Foundation and the percentage of outstanding
shares beneficially owned by Gleason Foundation will be 494,380, 864,746
and 8.3%, respectively.
(3) Based on information contained in the Schedule 13G filed by Dimensional
Fund Advisors, Inc. with the Securities and Exchange Commission on
February 12, 1997. Dimensional Fund Advisors, Inc. has sole dispositive
power with respect to all of the listed shares and has sole voting power
with respect to 385,200 of such shares. Officers of Dimensional Fund
Advisors Inc. vote an additional 49,400 shares as officers of the DFA
Investment Trust Company and an additional 233,400 shares as officers of
DFA Investment Dimensions Group Inc.
(4) Amounts include 65,710 shares held in a trust of which Mr. Gleason is an
income beneficiary, the trustee of which has agreed to vote and dispose of
the shares only as specified by him.
(5) Except as indicated in Notes 6 and 8, for all shares listed the person
possesses sole voting power and, except as indicated in Notes 4, 7 and 8,
sole dispositive power.
(6) Amounts include stock options which are exercisable prior to December 31,
1997: Messrs. Atwater, Bjork and Sherman--24,000 shares each; Messrs.
Anderson, Cartwright, Guffey, Lennox, Gleason, Burns, Harper, Kodweis, and
Perrotti--10,000, 12,000, 10,000, 20,000, 296,600, 56,778, 41,000, 50,000
and 39,000 shares respectively; and all directors and executive officers
as a group--615,378 shares.
(7) Amounts include the following number of shares which at September 30, 1997
were subject to restrictions on disposition: Messrs. Gleason, Burns,
Harper, Kodweis and Perrotti--14,824, 8,104, 1,918, 5,230, and 8,878
shares respectively; and all directors and executive officers as a group--
46,382 shares.
(8) Amounts include 4,303, 2,295, 2,261, 8,181, 4,222, 15,114, 21,521, 601 and
601 hypothetical shares (without voting power) credited to the accounts of
Messrs. Anderson, Atwater, Bjork, Cartwright, Guffey, Lennox, Sherman,
Montague and Smialek, respectively, pursuant to the Company's Plan for the
Deferral of Directors' Fees.
(9) Amounts include 770,104 shares owned by The Retirement Plan of The Gleason
Works, the powers to vote and dispose of which are vested in a committee
comprised of Messrs. Gleason, Harper and Kodweis, and 1,359,126 shares
owned by Gleason Foundation, of which Messrs. Gleason, Harper and Kodweis
are directors and/or officers. The stockholdings of these entities are not
included above in those individuals' stockholdings.
33
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $1.00 per share, and 500,000 shares of preferred
stock, par value $1.00 per share (the "Preferred Stock"). As of November 10,
1997, 11,594,140 shares of Common Stock were issued, of which 9,964,897 were
outstanding and held by approximately 3,000 stockholders of record. As of such
date, there were options outstanding under the Company's 1981 and 1992 Stock
Plans to purchase an aggregate of up to approximately 685,650 shares of Common
Stock, which options had a weighted average exercise price of approximately
$10.99 per share, and there were 59,099 hypothetical shares outstanding under
the Company's Plan for the Deferral of Directors' Fees (which hypothetical
shares are held by certain directors of the Company and have no voting
rights). No shares of Preferred Stock have been issued by the Company. The
Board of Directors has, however, established the Series A Junior Participating
Preferred Stock, consisting of 87,500 shares, and fixed by resolution the
designation and other terms thereof, for use in connection with the Company's
Shareholder Rights Plan. No such shares have been issued and the related
rights (the "Rights") are not currently exercisable.
COMMON STOCK
Subject to the right of holders of Preferred Stock issued in the future to
elect one or more directors if dividends on such shares are in default, the
holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. The holders of shares of Common Stock
are not entitled to cumulate their votes in the election of directors and, as
a consequence, minority stockholders will not be able to elect directors on
the basis of their votes alone. Subject to any dividend preferences that may
be applicable to any shares of Preferred Stock issued in the future, holders
of shares of Common Stock are entitled to receive ratably such dividends as
may be declared from time to time by the Board of Directors, in its
discretion, from any assets legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and any liquidation preferences that may be applicable to any
shares of Preferred Stock issued in the future. The holders of Common Stock
are not entitled to preemptive, subscription or conversion rights, and there
are no redemption or sinking fund provisions applicable to the Common Stock.
The holders of Common Stock are not subject to further calls or assessments by
the Company. All outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. See "Certain Anti-Takeover Provisions--Series A Junior
Participating Stock" below.
The Common Stock is quoted on the New York Stock Exchange under the symbol
"GLE." The Company's transfer agent and registrar for the Common Stock is
American Stock Transfer & Trust Company, New York, New York 10005.
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<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could make more difficult the acquisition of the Company, or
control of the Company, by means of a tender offer, a proxy contest, or
otherwise. These provisions are intended to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of the Company to negotiate first with the
Board of Directors. The Company believes that the benefits of these provisions
outweigh the potential disadvantages of discouraging such proposals because,
among other things, negotiation of such proposals might result in an
improvement of their terms. The description set forth below is intended as a
summary only and is qualified in its entirety by reference to the Certificate
of Incorporation, the Bylaws, and the Rights Agreement dated as of June 8,
1989 between the Company and Chase Lincoln First Bank, N.A. (now The Chase
Manhattan Bank), as Rights Agent, all as amended, which are incorporated by
reference into the Registration Statement of which this Prospectus is a part.
SHAREHOLDER RIGHTS PLAN
Pursuant to the Company's Shareholder Rights Plan (the "Plan"), which was
adopted by the Board of Directors in June 1989, each outstanding share of
Common Stock carries one Preferred Stock purchase Right. Each Right, when
exercisable, entitles the holder to purchase from the Company for $22.50, one
two-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share, of the Company. The Rights become exercisable, subject
to certain exceptions, upon announcement that a person or group has acquired
15% or more of the Company's outstanding Common Stock, or 10 days, or such
other period as the Board may determine, following commencement of, or
announcement of an intention to commence, a tender or exchange offer the
consummation of which would result in a person or group owning 15% or more of
the Company's outstanding Common Stock, whichever occurs first. Until the
Rights become exercisable, they will be evidenced by the certificates for the
shares of Common Stock. If and when they become exercisable, Rights
Certificates will be issued which will trade separately from the shares of
Common Stock.
If any person or group becomes the beneficial owner of 15% of the
outstanding Common Stock, other than pursuant to a Permitted Offer, as defined
in the Plan, each holder of a Right, other than an Acquiring Person as defined
in the Plan, will have the right to receive, upon exercise, Common Stock (or,
in certain circumstances, cash, property or other securities of the Company or
to a reduction in the purchase price) having a value equal to two times the
exercise price of $22.50, or the Board may elect to issue without any payment
Common Stock and/or equivalents of the Company with a value equal to the
exercise price. If a person or group becomes the beneficial owner of 15% or
more of the outstanding Common Stock and the Company is thereafter acquired by
another entity, by merger, consolidation, or transfer of 50% or more of the
Company's assets, in one or more transactions, each holder of a Right, other
than an Acquiring Person, will have the right to receive, upon exercise,
common shares of the acquiring company (including the Company if it is the
surviving company) having a value equal to two times the exercise price
($22.50) of the Right. The Rights will expire on June 15, 1999, unless
exercised by the holder or redeemed by the Company prior to that date. The
Company may, subject to certain conditions, redeem the Rights at a price of
$.005 per Right.
The Plan is designed to protect stockholders against unsolicited attempts to
acquire control of the Company, whether through accumulation of shares in the
open market or tender offers that do not offer what the Board believes to be
an adequate price to all stockholders.
STAGGERED BOARD OF DIRECTORS
The Certificate of Incorporation and the Bylaws provide that the Board of
Directors will be divided into three classes of directors, each class
constituting approximately one-third of the total number of directors and with
the classes serving staggered three-year terms. The classification of
directors will have the effect of making it more difficult for stockholders to
change the composition of the Board of Directors. The Company believes,
35
<PAGE>
however, that the longer time required to elect a majority of a classified
Board of Directors will help to ensure continuity and stability of the
Company's management and policies.
The classification provisions could also have the effect of discouraging a
third party from accumulating large blocks of the Company's stock or
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. Accordingly, stockholders
could be deprived of certain opportunities to sell their shares of Common
Stock at a higher market price than might otherwise be the case.
NUMBER OF DIRECTORS; REMOVALS; FILLING VACANCIES
The Bylaws of the Company provide that the number of directors will be fixed
by the Board of Directors, but shall consist of not less than five nor more
than fifteen directors. In addition, the Bylaws provide that any vacancies may
be filled by the affirmative vote of a majority of the remaining directors,
though less than a quorum. Accordingly, the Board of Directors could
temporarily prevent any stockholder from enlarging the Board of Directors and
filling the new directorships with such stockholder's own nominees.
Under the Delaware General Corporation Law ("DGCL"), directors serving on a
classified board may only be removed by the stockholders for cause.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Company's Certificate of Incorporation provides that stockholder action
can be taken only at a meeting of stockholders. The DGCL provides that special
meetings of stockholders may be called by the Board of Directors or by such
person or persons authorized by the certificate of incorporation or the
bylaws. The Company's Bylaws provide only for the calling of such meetings by
the Board of Directors. These provisions could have the effect of delaying
consideration of a stockholder proposal until the next annual meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or bring other business
before an annual meeting of stockholders of the Company (the "Stockholder
Notice Procedure").
The Stockholder Notice Procedure provides that (i) only persons who are
nominated by, or at the direction of, the Board of Directors, or by a
stockholder who has given timely written notice containing specified
information to the Secretary of the Company prior to the meeting at which
Directors are to be elected, will be eligible for election as directors of the
Company and (ii) at an annual meeting only such business may be conducted as
has been brought before the meeting by, or at the direction of, the Board of
Directors, or by a stockholder who has given timely written notice to the
Secretary of the Company of such stockholder's intention to bring such
business before such meeting. For notice of stockholder nominations or
business to be made at an annual meeting to be timely, such notice must be
received by the Company not less than 60 days nor more than 90 days prior to
the scheduled date of the meeting, except that, if less than 70 days notice or
prior public disclosure of the date of such meeting is given, then within 10
days following the earlier of mailing such notice or making such public
disclosure.
The purpose of requiring stockholders to give the Company advance notice of
nominations and other business is to afford the Board of Directors a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the Board of Directors, to inform stockholders and
make recommendations about such qualifications or business, as well as to
provide a more orderly procedure for conducting meetings of stockholders.
Although the Bylaws do not give the Board of Directors any power to disapprove
stockholder nominations for the election of directors or proposals for action,
they could have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper
procedures are not followed, and of discouraging or
36
<PAGE>
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to the Company and its stockholders.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to
establish one or more series of Preferred Stock and to determine, with respect
to any series of Preferred Stock, the preferences, rights and other terms of
such series. The Company believes that the ability of the Board of Directors
to issue one or more series of Preferred Stock will provide the Company with
increased flexibility in structuring possible future financing and
acquisitions and in meeting other corporate needs which might arise. The
authorized shares of Preferred Stock will be available for issuance without
further action by the Company's stockholders, unless such action is required
by applicable law or the rules of any stock exchange or automated quotation
system on which the Company's securities are listed or traded. Although the
Board of Directors has no intention at the present time of doing so, it could
issue a series of Preferred Stock that could, depending on the terms of such
series, impede a merger, tender offer or other transaction that some, or a
majority, of the Company's stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock
over the then current market price of such stock.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
As indicated above, the Board of Directors has established the Series A
Junior Participating Preferred Stock ("Series A Preferred Shares"), consisting
of 87,500 shares. Each Right under the Plan will become exercisable for one
two-hundredth of such a share if the Distribution Date under the Plan occurs.
The holders of Series A Preferred Shares will be entitled with respect to
each such share to: (i) subject to the rights of holders of any senior
preferred shares, receive quarterly dividends in an amount per share equal to
the greater of $1 or 100 times the dividend paid on a share of Common Stock;
(ii) 100 votes on all matters on which holders of Common Stock vote, voting
together with holders of Common Stock as a single class, except that, if
dividends on the Series A Preferred Shares are in default for six consecutive
quarters, holders of the Series A Preferred Shares will be entitled to elect
two directors until such default is cured; and (iii) subject to the rights of
holders of any senior preferred shares, receive on liquidation $100 per share,
plus any accrued unpaid dividends, and then, following payment to the holders
of Common Stock of $.50 per share, holders of Preferred Shares and holders of
Common Stock will share in the remaining assets in the ratio of 200 per
Preferred Share to 1 per share of Common Stock. The Preferred Shares are not
redeemable.
FAIR PRICE PROVISION
The Company's Certificate of Incorporation contains a Fair Price Provision
which was adopted prior to the adoption of Section 203 of the DGCL (see "--
Anti-takeover Legislation" below) and which, while generally similar in effect
to that Section, has a number of differences from it. The Company provision
provides that any Business Combination with or involving a stockholder
("Interested Stockholder") which, with its affiliates, beneficially owns 10%
or more of the outstanding Common Stock ("Major Stockholder") shall require
the affirmative vote of at least the holders of 85% of the outstanding shares
of Common Stock and the holders of 2/3rds of the outstanding shares of Common
Stock not owned by such stockholder, unless: (i) the Business Combination
shall have been approved by a majority of the Disinterested Directors, as
defined in the provision; or (ii) the consideration paid in the Business
Combination shall be in an amount and form specified in the provision; a proxy
or information statement for the Business Combination complying with the
requirements of the Exchange Act shall be provided; the Interested Stockholder
shall have received no benefits specified in the provision since becoming a
Major Stockholder; and, except as approved by a majority of Disinterested
Directors, dividends shall have continued to be paid at least at the highest
rate paid since one year before the Interested Stockholder became a Major
Stockholder, and it shall not have acquired additional shares since becoming a
Major Stockholder.
37
<PAGE>
The provision is designed to prevent two-step acquisitions in which an
acquiring person or company obtains a sufficient number of shares to enable it
to vote for a merger in which the remaining stockholders are forced out,
receiving less than the acquirer offered in the first step and perhaps also
receiving unmarketable securities rather than cash, and perhaps being
oppressed in the interim, and may accordingly make it more difficult for an
Interested Stockholder to effect a Business Combination with the Company.
ANTI-TAKEOVER LEGISLATION
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any interested stockholder (generally a 15% stockholder) for a three-year
period following the date that such stockholder becomes an interested
stockholder unless (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, or (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock at the time the transaction commenced (excluding certain shares),
or (iii) on or subsequent to such date, the business combination is approved
by the board of directors of the corporation and by the affirmative vote of at
least 66 2/3% of the voting stock which is not owned by the interested
stockholder. Section 203 of the DGCL may accordingly make it more difficult
for an interested stockholder to effect various business combinations with a
corporation for a three-year period.
38
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
dated as of , 1997 (the "Underwriting Agreement"), Furman Selz LLC,
McDonald & Company Securities, Inc. and ABN AMRO Chicago Corporation (the
"Underwriters") have severally agreed to purchase, and the Company and the
Selling Stockholders have severally agreed to sell to them, the aggregate
number of Shares set forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Furman Selz LLC....................................................
McDonald & Company Securities, Inc.................................
ABN AMRO Chicago Corporation.......................................
---------
Total............................................................ 1,600,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by counsel
and various other conditions. The nature of the Underwriters' obligations is
such that they are committed to purchase all of the above Shares if any are
purchased. The Underwriters propose to offer the Shares directly to the public
at the public offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of
$. per share. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $. per share to certain other dealers. After
the Offering, the offering price and other selling terms may be changed by the
Underwriters.
Certain persons participating in the Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids or effecting syndicate
covering transactions. A stabilizing bid means the placing of any bid or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of the Common Stock. A syndicate covering transaction means the
placing of any bid on behalf of the underwriting syndicate or the effecting of
any purchase to reduce a short position created in connection with the
Offering. Such transactions may be effected on the New York Stock Exchange, in
the over-the-counter market, or otherwise. Such stabilizing, if commenced, may
be discontinued at any time.
The Company and Gleason Foundation have granted to the Underwriters an
option, expiring 30 days from the date of this Prospectus, to purchase up to
124,484 additional shares of Common Stock on the same terms as set forth on
the cover page of this Prospectus, solely to cover over-allotments, if any,
incurred in the sale of the Shares offered hereby. If the Underwriters
exercise the option, each Underwriter will have a firm commitment, subject to
certain conditions, to purchase such number of additional shares of Common
Stock as is proportionate to such Underwriter's initial commitment to purchase
shares from the Company and the Selling Stockholders.
The Company, Gleason Foundation and James S. Gleason have agreed that for a
period of 90 days (180 days in the case of the Company) following the date of
this Prospectus, they will not, without the prior written consent of Furman
Selz LLC, directly or indirectly, offer for sale, sell, contract to sell, or
grant any option to purchase or otherwise dispose of any shares of the Common
Stock, except that (i) the Company may grant options under its 1981 and 1992
Stock Plans and hypothetical shares under its Plan for the Deferral of
Directors' Fees and may issue shares pursuant to the exercise of outstanding
options or under the Company's Plan for the Deferral of Directors' Fees, and
(ii) Mr. Gleason may sell certain shares of Common Stock in order to satisfy
tax obligations resulting from his exercise of Company stock options.
The Company and the Selling Stockholders have severally agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
39
<PAGE>
The Common Stock is quoted on the New York Stock Exchange under the symbol
"GLE."
The principal address of Furman Selz LLC is 230 Park Avenue, New York, New
York 10169, the principal address of McDonald & Company Securities, Inc. is
800 Superior Avenue, Cleveland, Ohio 44114, and the principal address of ABN
AMRO Chicago Corporation is 208 South LaSalle Street, Suite 1000, Chicago,
Illinois 60604.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Company by Nixon, Hargrave, Devans & Doyle llp,
Rochester, New York. Julian W. Atwater, whose professional corporation is a
partner of Nixon, Hargrave, Devans & Doyle LLP, is a director of the Company
and owns 5,000 shares of Common Stock, options to purchase 24,000 shares of
Common Stock and 2,295 hypothetical shares granted under the Company's Plan
for the Deferral of Directors' Fees. Certain legal matters in connection with
the Common Stock offered hereby will be passed upon for the Underwriters by
Rogers & Wells, New York, New York.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996
and 1995, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon authority of such firm as experts in accounting and
auditing.
The consolidated balance sheets of Hermann Pfauter GmbH & Co. and its
consolidated subsidiaries at December 31, 1996 and 1995, the related
consolidated financial statements of cash flows for the years then ended and
the related consolidated statements of income for the years ended December 31,
1996, 1995 and 1994 appearing in the Company's Current Report on Form 8-K
dated August 14, 1997, as amended, have been audited by Schitag Ernst & Young
Deutsche Allgemeine Treuhand AG Wirtschaftspruefungsgesellschaft (formerly
Ernst & Young GmbH), independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference which, as to the
years 1995 and 1994, are based in part on the reports of Dugan & Lopatka,
CPAs, PC, independent auditors. The financial statements referred to above are
incorporated herein by reference in reliance upon such reports given upon
authority of such firms as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at its offices at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's Web site on the Internet at
http://www.sec.gov.
In addition, the Common Stock is listed on the New York Stock Exchange under
the symbol "GLE," and reports, proxy statements and other information
concerning the Company may also be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
40
<PAGE>
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the contents of any contract or other document 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 reference to
such contract or document. For further information regarding the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement and the exhibits and schedules thereto which can be obtained from
the Public Reference Section of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated by reference in this Prospectus:
(1) The Company's Annual Report on Form 10-K for the year ended December
31, 1996, as amended by the Company's Form 10-K/A relating thereto filed on
October 2, 1997;
(2) The Company's Proxy Statement relating to its 1997 Annual Meeting of
Stockholders filed on March 27, 1997;
(3) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997, as amended by the Company's Form 10-Q/As
relating thereto filed on October 2, 1997;
(4) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 filed on November 12, 1997.
