<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1996.
Commission File Number
1-13366
SINTER METALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1677695
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Public Square, Cleveland, Ohio 44113
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 771-6700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- ------
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date. As of August 6,
1996, the Registrant had the following classes of common stock outstanding:
Class A Common Stock, $0.001 par value 5,009,747
Class B Common Stock, $0.001 par value 2,543,381
Page 1 of 16 Pages
<PAGE> 2
SINTER METALS, INC.
FORM 10-Q
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements........................................3
Condensed Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995.........................3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months ended
June 30, 1996 and 1995......................................5
Condensed Consolidated Statements of Cash
Flows for the Six Months ended June 30, 1996
and 1995....................................................6
Notes to Condensed Consolidated Financial
Statements..................................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders...............................14
Item 6. Exhibits and Reports on Form 8-K..................14
INDEX TO EXHIBITS............................................................15
SIGNATURES...................................................................16
</TABLE>
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SINTER METALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- --------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,663 $ 1,462
Accounts receivable, net of
allowance of $113 and $111,
respectively 12,949 11,129
Inventories 10,723 10,194
Other current assets 651 643
-------- --------
Total current assets 26,986 23,428
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 589 586
Buildings and building
improvements 6,311 6,251
Machinery and equipment 33,466 32,757
Construction-in-progress 4,405 1,113
-------- --------
44,771 40,707
Less accumulated depreciation (14,510) (12,024)
-------- --------
Total property, plant
and equipment 30,261 28,683
RESTRICTED CASH 6,461 -0-
INTANGIBLE ASSETS 12,986 13,109
-------- --------
TOTAL ASSETS $ 76,694 $ 65,220
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE> 4
SINTER METALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------- -------
(Unaudited) (Audited)
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of long-term debt $ 264 $ 267
Accounts payable 7,645 7,068
Accrued expenses 6,747 6,317
Income taxes payable 1,222 648
------- -------
Total current liabilities 15,878 14,300
------- -------
LONG-TERM OBLIGATIONS:
Term loan 9,355 2,291
Borrowings under revolving credit
agreement -0- 2,141
Other noncurrent liabilities 834 1,000
Deferred income taxes 4,324 4,026
------- -------
Total long-term obligations 14,513 9,458
------- -------
Total liabilities 30,391 23,758
------- -------
STOCKHOLDERS' EQUITY:
Class A, par value $.001 per share;
authorized 20,000,000 shares;
issued and outstanding 5,004,747 shares 5 5
Class B, par value $.001 per share;
authorized 5,000,000 shares;
issued and outstanding 2,543,381 shares 2 2
Additional paid-in capital 27,838 27,838
Cumulative translation adjustments 372 331
Retained earnings 18,086 13,286
------- -------
Total stockholders' equity 46,303 41,462
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $76,694 $65,220
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE> 5
SINTER METALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 27,562 $ 22,104 $ 55,539 $ 46,728
Cost of sales 21,175 17,261 42,727 36,329
-------- -------- -------- --------
GROSS PROFIT 6,387 4,843 12,812 10,399
Selling, general and
administrative expenses 2,393 1,643 4,875 3,557
Amortization of intangible
assets 96 92 195 161
-------- -------- -------- --------
INCOME FROM OPERATIONS 3,898 3,108 7,742 6,681
Interest expense 118 48 188 83
Other (income) expense, net (21) 40 (21) 66
-------- -------- -------- --------
INCOME BEFORE PROVISION
FOR INCOME TAXES 3,801 3,020 7,575 6,532
Provision for income taxes 1,400 1,150 2,775 2,550
-------- -------- -------- --------
NET INCOME APPLICABLE TO
COMMON STOCK $ 2,401 $ 1,870 4,800 $ 3,982
======== ======== ======== ========
Net income per common share $ .32 $ .25 .64 $ .53
======== ======== ======== ========
Weighted average common
shares outstanding 7,548 7,454 7,548 7,451
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE> 6
SINTER METALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 4,800 $ 3,982
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,671 2,034
Deferred income taxes 298 350
Other (186) -0-
Cash provided (used) by working capital
items, net of acquisition
Accounts receivable, net (1,820) (1,611)
Inventories (529) (581)
Other current assets (8) (18)
Accounts payable 577 (1,389)
Accrued expenses 430 226
Accrued taxes 574 (799)
-------- --------
Net cash provided by operating activities 6,807 2,194
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,065) (1,912)
Acquisition of business -0- (4,043)
Restricted cash (6,461) -0-
-------- --------
Net cash (used) by investing activities (10,526) (5,955)
CASH FLOW FROM FINANCING ACTIVITIES:
Term debt borrowings 7,195 183
Term debt repayments (134) -0-
Increase (decrease) in net borrowings under
revolving credit line (2,141) 3,616
Issuance of common stock -0- 1,000
-------- --------
Net cash provided by financing activities 4,920 4,799
-------- --------
Net increase in cash 1,201 1,038
CASH, beginning of period 1,462 78
-------- --------
CASH, end of period $ 2,663 $ 1,116
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest $ 187 $ 46
======== ========
Cash payments for income taxes $ 1,894 $ 3,077
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE> 7
SINTER METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION:
------------
The Company's principal business consists of the design, engineering and
production of precision pressed metal components for use primarily in the
automotive, home appliance, lawn and garden and power tool industries. The
Company manufactures over 1,000 different components such as gears, bearings and
sprockets, for use in engines, transmissions and other drive mechanisms.