(5) The Company's Current Report on Form 8-K filed on August 14, 1997, as
amended by the Company's Form 8-K/As relating thereto filed on September
25, 1997, October 2, 1997 and November 28, 1997; and
(6) The Company's Current Report on Form 8-K dated October 2, 1997 and
filed on October 3, 1997.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this
Prospectus and prior to the termination of the Offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the respective
dates of the filing of such documents. Any statement 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 superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request of any such person,
a copy of any and all of such documents (other than exhibits to such documents
which are not specifically incorporated by reference into such documents).
Requests for such copies should be directed to Controller, Gleason
Corporation, 1000 University Avenue, Rochester, New York 14692-2970 (telephone
number (716) 473-1000).
41
<PAGE>
GLEASON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
GLEASON CORPORATION AND SUBSIDIARIES
Financial Statements:
Report of Independent Auditors....................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995............ F-3
Consolidated Statements of Operations for the years ended December
31, 1996, 1995 and 1994............................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994.................................... F-5
Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994............................................. F-6
Notes to Consolidated Financial Statements........................... F-7
Interim Financial Statements (unaudited):
Consolidated Balance Sheets at September 30, 1997 and December 31,
1996................................................................ F-22
Consolidated Statements of Operations for the three months ended
September 30, 1997 and 1996......................................... F-23
Consolidated Statements of Operations for the nine months ended
September 30, 1997 and 1996......................................... F-24
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996......................................... F-25
Notes to Consolidated Financial Statements........................... F-26
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF GLEASON CORPORATION AND
HERMANN PFAUTER GMBH & CO. (UNAUDITED)
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996............................................. F-29
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997..................................... F-30
Notes to the Pro forma Financial Information......................... F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
STOCKHOLDERS AND BOARD OF DIRECTORS OF GLEASON CORPORATION
We have audited the accompanying consolidated balance sheets of Gleason
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gleason
Corporation and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Syracuse, New York
January 30, 1997, except for Note 19, as to which the date is October 1, 1997
F-2
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents..................................... $ 7,199 $ 9,926
Trade accounts receivable................................ 65,583 65,288
Inventories.............................................. 27,986 29,565
Deferred tax asset....................................... 6,894 4,113
Other current assets..................................... 4,038 5,468
-------- --------
Total current assets....................................... 111,700 114,360
Property, plant and equipment--net......................... 61,391 60,948
Deferred tax asset......................................... 10,013 14,755
Other assets............................................... 7,570 7,135
-------- --------
Total assets............................................... $190,674 $197,198
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings.................................... $ 329 $ 1,489
Current portion of long-term debt........................ 6 6
Trade accounts payable................................... 16,972 16,153
Income taxes............................................. 10,224 2,335
Other current liabilities................................ 30,335 33,968
-------- --------
Total current liabilities.................................. 57,866 53,951
Long-term debt............................................. 4,506 25,315
Pension plans and other retiree benefits................... 38,220 38,876
Other liabilities.......................................... 5,218 5,765
-------- --------
Total liabilities.......................................... 105,810 123,907
Stockholders' equity
Preferred Stock, par value $1 per share;
authorized 500,000 shares; issued: none
Common Stock, par value $1 per share;
authorized 20,000,000 shares; issued:
11,594,140 shares in 1996 and 11,592,892 shares in
1995.................................................... 11,594 11,593
Additional paid-in capital............................... 5,731 5,952
Retained earnings........................................ 86,187 69,112
Cumulative foreign currency translation adjustment....... (2,149) (2,156)
Minimum pension liability adjustment..................... (461) (1,093)
-------- --------
100,902 83,408
Less treasury stock of 1,603,594 shares in 1996 and
1,229,182 shares in 1995, at cost....................... 16,038 10,117
-------- --------
Total stockholders' equity................................. 84,864 73,291
-------- --------
Total liabilities and stockholders' equity................. $190,674 $197,198
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................. $ 248,089 $ 197,046 $ 128,462
Costs and expenses
Cost of products sold................... 167,958 137,461 94,935
Selling, general and administrative
expenses............................... 42,614 33,789 24,539
Research and development expenses....... 7,243 5,617 4,729
Interest expense--net................... 513 527 11
Other (income)--net..................... (982) (1,328) (909)
---------- ---------- ----------
217,346 176,066 123,305
---------- ---------- ----------
Income from continuing operations before
income taxes............................. 30,743 20,980 5,157
Provision (benefit) for income taxes...... 11,083 (9,402) 825
---------- ---------- ----------
Income from continuing operations......... 19,660 30,382 4,332
Gain on disposal of discontinued
operations............................... -- 445 2,956
---------- ---------- ----------
Net income................................ $ 19,660 $ 30,827 $ 7,288
========== ========== ==========
Primary earnings per common share:
Income from continuing operations....... $ 1.84 $ 2.87 $ .42
Gain on disposal of discontinued
operations............................. -- .04 .29
---------- ---------- ----------
Net income.............................. $ 1.84 $ 2.91 $ .71
========== ========== ==========
Fully diluted earnings per common share:
Income from continuing operations....... $ 1.84 $ 2.85 $ .42
Gain on disposal of discontinued
operations............................. -- .04 .29
---------- ---------- ----------
Net income.............................. $ 1.84 $ 2.89 $ .71
========== ========== ==========
Weighted average number of common shares
outstanding:
Primary................................. 10,681,644 10,600,234 10,325,754
Fully diluted........................... 10,681,644 10,679,742 10,325,754
Cash dividends declared per common
share.................................. $ .25 $ .25 $ .20
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN MINIMUM TOTAL
ADDITIONAL CURRENCY PENSION STOCK-
COMMON PAID-IN RETAINED TRANSLATION LIABILITY TREASURY HOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT STOCK EQUITY
------- ---------- -------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993, as previously
reported............... $ 5,796 $11,909 $35,647 $(1,315) $(6,585) $(10,443) $35,009
Effect of stock split... 5,797 (5,797) --
------- ------- ------- ------- ------- -------- -------
Balance at December 31,
1993, as restated...... 11,593 6,112 35,647 (1,315) (6,585) (10,443) 35,009
Net income.............. 7,288 7,288
Dividends declared...... (2,065) (2,065)
Foreign currency
translation
adjustments............ 398 398
Change in minimum
pension liability
adjustment............. 1,576 1,576
Purchase of treasury
stock.................. (7) (7)
------- ------- ------- ------- ------- -------- -------
Balance at December 31,
1994................... 11,593 6,112 40,870 (917) (5,009) (10,450) 42,199
Net income.............. 30,827 30,827
Dividends declared...... (2,585) (2,585)
Shares issued under
Stock Plans............ (147) 320 173
Foreign currency
translation
adjustments............ (1,239) (1,239)
Change in minimum
pension liability
adjustment............. 3,916 3,916
Purchase of treasury
stock.................. (59) (59)
Other shares issued to
employees.............. (13) 72 59
------- ------- ------- ------- ------- -------- -------
Balance at December 31,
1995................... 11,593 5,952 69,112 (2,156) (1,093) (10,117) 73,291
Net income.............. 19,660 19,660
Dividends declared...... (2,585) (2,585)
Shares issued under
Stock Plans............ 1 (221) 298 78
Foreign currency
translation
adjustments............ 7 7
Change in minimum
pension liability
adjustment............. 632 632
Purchase of treasury
stock.................. (6,219) (6,219)
------- ------- ------- ------- ------- -------- -------
Balance at December 31,
1996................... $11,594 $ 5,731 $86,187 $(2,149) $ (461) $(16,038) $84,864
======= ======= ======= ======= ======= ======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 19,660 $30,827 $ 7,288
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization................. 10,707 9,992 9,293
(Gain) loss on disposals of property, plant
and equipment................................ 113 (23) (36)
Provision (benefit) for deferred income
taxes........................................ 2,286 (14,836) (1,426)
Changes in operating assets and liabilities:
(Increase) in accounts receivable........... (954) (23,134) (13,774)
(Increase) decrease in inventories.......... 374 (10,170) 3,288
(Increase) decrease in other current
assets..................................... 1,321 (2,979) 901
Increase in accounts payable................ 786 5,821 3,355
Increase in all other current operating
liabilities................................ 4,318 8,114 3,261
Other, net.................................. (1,037) 1,102 (1,366)
-------- ------- --------
Net cash provided by operating activities......... 37,574 4,714 10,784
Cash flows from investing activities:
Capital expenditures............................ (10,281) (8,309) (3,527)
Investment in unconsolidated affiliate.......... -- -- (1,489)
Investment in subsidiary........................ -- (10,582) --
Proceeds from sales of businesses and asset
disposals...................................... 206 100 3,787
Proceeds from collection of notes receivable.... 54 199 3,281
-------- ------- --------
Net cash provided by (used in) investing activi-
ties............................................. (10,021) (18,592) 2,052
Cash flows from financing activities:
Net proceeds from (repayments of) short-term
borrowings..................................... (1,185) 876 183
Net proceeds (repayments) under revolving credit
agreements..................................... (20,646) 22,490 (12,148)
Proceeds from long-term debt.................... 130 145 83
Repayment of long-term debt..................... (131) (68) (139)
Dividends paid.................................. (2,585) (2,585) (2,065)
Purchase of treasury stock...................... (6,219) (59) (7)
Net stock issued................................ 78 232 --
-------- ------- --------
Net cash provided by (used in) financing
activities....................................... (30,558) 21,031 (14,093)
Effect of exchange rate changes on cash and
equivalents...................................... 278 (400) 275
-------- ------- --------
Increase (decrease) in cash and equivalents....... (2,727) 6,753 (982)
Cash and equivalents, beginning of year........... 9,926 3,173 4,155
-------- ------- --------
Cash and equivalents, end of year................. $ 7,199 $ 9,926 $ 3,173
======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION: The consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions are eliminated in consolidation.
REVENUE RECOGNITION: Sales generally are recognized by the Company when
products are shipped or services have been provided. Sales are reported net of
returns and allowances.
FOREIGN CURRENCY TRANSLATION: All asset and liability accounts of foreign
operations are translated at the current exchange rate, income statement items
are translated at average exchange rates, and the resulting translation
adjustments are made directly to a separate component of stockholders' equity
designated as "cumulative foreign currency translation adjustment." Gains and
losses from foreign currency transactions are reported in operations and had a
minimal impact on the Company in 1996, 1995 and 1994.
CASH AND EQUIVALENTS: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
INVENTORIES: Inventories are valued at the lower of cost or market.
Inventories valued using the last-in, first-out (LIFO) method comprised 59%
and 61% of consolidated inventories at December 31, 1996 and 1995,
respectively. Inventories not valued using the LIFO method are determined on
the first-in, first-out (FIFO) method.
PROPERTY AND DEPRECIATION: Property, plant and equipment are recorded at
cost. Depreciation is computed on the straight-line method over estimated
useful lives of 10 to 32 years for buildings and improvements and 4 to 12
years for machinery and equipment. Upon retirement or disposal of an asset,
the asset and related accumulated depreciation are eliminated with any gain or
loss reported in earnings.
EARNINGS PER SHARE: The computation of primary earnings per common share is
determined by dividing the weighted average number of common shares and (in
periods in which they have a dilutive effect) common share equivalents
outstanding during the year into net earnings. Common share equivalents
include stock options and hypothetical shares associated with the Company Plan
for Deferral of Directors' Fees. Fully diluted earnings per share in 1995
reflected the additional dilution related to stock options due to the use of
the market price of the Company's Common Stock at the end of the period, which
was higher than the average price for the period, in the calculation of the
number of common share equivalents.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Estimates are based on currently available
information. Actual results could differ from the estimates.
RECLASSIFICATION: Certain reclassifications have been made to prior years'
financial statements to conform to the 1996 presentation.
Additional accounting policies are described in the applicable notes.
NOTE 2--HURTH ACQUISITION
Effective July 1, 1995, the Company acquired, for $10,582,000 in cash,
certain assets of Hurth Maschinen und Werkzeuge GmbH ("Hurth"), a Munich,
Germany-based leader in the design and production of cylindrical
F-7
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
gear machinery and tooling. The Company purchased the assets from the receiver
in bankruptcy proceedings. Hurth, which entered bankruptcy on May 31, 1995,
had experienced financial losses during 1994 and 1993 due to the economic
recession in Europe. The Company acquired patents, trademarks, rights to
technology and know-how, machinery and equipment, and inventories, and
retained approximately 280 employees at the Munich location. Under the
agreement, the Company assumed existing obligations for installation and
warranty of machines previously sold and completion of customer orders in
backlog.
The Company accounted for the acquisition under the purchase accounting
method. The purchase included, stated at fair value, inventories ($8,350,000),
machinery and equipment ($9,310,000), technology ($1,450,000), current
liabilities ($6,428,000), long-term pension and other employee benefits
($2,100,000). The acquisition was funded from the Company's revolving credit
facility.
Results of operations after the acquisition date are included in the
Consolidated Statements of Operations. The following unaudited pro forma
information has been prepared assuming that this acquisition had taken place
at the beginning of 1995 and 1994. The pro forma information includes
adjustments for lower personnel costs associated with the reduction in
headcount and lower fixed costs associated with rental of the Munich facility,
additional depreciation and amortization based on the fair market value of
machinery, equipment and technology acquired, elimination of a Hurth
investment in subsidiary loss for 1994, lower outside dealer commission
expense due to contract terminations and higher interest expense that would
have been incurred to finance the acquisition. The pro forma financial
information is not necessarily indicative of the results of operations as they
would have been had the transaction been effected on the assumed dates.
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
Net sales........................................ $ 212,823 $ 166,724
Income from continuing operations................ 28,535 1,989
Net income....................................... 28,980 4,945
Income from continuing operations per common
share........................................... $ 2.69 $ .20
Net income per common share...................... 2.73 .48
</TABLE>
NOTE 3--DISCONTINUED OPERATIONS
In the fourth quarter of 1995, the Company sold the land and building of its
former Alliance Metal Stamping and Fabricating division and recognized a gain
on this disposal of $445,000 (net of applicable income taxes of $229,000).
Proceeds from the sale included an interest bearing note receivable of
$2,100,000 due five years from the date of sale.
During 1994, the Company ceased operations at the Alliance Metal Stamping
and Fabricating division and sold the machinery and equipment located at this
division's facility for $3,550,000. The Company recognized a gain from
discontinued operations of $2,956,000 (net of applicable income taxes of
$400,000), as the loss for the disposition of this division was lower than the
amount previously estimated. Net sales for this discontinued operation were
$7,508,000 for the year ended December 31, 1994.
Accrued costs related to discontinued operations at December 31, 1996 are
presented in the Consolidated Balance Sheets as follows: $ 200,000 ($1,179,000
in 1995) in other current liabilities, and $2,077,000 ($1,500,000
F-8
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
in 1995) in other liabilities. These liabilities principally consisted of
estimated expenses for environmental matters related to the properties of the
Company's former Components Group businesses. Refer to Note 15--Environmental
Matters for further discussion.
NOTE 4--INVENTORIES
The components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Raw materials and purchased parts......................... $ 5,269 $ 5,373
Work in process........................................... 18,063 18,889
Finished products......................................... 4,654 5,303
------- -------
$27,986 $29,565
======= =======
</TABLE>
If the valuation of all inventories had been determined on the FIFO
accounting method, inventories would have been $24,929,000 and $24,209,000
higher at December 31, 1996 and 1995, respectively.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Land.................................................... $ 848 $ 838
Buildings and improvements.............................. 49,620 48,821
Machinery and equipment................................. 119,616 112,040
-------- --------
170,084 161,699
Less accumulated depreciation........................... 108,693 100,751
-------- --------
$ 61,391 $ 60,948
======== ========
</TABLE>
NOTE 6--OTHER CURRENT LIABILITIES
The components of other current liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Salaries, wages and related costs......................... $11,095 $ 8,109
Advance payments from customers........................... 6,177 8,286
Pension and other retiree benefit plan contributions...... 4,614 6,673
Warranty, installation and related costs.................. 4,603 5,184
Other current liabilities................................. 3,846 5,716
------- -------
$30,335 $33,968
======= =======
</TABLE>
NOTE 7--EMPLOYEE RETIREMENT PLANS
The Company has a defined contribution retirement plan and a defined benefit
retirement plan which cover most domestic employees. The employees of certain
foreign operations participate in various postemployment benefit arrangements,
some of which are considered to be defined benefit plans for financial
reporting purposes.
F-9
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Effective December 31, 1990, the Company amended its domestic defined
benefit plan to provide for the freezing of all active employee accrued
defined benefits and full vesting of all active employees in the plan. In
addition, the plan amendment provides that upon settlement of the plan, if the
fair value of plan assets exceeds the accrued defined benefit obligation, any
surplus will be distributed on a pro rata basis as additional benefits to
active employees. If the plan assets are not sufficient to fund the accrued
defined benefit obligation, the Company will make any required additional
contributions. All active employees in the defined benefit plan were enrolled
in the defined contribution plan effective January 1, 1991.
The Company's funding policy is to contribute amounts to the plan sufficient
to meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as the Company may
determine to be appropriate from time to time.
A summary of the components of net periodic pension costs relating to the
domestic defined benefit plan is presented below (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Interest cost on projected benefit obligation....... $ 6,292 $ 6,625 $ 6,387
(Positive) negative return on plan assets........... (9,288) (25,171) 2,012
Net amortization and deferral....................... 2,517 19,117 (8,249)
------- -------- -------
Net periodic pension (income) expense............... $ (479) $ 571 $ 150
======= ======== =======
</TABLE>
The expected long-term rate of return on plan assets used in determining net
periodic pension costs was 9.0% for 1996 and 1995, and 8.25% for 1994.
The following table sets forth the domestic defined benefit plan's funded
status and amounts recognized in the Company's consolidated financial
statements at December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested benefits of
$88,279 in 1996 and $88,690 in 1995....................... $92,707 $92,900
======= =======
Projected benefit obligation............................... $92,707 $92,900
Plan assets at market value................................ 94,680 90,430
------- -------
Projected benefit obligation (lower than) in excess of plan
assets.................................................... (1,973) 2,470
Unrecognized prior service cost............................ (760) (868)
Unrecognized net gain (loss)............................... 702 (1,163)
Adjustment to recognize minimum pension liability.......... -- 2,031
------- -------
(Prepaid pension asset) pension liability recognized in the
consolidated balance sheets............................... $(2,031) $ 2,470
======= =======
</TABLE>
The discount rate used in determining the projected benefit obligation was
7.0% for December 31, 1996 and 1995. The nonvested portion of the accumulated
benefit obligation primarily represents certain early retirement benefits for
individuals not currently eligible. The accumulated benefit obligation is
calculated using the 1983 Group Annuity Mortality Table.
F-10
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
In accordance with FASB Statement No. 87, "Employers' Accounting for
Pensions," the Company must recognize a pension liability at least equal to
the minimum pension liability. The minimum pension liability is the excess of
the accumulated benefit obligation over plan assets. A corresponding amount is
recognized as either an intangible asset or a reduction of equity. At December
31, 1996 the Company recognized a prepaid pension asset of $2,031,000. In 1995
the Company recorded an additional liability of $2,031,000, an intangible
asset of $868,000 and an equity reduction of $768,000. The current portion of
the pension liability recognized in the Consolidated Balance Sheets was
$1,972,000 at December 31, 1995. The decrease in the minimum pension liability
adjustment and resulting prepaid pension asset in 1996 was primarily due to an
increase in the market value of plan assets.
The plan's assets at December 31, 1996 were primarily invested in a tactical
asset allocation fund, cash equivalents and 770,104 shares of the Company's
Common Stock which had a market value of $12,707,000 and $12,514,000 at
December 31, 1996 and 1995, respectively. Dividends paid on the Company's
Common Stock were $192,500 in 1996 and 1995.