2. PRINCIPLES OF CONSOLIDATION:
---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned divisions, PPMI, Midwest and Sinterteknik. All significant
intercompany transactions and accounts have been eliminated in the accompanying
consolidated financial statements. Effective January 1, 1996, all of the
Company's domestic operating subsidiaries, including PPMI and Midwest, were
merged into Sinter Metals.
The interim financial statements included herein have been prepared by the
Company without audit. The financial information presented herein, while not
necessarily indicative of results to be expected for the full year, reflect all
adjustments, consisting of normal recurring adjustments, which in the opinion of
the Company are necessary for a fair presentation of the results of operations
for the periods indicated.
3. INVESTMENT IN PMH:
------------------
As part of its business strategy, in 1993, the Company purchased a 30% interest
in Powder Metal Holding, Inc. (PMH), a nonoperating holding company that owns
100% of ICM/Krebsoge (ICM/K) (a domestic manufacturer of pressed metal
products). ICM/K has operating facilities located in Indiana, Ohio and Canada.
The most recent audited financial statements indicate that PMH had total assets
of $56.3 million, net sales of $106.5 million and net income of $9.1 million as
of and for the year ended December 31, 1995.
While PMH returned to profitability in 1994 and 1995, the net worth of PMH at
December 31, 1995, remains a negative $29.1 million. Accordingly, the Company
chose not to recognize in the accompanying statement of operations its pro rata
portion of PMH's first half 1996 and 1995 net income.
- 7 -
<PAGE> 8
At the time of the purchase, the Company and PMH entered into a conditional
merger agreement (the Conditional Merger Agreement) and a shareholders'
agreement (the Shareholders' Agreement). Each party's obligation to consummate
the merger under the Conditional Merger Agreement was subject to a number of
conditions, including ICM/K and the Company meeting certain financial and
operating targets as of and for the year ended December 31, 1995. While the
Company met the prescribed targets, ICM/K did not, and on April 30, 1996, the
Conditional Merger Agreement expired.
The Shareholders' Agreement gives the Company a right of first refusal on the
sale of the balance of PMH stock. If the Company continues to maintain its stock
position in PMH, it may, after December 31, 1998, sell its position to PMH on a
prescribed formula that is dependent upon the performance of PMH for the twelve
months preceding such sale. The Shareholders' Agreement also requires unanimous
consent of the shareholders for most major corporate actions, including but not
limited to the following, (i) any merger, consolidation or reorganization of
PMH, (ii) the disposition of any property in excess of $1 million, (iii) capital
contributions in excess of $2 million and (iv) the approval of executive
compensation.
Summarized income statement information for PMH is presented for the six months
ended June 30, 1996 and 1995, as follows (dollars in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Net sales $56,993 $58,321
Gross profit 6,058 10,457
Net income $ 661 $ 3,111
======= =======
</TABLE>
4. INVENTORIES:
The major components of inventories were as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
Raw Materials $ 2,891 $ 2,945
Work-in-process 4,325 4,481
Finished goods 3,880 3,105
------- -------
$11,096 $10,531
LIFO reserve (373) (337)
------- -------
$10,723 $10,194
======= =======
</TABLE>
- 8 -
<PAGE> 9
5. REVOLVING CREDIT FACILITY:
--------------------------
Concurrent with the Company's initial public offering in October 1994, the
Company entered into a revolving line of credit aggregating $22.5 million. The
revolving line of credit was subsequently amended and expanded in January 1996
(the New Revolver). The New Revolver is a $30 million unsecured facility and
matures in January 1999. The New Revolver contains various affirmative and
negative covenants customary for unsecured revolving credit financing, and bears
interest at optional rates as defined therein. Based on the borrowing rates
currently available to the Company for bank loans with similar terms and average
maturities, the fair value of long-term debt was substantially the same as its
carrying value at June 30, 1996 and December 31, 1995.