All domestic employees participate in the defined contribution retirement
plan. Amounts contributed under this plan are based upon 4% of compensation
for eligible employees. The amounts expensed under this plan for continuing
operations were $1,616,000, $1,490,000 and $1,267,000 in 1996, 1995 and 1994,
respectively.
The Company also has an unfunded supplemental defined benefit retirement
plan to provide certain executives a minimum level of retirement pay, up to a
maximum of 55% of final average earnings. In accordance with the provisions of
FASB Statement No. 87, the Company recognized pension expense of $297,000,
$272,000 and $210,000 in 1996, 1995 and 1994, respectively. At December 31,
1996, the Company recorded a minimum pension liability of $2,119,000
($1,779,000 in 1995), an intangible asset of $409,000 ($490,000 in 1995) and
an equity reduction of $461,000 ($325,000 in 1995).
The Company has a funded defined benefit pension plan which covers employees
at its U.K. subsidiary. The accumulated benefit obligation for this plan
calculated under the provisions of FASB Statement No. 87 at December 31, 1996
was $9,608,000 ($8,615,000 in 1995). The discount rate used in determining the
accumulated benefit obligation was 8.25% in 1996 and 1995. The fair market
value of plan assets at December 31, 1996 totaled $10,782,000 ($8,522,000 in
1995). The Company had a liability for this plan on its Consolidated Balance
Sheets at December 31, 1996 of $455,000 ($326,000 in 1995). The expense
associated with this plan totaled $430,000, $463,000 and $457,000 in 1996,
1995 and 1994, respectively.
The Company also has unfunded retirement benefit plans for employees at
certain other foreign operations, including its Gleason-Hurth subsidiary. The
costs of these foreign benefit plans were $218,000, $231,000 and $177,000 for
1996, 1995 and 1994, respectively. The liabilities included in the
Consolidated Balance Sheets for these plans were $3,175,000 and $3,200,000 at
December 31, 1996 and 1995, respectively.
NOTE 8--POSTRETIREMENT HEALTH AND LIFE INSURANCE BENEFITS
The Company provides certain health and life insurance benefits for retired
domestic employees. Employees hired prior to January 1, 1993 generally become
eligible for these benefits if they retire while working for the Company at
age 62 with a minimum of 15 years of service with the Company. Employees hired
after this date are not eligible to receive benefits. Health benefits are
provided through supplemental insurance policies whose premiums are based on
group rates. Life insurance benefits are paid directly by the Company.
F-11
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The components of periodic expense for postretirement benefits were as
follows (in thousands) :
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost for benefits earned during the year.... $ 111 $ 87 $ 141
Interest cost on the accumulated postretirement
benefit obligation................................. 2,105 2,563 2,599
Net amortization of prior (gains)................... (141) (289) --
------ ------ ------
Total expense....................................... $2,075 $2,361 $2,740
====== ====== ======
</TABLE>
The recorded liabilities for this unfunded postretirement benefit plan were
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $25,264 $26,714
Fully eligible active plan participants.................. 2,587 2,440
Other active plan participants........................... 2,803 2,542
------- -------
Total accumulated postretirement benefit obligation........ 30,654 31,696
Unrecognized net gain...................................... 4,777 4,578
------- -------
Total liability for postretirement health and life
insurance benefits........................................ 35,431 36,274
Less current portion....................................... 2,960 3,200
------- -------
Noncurrent liability for postretirement health and life
insurance benefits........................................ $32,471 $33,074
======= =======
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.0% at December 31, 1996 and 1995. The decrease in the total
accumulated postretirement benefit obligation was primarily attributable to a
decrease in the number of retiree participants.
The cost of health insurance premiums of this plan are shared between the
Company and the retiree. There are no future increases in the Company's share
of health insurance premiums.
NOTE 9--DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Notes payable to banks under revolving loan agreements...... $3,900 $24,709
Other obligations........................................... 612 612
------ -------
4,512 25,321
Less current maturities..................................... 6 6
------ -------
$4,506 $25,315
====== =======
</TABLE>
At December 31, 1996, the Company had unsecured borrowing facilities that
provided for borrowings up to a combined $40 million on a revolving loan basis
through September 29, 1998. Approximately $11 million of
F-12
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
the total was allocated for borrowings outside the U.S. Available borrowings
under these facilities were reduced by approximately $8.8 million at December
31, 1996 for bank guarantees and standby letters of credit issued in the
normal course of business. These revolving credit facilities provide the
Company the option to borrow at rates no higher than the prevailing prime rate
(weighted average borrowing rate was 6.53% at December 31, 1996 and 5.77% at
December 31, 1995). The agreements contain covenants with respect to
maintenance of working capital, interest coverage, the level of indebtedness,
tangible net worth and cash flow as a percentage of indebtedness.
Lines of credit of the consolidated subsidiaries are generally in connection
with bank overdraft and note facilities for which there are neither material
commitment fees nor compensating balance requirements. Unused short and long-
term credit lines with banks, including the revolving credit facilities,
totaled approximately $34,981,000 at December 31, 1996. The weighted average
borrowing rates under short-term credit facilities were 10.70% and 6.50% at
December 31, 1996 and 1995, respectively.
Scheduled maturities of long-term debt in each of the next five years are
$6,000, $3,930,000, $4,000, $4,000 and $4,000 in 1997 through 2001,
respectively.
Interest expense for each of the three years in the period ended December
31, 1996 was $877,000, $950,000 and $415,000, respectively.
NOTE 10--INCOME TAXES
For financial reporting purposes, income from continuing operations before
income taxes included the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
United States......................................... $14,619 $12,144 $ 815
Foreign............................................... 16,124 8,836 4,342
------- ------- ------
Total................................................. $30,743 $20,980 $5,157
======= ======= ======
</TABLE>
Provisions (benefits) for income taxes included the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ -------- -------
<S> <C> <C> <C>
Current:
Continuing operations:
Federal....................................... $1,703 $ 1,781 $ 1,000
State......................................... 556 600 148
Foreign....................................... 6,538 3,053 1,103
------ -------- -------
8,797 5,434 2,251
Discontinued operations......................... -- 229 400
------ -------- -------
Total current..................................... $8,797 $ 5,663 $ 2,651
====== ======== =======
Deferred:
Continuing operations:
Federal....................................... $3,045 $(13,038) $(1,447)
State......................................... -- (2,311) --
Foreign....................................... (759) 513 21
------ -------- -------
Total deferred.................................... $2,286 $(14,836) $(1,426)
====== ======== =======
</TABLE>
F-13
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The differences between the provision (benefit) for income taxes
attributable to continuing operations at the United States federal statutory
income tax rate and the tax provision (benefit) were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- ------
<S> <C> <C> <C>
U.S. federal statutory rate...................... 34% 34% 34%
Taxes at statutory rate.......................... $10,453 $ 7,133 $1,753
Provision (benefit) resulting from:
Change in valuation allowance.................. (1,000) (15,400) (880)
Effect of consolidating foreign subsidiaries... 1,297 (695) (352)
Foreign Sales Corporation...................... (396) (304) --
Other.......................................... 729 (136) 304
------- -------- ------
Tax provision (benefit).......................... $11,083 $ (9,402) $ 825
======= ======== ======
</TABLE>
Deferred tax assets and liabilities were comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Accrued retiree and other employee benefits............... $15,737 $15,497
Foreign tax loss carryforwards............................ 1,000 2,000
Federal and state tax credits............................. 7,365 10,701
Discontinued operations................................... 819 1,000
Other..................................................... 5,287 4,441
------- -------
Total deferred tax assets................................... 30,208 33,639
Less valuation allowance.................................... 6,000 7,000
------- -------
Deferred tax asset.......................................... 24,208 26,639
Deferred tax liabilities:
Depreciation.............................................. 7,940 7,526
Other..................................................... 757 912
------- -------
Total deferred tax liabilities.............................. 8,697 8,438
------- -------
Net deferred tax asset...................................... $15,511 $18,201
======= =======
</TABLE>
The 1995 provision for income taxes was lowered by significant deferred tax
benefits resulting from a reduction in the valuation allowance recorded
against deferred tax assets. The Company determined that it was more likely
than not that there would be sufficient future domestic taxable income to
recognize deferred temporary differences which had previously been offset by a
valuation allowance. Accordingly, the Company reduced the valuation allowance
and increased the net deferred tax asset to $18,201,000 at December 31, 1995.
A valuation allowance of $7,000,000 was still required at December 31, 1995
for domestic tax credits which could expire before they are utilized and a
German loss carryforward that could not be recognized due to a history of
recent losses and certain limitations on its usage. The valuation allowance of
$6,000,000 at December 31, 1996 is still required for these same issues. The
decrease in the allowance during 1996 was a result of the utilization of
certain German tax loss carryforwards in the current period. The net deferred
tax asset was $15,511,000 at December 31, 1996. Management believes that
sufficient income will be earned in the future to fully realize the net
deferred tax asset.
F-14
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The net deferred tax asset of $15,511,000 at December 31, 1996 ($18,201,000
in 1995) is presented in the Consolidated Balance Sheets as follows:
$6,894,000 ($4,113,000 in 1995) in current assets; $10,013,000 ($14,755,000 in
1995) in non-current assets and $1,396,000 ($667,000 in 1995) in other
liabilities.
Foreign loss carryforwards totaling $2.2 million, which may be carried
forward indefinitely, are available to reduce future taxable income. Domestic
tax credits of $7.4 million are also available to reduce future federal and
state income taxes and expire at various dates through 2004, with the
exception of the federal alternative minimum tax credits which can be carried
forward indefinitely.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $13.1 million at December 31, 1996. Those earnings are
considered to be indefinitely reinvested and accordingly no provisions for
U.S. federal or state income taxes have been provided thereon. Upon
distribution of these earnings, the Company would be subject to both U.S.
income tax (potentially offset by foreign tax credits) and withholding taxes
payable to the foreign country. It is not practicable to estimate the amount
of additional tax that might be payable on the foreign earnings.
NOTE 11--STOCK PLAN
The Company's 1992 Stock Plan, which became effective May 5, 1992, is a
successor to the Company's 1981 Stock Plan. No additional grants of options
could be made under the 1981 Stock Plan after December 16, 1991.
Under the Company's 1992 Stock Plan, 1,000,000 common shares have been
reserved for granting of options, stock appreciation rights (SARs) and
restricted stock to key employees. Options are granted at prices equal to 100%
of the market value of the common stock at the date of grant and may be
exercisable beginning six months and ending ten years from the date of grant.
The Executive Compensation Committee of the Company's Board of Directors at
its discretion may at the time of grant of an option provide further
limitations on periods during which options may be exercised. SARs allow the
optionee to surrender the option and receive a number of shares of common
stock, cash, or cash and shares of common stock, as the Executive Compensation
Committee determines, with an aggregate value equal to the amount by which the
fair market value of the shares covered by the surrendered option exceeds the
option price. Increases in the value of SARs resulting from changes in the
market value of common stock will be charged to expense as they occur. Options
automatically carry with them conditional SARs which are exercisable in the
event of a tender offer meeting certain specified conditions. No SARs have
been granted under the Plan.
Under the Plan an option, which is exercisable beginning six months from the
date of grant, to purchase 2,000 shares at the market value per share on the
date of grant, is granted each year to each director of the Company who is
not, and has not been an employee of the Company since the beginning of the
preceding year.
Grants of restricted stock entitle the grantee to vote and receive cash
dividends on the shares, but not to transfer or otherwise dispose of such
shares while they are subject to restrictions. The restriction period cannot
be less than one year or more than ten years from the date of grant. As
restrictions lapse, the difference between the market value on the date of
grant and the grant price, if any, is charged to expense. Any dividends paid
to the grantee during the restriction period are also charged to expense.
Grants of 800 shares of restricted stock were made during 1995 and
restrictions lapsed on 4,000 shares during 1995. At December 31, 1996 and
1995, 800 restricted shares were outstanding.
F-15
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The following is a summary of option transactions under both Plans:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
------- -------------
<S> <C> <C>
Outstanding December 31, 1993........................ 520,406 $ 6.25-$ 9.69
Granted............................................ 140,000 $ 5.66-$ 7.56
Forfeited.......................................... (32,000) $ 6.56-$ 9.31
-------
Outstanding December 31, 1994........................ 628,406 $ 5.66-$ 9.69
Granted............................................ 81,000 $10.59-$17.41
Forfeited.......................................... (20,000) $ 6.81
Exercised.......................................... (54,908) $ 6.25-$ 7.94
-------
Outstanding December 31, 1995........................ 634,498 $ 5.66-$17.41
Granted............................................ 103,000 $14.85-$20.38
Exercised.......................................... (53,822) $ 7.00-$ 9.38
-------
Outstanding December 31, 1996........................ 683,676 $ 5.66-$20.38
=======
Exercisable at December 31:
1996............................................... 594,676 $ 5.66-$20.38
1995............................................... 567,498 $ 5.66-$10.59
1994............................................... 498,406 $ 5.66-$ 9.69
Available for additional grants at December 31:
1996............................................... 464,200
1995............................................... 567,200
1994............................................... 649,000
1993............................................... 785,000
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" requires use of
option valuation models. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, which also requires that the information
be determined as if the Company had accounted for its stock options granted
subsequent to December 31,1994 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk free interest rates of 6.80% and 6.34% for 1996 and 6.12%
and 5.65% for 1995; a dividend yield of 1.38%; volatility factors of the
expected market price of the Company's Common Stock of .313 and .358 in 1996
and .345 and .335 in 1995; and a weighted average expected life of the options
of 7 years. The weighted average exercise price and remaining contractual life
of these options were $9.73 and 7 years, respectively as of December 31, 1996.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
F-16
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The
Company's pro forma information follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Pro forma net income...................................... $19,079 $30,765
Pro forma earnings per share:
Primary................................................. $ 1.79 $ 2.90
Fully diluted........................................... $ 1.79 $ 2.88
</TABLE>
NOTE 12--PREFERRED STOCK PURCHASE RIGHTS
Pursuant to the Company's Shareholder Rights Plan, each outstanding share of
the Company's common stock carries one Preferred Stock purchase right. Each
right, when exercisable, entitles the holder to purchase from the Company for
$22.50, one two-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $1 per share, of the Company. The Rights become
exercisable, subject to certain exceptions, upon announcement that a person or
group has acquired 15% or more of the Company's outstanding common stock, or
10 days, or such other period as the Board may determine, following
commencement of, or announcement of an intention to commence, a tender or
exchange offer consummation of which would result in a person or group owning
15% or more of the Company's outstanding common stock, whichever occurs first.
If any person or group becomes the beneficial owner of 15% of the outstanding
common stock, other than pursuant to a Permitted Offer, as defined in the
Plan, holders, other than an Acquiring Person as defined in the Plan, will
have the right to purchase from the Company common stock (or, in certain
circumstances, cash, property or other securities of the Company or to a
reduction in the purchase price) having a value equal to two times the
exercise price of $22.50, or the Board may elect to issue without any payment
common stock and/or equivalents of the Company with a value equal to the
exercise price. If a person or group becomes beneficial owner of 15% or more
of the Company's outstanding common stock and the Company is thereafter
acquired by another entity, by merger, consolidation, or transfer of 50% or
more of the Company's assets, in one or more transactions, holders of Rights,
other than an Acquiring Person, will have the right to receive, upon exercise
common shares of the acquiring company (including the Company if it is the
surviving company) having a value two times the exercise price ($22.50) of the
Right. The Rights will expire on June 15, 1999, unless exercised by the holder
or redeemed by the Company prior to that date. The Company may, subject to
certain conditions, redeem the Rights at a price of $.005 per Right.
NOTE 13--SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments (net refunds) for income taxes were $3,188,000, $4,378,000 and
($1,188,000) for 1996, 1995 and 1994, respectively. Interest payments were
$963,000, $837,000 and $444,000 in 1996, 1995 and 1994, respectively.
Non-cash investing activities in 1995 included notes receivable of
$2,100,000 from the sale of the land and building of Alliance Metal Stamping
and Fabricating. Refer to Note 3--Discontinued Operations.
NOTE 14--BUSINESS SEGMENT AND FOREIGN OPERATIONS
The Company's operations are conducted within one business segment. The
principal activity is the design, manufacture and sale of machinery and
equipment for the production of gears.
F-17
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The Company's sales in North America and Europe are in general made directly
by employees of the Company. Sales in other territories are handled by
independent foreign machine dealers.
The Company's major foreign operations are located in Western Europe.
Information about the Company's operations in the United States and Western
Europe for 1996, 1995 and 1994 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales to unaffiliated customers
United States................................. $162,305 $146,344 $113,304
Western Europe................................ 85,784 50,702 15,158
-------- -------- --------
248,089 197,046 128,462
Interarea sales and transfers
United States................................. 399 468 431
Western Europe................................ 8,777 7,774 6,844
-------- -------- --------
9,176 8,242 7,275
Total sales
United States................................. 162,704 146,812 113,735
Western Europe................................ 94,561 58,476 22,002
-------- -------- --------
257,265 205,288 135,737
Less interarea sales............................ 9,176 8,242 7,275
-------- -------- --------
$248,089 $197,046 $128,462
======== ======== ========
Operating income
United States................................. $ 17,642 $ 14,296 $ 3,250
Western Europe................................ 16,749 9,622 4,011
-------- -------- --------
34,391 23,918 7,261
Less:
Interest expense--net......................... 513 527 11
Corporate and other non-allocable expenses.... 3,135 2,411 2,093
-------- -------- --------
Income from continuing operations before income
taxes.......................................... $ 30,743 $ 20,980 $ 5,157
======== ======== ========
Identifiable assets
United States................................. $136,349 $137,683 $103,871
Western Europe................................ 47,115 49,578 13,416
-------- -------- --------
183,464 187,261 117,287
Corporate assets................................ 7,210 9,937 3,199
Assets of discontinued operations............... -- -- 1,530
-------- -------- --------
Total assets.................................... $190,674 $197,198 $122,016
======== ======== ========
</TABLE>
Interarea sales and transfers are generally accounted for at prices to yield
normal returns to the selling company in relation to the costs of production.
Identifiable assets represent assets directly identified with each geographic
region. Corporate assets consist primarily of cash and equivalents.
F-18
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
United States continuing operations for 1996, 1995 and 1994 included export
sales (exclusive of intercompany sales) to the following geographic areas (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Europe/Africa...................................... $33,892 $37,536 $27,938
Asia/Pacific....................................... 49,105 29,197 19,114
Americas........................................... 14,025 10,829 5,660
------- ------- -------
$97,022 $77,562 $52,712
======= ======= =======
</TABLE>
During 1996, one single customer accounted for 14% of consolidated sales.
NOTE 15--ENVIRONMENTAL MATTERS
Environmental expenditures that relate to continuing operations are expensed
or capitalized in accordance with generally accepted accounting principles.
Liabilities are recorded when environmental assessments and/or remedial
efforts are probable, and the costs can be reasonably estimated.
The Company has made provisions for environmental matters at certain
discontinued operations for which the Company retains responsibility. These
provisions were recorded in discontinued operations in 1991 and are believed
to be adequate based upon information known at this time.
The Company is subject to federal, state and local laws and regulations
concerning the environment, and is currently participating in administrative
proceedings involving different sites under these laws, as a participant in a
group of potentially responsible parties. These proceedings are at various
stages, and it is impossible to estimate with any certainty the ultimate cost,
timing and extent of remedial actions which may be required by governmental
authorities, or the amount of the liability, if any, of the Company alone or
in relation to that of the other responsible parties. Based on the facts
presently known, the Company does not believe that the outcome of any of these
proceedings will have a material adverse effect on its results of operations
or financial position.
NOTE 16--CONCENTRATIONS OF RISK
The Company's major customers are predominately in the automotive and truck
industries. Other markets utilizing the Company's products include aerospace,
manufacturers of power tools, marine, farm and construction equipment. The
Company's markets are worldwide. Approximately 73% and 65% of total sales in
1996 and 1995, respectively, were to customers outside of the U.S. This
geographical sales distribution offsets, to a degree, the cyclical
fluctuations of regional economies. As such, the Company is not significantly
at risk to the economic cycle of a single region.
NOTE 17--COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, the ultimate liability, if any,
resulting from such actions will not have a material impact on the Company's
future results of operations or financial position.
The Company was contingently liable under standby letters of credit issued
in the normal course of business for $8.9 million at December 31, 1996.
F-19
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
NOTE 18--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Long and short-term debt: The carrying amounts of the Company's short-term
borrowings and variable rate long-term debt approximate their fair value.
Foreign currency exchange contracts: The Company enters into foreign
currency forward contracts to hedge transactions involving foreign currencies
primarily for firm commitments to buy or sell goods. The aggregate contract
value of agreements to sell foreign currencies in exchange for U.S. dollars
was $2.7 million and $12.5 million at December 31, 1996 and 1995,
respectively. The aggregate value of contracts for the sale of U.S. dollars in
exchange for foreign currencies was $7.1 million and $1.3 million at December
31, 1996 and 1995, respectively. The aggregate value of contracts for the
exchange of other foreign currencies was $1.4 million at December 31, 1996.
The fair values of these contracts, representing the difference between the
contract values and the estimated settlement values based on the quoted market
prices of comparable contracts at December 31, 1996 and 1995, were not
material.
NOTE 19--SUBSEQUENT EVENT
On August 28, 1997, the Board of Directors declared a two-for-one (2-for-1)
stock split on the Company's common stock, including shares held in its
treasury, effected in the form of a 100% common stock distribution payable on
September 26, 1997 to holders of record on September 12, 1997. The
distribution on September 26, 1997 increased the number of shares issued from
5,797,070 to 11,594,140 which includes an increase in treasury stock from
820,614 to 1,641,228. Common stock and additional paid-in capital as of
December 31, 1996, 1995 and 1994 have been restated to reflect this split. In
addition, all share and per share data, including stock option and stock plan
information have been stated to reflect the split.
NOTE 20--SUBSEQUENT EVENT (UNAUDITED)
On July 31, 1997 the Company purchased all of the general and limited
partnership interests of Hermann Pfauter GmbH & Co. ("Pfauter") from its 21
limited partners (its general partner was owned by the limited partnership)
pursuant to an agreement between the Sellers and Purchasers dated July 23,
1997.
Pfauter, headquartered in Ludwigsburg, Germany, is a leading designer and
manufacturer of machinery for the manufacture of cylindrical gears, with
subsidiary companies for the assembly of such machines in the U.S. and Italy.
Tooling used in the production of cylindrical gears is produced by Pfauter-
Maag Cutting Tools Limited Partnership ("PMCT"), located in Loves Park,
Illinois, 76.12% of which (including 100% of its managing general partner) was
owned by Pfauter, and was acquired in the purchase of Pfauter.
The remaining 23.88% of partnership interests of PMCT was also purchased on
July 31, 1997, simultaneously with the purchase of Pfauter, by a wholly owned
subsidiary of the Company from PMCT management personnel, who held limited
partnership interest, and a limited liability company owned by such personnel,
which held the other general partnership interest.
The purchase price pursuant to both agreements was paid in cash, with
$25,074,575 being paid pursuant to the Pfauter agreement, and $9,700,000 being
paid pursuant to the PMCT agreement.
F-20
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
As a result of the purchases, the Company acquired all of the assets and
liabilities of Pfauter, its machinery assembly subsidiary companies, and PMCT,
including the assumption of approximately $57 million of bank debt.
The purchases were financed through a new multi-currency credit agreement
dated as of July 31, 1997 between the Company and its significant
subsidiaries, including Pfauter, its machinery assembly subsidiary companies,
and PMCT, and The Chase Manhattan Bank and nine other banks, providing for
term loans, revolving credit and standby letters of credit totaling up to $170
million. Effective October 31, 1997, the Company reduced the total amount of
the facility from $170 million to $160 million, with the term loan portion
decreasing from $60 million to $50 million. All other terms and conditions
remain the same.
The Company accounted for the acquisition under the purchase accounting
method.
F-21
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents.............................. $ 12,109 $ 7,199
Trade accounts receivable......................... 90,888 65,583
Inventories....................................... 75,350 27,986
Deferred tax assets............................... 6,894 6,894
Other current assets.............................. 6,690 4,038
-------- --------
Total current assets............................ 191,931 111,700
Property, plant and equipment, at cost.............. 235,667 170,084
Less accumulated depreciation....................... 113,822 108,693
-------- --------
121,845 61,391
Deferred tax assets................................. 11,713 10,013
Goodwill............................................ 17,804 --
Other assets........................................ 10,274 7,570
-------- --------
Total assets........................................ $353,567 $190,674
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings............................. $ 7,337 $ 329
Current portion of long-term debt................. 1,513 6
Trade accounts payable............................ 29,392 16,972
Income taxes...................................... 11,242 10,224
Other current liabilities......................... 69,845 30,335
-------- --------
Total current liabilities....................... 119,329 57,866
Long-term debt...................................... 68,292 4,506
Pension plans and other retiree benefits............ 59,998 38,220
Other liabilities................................... 10,614 5,218
-------- --------
Total liabilities............................... 258,233 105,810
Stockholders' equity
Common stock...................................... 11,594 11,594
Additional paid-in capital........................ 5,438 5,731
Retained earnings................................. 100,091 86,187
Cumulative foreign currency translation
adjustment....................................... (4,555) (2,149)
Minimum pension liability adjustment.............. (461) (461)
-------- --------
112,107 100,902
Less treasury stock, at cost...................... 16,773 16,038
-------- --------
Total stockholders' equity...................... 95,334 84,864
-------- --------
Total liabilities and stockholders' equity.......... $353,567 $190,674
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-22
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales............................................. $ 89,713 $ 53,467
Costs and expenses
Cost of products sold............................... 63,084 35,722
Selling, general and administrative expenses........ 16,159 9,970
Research and development expenses................... 1,994 1,832
Interest expense--net............................... 403 133
Other (income) expense--net......................... 146 (234)
----------- -----------
Income before income taxes............................ 7,927 6,044
Provision for income taxes............................ 2,932 2,279
----------- -----------
Net income............................................ $ 4,995 $ 3,765
=========== ===========
Primary earnings per common share..................... $ .48 $ .35
=========== ===========
Fully diluted earnings per common share............... $ .48 $ .35
=========== ===========
Weighted average number of common shares outstanding:
Primary............................................. 10,388,997 10,723,136
Fully diluted....................................... 10,398,481 10,745,104
Cash dividends declared per common share.............. $ .0625 $ .0625
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-23
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales............................................ $ 212,432 $ 178,134
Costs and expenses
Cost of products sold.............................. 146,783 120,581
Selling, general and administrative expenses....... 35,781 31,546
Research and development expenses.................. 5,628 5,618
Interest expense--net.............................. 282 660
Other (income)--net................................ (679) (851)
----------- -----------
Income before income taxes........................... 24,637 20,580
Provision for income taxes........................... 8,871 7,477
----------- -----------
Net income........................................... $ 15,766 $ 13,103
=========== ===========
Primary earnings per common share.................... $ 1.53 $ 1.22
=========== ===========
Fully diluted earnings per common share.............. $ 1.52 $ 1.22
=========== ===========
Weighted average number of common shares outstanding:
Primary............................................ 10,326,069 10,731,260
Fully diluted...................................... 10,394,860 10,746,766
Cash dividends declared per common share............. $ .1875 $ .1875
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-24
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 15,766 $ 13,103
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 9,527 8,296
(Gain) on disposals of property, plant and equipment... (432) (2)
Provision for deferred income taxes.................... 312 1,150
Changes in operating assets and liabilities:
Decrease in accounts receivable...................... 5,417 13,346
(Increase) in inventories............................ (4,164) (5,459)
(Increase) decrease in other current assets.......... (247) 533
Increase (decrease) in trade accounts payable........ 1,400 (1,883)
Increase in all other current operating liabilities.. 5,746 2,323
Other, net........................................... (679) (824)
-------- --------
Net cash provided by operating activities.................. 32,646 30,583
Cash flows from investing activities:
Capital expenditures..................................... (8,196) (5,123)
Investment in subsidiary, net of cash acquired........... (29,757) --
Proceeds from asset disposals............................ 1,572 41
Proceeds from collection of notes receivable............. 54 54
-------- --------
Net cash (used in) investing activities.................... (36,327) (5,028)
Cash flows from financing activities:
Net proceeds of short-term borrowings.................... 695 489
Net borrowings (repayments) under revolving and term loan
credit agreements....................................... 62,513 (23,746)
Proceeds from long-term debt............................. 217 106
Repayment of long-term debt.............................. (51,503) (130)
Purchase of treasury stock............................... (1,360) (450)
Net stock issues......................................... 332 --
Dividends paid........................................... (1,862) (1,945)
-------- --------
Net cash provided by (used in) financing activities........ 9,032 (25,676)
Effect of exchange rate changes on cash and equivalents.... (441) (75)
-------- --------
Increase (decrease) in cash and equivalents................ 4,910 (196)
Cash and equivalents, beginning............................ 7,199 9,926
-------- --------
Cash and equivalents, ending............................... $ 12,109 $ 9,730
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-25
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
(a) the results of operations for the three and nine-month periods ended
September 30, 1997 and 1996, (b) the financial position at September 30,
1997 and December 31, 1996, and (c) the cash flows for the nine-month
periods ended September 30, 1997 and 1996, of Gleason Corporation and
subsidiaries.
2. The results of operations for the three and nine-month periods ended
September 30, 1997 are not necessarily indicative of the results that may
be achieved for the full year.
3. All significant intercompany transactions have been eliminated in the
consolidation.
4. On July 31, 1997, the Company purchased all of the general and limited
partnership interests of Hermann Pfauter GmbH & Co., a manufacturer of
cylindrical gear production equipment, and Pfauter-Maag Cutting Tools
L.P., a cutting tool manufacturer (collectively referred to as "Pfauter").
The acquisition of Pfauter positions the Company to be a world leader in
gear production equipment and related technology by combining Pfauter's
extensive line of cylindrical gear production machinery and cutting tools
with the Company's leading position in bevel gear production equipment. In
addition, the Pfauter acquisition expands the Company's customer base to
include a broad range of non-automotive customers, from small-gear machine
users such as power tool and precision instrument manufacturers to
producers of large gears utilized in off-highway equipment and heavy
industrial applications. Pfauter has major operations in Germany, Italy
and the United States.
The acquisition was completed for a total consideration of $91.8 million,
including $34.8 million in cash and the assumption of $57.0 million in
bank debt. The acquisition was financed through a new multi-currency
credit agreement dated July 31, 1997 providing for term loans, revolving
credit and standby letters of credit totaling up to $170 million.
The Company accounted for the acquisition under the purchase method. The
aggregate cost of the acquisition, including professional fees and other
related costs totaling $2.5 million, was allocated to assets purchased and
liabilities assumed based upon the fair values at the date of acquisition.
The excess of the purchase price over the fair values of the net assets
acquired was $17.6 million, which has been recorded as goodwill, and is
being amortized on a straight-line basis over 30 years. The aggregate cost
of the acquisition was allocated as follows (in thousands):
<TABLE>
<S> <C>
Current assets, excluding cash................................... $ 77,966
Property, plant and equipment.................................... 63,595
Other assets..................................................... 3,100
Goodwill......................................................... 17,630
Current liabilities, including short-term borrowings............. (75,776)
Long-term debt................................................... (29,384)
Pension and other retiree benefits............................... (21,218)
Other liabilities................................................ (5,034)
--------
Total acquisition cost, net of cash acquired..................... $ 30,879
========
</TABLE>
In the allocation of the acquisition costs, current liabilities and other
liabilities include $7.0 million and $2.0 million, respectively, of costs
associated with the restructuring of Pfauter's operations. These costs
F-26
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
represent the Company's estimate of the expenses associated with the
consolidation of certain sales and manufacturing operations and
elimination of redundant activities. The Company expects these
restructuring activities will take approximately two years to complete.
Any adjustments to these estimated costs will adjust the goodwill recorded
in the acquisition.
Results of operations of Pfauter for the two month period following the
acquisition date are included in the Consolidated Statements of Operations
for the three and nine-month periods ending September 30, 1997. The
following unaudited pro forma information has been prepared assuming that
the Pfauter acquisition had taken place at the beginning of 1996 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS ENDED
SEPTEMBER 30
-----------------
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales............................................. $298,044 $295,594
Net income............................................ 15,113 11,180
Per common share.................................... 1.46 1.04
</TABLE>
The pro forma financial information is not necessarily indicative of the
results that would have been obtained if the transaction had been effected
on the assumed date or the results that may be achieved by the Company in
the future. The pro forma net income for the periods shown does not
include any adjustments for cost savings expected to be realized from the
restructuring plans or synergies of the combined business.
5.The components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
9/30/97 12/31/96
------- --------
<S> <C> <C>
Raw materials and purchased parts...................... $13,342 $ 5,269
Work in process........................................ 49,639 18,063
Finished goods......................................... 12,369 4,654
------- -------
$75,350 $27,986
======= =======
</TABLE>
6. Net cash payments for income taxes were $6,664,000 and $2,687,000 for the
nine months ended September 30, 1997 and 1996, respectively. Interest
payments were $444,000 and $994,000 for the nine months ended September
30, 1997 and 1996, respectively.
7. On August 28, 1997 the Company's Board of Directors declared a two-for-one
(2-for-1) stock split on the Company's common stock, including shares held
in treasury, effected in the form of a 100% common stock distribution
payable on September 26, 1997 to holders of record on September 12, 1997.
The distribution increased the number of shares issued from 5,797,070 to
11,594,140, which included an increase in treasury stock from 814,614 to
1,629,228. As a result of the stock split, $5,797,070 was transferred from
additional paid-in capital to common stock, representing the par value of
the additional shares issued. Common stock and additional paid-in capital
as of December 31, 1996 have been restated to reflect the stock split. In
addition, all share and per share data have been restated to reflect the
stock split.
8. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is effective for both interim
and annual financial statements for periods ending after
F-27
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
December 15, 1997. At that time, the Company will be required to change
the method currently being used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact of this accounting pronouncement would have resulted
in an increase in primary earnings per share of $.02 and $.01 for the
three-month periods ended September 30, 1997 and September 30, 1996,
respectively, and an increase in primary earnings per share of $.06 and
$.04 for the nine-month periods ended September 30, 1997 and September 30,
1996, respectively. Fully diluted earnings per share would have increased
by $.01 per share for the nine months ended September 30, 1997. There
would have been no impact on fully diluted earnings per share for the
other periods presented.
9. Certain reclassifications have been made to the prior period's financial
statements to conform such financial statements to the presentation of the
1997 financial statements.
10. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS No. 131). This statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. FAS No. 131 is effective
for financial statements for fiscal years beginning after December 15,
1997. The adoption of FAS No. 131 will have no impact on the Company's
consolidated results of operations, financial position or cash flows, but
may impact the disclosure of segment information.
11. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting on Comprehensive
Income" (FAS No. 130). This statement establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. The purpose of reporting
comprehensive income is to report a measure of all changes in equity of an
enterprise that result from recognized transactions and other economic
events of the period other than transactions with owners in their capacity
as owners. FAS No. 130 is effective for financial statements for fiscal
years beginning after December 15, 1997. The adoption of FAS No. 130 will
have no impact on the Company's consolidated results of operations,
financial position or cash flows, but may impact the financial statement
presentation.
F-28
<PAGE>
GLEASON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
GLEASON ADJUSTMENTS PRO FORMA
CORPORATION PFAUTER COMBINED (C) RESULTS
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 248,089 $ 178,217 $ 426,306 -- $ 426,306
Costs and expenses
Cost of products
sold................. 167,958 133,246 301,204 $ 128 301,332
Selling, general and
administrative
expenses............. 42,614 33,412 76,026 353 76,379
Research and
development
expenses............. 7,243 4,011 11,254 -- 11,254
Interest expense...... 513 4,055 4,568 1,545 6,113
Other (income)........ (982) (427) (1,409) (154) (1,563)
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes and
minority interest...... 30,743 3,920 34,663 (1,872) 32,791
Provision for income
taxes.................. 11,083 281 11,364 374 11,738
----------- ----------- ----------- ----------- -----------
Income (loss) before
minority interest...... 19,660 3,639 23,299 (2,246) 21,053
Minority interest....... -- (1,444) (1,444) 1,444 --
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ 19,660 $ 2,195 $ 21,855 $ (802) $ 21,053
=========== =========== =========== =========== ===========
Weighted average number
of common shares
outstanding............ 10,681,644 10,681,644 10,681,644 10,681,644 10,681,644
Income (loss) before
minority interest...... $ 1.84 $ 0.34 $ 2.18 $ (0.21) $ 1.97
Minority interest....... -- $ (0.14) $ (0.14) $ 0.14 --
Net income (loss)....... $ 1.84 $ 0.20 $ 2.04 $ (0.07) $ 1.97
</TABLE>
See Notes to Pro Forma Financial Information.
F-29
<PAGE>
GLEASON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
GLEASON PRO FORMA ADJUSTMENTS
CORPORATION PFAUTER COMBINED (C) RESULTS
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 212,432 $ 85,612 $ 298,044 $ -- $ 298,044
Costs and expenses
Cost of products
sold................. 146,783 65,101 211,884 78 211,962
Selling, general and
administrative
expenses............. 35,781 17,199 52,980 254 53,234
Research and
development
expenses............. 5,628 2,118 7,746 -- 7,746
Interest expense...... 282 2,058 2,340 913 3,253
Other (income)........ (679) (744) (1,423) (132) (1,555)
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes and
minority interest...... 24,637 (120) 24,517 (1,113) 23,404
Provision for income
taxes.................. 8,871 368 9,239 (948) 8,291
----------- ----------- ----------- ----------- -----------
Income (loss) before
minority interest...... 15,766 (488) 15,278 (165) 15,113
Minority interest....... -- (1,032) (1,032) 1,032 --
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ 15,766 $ (1,520) $ 14,246 $ 867 $ 15,113
=========== =========== =========== =========== ===========
Weighted average number
of common shares
outstanding............ 10,326,069 10,326,069 10,326,069 10,326,069 10,326,069
Income (loss) before
minority interest...... $ 1.53 $ (.05) $ 1.48 $ (.02) $ 1.46
Minority interest....... $ -- $ (.10) $ (.10) $ .10 $ --
Net income (loss)....... $ 1.53 $ (.15) $ 1.38 $ .08 $ 1.46
</TABLE>
See Notes to Pro Forma Financial Information.
F-30
<PAGE>
GLEASON CORPORATION
NOTES TO PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
(A) The pro forma consolidated statements of operations (unaudited) for the
year ended December 31, 1996 and the nine months ended September 30, 1997
give pro forma effect to the acquisition by Gleason Corporation
("Gleason") of Hermann Pfauter GmbH & Co. ("Pfauter") and Pfauter-Maag
Cutting Tools Limited Partnership ("PMCT"). The pro forma consolidated
statements of operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997 present the results of operations of
Gleason as if the acquisition had been consummated as of January 1, 1996.
The pro forma financial information is based on the historical financial
statements of Gleason and Pfauter, giving effect to the acquisition under
the purchase method of accounting and the assumptions and adjustments set
forth in these notes. The pro forma information and accompanying notes
should be read in conjunction with the historical financial statements on
which they are based. This pro forma financial information may not be
indicative of either future results of operations or the results that
actually would have occurred if the acquisition had been consummated on the
dates indicated.