6. ACQUISITION:
------------
Effective June 26, 1995, the Company purchased the stock of Kolsva Sinterteknik
for a combination of $3.8 million in cash and 100,000 shares of the Company's
Class A Common Stock. The transaction was financed through the Company's
revolving credit facility. As a part of the transaction, the Company assumed
long-term debt of Sinterteknik aggregating approximately $1.9 million.
The transaction was recorded utilizing the purchase method of accounting and,
accordingly, the gross purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed, based upon their estimated
fair value at the date of acquisition. Proforma financial operating results as
if the acquisition had been completed on January 1, 1995, are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
-------------
<S> <C>
Net sales $51,450
Gross profit 11,697
Income before taxes 6,929
Net income applicable to common stock 4,317
Net income per common share .57
</TABLE>
7. SUBSEQUENT EVENTS-ACQUISITION OF SINTERFORM, INC.
-------------------------------------------------
Effective July 18, 1996 the Company purchased 100% of the outstanding stock of
SinterForm, Inc. in exchange for consideration of approximately $8.6 million.
SinterForm is a pressed metal manufacturer with fiscal year sales at June 30,
1996, of approximately $14.0 million. The transaction was financed through
borrowings against the Company's revolving credit facility and issuance of 5,000
shares of the Company's Class A Common Stock.
- 9 -
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was organized in 1991 to facilitate the stock acquisition of
Pennsylvania Pressed Metals Inc. The acquisition was financed through borrowings
under a secured credit agreement and issuance by the Company of subordinated
notes, preferred stock, common stock and capital appreciation rights. In 1993,
the capital appreciation rights ("CAR") were repurchased.
In October 1994, the Company successfully completed an initial public offering
of its Class A Common Stock raising net proceeds of approximately $14.7 million
after consideration of transaction expenses. The Company used the net proceeds
from the initial public offering together with borrowings of approximately $2.0
million under the Company's revolving credit facility to repay all of its then
outstanding senior and a portion of its subordinated indebtedness and to redeem
a portion of its preferred stock.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1995
Net sales. Net sales increased $5.5 million, or 24.7%, to $27.6 million in the
second quarter of 1996 from $22.1 million in the comparable quarter of 1995. The
increase in net sales reflects the impact of the Kolsva Sinterteknik AB
("Sinterteknik") acquisition, increased penetration by the Company in the
automotive market, increased automotive production throughout North America, and
an increase in the selling price per unit.
Gross profit. Gross profit increased by $1.5 million, or 31.9%, to $6.4 million
in 1996. The gross profit margin increased from 21.9% in the second quarter of
1995 to 23.2% in the comparable period in 1996. The increase in gross profit
margin is principally attributable to a change in product mix and the inclusion
of the Swedish subsidiary, which consistently reports a higher gross margin than
the domestic plants. The Company has been experiencing a change in the
complexity of the product, which results in a higher selling price per pound and
a correspondingly higher gross margin.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $.8 million in 1996 to $2.4 million. Selling,
general and administrative expenses as a percentage of sales increased from 7.4%
to 8.7% for the second quarter of 1995 and 1996,
- 10 -
<PAGE> 11
respectively. The increase in selling, general and administrative expenses for
the 1996 second quarter is primarily attributable to the administrative costs
incurred in the Swedish subsidiary, and general increases associated with the
increased sales base.
Income from operations. Income from operations increased by $.8 million, or
25.4%, in 1996, as compared to 1995. Income from operations as a percentage of
net sales remained constant for both quarters at 14.1%, reflecting the increase
in selling, general and administrative expenses described above.
Income taxes. The provision for income taxes was $1.4 million in 1996 and $1.2
million in 1995 reflecting the favorable tax rate in Sweden.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1995
Net sales. Net sales increased $8.8 million, or 18.9%, to $55.5 million in the
first six months of 1996 from $46.7 million in the comparable period of 1995.
The increase in net sales reflects the impact of the Sinterteknik acquisition,
increased penetration by the Company in the automotive market and an increase in
selling price per unit.