(B) Amounts for Pfauter have been translated from deutsche marks to U.S.
dollars as follows:
Statements of Operations--at the approximate average exchange rates in
effect during the year ended December 31, 1996 ($1 = DM 1.51) and the nine
months ended September 30, 1997 ($1 = DM 1.71)
(C) For purposes of determining the estimated pro forma effect of the
acquisition of Pfauter on the Gleason Consolidated Statement of
Operations, the following pro forma adjustments have been made:
<TABLE>
<CAPTION>
INCREASE (DECREASE) NET INCOME
-------------------------------------
YEAR ENDED NINE MONTHS ENDED
12/31/96 9/30/97
--------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Lower dealer commission expense due
to termination of dealer
contracts(1)...................... $ 323 $ 142
Higher depreciation resulting from
adjustments to fair value of
property, plant and equipment(2).. (151) (92)
Higher amortization expense
resulting from the recognition of
goodwill associated with the
acquisition(2).................... (499) (250)
Higher net interest expense
associated with higher debt due to
the acquisition financing,
partially offset by a reduction of
the interest expense due to lower
rates under refinanced debt(3).... (1,545) (913)
Income tax (provision) benefit on
Pfauter operations and pro forma
adjustments(4).................... (374) 948
Minority interest removal(5)....... 1,444 1,032
--------------- --------------
Total adjustment to net income..... $ (802) $ 867
=============== ==============
</TABLE>
--------
(1) With the acquisition, certain of Pfauter's outside dealer
representative relationships have been terminated. The reduction in
commission expense represents the estimated savings for 1996 and nine
months of 1997 due to the replacement of these outside dealers with
existing Gleason direct sales representation.
(2) The higher expenses for depreciation and amortization are the result of
the increase in bases of both tangible assets (plant and equipment) and
intangible assets (goodwill). The higher depreciation expense due to
the increase in basis of plant and equipment was partially offset by a
reduction to expense due to the change from accelerated to straight-
line depreciation methods for the Pfauter operations. The higher
amortization expense associated with goodwill recorded in the
acquisition was partially offset by the removal of amortization of
intangibles which were included in Pfauter operating results but which
were removed from the opening balance sheet.
F-31
<PAGE>
GLEASON CORPORATION
NOTES TO PRO FORMA FINANCIAL INFORMATION--(CONTINUED)
(UNAUDITED)
(3) The increase in interest expense consists of two components. Interest
expense increased with the additional outstanding debt (and lower cash
balances) due to the acquisition financing. This increase was partially
offset with a reduction in Pfauter's interest expense due to the
refinancing, at lower average borrowing rates, of Pfauter's debt under
the Company's revolving and term credit facilities. Interest rate
assumptions used in the calculation of this pro forma adjustment were
based on current average borrowing rates. Management estimated interest
expense on the additional debt using an average borrowing cost of
5.25%. The reduction of interest expense on Pfauter historical
borrowings was based on an estimated 1.0% reduction in average
borrowing rates due to the refinancing of the Pfauter debt.
(4) The provision for income taxes represents the adjustment to record
income taxes for the inclusion of Pfauter operations within the
consolidated operations of Gleason Corporation and subsidiaries.
Management has estimated the tax provision considering the Pfauter
operational results and pro forma adjustments for the relevant taxing
jurisdictions.
(5) The minority interest reduction to net income was eliminated due to the
fact that, as part of the acquisition, Gleason acquired 100 percent
ownership interest in PMCT. As such, there is no minority interest in
PMCT operating results under Gleason ownership.
The pro forma adjustments to the Statement of Operations do not include any
positive adjustments for increased sales or additional cost reductions
associated with the synergies of the combined business. In addition, there
are no positive adjustments included for benefits expected from the
rationalization of the Pfauter operations. These effects are considered to
be of a forecasted nature and as such, are not permissible as pro forma
adjustments.
F-32
<PAGE>
INSIDE BACK COVER - ARTWORK
[Photographs of various company products.]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY PERSON TO
WHOM IT IS NOT LAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER AT ANY TIME IMPLIES THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 11
Capitalization........................................................... 11
Price Range of Common Stock.............................................. 12
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 13
Business................................................................. 20
Management............................................................... 31
Principal and Selling Stockholders....................................... 33
Description of Capital Stock............................................. 34
Certain Anti-Takeover Provisions......................................... 35
Underwriting............................................................. 39
Legal Matters............................................................ 40
Experts.................................................................. 40
Available Information.................................................... 40
Incorporation of Certain Documents by Reference.......................... 41
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,600,000 SHARES
LOGO
GLEASON CORPORATION
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
----------------
PROSPECTUS
----------------
FURMAN SELZ
MCDONALD & COMPANY
SECURITIES, INC.
ABN AMRO
CHICAGO CORPORATION
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table is an itemized listing of expenses to be incurred by the
Company in connection with the issuance and distribution of the shares of
Common Stock being registered hereby, other than underwriting discounts and
commissions. All amounts shown are estimates, except the SEC Registration fee:
<TABLE>
<S> <C>
SEC Registration Fees.............................................. $ 4,152
Printing and Engraving Expenses.................................... 20,000
Legal Fees and Expenses............................................ 40,000
Accounting Fees and Expenses....................................... 50,000
Miscellaneous...................................................... 15,848
--------
Total............................................................ $130,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits the
Company to indemnify any director or officer of the Company against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
or incurred in defense of any action (other than an action by or in the right
of the Company) arising by reason of the fact that he is or was an officer or
director of the Company, if in any civil action or proceeding it is determined
that he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, it is determined that he had no reasonable
cause to believe his conduct was unlawful. Section 145 also permits the
Company to indemnify any such officer or director against expenses incurred in
an action by or in the right of the Company if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, except in respect of any matter as to which such person is
adjudged to be liable to the Company, unless allowed by the court in which
such action is brought. This statute requires indemnification of such officers
and directors against expenses to the extent that they may be successful in
defending any such action. The statute also permits the purchase of liability
insurance by the Company on behalf of its officers and directors.
Article VII of the Company's Bylaws provide for the mandatory
indemnification of and advancement of litigation expenses to any person to the
full extent permitted by the DGCL against expenses, judgments, fines and
amounts paid in settlement reasonably incurred in connection with any action,
suit or proceeding in which he is made, or threatened to be made, a party by
reason of the fact he is or was a director or officer of the Company or, at
its request, of another entity. These provisions are not exclusive of any
other indemnification rights to which a person may otherwise be entitled. The
Company is permitted by its Bylaws purchase liability insurance on behalf of
its directors and officers and has done so.
Reference is made to the underwriting Agreement to be incorporated by
reference herein for provisions relating to the indemnification of the
Underwriters named in such agreement and persons who control such Underwriters
within the meaning of Section 15 of the Securities Act of 1933, and to the
indemnification of the Company by any such Underwriters.
See also the undertaking made with respect to indemnification matters
involving the Company's directors, officers and controlling persons, found in
Item 17 below.
II-1
<PAGE>
ITEM 16. EXHIBITS.
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1 Form of Underwriting Agreement
3(a) Restated Certificate of Incorporation of the Company(1)
3(b) Certificate of Amendment to Restated Certificate of Incorporation as
filed with the Delaware Secretary of State on May 8, 1996 is
incorporated herein by reference to Exhibit 3 to the registrant's
Form 10-Q for the period ending March 31, 1996.
3(c) Bylaws of the Company, as amended(1)
4(a) Specimen of Common Stock Certificate
Gleason Corporation Preferred Stock Purchase Rights Agreement, as
4(b) amended(1)
5 Opinion of Nixon, Hargrave, Devans & Doyle LLP
23(a) Consent of Nixon, Hargrave, Devans & Doyle LLP(2)
23(b) Consent of Ernst & Young LLP
23(c) Consent of Schitag Ernst & Young Deutsche Allgemeine Treuhand AG
Wirtschaftspruefungsgesellschaft (formerly Ernst & Young GmbH)
23(d) Consent of Dugan & Lopatka, CPAs, PC
Powers of Attorney (contained in the signature page of the original
24 filing)
</TABLE>
- --------
(1) Incorporated herein by reference to the registrant's Form 8-K dated
October 2, 1997 and filed with the Commission on October 3, 1997.
(2) Included in Exhibit 5 hereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended
("Securities Act"), each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934
("Exchange Act") (and, where applicable, each filing of an employee benefit
plan's Annual Report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in that Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any such
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the
II-2
<PAGE>
Securities Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON THIS DECEMBER 3,
1997.
GLEASON CORPORATION
/s/ John J. Perrotti
By: _________________________________
NAME: JOHN J. PERROTTI
OFFICE: VICE PRESIDENT--FINANCE
AND CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED:
SIGNATURE TITLE DATE
* Chairman, President
- ------------------------------------- and Chief Executive December 3,
JAMES S. GLEASON Officer and 1997
Director
Vice President--
/s/ John J. Perrotti Finance and Chief December 3,
- ------------------------------------- Financial Officer 1997
JOHN J. PERROTTI (PRINCIPAL
FINANCIAL OFFICER)
* Controller
- ------------------------------------- (PRINCIPAL December 3,
JOHN W. PYSNACK ACCOUNTING OFFICER) 1997
* Director
- ------------------------------------- December 3,
MARTIN L. ANDERSON 1997
* Director
- ------------------------------------- December 3,
JULIAN W. ATWATER 1997
* Director
- ------------------------------------- December 3,
ROBERT W. BJORK 1997
II-4
<PAGE>
SIGNATURE TITLE DATE
* Director
- ------------------------------------- December 3,
DAVID J. BURNS 1997
* Director
- ------------------------------------- December 3,
J. DAVID CARTWRIGHT 1997
* Director
- ------------------------------------- December 3,
JOHN W. GUFFY, JR. 1997
* Director
- ------------------------------------- December 3,
DONALD D. LENNOX 1997
* Director
- ------------------------------------- December 3,
WILLIAM P. MONTAGUE 1997
* Director
- ------------------------------------- December 3,
ROBERT A. SHERMAN 1997
* Director
- ------------------------------------- December 3,
ROBERT L. SMIALEK 1997
/s/ John J. Perrotti,
*By: ________________________________
JOHN J. PERROTTI,
ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT 1.1
R&W DRAFT
12/2/97
1,600,000 SHARES
GLEASON CORPORATION
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
UNDERWRITING AGREEMENT
----------------------
, 1997
---------------
FURMAN SELZ LLC
MCDONALD & COMPANY SECURITIES, INC.
ABN AMRO CHICAGO CORPORATION
c/o Furman Selz LLC
230 Park Avenue
New York, New York 10169
Dear Sirs:
1. INTRODUCTION. Gleason Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to you (the "Underwriters") an aggregate
of 400,000 shares (the "Company Shares") of the Company's Common Stock, par
value $1.00 per share (the "Common Stock"). The stockholders listed in Schedule
II hereto (the "Selling Stockholders") propose severally to sell to the several
Underwriters an aggregate of 1,200,000 outstanding shares of Common Stock. The
400,000 shares of Common Stock to be sold by the Company and the 1,200,000
shares of Common Stock to be sold by the Selling Stockholders are referred to
herein as the "Firm Shares." The Company also grants to the several
Underwriters the option to purchase up to an aggregate of not more than 60,000
additional shares of Common Stock. One of the Selling Stockholders also grants
to the several Underwriters the option to purchase up to an aggregate of not
more than 64,484 additional shares of Common Stock. The 60,000 additional
shares of Common Stock to be sold by the Company and the 64,484 additional
shares of Common Stock to be sold by one of the Selling Stockholders are
collectively referred to herein as the "Additional Shares." The Firm Shares and
the Additional Shares are collectively referred to herein as the "Shares."
The Company and each of the Selling Stockholders hereby severally
agree with the several Underwriters as follows:
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2. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents, warrants and agrees with each of the
Underwriters that:
(i) Two registration statements on Form S-3 (File Nos. 333-37083
and 333-37085) under the Securities Act of 1933 as amended (the "Act"),
with respect to the Shares, including a form of prospectus subject to
completion, have been prepared by the Company in conformity with the
requirements of the Act and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder (the "Rules and
Regulations"). Such registration statements have been filed with the
Commission under the Act, and one or more amendments to such registration
statements also have been so filed. After the execution of this Agreement,
the Company shall file with the Commission either (A) if such registration
statements, as they may have been amended, have been declared by the
Commission to be effective under the Act, a prospectus in the form most
recently included in an amendment to such registration statements filed
with the Commission, with such insertions and changes as are required by
Rule 430A under the Act or permitted by Rule 424(b) under the Act as shall
have been provided to and approved by the Underwriters prior to the filing
thereof, or (B) if either such registration statement, as amended, has not
been declared by the Commission to be effective under the Act, an amendment
to such registration statement, including a form of prospectus, a copy of
which amendment has been furnished to and approved by the Underwriters
prior to the filing thereof. As used in this Agreement: the term
"Registration Statement" means each such registration statement, as amended
at the time when it was or is declared effective, including all financial
schedules and exhibits thereto and to documents incorporated therein by
reference; each Registration Statement shall be deemed to include any
information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined) and any registration
statement filed pursuant to Rule 462(b) under the Act to increase the
number of Shares; the term "Preliminary Prospectus" means each prospectus
subject to completion contained in a registration statement or any
amendment thereto (including the prospectus subject to completion, if any,
included in a Registration Statement or any amendment thereto or filed
pursuant to Rule 424(a) under the Act at the time it was or is declared
effective); and the term "Prospectus" means the prospectus first filed with
the Commission pursuant to Rule 424(b) under the Act or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in each Registration Statement. References herein to
any document or other information incorporated by reference in a
Registration Statement shall include documents or other information
incorporated by reference in the Prospectus (or, if the Prospectus is not
in existence, in the most recent Preliminary Prospectus). Reference made
herein to any Preliminary Prospectus or the Prospectus shall be deemed to
include all documents and information incorporated by reference therein and
shall be deemed to refer to and include any documents and information filed
after the date of such Preliminary Prospectus or Prospectus, as the case
may be, which are so incorporated by reference, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
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(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus and has not instituted or
threatened to institute any proceedings with respect to such an order.
When any Preliminary Prospectus provided by the Company to the Underwriters
for distribution to the public was filed with the Commission it (A)
contained all statements required to be stated therein in accordance with,
and complied in all material respects with the requirements of, the Act and
the Rules and Regulations and (B) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. When each Registration Statement or any
amendment thereto was or is declared effective, it (A) contained or will
contain all statements required to be stated therein in accordance with,
and complied or will comply in all material respects with the requirements
of, the Act and the Rules and Regulations and (B) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading.
When the Prospectus and when any amendment or supplement thereto is filed
with the Commission pursuant to Rule 424(b) (or, if the Prospectus or such
amendment or supplement is not required to be so filed, when each
Registration Statement and when any amendment thereto containing such
amendment or supplement to the Prospectus was or is declared effective) and
at all times subsequent thereto up to and including the Closing Date (as
defined in Section 3 hereof) and the Option Closing Date (as defined in
Section 9 hereof), the Prospectus, as amended or supplemented at any such
time, (A) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the Rules and Regulations
and (B) did not or will not include any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (ii)
shall not apply to statements or omissions made in any Preliminary
Prospectus, any Registration Statement or any amendment thereto or the
Prospectus or any amendment or supplement thereto in reliance upon, and in
conformity with, information furnished in writing to the Company by or on
behalf of the Underwriters expressly for use therein. The documents which
are incorporated by reference in any Preliminary Prospectus provided by the
Company to the Underwriters for distribution to the public or the
Prospectus or from which information is so incorporated by reference, when
they became effective or were filed with the Commission, as the case may
be, complied in all material respects with the requirements of the Act and
the Rules and Regulations or the Exchange Act and the rules and regulations
thereunder, as applicable, and did not, when such documents were so filed,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and any documents so filed and incorporated by
reference subsequent to the effective date of each Registration Statement
shall, when they are filed with the Commission, conform in all material
respects with the requirements of the Act and the Rules and Regulations and
the Exchange Act and the rules and regulations thereunder, as applicable.
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(iii) Each of the Company and its subsidiaries (the
"Subsidiaries") (A) is a duly organized and validly existing corporation or
limited partnership in good standing under the laws of its jurisdiction of
organization with full power and authority (corporate, partnership and
other) to own or lease its properties and to conduct its business as
described in each Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus);
and (B) is duly qualified to do business and is in good standing in each
jurisdiction (x) in which the conduct of its business requires such
qualification and (y) in which it owns or leases property (in each case
except for those jurisdictions in which the failure so to qualify has not
had and will not have a Material Adverse Effect. "Material Adverse Effect"
means, when used in connection with the Company or its Subsidiaries, any
development, change or effect that is materially adverse to the business,
properties, assets, net worth, condition (financial or other), results of
operations or prospects of the Company and its Subsidiaries taken as a
whole.
(iv) The Company has the duly authorized and validly outstanding
capitalization as of September 30, 1997 set forth under the caption
"Capitalization" in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) and will have the
adjusted capitalization as of September 30, 1997 set forth therein on the
Closing Date and the Option Closing Date, based on the assumptions set
forth therein. The securities of the Company conform to the descriptions
thereof contained in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). The outstanding shares
of Common Stock have been duly authorized and validly issued by the Company
and are fully paid and nonassessable. Except as created hereby or referred
to in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), there are no outstanding options, warrants,
rights or other arrangements requiring the Company at any time to issue any
capital stock. No holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to subscribe
for any of the Shares and neither the filing of the registration statements
nor the offering or sale of the Shares as contemplated by this Agreement
gives rise to any rights, other than those which have been waived or
satisfied, for or relating to, the registration of any securities of the
Company. The Shares have been duly authorized and are validly issued,
fully paid and nonassessable; and, after payment therefor and transfer
thereof in accordance with this Agreement, good and marketable title to the
Company Shares will pass to the Underwriters on the Closing Date or the
Option Closing Date (as the case may be) free and clear of any lien,
encumbrance, security interest, claim or other restriction whatsoever. All
the outstanding shares of capital stock or partnership interests of each
Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable (in the case of corporate Subsidiaries only), except as
provided in Section 630 of the New York Business Corporation Law, and in
each case are owned directly by the Company or another Subsidiary, free and
clear of any lien, encumbrance, security interest, claim or other
restriction whatsoever. The Shares are listed on The New York Stock
Exchange and the Company knows of no reason or set of facts which is likely
to adversely affect such listing.
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(v) The financial statements and the related notes and schedules
thereto included in each Registration Statement or incorporated therein by
reference and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) fairly present the financial
condition, results of operations, stockholders' equity and cash flows of
the Company and its Subsidiaries at the dates and for the periods specified
therein. Such financial statements and the related notes and schedules
thereto have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise noted therein) and such financial statements as are audited have
been examined by Ernst & Young LLP, Schitag Ernst & Young Deutsche
Allgmeine Treuhand AG Wirtschaftsprufung-sgesellschaft or Dugan & Lopatka,
all of whom are independent public accountants within the meaning of the
Act and the Rules and Regulations, as indicated in their reports filed
therewith. The selected financial information and statistical data set
forth under the captions "Prospectus Summary -- Summary Consolidated
Financial Data," "Capitalization," "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and "Business" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) have been prepared on a basis consistent with the
financial statements of the Company and its Subsidiaries. The pro forma
financial statements of the Company and its Subsidiaries, and the related
notes thereto, set forth in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence the most recent Preliminary
Prospectus), have been prepared in conformity with the requirements of the
Act and the Rules and Regulations and present fairly the information shown
therein; and the pro forma adjustments on such pro forma financial
statements have been properly applied on the basis described in the related
notes thereto. The pro forma financial data set forth in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), under the captions "Prospectus Summary -- Summary Consolidated
Financial Data," "Capitalization" and "Management's Discussion and Analysis
of Results of Operations and Financial Condition," have been prepared on a
basis consistent with the pro forma consolidated financial statements of
the Company and its Subsidiaries.
(vi) The Company and each of its Subsidiaries has filed all
necessary United States federal, state and local, and all necessary
foreign, income, franchise and other material tax returns and has paid all
taxes shown as due thereunder, and the Company has no knowledge of any tax
deficiency which might be assessed against the Company or any of its
Subsidiaries which, if so assessed, may have a Material Adverse Effect.
(vii) The Company and each of its Subsidiaries maintains
insurance of the types and in amounts which they reasonably believe to be
adequate for their business.
(viii) Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
there is no pending action, suit, proceeding or investigation or threatened
action, suit, proceeding or investigation before or by any court,
regulatory body or administrative agency or any other
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governmental agency or body, domestic or foreign, which (A) questions the
validity of the capital stock of the Company or this Agreement or of any
action taken or to be taken by the Company pursuant to or in connection
with this Agreement, (B) is required to be disclosed in either Registration
Statement which is not so disclosed (and such proceedings, if any, as are
summarized in each Registration Statement or incorporated therein by
reference are accurately summarized in all respects), or (C) could
reasonably be expected to have a Material Adverse Effect.
(ix) The Company has full legal right, power and authority to
enter into this Agreement and to consummate the transactions provided for
herein. This Agreement has been duly authorized, executed and delivered by
the Company, and none of the Company's execution or delivery of this
Agreement, its performance hereunder, its consummation of the transactions
contemplated herein, its application of the net proceeds of the offering in
the manner set forth under the caption "Use of Proceeds" or the conduct of
its business as described in the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), conflicts or will
conflict with or results or will result in any breach or violation of any
of the terms or provisions of, or constitutes or will constitute a default
under, causes or will cause (or permits or will permit) the maturation or
acceleration of any liability or obligation or the termination of any right
under, or result in the creation or imposition of any lien, charge, or
encumbrance upon, any property or assets of the Company or any of its
Subsidiaries pursuant to the terms of (A) the certificate of incorporation
or by-laws of the Company or any of its Subsidiaries, (B) any indenture,
mortgage, deed of trust, voting trust agreement, stockholders' agreement,
note agreement or other agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which any of them are or may be bound
or to which any of their respective property is or may be subject or (C)
any statute, judgment, decree, order, rule or regulation applicable to the
Company or any of its Subsidiaries of any government, arbitrator, court,
regulatory body or administrative agency or other governmental agency or
body, domestic or foreign, having jurisdiction over the Company, any of its
Subsidiaries or any of their respective activities or properties.
(x) All agreements filed or incorporated by reference as exhibits
to each Registration Statement to which the Company or any of its
Subsidiaries is a party or by which any of them are or may be bound or to
which any of their assets, properties or businesses is or may be subject
have been duly and validly authorized, executed and delivered by the
Company or such Subsidiary, as the case may be, and constitute the legal,
valid and binding agreements of the Company or such Subsidiary, as the case
may be, enforceable against each of them in accordance with their
respective terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
relating to enforcement of creditors' rights generally, and general
equitable principles relating to the availability of remedies, and except
as rights to indemnity or contribution may be limited by federal or state
securities laws and the public policy underlying such laws). The
descriptions in each Registration Statement or incorporated therein by
reference of contracts and other documents are accurate and fairly present
the information required to be shown with respect thereto by the Act and
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the Rules and Regulations, and there are no contracts or other documents
which are required by the Act or the Rules and Regulations to be described
in either Registration Statement or filed as exhibits to either
Registration Statement which are not described or filed as required or
incorporated therein by reference, and the exhibits which have been filed
are complete and correct copies of the documents of which they purport to
be copies.
(xi) Subsequent to the most recent respective dates as of which
information is given in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and except as expressly
contemplated therein, neither the Company nor any of its Subsidiaries has
incurred, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent, purchased any of its
outstanding capital stock, paid or declared any dividends or other
distributions on its capital stock or entered into any material
transactions not in the ordinary course of business, and there has been no
material change in capital stock or debt or any material adverse change in
the business, properties, assets, net worth, condition (financial or
other), or results of operations or prospects of the Company and its
Subsidiaries taken as a whole. Neither the Company nor any of its
Subsidiaries (and the manner in which any of them conducts its business) is
in breach or violation of, or in default under, any term or provision of
(A) its certificate of incorporation or bylaws, (B) any indenture,
mortgage, deed of trust, voting trust agreement, stockholders' agreement,
note agreement or other agreement or instrument to which it is a party or
by which it is or may be bound or to which any of its property is or may be
subject, or any indebtedness, the effect of which breach or default singly
or in the aggregate could reasonably be expected to have a Material Adverse
Effect, or (C) any statute, judgment, decree, order, rule or regulation
applicable to the Company or any of its Subsidiaries or of any arbitrator,
court, regulatory body, administrative agency or any other governmental
agency or body, domestic or foreign, having jurisdiction over the Company
or any of its Subsidiaries or any of their respective activities or
properties and the effect of which breach or default singly or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
(xii) No labor disturbance by the employees of the Company or
any of its Subsidiaries exists or is imminent which could reasonably be
expected to have a Material Adverse Effect.
(xiii) Each of the Company and its Subsidiaries owns, or is
licensed or otherwise has sufficient right to use, the material proprietary
knowledge, inventions, patents, trademarks, service marks, trade names,
logo marks and copyrights used in or necessary for the conduct of its
business (collectively "Rights") as described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
No claims have been asserted against the Company or any of its Subsidiaries
by any person with respect to the use of any such Rights or challenging or
questioning the validity or effectiveness of any such Rights. The use, in
connection with the business and operations of the Company of such Rights
does not, to the Company's best knowledge, infringe on the rights of any
person.
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(xiv) No consent, approval, authorization or order of or filing
with any court, regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, is required for the
performance of this Agreement or the consummation of the transactions
contemplated hereby, except such as have been or may be obtained under the
Act or may be required under state securities or Blue Sky laws in
connection with the Underwriters' purchase and distribution of the Shares.
(xv) Neither the Company nor, to the best knowledge of the
Company, any of its officers, directors or affiliates (within the meaning
of the Rules and Regulations) has taken, directly or indirectly, any action
designed to stabilize or manipulate the price of any security of the
Company, or which has constituted or which could reasonably be expected to
cause or result in stabilization or manipulation of the price of any
security of the Company, to facilitate the sale or resale of the Shares or
otherwise.
(xvi) Each of the Company and its Subsidiaries has good and
marketable title to, or valid and enforceable leasehold interests in, all
properties and assets owned or leased by it, free and clear of all liens,
encumbrances, security interests, claims, restrictions, equities, claims
and defects, except (A) such as are described in each Registration
Statement and Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), or such as do not materially adversely
affect the value of any of such properties or assets taken as a whole and
do not materially interfere with the use made and proposed to be made of
any of such properties or assets, and (B) liens for taxes not yet due and
payable as to which appropriate reserves have been established and
reflected in the financial statements included or incorporated by reference
in each Registration Statement. The Company owns or leases all such
properties as are necessary to its operations as now conducted, and as
proposed to be conducted as set forth in each Registration Statement and
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and the properties and business of the Company and
its Subsidiaries conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus). All the material leases and subleases of the Company and its
Subsidiaries, and under which the Company or any Subsidiary holds material
properties or assets as lessee or sublessee, constitute valid leasehold
interests of the Company or such Subsidiary free and clear of any lien,
encumbrance, security interest, restriction, equity, claim or defect, are
in full force and effect, and neither the Company nor any Subsidiary is in
default in respect of any of the material terms or provisions of any such
material leases or subleases, and neither the Company nor any Subsidiary
has notice of any claim which has been asserted by anyone adverse to the
Company's or any of its Subsidiary's rights as lessee or sublessee under
either the material lease or sublease, or affecting or questioning the
Company's or any Subsidiary's right to the continued possession of the
leased or subleased premises under any such material lease or sublease,
which may have a Material Adverse Effect.
(xvii) Neither the Company nor any Subsidiary has violated any
applicable environmental, safety, health or similar law applicable to the
business of the
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Company, nor any foreign or United States federal or state law relating to
discrimination in the hiring, promotion, or pay of employees, nor any
applicable federal or state wages and hours law, nor any provisions of
ERISA or the rules and regulations promulgated thereunder, the consequences
of which violation could reasonably be expected to have a Material Adverse
Effect.
(xviii) Each of the Company and its Subsidiaries holds all
material franchises, licenses, permits, approvals, certificates and other
authorizations from foreign and United States federal, state and other
governmental or regulatory authorities necessary to the ownership, leasing
and operation of its properties or required for the present conduct of its
business, and such material franchises, licenses, permits, approvals,
certificates and other governmental authorizations are in full force and
effect and the Company and its Subsidiaries are in compliance therewith
except where the failure so to obtain, maintain or comply with could not
reasonably be expected to have a Material Adverse Effect.
(xix) No Subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such Subsidiary's capital stock, from
repaying to the Company any loans or advances to such Subsidiary from the
Company or from transferring any of such Subsidiary's property or assets to
the Company or any other Subsidiary of the Company, except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and except where such
prohibition could not reasonably be expected to have a Material Adverse
Effect.
(xx) The Company meets the requirements for use of Form S-3 under
the Rules and Regulations.
(b) Each Selling Stockholder severally represents and warrants
to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has full legal right, power and
authority to enter into this Agreement. This Agreement has been duly
executed and delivered by such Selling Stockholder.
(ii) None of the execution, delivery or performance of this
Agreement and the consummation of the transactions herein contemplated,
will conflict with or result in a breach of, or default under, any
indenture, mortgage, deed of trust, voting trust agreement, stockholders'
agreement, note agreement, or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder is or
may be bound or to which any of his or its property is or may be subject,
or any statute, judgment, decree, order, rule or regulation applicable to
such Selling Stockholder of any government, arbitrator, court, regulatory
body or administrative agency or other governmental agency or body,
domestic or foreign, having jurisdiction over such Selling Stockholder or
any of his activities or properties.
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(iii) At the date hereof such Selling Stockholder has, and at
the time of delivery of the Shares to be sold by such Selling Stockholder
to the several Underwriters, such Selling Stockholder will have, full
right, power and authority to sell, assign, transfer and deliver the Shares
to be sold by such Selling Stockholder hereunder. At the date hereof such
Selling Stockholder is, and at the time of delivery of the Shares to be
sold by such Selling Stockholder, such Selling Stockholder will be, the
lawful owner of and has and will have, good and marketable title to such
Shares free and clear of any liens, encumbrances, security interests,
claims, community property rights, restrictions on transfer or other
defects in title. Upon delivery of and payment for the Shares to be sold
by such Selling Stockholder hereunder, good and marketable title to such
Shares will pass to the Underwriters, free and clear of any liens,
encumbrances, security interests, claims, community property rights,
restrictions on transfer or other defects in title. Except as described in
each Registration Statement and the Prospectus (or, if there is no
Prospectus, the most recent Preliminary Prospectus) or created hereby,
there are no outstanding options, warrants, rights, or other agreements or
arrangements requiring such Selling Stockholder at any time to transfer any
Common Stock to be sold hereunder by such Selling Stockholder.
(iv) At the time when each Registration Statement becomes or
became effective, and at all times subsequent thereto up to and including
the Closing Date and the Option Closing Date, each Registration Statement
and any amendments thereto will not contain any untrue statement of a
material fact regarding such Selling Stockholder or omit to state a
material fact regarding such Selling Stockholder required to be stated
therein or necessary in order to make the statements therein regarding such
Selling Stockholder not misleading, and the Prospectus (and any supplements
thereto) (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) will not contain any untrue statement of a material
fact regarding such Selling Stockholder or omit to state a material fact
regarding such Selling Stockholder required to be stated therein or
necessary in order to make the statements therein regarding such Selling
Stockholder, in light of the circumstances under which they were made, not
misleading.
(v) Such Selling Stockholder has not taken, directly or
indirectly, any action designed to stabilize or manipulate the price of any
security of the Company, or which has constituted or which might in the
future reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company, to facilitate the
sale or resale of the Shares or otherwise.
(vi) There is not pending or threatened against such Selling
Stockholder any action, suit or proceeding which (A) questions the validity
of this Agreement or of any action taken or to be taken by such Selling
Stockholder pursuant to or in connection with this Agreement or (B) is
required to be disclosed in either Registration Statement which is not so
disclosed, and such actions, suits or proceedings as are summarized in each
Registration Statement, if any, are accurately summarized.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms
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and conditions herein set forth, (A) the Company agrees to sell to each
Underwriter and each Underwriter, severally and not jointly, agrees to purchase
from the Company at a purchase price of $_____ per Share, the number of Firm
Shares set forth opposite the name of such Underwriter in Column (1) of Schedule
I hereto and (B) each Selling Stockholder, severally and not jointly, agrees to
sell to each Underwriter, and each Underwriter, severally and not jointly,
agrees to purchase from such Selling Stockholder at the same purchase price per
Share, the number of Firm Shares equal to the number of Firm Shares set forth
opposite the name of such Underwriter in Column (2) of Schedule I, multiplied by
the number of Firm Shares set forth opposite the name of such Selling
Stockholder in Column (1) of Schedule II and divided by the total number of Firm
Shares to be sold by all Selling Stockholders, in each case subject to such
adjustments as are necessary to eliminate any fractional shares.
Delivery of certificates, and payment of the purchase price, for the
Firm Shares shall be made at the offices of Furman Selz LLC at 230 Park Avenue,
New York, New York 10169, or such other location as shall be agreed upon by the
Company and the Underwriters. Such delivery and payment shall be made at 10:00
a.m., New York City time, on __________, 1997 or at such other time and date not
more than ten business days thereafter as shall be agreed upon by the
Underwriters and the Company. The time and date of such delivery and payment
are herein called the "Closing Date."
Delivery of the certificates for the Firm Shares shall be made to the
Underwriters for the respective accounts of the several Underwriters against
payment by the several Underwriters of the purchase price for the Firm Shares by
wire transfer of same day funds to an account of the Company in the case of Firm
Shares sold by it and the Selling Stockholders in the case of Firm Shares sold
by the Selling Stockholders. The certificates for the Firm Shares to be so
delivered will be in definitive, fully registered form, will bear no restrictive
legends and will be in denominations and registered in such names as the
Underwriters shall request not less than two full business days prior to the
Closing Date. The certificates for the Firm Shares will be made available to
Furman Selz LLC at such office or such other place as Furman Selz LLC may
designate for inspection, checking and packaging not later than 9:30 a.m., New
York time on the business day prior to the Closing Date.
4. PUBLIC OFFERING OF THE SHARES. It is understood that the
Underwriters propose to make a public offering of the Shares at the price and
upon the other terms set forth in the Prospectus.
5. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
(a) The Company covenants and agrees with each of the
Underwriters that:
(i) The Company will use its best efforts to cause each
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as promptly as
practicable. If required, the Company will file the Prospectus and any
amendment or supplement thereto with the Commission in the manner and
within the time period required by Rule 424(b) under the
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Act. During any time when a prospectus relating to the Shares is required
to be delivered under the Act, the Company (A) will comply with all
requirements imposed upon it by the Act and the Rules and Regulations to
the extent necessary to permit the continuance of sales of or dealings in
the Shares in accordance with the provisions hereof and of the Prospectus,
as then amended or supplemented, and (B) will not file with the Commission
the prospectus or the amendment referred to in the third sentence of
Section 2(a)(i) hereof, any amendment or supplement to such prospectus or
any amendment to either Registration Statement of which the Underwriters
shall not previously have been advised and furnished with a copy a
reasonable period of time prior to the proposed filing and as to which
filing the Underwriters shall not have given their consent.
(ii) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriters (A) when each
Registration Statement, as amended, has become effective; if the provisions
of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to either Registration Statement becomes
effective; (B) of any request made by the Commission for amending either
Registration Statement, for supplementing any Preliminary Prospectus or the
Prospectus or for additional information; or (C) of the issuance by the
Commission of any stop order suspending the effectiveness of either
Registration Statement or any post-effective amendment thereto or any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto or the institution or
threat of any investigation or proceeding for that purpose, and will use
its best efforts to prevent the issuance of any such order and, if issued,
to obtain the lifting thereof as soon as possible.
(iii) The Company consents to the use of the Prospectus (and any
amendment or supplement thereto) by the Underwriters and all dealers to
whom the Shares may be sold, in connection with the offering or sale of the
Shares and for such period of time thereafter as the Prospectus is required
by law to be delivered in connection therewith. If, at any time when a
prospectus relating to the Shares is required to be delivered under the
Act, any event occurs as a result of which the Prospectus, as then amended
or supplemented, would include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading, or if it becomes necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules and Regulations, the
Company promptly will so notify the Underwriters and, subject to Section
5(a)(i) hereof, will prepare and file with the Commission an amendment to
each Registration Statement or an amendment or supplement to the Prospectus
which will correct such statement or omission or effect such compliance,
each such amendment or supplement to be reasonably satisfactory to counsel
to the Underwriters.
(iv) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of
the Registration Statements occur (90 days in the event that the end of
such fiscal quarter is the end of the
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Company's fiscal year), the Company will make generally available to its
security holders, in the manner specified in Rule 158(b) of the Rules and
Regulations, and to the Underwriters, an earnings statement which will be
in the detail required by, and will otherwise comply with, the provisions
of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations,
which statement need not be audited unless required by the Act or the Rules
and Regulations, covering a period of at least 12 consecutive months after
the effective date of the Registration Statements.
(v) During a period of five years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will
concurrently deliver to the Underwriters copies of such reports and any
other material furnished to the Company's stockholders.
(vi) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which
may be the same entity as the Transfer Agent) for its Common Stock.
(vii) The Company will furnish, without charge, to the
Underwriters or on the Underwriters' order, at such place as the
Underwriters may designate, copies of the each Preliminary Prospectus, each
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits) and the Prospectus, and all amendments and
supplements thereto, in each case as soon as available and in such
quantities as the Underwriters may reasonably request.
(viii) The Company will not, directly or indirectly, without the
prior written consent of the Underwriters, issue, offer, sell, grant any
option to purchase or otherwise dispose (or announce any issuance, offer,
sale, grant of any option to purchase or other disposition) of any shares
of Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of 180 days after the
date hereof, except pursuant to this Agreement, except for issuances in
connection with an acquisition, merger or similar business combination
transaction or issuances pursuant to the exercise of stock options
outstanding on or granted subsequent to the date hereof, pursuant to (i) a
stock option or other employee benefit plan in existence on the date
hereof, (ii) the Company's Plan for the Deferral of Directors Fees and
(iii) except as contemplated by the Prospectus.
(ix) The Company will use its best efforts to maintain the
listing of the Shares on The New York Stock Exchange.
(x) The Company will apply the net proceeds of the offering
received by it in the manner set forth under the caption "Use of Proceeds"
in the Prospectus.
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(b) Each Selling Stockholder covenants and agrees with each of
the Underwriters that:
(i) Each Selling Stockholder will not, directly or indirectly,
without the prior written consent of the Underwriters, offer, sell, grant
any option to purchase or otherwise dispose (or announce any offer, sale,
grant of any option to purchase or other disposition) of any shares of
Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of 90 days after the
date hereof, except pursuant to this Agreement, and will not take during
such period, directly or indirectly, any action designed to, or which could
in the foreseeable future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the
Company.
(ii) Each Selling Stockholder consents to the use of the
Prospectus and any amendment or supplement thereto by the Underwriters and
all dealers to whom the Shares may be sold, both in connection with the
offering or sale of the Shares and for such period of time thereafter as
the Prospectus is required by law to be delivered in connection therewith.