The increased penetration in the automotive market is evidenced by the 7%
increase in automotive sales experienced by the Company in the first half of
1996 over the first half of 1995, while North American light vehicle production
during the same period declined by 4%.
Gross profit. Gross profit increased by $2.4 million, or 23.2%, to $12.8 million
in 1996. The gross profit margin increased from 22.3% in 1995 to 23.1% in 1996.
The increase in gross profit margin is principally attributable to a change in
product mix and the inclusion of the Swedish subsidiary, which consistently
reports a higher gross margin than the domestic plants.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.3 million in 1996 to $4.9 million. Selling,
general and administrative expenses as a percentage of sales increased from 7.6%
to 8.8% for the first half of 1995 and 1996, respectively. The increase in
selling, general and administrative expenses in 1996 is primarily attributable
to the administrative costs incurred in the Swedish subsidiary and general
increases associated with the increased sales base.
Income from operations. Income from operations increased by $1.1 million, or
15.9%, in 1996, as compared to 1995. Income from operations as a percentage of
net sales decreased from 14.3% in 1995 to 13.9% in 1996,
- 11 -
<PAGE> 12
reflecting the increase in selling, general and administrative expenses
described above.
Income Taxes. The provision for income taxes was $2.8 million in 1996 and
$2.6 million in 1995 reflecting the favorable tax rate in Sweden.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund its working capital,
purchase capital equipment and fund potential acquisitions. Historically, the
Company has used income generated by operations as well as borrowings available
under long-term credit agreements and the issuance of subordinated notes to fund
these capital needs. In conjunction with the Company's initial public offering
in 1994, the Company utilized the proceeds from the offering to repay its
long-term debt and a portion of its subordinated notes. The Company's remaining
subordinated notes and preferred stock were converted into shares of Class A
Common Stock.
To provide ongoing liquidity and to fund short-term working capital
requirements, the Company in January 1996 expanded and amended its revolving
credit agreement. The revised credit agreement is unsecured and provides $30
million of funds for working capital needs, capital expenditures and to fund
potential acquisitions. Utilizing the new agreement, the Company had available
at June 30, 1996 approximately $21.1 million of borrowings available to fund
growth and acquisition needs.
In addition to the new revolving credit agreement, the Company issued on April
10, 1996, an industrial development bond aggregating $7.2 million. The bond is a
tax exempt floating interest rate bond and will be utilized to fund the
construction of the new plant facility in Chicago and anticipated additional
plant equipment.
On July 18, 1996, the Company entered into an agreement to purchase 100% of the
outstanding stock of SinterForm, Inc. The purchase price of $8.6 million was
allocated $8.5 million for cash and 5,000 shares of Class A Common Stock. The
$8.5 million in cash was funded utilizing the Company's revolving credit
agreement.
Net cash provided by operating activities increased in 1996 by approximately
$4.6 million from the 1995 level of $2.2 million. The increase is primarily
attributable to the Company's increase in net income, accounts payable and
accrued tax levels in 1996. Net cash provided by operating activities is
principally generated from net income of the Company, and non cash charges for
depreciation, which are substantial due to the capital intensive nature of the
Company's business and changes in working capital.
- 12 -
<PAGE> 13
Capital expenditures aggregated $4.0 and $1.9 million for 1996 and 1995,
respectively. Capital expenditures are anticipated to increase to approximately
$9.0 million in 1996 to fund the Company's previously announced plant expansions
and capital expenditures as is customary for a business in this capital
intensive industry. As of June 30, 1996, the Company had no other commitments
for capital expenditures outside the ordinary course of business.
The capital requirements of the Company are subject to change as business
conditions vary and investment opportunities arise. The Company has articulated
an acquisition growth strategy and historically has averaged one acquisition per
year. Accordingly, the Company is always looking at acquisition opportunities of
various sizes, and these opportunities may require expansion of the existing
long-term debt facilities. The Company believes that it has sufficient borrowing
capacity to increase its long-term borrowing level, if it becomes appropriate
due to changes in capital requirements. The Company believes that funds
available under its existing credit agreement, coupled with funds generated by
the Company's operations, will be sufficient to provide the Company with the
liquidity and capital resources necessary to fund the anticipated working
capital requirements and capital expenditures of the Company for at least the
next twelve months.
- 13 -
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 16, 1996, the Company held its annual meeting of stockholders. At that
meeting, the stockholders elected seven directors to serve until the next annual
meeting of stockholders and approved the appointment of Arthur Andersen LLP as
independent auditors of the Company for the fiscal year ending December 31,
1996.