6. EXPENSES.
(a) Regardless of whether the transactions contemplated in this
Agreement are consummated, and regardless of whether for any reason this
Agreement is terminated, the Company and the Selling Stockholders will pay, and
hereby agree to indemnify each Underwriter against, all fees and expenses
incident to the performance of the obligations of the Company and the Selling
Stockholders under this Agreement, including, but not limited to: (i) fees and
expenses of accountants and counsel for the Company and the Selling
Stockholders, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, filing, delivery and shipping of copies of
the Registration Statements and any pre-effective or post-effective amendments
thereto, any Preliminary Prospectus and the Prospectus and any amendments or
supplements thereto (including postage costs related to the delivery by any
financial printer selected by the Company to persons identified by the
Underwriters of any Preliminary Prospectus or Prospectus, or any amendment or
supplement thereto, but excluding postage costs related to the delivery of any
such materials or other materials by the Underwriters independently of
deliveries made by a financial printer selected by the Company), this Agreement
and all other documents in connection with the transactions contemplated herein,
including the cost of all copies thereof, (iii) filing fees of the Commission
and the NASD relating to the Shares, (iv) any fees and expenses in connection
with the listing of the Shares on The New York Stock Exchange, (v) costs and
expenses incident to the preparation, issuance and delivery to the Underwriters
of any certificates evidencing the Shares, including transfer agent's and
registrar's fees and any applicable transfer taxes incurred in connection with
the delivery to the Underwriters of the Shares to be sold by the Company and the
Selling Stockholders pursuant to this Agreement, and (vi) costs and expenses
relating to travel by representatives of the Company which is incident to any
meetings with prospective investors in the Shares (other than as shall have been
specifically approved by the Underwriters to be paid for by the Underwriters).
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(b) If the purchase of the Shares as herein contemplated is not
consummated for any reason other than the Underwriters' default under this
Agreement or other than by reason of Section 11(a), the Company and the Selling
Stockholders shall reimburse the several Underwriters for their out-of-pocket
expenses (including reasonable counsel fees and disbursements) in connection
with any investigation made by them, and any preparation made by them in respect
of marketing of the Shares or in contemplation of the performance by them of
their obligations hereunder; provided, however, that the maximum amount for
which the Company and the Selling Stockholders shall be liable pursuant to this
Section 6(b) is $150,000.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation of
each Underwriter to purchase and pay for the Shares set forth opposite the name
of such Underwriter in Schedule I is subject to the continuing accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein as of the date hereof and as of the Closing Date as if they had been made
on and as of the Closing Date; the accuracy on and as of the Closing Date of the
statements of officers of the Company and the Selling Stockholders made pursuant
to the provisions hereof; the performance by the Company and the Selling
Stockholders on and as of the Closing Date of their respective covenants and
agreements hereunder; and the following additional conditions:
(a) If the Company has elected to rely on Rule 430A under the Act, the
Registration Statements shall have been declared effective, and the Prospectus
(containing the information omitted pursuant to Rule 430A) shall have been filed
with the Commission not later than the Commission's close of business on the
second business day following the date hereof or such later time and date to
which the Underwriters shall have consented; if the Company does not elect to
rely on Rule 430A, the Registration Statement shall have been declared effective
not later than 11:00 A.M., New York time, on the date hereof or such later time
and date to which the Underwriters shall have consented; if required, in the
case of any changes in or amendments or supplements to the Prospectus in
addition to those contemplated above, the Company shall have filed such
Prospectus as amended or supplemented with the Commission in the manner and
within the time period required by Rule 424(b) under the Act; no stop order
suspending the effectiveness of each Registration Statement or any amendment
thereto shall have been issued, and no proceedings for that purpose shall have
been instituted or threatened or, to the knowledge of the Company or the
Underwriters, shall be contemplated by the Commission; and the Company shall
have complied in all material respects with any request of the Commission for
additional information (to be included in each Registration Statement or the
Prospectus or otherwise).
(b) Neither Registration Statement, or any amendment thereto, contains
an untrue statement of fact which, in the Underwriters' reasonable opinion, is
material, or omits to state a fact which, in the Underwriters' reasonable
opinion, is material and is required to be stated therein or is necessary to
make the statements therein not misleading, or that the Prospectus, or any
supplement thereto, contains an untrue statement of fact which, in the
Underwriters' reasonable opinion, is material, or omits to state a fact which,
in the Underwriters' reasonable opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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(c) On or prior to the Closing Date, the Underwriters shall have
received from counsel to the Underwriters, such opinion or opinions with respect
to the issuance and sale of the Firm Shares, each Registration Statement and the
Prospectus and such other related matters as the Underwriters reasonably may
request and such counsel shall have received such documents and other
information as they request to enable them to pass upon such matters.
(d) On the Closing Date the Underwriters shall have received the
opinion, dated the Closing Date, of Nixon, Hargrave, Devans & Doyle LLP, counsel
to the Company ("Company Counsel"), to the effect set forth below:
(i) Each of the Company and its U.S. Subsidiaries (A) is duly
organized and validly existing as a corporation or limited partnership in
good standing under the laws of its jurisdiction of formation with full
power and authority (corporate, partnership and other) to own or lease its
properties and to conduct its business as described in the Prospectus, and
(B) is duly qualified to do business as a foreign entity and is in good
standing in each jurisdiction (x) in which the conduct of its business
requires such qualification and (y) in which it owns or leases property (in
each case except for those jurisdictions in which the failure so to qualify
can be cured without having a Material Adverse Effect);
(ii) The Company has authorized capital stock as set forth in the
Prospectus; the securities of the Company conform in all material respects
to the description thereof contained in the Prospectus; the outstanding
shares of Common Stock have been duly authorized and validly issued by the
Company, are fully paid and nonassessable, and are free of any preemptive
or, to such counsel's knowledge, any other rights to subscribe for any of
the Shares; the Company has duly authorized the sale of the Shares to be
sold by it hereunder; such Shares, are validly issued, fully paid and
nonassessable and conform in all material respects to the description
thereof contained in the Prospectus and are not be subject to any
preemptive, or, to such counsel's knowledge, any subscription or other
similar rights; and the Shares are listed on The New York Stock Exchange;
(iii) Such counsel has been advised by the Commission that each
Registration Statement is effective under the Act; any required filing of
the Prospectus pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and such counsel has no
knowledge that any stop order suspending the effectiveness of either
Registration Statement or any amendment thereto has been issued, or that
proceedings for that purpose have been instituted, are pending or are
threatened or contemplated under the Act; each Registration Statement and
each amendment thereto and the Prospectus and, if any, each amendment and
supplement thereto (except for the financial statements, schedules and
other financial data included therein, as to which such counsel need not
express any opinion), complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations; the descriptions
contained and summarized in the Registration Statement and the Prospectus
of contracts and other documents, are accurate and fairly represent in all
material respects the information
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required to be shown by the Act and the Rules and Regulations with respect
to such contracts and other documents; such counsel is not aware of any
contracts or documents which are required by the Act to be described in the
Registration Statements or the Prospectus or to be filed as exhibits to the
Registration Statements which are not described or filed as required by the
Act and the Rules and Regulations; such counsel is not aware of any action,
suit, proceeding or investigation before or by any court, regulatory body,
or administrative agency or any other governmental agency or body, domestic
or foreign, pending or threatened against the Company and of a character
required to be disclosed in the Registration Statements or the Prospectus
which is not so disclosed therein; and the statements set forth under the
headings "Description of Capital Stock" and "Certain Anti-Takeover
Provisions," in the Prospectus, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to therein,
provide an accurate summary of such legal matters, documents and
proceedings;
(iv) The Company has full legal right, power, and authority to
enter into this Agreement and to consummate the transactions provided for
herein; this Agreement has been duly authorized, executed and delivered by
the Company;
(v) Upon the delivery of the Company Shares and payment therefor
in accordance with the terms of this Agreement and assuming that each of
the Underwriters which has severally purchased such Company Shares acquires
such Company Shares without notice of any adverse claim (within the meaning
of the Uniform Commercial Code), such Underwriter will have acquired all of
the rights of the Company to such Company Shares and will have acquired
title to such Company Shares free and clear of any adverse claim.
(vi) None of the Company's execution or delivery of this
Agreement, its performance hereof, its consummation of the transactions
contemplated herein or its application of the net proceeds of the offering
in the manner set forth under the caption "Use of Proceeds," conflicts or
will conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitute a default under, or result
in the creation or imposition of any lien, charge or encumbrance upon, any
property or assets of the Company or any of its U.S. Subsidiaries pursuant
to the terms of the certificate of incorporation or by-laws of the Company
or any of its U.S. Subsidiaries; the terms of any agreement or other
document which is an exhibit to either Registration Statement or any
document incorporated by reference in either Registration Statement; any
statute, rule or regulation of any regulatory body or administrative agency
or other governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its Subsidiaries or any of their
respective activities or properties; or any judgment, decree or order,
known to such counsel after reasonable investigation, of any government,
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, having such jurisdiction;
and such counsel is not aware that any consent, approval, authorization or
order of any court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, has been or is required
for the Company's performance of this
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Agreement or the consummation of the transactions contemplated hereby,
except such as have been obtained under the Act or may be required under
state securities or blue sky laws in connection with the purchase and
distribution by the Underwriters of the Shares;
(vii) The issued shares of capital stock of each of the U.S.
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned by the Company free and clear of any
perfected security interests or, to the best knowledge of such counsel, any
other liens, encumbrances, claims or security interests; and
(viii) Such counsel is not aware of any claims, except those
described in the Prospectus, which have been asserted against the Company
or any of its Subsidiaries by any person challenging or questioning the
validity or effectiveness of any Rights used in, or necessary for, the
conduct of its business as described in the Prospectus or alleging that the
business and operations of the Company and its Subsidiaries using such
Rights infringe on the rights of any person.
In addition, such counsel shall state that in the course of the
preparation of the Registration Statements and the Prospectus, such counsel has
participated in conferences with officers and representatives of the Company and
with the Company's independent public accountants, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Registration Statements and the Prospectus and
(without taking any further action to verify independently the statements made
in the Registration Statements and the Prospectus and, except as stated in the
foregoing opinion, without assuming responsibility for the accuracy,
completeness or fairness of such statements) nothing has come to such counsel's
attention that causes such counsel to believe that (i) either Registration
Statement as of the date it is declared effective and as of the Closing Date, or
(ii) the Prospectus as of the date thereof and as of the Closing Date contained
or contains any untrue statement of a material fact or omitted or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading (it being understood that such counsel need
not express any opinion with respect to the financial statements, schedules and
other financial data included in either Registration Statement or the
Prospectus).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials. In addition, where an opinion is
qualified by "the best knowledge of such counsel," that such counsel is "not
aware of" or other words of similar import, such opinion is based solely upon
the conscious awareness of facts or other information by the attorneys at such
counsel's firm who have had active involvement in the transactions contemplated
by this Agreement and such opinion shall not imply that such counsel has
undertaken any independent investigation to determine whether or not such fact,
circumstance or other information is true or exists.
References to the Registration Statements and the Prospectus in this
paragraph (d) shall include any amendment or supplement thereto at the date of
such opinion.
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(e) On or prior to the Closing Date, counsel to the Underwriters shall
have been furnished such documents, certificates and opinions as they may
reasonably request in order to evidence the accuracy, completeness or
satisfaction of any of the representations or warranties of the Company or the
Selling Stockholders, or conditions herein contained.
(f) At the time that this Agreement is executed by the Company the
Underwriters shall have received from Ernst & Young LLP a letter as of the date
this Agreement is executed by the Company in form and substance satisfactory to
you (the "Original Letter"), and on the Closing Date the Underwriters shall have
received from such firm a letter dated the Closing Date stating that, as of a
specified date not earlier than five (5) days prior to the Closing Date, nothing
has come to the attention of such firm to suggest that the statements made in
the Original Letter are not true and correct.
(g) On the Closing Date, the Underwriters shall have received a
certificate, dated the Closing Date, of the principal executive officer and the
principal financial or accounting officer of the Company to the effect that each
of such persons has carefully examined the Registration Statements and the
Prospectus and any amendments or supplements thereto and this Agreement, and
that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date,
and the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to be
performed or satisfied at or prior to the Closing Date; and
(ii) To the best knowledge of each of such persons, no stop order
suspending the effectiveness of either Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are
pending or are contemplated or threatened under the Act, and any and all
filings required by Rule 424 and Rule 430A have been timely made.
References to the Registration Statements and the Prospectus in this
paragraph (g) are to such documents as amended and supplemented at the date of
the certificate.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus up to and including the
Closing Date there has not been (i) any change or decrease specified in the
letter or letters referred to in paragraph (f) of this Section 7 or (ii) any
change, or any development involving a prospective change, in the business or
properties of the Company or its Subsidiaries which change or decrease in the
case of clause (i) or change or development in the case of clause (ii) makes it
impractical or inadvisable in the Underwriters' reasonable judgment to proceed
with the public offering or the delivery of the Shares as contemplated by the
Prospectus.
(i) On the Closing Date, the Underwriters shall have received the
opinion, dated the Closing Date, of Nixon, Hargrave, Devans & Doyle LLP in its
capacity as counsel for the Selling Stockholders, to the effect set forth below:
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(i) Each Selling Stockholder has full legal right, power and
authority to enter into this Agreement and to sell, assign, transfer and
deliver in the manner provided herein the Shares sold by such Selling
Stockholder; this Agreement has been duly executed and delivered by such
Selling Stockholder; and
(ii) None of the execution, delivery or performance of this
Agreement by such Selling Stockholder and the consummation by such Selling
Stockholder of the transactions herein contemplated, conflict with or
result in a breach of, or default under, any material indenture, mortgage,
deed of trust, voting trust agreement, stockholders agreement, note
agreement or other agreement or other instrument of which such counsel is
aware to which such Selling Stockholder is a party or by which such Selling
Stockholder is bound or to which any of the property of any of the Selling
Stockholders is subject, or the charter or by-laws of any of the Selling
Stockholders that are corporations, and nothing has come to such counsel's
attention which causes such counsel to believe that such actions will
result in any violation of any law, rule, administrative regulation or
court decree applicable to such Selling Stockholder (other than state
securities or blue sky laws or regulations, as to which such counsel need
not express any opinion); and
(iii) Upon the delivery of the Shares to be sold hereunder by
the Selling Stockholders and payment therefor in accordance with the terms
of this Agreement and assuming that each of the Underwriters which has
severally purchased such Shares acquires such Shares without notice of any
adverse claim (within the meaning of the Uniform Commercial Code), such
Underwriter will have acquired all of the rights of such Selling
Stockholder to the Shares sold by such Selling Stockholder hereunder, and
in addition will have acquired title to such Shares free and clear of any
adverse claim.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Selling Stockholders and public officials. In addition, where
an opinion is qualified by "the best knowledge of such counsel," that such
counsel is "not aware of" or other words of similar import, such opinion is
based solely upon the conscious awareness of facts or other information by the
attorneys at such counsel's firm who have had active involvement in the
transactions contemplated by this Agreement and such opinion shall not imply
that such counsel has undertaken any independent investigation to determine
whether or not such fact, circumstance or other information is true or exists.
References to the Registration Statement and the Prospectus in this
paragraph (i) shall include any amendment or supplement thereto at the date of
such opinion.
(j) On the Closing Date, the Underwriters shall have received the
opinion, dated the Closing Date, of Beiten, Burkhardt, Mittl & Wegner in its
capacity as counsel for Gleason-Hurth Maschinen und Werkzeuge Corporation,
Gleason-Pfauter Maschinenfabrik GmbH and Hermann Pfauter GmbH & Co. (together,
the "German Subsidiaries") to the effect set forth below:
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(i) Each of the German Subsidiaries is duly organized, registered
and validly existing as a limited liability company or limited partnership
under the laws of the Federal Republic of Germany;
(ii) Each German Subsidiary has the capacity as a legal entity
under German law to own property and other assets and to enter into and
perform contracts.
(iii) All of the capital stock of the German Subsidiaries is
owned by the Company or one of its direct or indirect wholly-owned
Subsidiaries, and, to the knowledge of such counsel, such capital stock is
owned free and clear of any pledges, liens or other encumbrances or
restrictions whatsoever, except that 65% of the capital stock of each of
the German Subsidiaries has been pledged to the Chase Manhattan Bank and
certain other lenders under the Credit Agreement dated as of July 31, 1997
among Gleason Corporation et al., as Borrowers, The Chase Manhattan Bank,
as Administrative Agent, the Lenders named therein and Corestates Bank,
N.A. et al., as co-agents;
(iv) To the best knowledge of such counsel, the share capital of
each German Subsidiary has been fully paid in, has not been paid back and
no obligation to effect additional contributions exists in respect of its
shares.
(v) Such counsel is not aware of any action, suit, proceeding or
investigation before or by any court, regulatory body, or administrative
agency or any other governmental agency, pending or threatened against any
German Subsidiary which, if determined adversely to such German Subsidiary,
could be reasonably expected to have a Material Adverse Effect.
(k) On the Closing Date, the Underwriters shall have received a
certificate, dated the Closing Date, from each Selling Stockholder to the effect
that such Selling Stockholder has carefully examined the Registration Statement
and the Prospectus and this Agreement, and that the representations and
warranties of such Selling Stockholder in this Agreement are true and correct,
as if made at and as of the Closing Date, and such Selling Stockholder has
complied with all the agreements and satisfied all the conditions to be
performed or satisfied by such Selling Stockholder at or prior to the Closing
Date.
(l) The Underwriters shall have received from James Gleason an
agreement to the effect that Mr. Gleason will not, directly or indirectly,
without the prior written consent of the Underwriters, offer, sell, grant any
option to purchase or otherwise dispose (or announce any offer, sale, grant of
an option to purchase or other disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of 90 days after the date of this Agreement, except
for sales of Common Stock made by Mr. Gleason in order to pay income taxes
incurred as a result of the exercise of options to purchase Common Stock.
(m) The Company and the Selling Stockholders shall have furnished the
Underwriters with such further certificates or documents as you or counsel for
the Underwriters
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may reasonably request. All opinions, certificates, letters and documents to be
furnished by the Company and the Selling Stockholders will comply with the
provisions hereof only if they are reasonably satisfactory in all material
respects to the Underwriters and to counsel for the Underwriters. The Company
and the Selling Stockholders shall furnish the Underwriters with conformed
copies of such opinions, certificates, letters and documents in such quantities
as you reasonably request. The certificates delivered under this Section 7
shall constitute representations, warranties and agreements of the Company and
the Selling Stockholders, as the case may be, as to all matters set forth
therein as fully and effectively as if such matters had been set forth in
Section 2 of this Agreement.
(n) The Shares shall be listed on The New York Stock Exchange.
8. INDEMNIFICATION.
(a) The Company and the Selling Stockholders, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls such Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, against any and all losses, claims, damages or
liabilities, joint or several (and actions in respect thereof), to which such
Underwriter or such controlling person may become subject, under the Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements not
misleading and will reimburse, as incurred, such Underwriter or such controlling
persons for any legal or other expenses incurred by such Underwriter or such
controlling persons in connection with investigating, defending or appearing as
a third party witness in connection with any such loss, claim, damage, liability
or action; provided, however, that the obligations of each of the Selling
-------- -------
Stockholders pursuant to this Section 8(a) shall apply only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
in writing by such Selling Stockholder expressly for use in such documents, and
provided, further, that the Company and such Selling Stockholder will not be
- -------- -------
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in any of such
documents in reliance upon and in conformity with information furnished in
writing to the Company on behalf of such Underwriter expressly for use therein,
and provided, further, that such indemnity with respect to any Preliminary
-------- -------
Prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) from whom the person asserting any
such loss, claim, damage, liability or action purchased Shares which are the
subject thereof to the extent that any such loss, claim, damage, liability or
action (i) results from the fact that such Underwriter failed to send or give a
copy of the Prospectus (as amended or supplemented) to such person at or prior
to the confirmation of the sale of such Shares to such person in any case where
such delivery is required by the Act and (ii) arises out of or is based upon an
untrue statement or
22
<PAGE>
omission of a material fact contained in such Preliminary Prospectus that was
corrected in the Prospectus (as amended and supplemented), unless such failure
resulted from non-compliance by the Company with Section 5(a)(viii) hereof. The
Company and the Underwriters acknowledge that the statements with respect to the
Selling Stockholders set forth under the heading "Principal and Selling
Stockholders" in the Prospectus have been furnished in writing by the Selling
Stockholders for inclusion in the Prospectus and constitute the only information
furnished in writing by or on behalf of the Selling Stockholders for inclusion
in the Prospectus.
The indemnity agreement in this paragraph (a) shall be in addition to
any liability which the Company and the Selling Stockholders may otherwise have.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statements, each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act and each Selling Stockholder and each person, if any, who
controls a Selling Stockholder within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several (and actions in respect thereof) to which the
Company or any such Selling Stockholder, director, officer, or controlling
person may become subject, under the Act or other federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in either
Registration Statement or the Prospectus or any Preliminary Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with information furnished in writing by that Underwriter to the
Company expressly for use therein; and will reimburse, as incurred, all legal or
other expenses reasonably incurred by the Company or any such Selling
Stockholder, director, officer, controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
The Company and the Selling Stockholders acknowledge that the statements with
respect to the public offering of the Shares set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters to the Company expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus. The indemnity agreement contained
in this subsection (b) shall be in addition to any liability which the
Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against one or more indemnifying parties
under this Section 8, notify such indemnifying party or parties of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) of this Section 8 or to the extent
that the indemnifying party was not adversely affected by such omission. In
case any such action is brought against an indemnified party and it notifies an
indemnifying party or parties of the
23
<PAGE>
commencement thereof, the indemnifying party or parties against which a claim is
to be made will be entitled to participate therein and, to the extent that it or
they may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
-------- -------
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party has reasonably concluded that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and otherwise to participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses (other than the reasonable
costs of investigation) subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party has
employed such counsel in connection with the assumption of such different or
additional legal defenses in accordance with the proviso to the immediately
preceding sentence, (ii) the indemnifying party has not employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action, or
(iii) the indemnifying party has authorized in writing the employment of counsel
for the indemnified party at the expense of the indemnifying party; provided, in
each case, that the indemnifying party shall not be liable for the fees and
expenses of more than one counsel for all indemnified parties and the
indemnifying party shall only be liable for reasonable fees and expenses.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) (i) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified, on the other hand, from the offering of
the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. In any case where the Company and/or
any Selling Stockholder are contributing parties and the Underwriters are the
indemnified party, the relative benefits received by the Company and/or the
Selling Stockholders on the one hand, and the Underwriters, on the other, shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the cover page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholders or by the Underwriters, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement
24
<PAGE>
or omission. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this paragraph (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this paragraph (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by the Underwriters hereunder. The Underwriters' obligations
to contribute pursuant to this paragraph (d) are several in proportion to their
respective underwriting obligations, and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d), (i) each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter and (ii) each director of the Company, each
officer of the Company who has signed each Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act and each of the Selling Stockholders and
each person, if any, who controls the Selling Stockholders within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Company, subject in each case to this paragraph
(d). Any party entitled to contribution will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in respect
to which a claim for contribution may be made against another party or parties
under this paragraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any other
obligation (x) it or they may have hereunder or otherwise than under this
paragraph (d) or (y) to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may otherwise have.
9. RIGHT TO INCREASE OFFERING. At anytime during a period of 30
days from the date of the Prospectus, the Underwriters, by no less than two
business days prior notice to the Company and the Selling Stockholders may
designate a closing (which may be concurrent with, and part of the closing on
the Closing Date with respect to the Firm Shares or may be a second closing held
on a date subsequent to the Closing Date, in either case such date shall be
referred to herein as the "Option Closing Date") at which the Underwriters may
purchase all or less than all of the Additional Shares in accordance with the
provisions of this Section 9 at the purchase price per share to be paid for the
Firm Shares. In no event shall the Option Closing Date be later than 10
business days after written notice of election to purchase Additional Shares is
given.
The Company and Gleason Foundation agree, severally and not jointly,
to sell to the several Underwriters the respective numbers of Additional Shares
obtained by multiplying the number of Shares specified in such notice by a
fraction, of which the numerator is, in the case of the Company, the maximum
number of Additional Shares offered by it, and, in the case of Gleason
Foundation the maximum number of Additional Shares offered by Gleason
Foundation, and the denominator is the total number of Additional Shares
(subject to adjustment by you to eliminate fractions). Such Additional Shares
shall be purchased from the Company
25
<PAGE>
and Gleason Foundation for the account of each Underwriter in the same
proportion as the number of Firm Shares set forth opposite the name of such
Underwriter in Column (3) of Schedule I bears to the total number of Firm Shares
(subject to adjustment by you to eliminate fractions) and may be purchased by
the Underwriters only for the purpose of covering over-allotments made in
connection with the sale of the Firm Shares.
No Additional Shares shall be sold or delivered unless the Firm Shares
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Additional Shares or any portion thereof may be surrendered and
terminated at any time upon notice by you to the Company and the Selling
Stockholders.
Except to the extent modified by this Section 9, all provisions of
this Agreement relating to the transactions contemplated to occur on the Closing
Date for the sale of the Firm Shares shall apply, mutatis mutandis, to the
Option Closing Date for the sale of the Additional Shares.
10. REPRESENTATIONS, ETC. TO SURVIVE DELIVERY. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers, the Selling Stockholders and
the Underwriters, respectively, set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of the Underwriters, and will survive delivery of and payment for the
Shares.
11. TERMINATION.
(a) This Agreement (except for the provisions of Sections 6 and 8
hereof) may be terminated by the Underwriters by notice to the Company and the
Selling Stockholders in the event that the Company or either of the Selling
Stockholders has failed to comply in any respect with any of the provisions of
this Agreement required on their respective parts to be performed at or prior to
the Closing Date or the Option Closing Date, or if any of the representations or
warranties of the Company or the Selling Stockholders is not accurate in any
respect or if the covenants, agreements or conditions of, or applicable to the
Company or the Selling Stockholders herein contained has not been complied with
in any respect or satisfied within the time specified on the Closing Date or the
Option Closing Date, respectively, or if between the date hereof and the Closing
Date or the Option Closing Date:
(i) the Company or any of its Subsidiaries shall have sustained a
loss by strike, fire, flood, accident or other calamity of such a character
as to interfere materially with the conduct of the business and operations
of the Company and its Subsidiaries taken as a whole regardless of whether
or not such loss was insured;
(ii) trading in the Common Stock shall have been suspended by the
Commission or The New York Stock Exchange or trading in securities
generally on the New York Stock Exchange shall have been suspended or a
material limitation on such trading shall have been imposed or minimum or
maximum prices shall have been established on any such exchange or market
system;
26
<PAGE>
(iii) a banking moratorium shall have been declared by New York
or United States authorities;
(iv) (A) there shall have been an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak
or escalation of any other insurrection or armed conflict involving the
United States or (B) there shall have been a material adverse change in
general economic, political or financial conditions or (C) there shall
have been a material adverse change in the present or prospective business
or condition (financial or other) of the Company and its Subsidiaries taken
as a whole that, in the case of (A), (B) or (C), in the Underwriters'
reasonable judgment makes it impracticable or inadvisable to make or
consummate the public offering, sale or delivery of the Company's Shares on
the terms and in the manner contemplated in the Prospectus and the
Registration Statement.
(b) Termination of this Agreement under this Section 11 or Section 12
after the Firm Shares have been purchased by the Underwriters hereunder shall be
applicable only to the Additional Shares. Termination of this Agreement shall
be without liability of any party to any other party other than as provided in
Sections 6 and 8 hereof.
12. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 7 or 11 hereof) to
purchase and pay for (a) in the case of the Closing Date, the number of Firm
Shares agreed to be purchased by such Underwriter or Underwriters upon tender to
you of such Firm Shares in accordance with the terms hereof or (b) in the case
of the Option Closing Date, the number of Additional Shares agreed to be
purchased by such Underwriter or Underwriters upon tender to you of such
Additional Shares in accordance with the terms hereof, and the number of such
Shares shall not exceed 10% of the Firm Shares or Additional Shares required to
be purchased on the Closing Date or the Option Closing Date, as the case may be,
then, each of the non-defaulting Underwriters shall purchase and pay for (in
addition to the number of such Shares which it has severally agreed to purchase
hereunder) that proportion of the number of Shares which the defaulting
Underwriter or Underwriters shall have so failed or refused to purchase on such
Closing Date or Option Closing Date, as the case may be, which the number of
Shares agreed to be purchased by such non-defaulting Underwriter bears to the
aggregate number of Shares so agreed to be purchased by all such non-defaulting
Underwriters on such Closing Date or Option Closing Date, as the case may be.
In such case, you shall have the right to postpone the Closing Date or the
Option Closing Date, as the case may be, to a date not exceeding seven full
business days after the date originally fixed as such Closing Date or the Option
Closing Date, as the case may be, pursuant to the terms hereof in order that any
necessary changes in the Registration Statement, the Prospectus or any other
documents or arrangements may be made.
If one or more of the Underwriters shall fail or refuse (otherwise
than for a reason sufficient to justify the termination of this Agreement under
the provisions of Section 7 or 11 hereof) to purchase and pay for (a) in the
case of the Closing Date, the number of Firm Shares agreed to be purchased by
such Underwriter or Underwriters upon tender to you of such Firm Shares in
accordance with the terms hereof or (b) in the case of the Option Closing Date,
the
27
<PAGE>
number of Additional Shares agreed to be purchased by such Underwriter or
Underwriters upon tender to you of such Additional Shares in accordance with the
terms hereof, and the number of such Shares shall exceed 10% of the Firm Shares
or Additional Shares required to be purchased by all the Underwriters on the
Closing Date or the Option Closing Date, as the case may be, then (unless within
48 hours after such default arrangements to your satisfaction shall have been
made for the purchase of the defaulted Shares by an Underwriter or Underwriters)
and subject to the provisions of Section 11(b) hereof, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or on
the part of the Company or the Selling Stockholders except as otherwise provided
in Sections 6 and 8 hereof. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this paragraph.
Nothing in this Section 12, and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement, including liability for losses resulting from
any termination of this Agreement caused by, or permitted as a result of, the
defaulting Underwriter's default.
13. NOTICES. All communications hereunder shall be in writing and
shall be mailed or delivered or telegraphed and confirmed by letter or
telecopied and confirmed by letter, if sent to the Underwriters, to c/o Furman
Selz LLC at 230 Park Avenue, New York, New York 10169, Attention: Syndicate
Department or, if sent to the Company or any Selling Stockholder, to the Company
at 1000 University Avenue, Rochester, New York 14692-2970, Attention: Ralph E.
Harper, Esq.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Company, the Selling Stockholders, and each Underwriter and the
Company's, the Selling Stockholders' and each Underwriter's respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person, except that the
representations, warranties, indemnities and contribution agreements of the
Company and the Selling Stockholders contained in this Agreement shall also be
for the benefit of any person or persons, if any, who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
and except that the Underwriters' indemnity and contribution agreements shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed either Registration Statement, any person or persons, if
any, who control the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, the Selling Stockholders and any person or
persons, if any, who control a Selling Stockholder within the meaning of Section
15 of the Act or Section 20 of the Exchange Act. No purchaser of Shares from
the Underwriters will be deemed a successor because of such purchase.
15. APPLICABLE LAW; JURISDICTION. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
giving effect to the choice of law or conflict of law principles thereof. Each
party hereto consents to the jurisdiction of the state and federal courts
sitting in New York and agrees to accept, either directly or through an agent,
service of process of each such court.
28
<PAGE>
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
29
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate the Underwriters' acceptance thereof in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
GLEASON CORPORATION
By:
------------------------------
Name:
Title:
SELLING STOCKHOLDERS:
GLEASON FOUNDATION
By:
------------------------------
Name:
Title:
THE RETIREMENT PLAN OF THE
GLEASON WORKS
By:
------------------------------
Name:
Title:
30
<PAGE>
Accepted as of the date first above written:
FURMAN SELZ LLC
By:
------------------------------
Title:
---------------------------
MCDONALD & COMPANY SECURITIES, INC.
By:
------------------------------
Title:
---------------------------
ABN AMRO CHICAGO CORPORATION
By:
------------------------------
Title:
---------------------------
31
<PAGE>
SCHEDULE I
UNDERWRITERS
Underwriting Agreement dated __________, 1997
<TABLE>
<CAPTION>
(1) (2) (3)
Number of Firm
Number of Firm Shares to be Aggregate
Shares to be Purchased from Number of Firm
Purchased from the Selling Shares to be
the Company Stockholders Purchased
-------------- -------------- --------------
Name and Address
- ----------------
<S> <C> <C> <C>
Furman Selz LLC......................
---------- ---------- ----------
McDonald & Company Securities, Inc...
---------- ---------- ----------
ABN AMRO Chicago Corporation.........
---------- ---------- ----------
Total................................ 400,000 1,200,000 1,600,000
========== ========== ==========
</TABLE>
32
<PAGE>
SCHEDULE II
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
(2)
(1) Maximum Number of
Name and Address of Firm Shares Additional Shares
Selling Stockholder to be Sold to be Sold
- ------------------- ----------- -----------------
<S> <C> <C>
The Retirement Plan of The Gleason Works 770,104 0
Gleason Foundation 429,896 64,484
Total..................................... 1,200,000 64,484
========= ======
</TABLE>
33
<PAGE>
EXHIBIT 4(a)
NUMBER SHARES
COMMON STOCK COMMON STOCK
CUSIP 377339 10 6
SEE REVERSE SIDE
FOR CERTAIN DEFINITIONS
GLEASON CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This is to certify that _______________________________________________________
is the owner of _______________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Gleason Corporation transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Dated: ________________
/s/ Ralph E. Harper /s/ James S. Gleason
Secretary Chairman of the Board
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY (New York)
Transfer Agent and Registrar
By _____________________________________
Authorized Signature
<PAGE>
GLEASON CORPORATION
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Gleason Corporation
and Chase Lincoln First Bank, N.A., dated as of June 8, 1989, as heretofore and
hereafter amended (as amended, the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file at the
principal executive offices of Gleason Corporation. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. Gleason Corporation will mail to the holder of this certificate a
copy of the Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances set forth in the Rights Agreement, Rights
issued to, or held by, any Person who is, was or becomes an Acquiring Person or
an Affiliate or Associate thereof (as defined in the Rights Agreement) and
certain related persons, whether currently held by or on behalf of such Person
or by any subsequent holder, may become null and void.
Effective December 16, 1991, American Stock Transfer & Trust Company
was appointed successor Rights Agent and became vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent, and all references contained in the Rights Agreement (and in any exhibits
thereto) to Chase Lincoln First Bank, N.A. as Rights Agent are deemed references
to American Stock Transfer & Trust Company as of such date.
The Corporation, upon request to it or to the Transfer Agent named in
this Certificate, will furnish to any shareholder without charge a full
statement of the designations, relative rights, preferences and limitations of
the shares of each class of stock authorized to be issued and, so far as have
been fixed, of each series of preferred shares authorized to be issued in
series. The Board of Directors is authorized from time to time, before
issuance, to designate and fix the relative rights, preferences and limitations
of other series of said preferred shares.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________ Custodian
TEN ENT - as tenants by the entireties __________ under
JT TEN - as joint tenants with right Uniform Gifts to
of survivorship and not as Minors Act _________
tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _______________ hereby sell, assign and
transfer unto _________________________________________________________________
________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated_______________
____________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER
<PAGE>
EXHIBIT 5
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counsellors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
FAX: (716) 263-1600
December 3, 1997
Gleason Corporation
1000 University Avenue
Rochester, New York 14692
Re: Registration Statements on Form S-3,
Registration Nos. 333-37083 and 333-37085
Gentlemen:
We have acted as counsel to Gleason Corporation, a Delaware
corporation (the "Company"), in connection with two Registration Statements on
Form S-3, as amended (the "Registration Statements"), filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act), to register an aggregate of 1,800,000 shares
of Common Stock of the Company, $1.00 par value per share (the "Common Stock").
This opinion is being delivered to you in connection with the Registration
Statements.
In connection with the foregoing, we have examined the Registration
Statements and the Preliminary Prospectus contained in the Registration
Statements (the "Preliminary Prospectus"). We also have examined originals or
copies, certified or otherwise identified to our satisfaction, of such corporate
records, certificates and other documents, and have made such investigations of
law, as we have deemed necessary or appropriate as a basis for the opinion
expressed below.
In rendering the following opinion, we have assumed, without
investigation, the authenticity of all documents or other instruments submitted
to us as originals, the conformity to the originals of all documents or other
instruments submitted to us as copies, the genuineness of all signatures on such
originals or copies, and the legal capacity at the time of execution thereof of
natural persons who executed any such document or instrument.
<PAGE>
Gleason Corporation
December 3, 1997
Page 2
We have also assumed, as contemplated by footnote (2) to the table set forth
under the caption "Capitalization" in the Preliminary Prospectus, that the
shares of Common Stock registered for sale by the Company are shares presently
held by the Company as treasury shares.
Based upon and subject to the foregoing, and the other qualifications
and limitations contained herein, we are of the opinion that the shares of
Common Stock registered pursuant to the Registration Statements are duly
authorized, validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statements and to the use of our name as it appears under the
caption "Legal Matters" in the Prospectus contained in the Registration
Statements. In giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the Act or
the rules and regulations of the Commission thereunder.
This opinion is intended for your benefit in connection with the
transactions described above and, except as provided in the immediately
preceding paragraph, may not be otherwise communicated to, reproduced, filed
publicly or relied upon by, any other person or entity for any other purpose
without our express prior written consent. This opinion is limited to the
matters stated herein, and no opinion or belief is implied or may be inferred
beyond the matters expressly stated herein.
Julian W. Atwater, whose professional corporation is a partner in our
firm, is a director of the Company and owns 5,000 shares of Common Stock,
options to purchase 24,000 shares of Common Stock and 2,295 hypothetical shares
granted under the Company's Plan for the Deferral of Directors' Fees.
Very truly yours,
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 30, 1997 (except for Note 19, as to which
the date is October 1, 1997) in Amendment No. 3 to the Registration Statement
(Form S-3 No. 333-37085) and related Prospectus of Gleason Corporation for the
registration of 500,000 shares of its common stock.
/s/ Ernst & Young LLP
Syracuse, New York
December 2, 1997
<PAGE>
EXHIBIT 23(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 3 to the Registration Statement (Form S-3 No. 333-37085) and
related Prospectus of Gleason Corporation for the registration of 500,000
shares of its common stock and to the incorporation by reference therein of
our report dated March 27, 1997 (except for Note 14g., as to which the date is
June 4, 1997) with respect to the consolidated financial statements of Hermann
Pfauter GmbH & Co. and its consolidated subsidiaries included in its Current
Report on Form 8-K dated August 14, 1997, as amended, filed with the
Securities and Exchange Commission.
Stuttgart, Germany
December 2, 1997
Schitag Ernst & Young Deutsche Allgemeine Treuhand AG
Wirtschaftspruefungsgesellschaft (formerly Ernst & Young GmbH)
/s/ Jantz Hahn
<PAGE>
EXHIBIT 23(d)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 3 to the Registration Statement (Form S-3 No. 333-37085) and
related Prospectus of Gleason Corporation for the registration of 500,000
shares of its common stock and to the incorporation by reference therein of
our reports dated January 31, 1996 with respect to the financial statements of
Pfauter-Maag Cutting Tools Limited Partnership and Pfauter Cutting Tools, Inc.
and to the incorporation by reference therein of our reports dated February
22, 1996 with respect to the financial statements of American Pfauter Limited
Partnership and American Pfauter Management, Inc. with respect to the
consolidated financial statements of Hermann Pfauter GmbH & Co. and its
consolidated subsidiaries included in its Current Report on Form 8-K dated
August 14, 1997, as amended, filed with the Securities and Exchange
Commission.
/s/ Dugan & Lopatka, PC
Wheaton, Illinois
December 2, 1997