Of the total eligible votes of 5,004,747, stockholders cast votes of 3,896,619,
or 78% of the total eligible votes. The votes cast for the aforementioned
matters were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
1) Election of Directors
---------------------
<S> <C> <C> <C> <C>
Joseph W. Carreras 3,876,641 19,978 0
Donald L. LeVault 3,876,641 19,978 0
E. Joseph Hochreiter 3,876,641 19,978 0
David Y. Howe 3,876,440 20,179 0
Mary Lynn Putney 3,876,441 20,178 0
William H. Roj 3,876,441 20,178 0
Charles E. Volpe 3,876,641 19,978 0
2) Appointment of Independent Auditors
-----------------------------------
Arthur Andersen LLP 3,870,572 2,287 23,760
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See attached Exhibit Index.
- 14 -
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------ ----------------------- --------
<S> <C> <C>
4.1 Revolving Credit Agreement - First
Amendment 17
4.2 Revolving Credit Agreement - Second
Amendment 22
27.0 Financial Data Schedule 28
</TABLE>
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<PAGE> 16
SINTER METALS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report on Form 10-Q for the period ended June
30, 1996, to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: August 12, 1996 SINTER METALS, INC.
/s/ Joseph W. Carreras
------------------------------------------
Joseph W. Carreras
Chairman of the Board and Chief
Executive Officer (Duly Authorized
Officer)
/s/ Michael T. Kestner
------------------------------------------
Michael T. Kestner
Vice President and Chief Financial
Officer (Chief Accounting Officer)
- 16 -
<PAGE> 1
EXHIBIT 4.1
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT is dated as of April
10, 1996, by and among SINTER METALS, INC., a Delaware corporation (the
"Borrower"), the Lenders party hereto, the Issuing Bank and MELLON BANK, N.A., a
national banking association, as agent for the Lenders (in such capacity the
"Agent").
RECITALS
--------
A. The Borrower, the Lenders, the Issuing Bank and the Agent
entered into a Credit Agreement, dated as of January 18, 1996 (together with all
Exhibits and Schedules thereto, the "Credit Agreement"), under which the Lenders
agreed, subject to certain conditions, to make revolving credit loans to the
Borrower in an aggregate principal amount not to exceed $30,000,000.
B. The parties desire to amend the Credit Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
1. Effect of Amendment; Definitions.
--------------------------------
All terms used herein that are defined in the Credit Agreement
shall have the meanings ascribed thereto in the Credit Agreement, unless the
context otherwise requires. The Credit Agreement shall be and hereby is amended
as provided in Section 2 hereof. Except as expressly amended in Section 2
hereof, the Credit Agreement shall continue in full force and effect in
accordance with its provisions on the date hereof. As used in the Credit
Agreement, the terms "Credit Agreement", "Agreement", "this Agreement",
"herein", "hereinafter", "hereto", "hereof", and words of similar import shall,
unless the context otherwise requires, mean the Credit Agreement as amended and
modified by this Amendment.
<PAGE> 2
2. Form of IRB Letter of Credit.
----------------------------
The parties hereto acknowledge and agree that the IRB Letter
of Credit shall be in substantially the form attached hereto as Exhibit A.
3. Amendments.
----------
A. Section 2.4(d) of the Credit Agreement is amended
by deleting the reference to "Two Million Dollars ($2,000,000)" in the second
sentence thereof and substituting therefor "Three Million Dollars ($3,000,000)."
B. The Credit Agreement is amended by inserting the
following at the end of Section 3.11 thereof:
"3.12 PLEDGE OF BONDS NOT REMARKETED UNDER IRB LETTER
OF CREDIT.
(a) PLEDGE. As security for the payment and performance of all
obligations of the Borrower under this Agreement and under the other
Loan Documents, the Borrower hereby agrees that upon the making of a C
Drawing, a D Drawing, an E Drawing or an F Drawing (as each of those
terms is defined in the IRB Letter of Credit) the Borrower will deliver
or cause to be delivered forthwith to the Issuing Bank the Pledged
Bonds (as defined in the IRB Letter of Credit) free and clear of all
liens and encumbrances in an aggregate principal amount equal to the
portion of the purchase price of the Bonds in respect of such drawing,
and the Borrower hereby grants to the Issuing Bank a security interest
in the Pledged Bonds and in the income and proceeds thereof.
(b) DELIVERY. The Borrower hereby agrees to deliver or cause
to be delivered immediately to the Issuing Bank the Pledged Bonds which
shall be registered by the Trustee in the names of the Borrower as
pledgor and the Issuing Bank as pledgee, with the Borrower's
endorsement of the Pledged Bonds to the order of the Issuing Bank. The
Borrower further agrees to cause the Trustee (as defined in the IRB
Letter of Credit) to enter into its registration books as the address
to which payments of interest with respect to Pledged Bonds are to be
sent, the Issuing Bank's address for
-2-
<PAGE> 3
notices pursuant to this Agreement as in effect from time to time.
(c) PAYMENTS ON BONDS. If the Borrower shall become entitled
to receive or shall receive any Pledged Bonds, any payment of interest
with respect to the Pledged Bonds from the Trustee or any and all other
proceeds thereof, the Borrower shall accept any such items as the
Issuing Bank's agent, shall hold them in trust for the Issuing Bank,
and shall deliver them forthwith to the Issuing Bank in the exact form
received, with the Borrower's endorsement to the order of the Issuing
Bank when necessary, to be held by the Issuing Bank, subject to the
terms hereof, as security for the payment and performance of all
obligations of the Borrower hereunder and under the Loan Documents,
except that the Issuing Bank shall deliver such payments and proceeds
to the Agent and the Agent shall credit all payments and proceeds
received by the Issuing Bank directly against the Borrower's
obligations under Section 3.4 of this Agreement and as otherwise
provided in this Agreement. All principal, premium, if any,
and interest paid on the Pledged Bonds shall be retained by the
Issuing Bank (or if received by the Borrower shall be forthwith
delivered by it to the Issuing Bank in the original form received),
shall be delivered by the Issuing Bank to the Agent and applied by the
Agent to the payment of amounts due from the Borrower hereunder and
under the other Loan Documents.
(d) In addition to the rights and remedies granted to the
Issuing Bank and the Agent in this Agreement, the Issuing Bank and the
Agent shall have all of the rights and remedies of a secured party
under 13 Purdon's Pennsylvania Statutes Annotated Sections 9101 through
9507, inclusive, and such other rights and remedies as are granted to a
secured party in similar situations to the extent of the security
interest granted under paragraph (a) above.
(e) The Borrower shall be liable for the deficiency if the
proceeds of any sale or other disposition of the Pledged Bonds by the
Issuing Bank or the Agent are insufficient to pay all amounts to which
the Issuing Bank is entitled, including principal, premium, if any, and
interest as provided herein, and the fees of any attorneys employed by
the Issuing Bank to collect such deficiency."
-3-
<PAGE> 4
4. Representations and Warranties.
-------------------------------
A. The Borrower hereby represents and warrants that all
representations and warranties set forth in the Credit Agreement, as amended
hereby, are true and correct in all material respects, and that this Amendment
has been executed and delivered by a duly authorized officer of the Borrower and
constitutes the legal, valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms.
B. The execution, delivery and performance by the Borrower of
this Amendment and its performance of the Credit Agreement, as amended hereby,
have been authorized by all requisite corporate action and will not (i) violate
(a) any order of any court, or any rule, regulation or order of any other agency
of government, (b) the Certificate of Incorporation or the By-Laws (including
any amendment thereto) or any other instrument of corporate governance of the
Borrower, or (c) any provision of any indenture, agreement or other instrument
to which the Borrower is a party, or by which the Borrower or any of its
properties or assets are or may be bound; (ii) be in conflict with, result in a
breach of or constitute, alone or with due notice or lapse of time or both, a
default under any indenture, agreement or other instrument referred to in (i)(c)
above; or (iii) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever.
5. Miscellaneous.
--------------
A. This Amendment shall be construed in accordance
with and governed by the laws of the Commonwealth of Pennsylvania, without
reference to principles of conflict of laws.
B. This Amendment shall become effective upon execution and
delivery hereof by the Required Lenders and the Borrower. The Borrower agrees to
pay on demand all costs and expenses of the Agent, including reasonable
attorneys' fees and expenses, in connection with the preparation, execution and
delivery of this Amendment.
C. The execution, delivery and performance by the Lenders, the
Issuing Bank and the Agent of this Amendment shall
-4-
<PAGE> 5
not constitute, or be deemed to be or construed as, a waiver of any right, power
or remedy, or a waiver of any provision of the Credit Agreement. None of the
provisions of this Amendment shall constitute, or be deemed to be or construed
as, a waiver of any Potential Default or any Event of Default, as defined in the
Credit Agreement.
D. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this Agreement as of the
date first above written.
SINTER METALS, INC. SOCIETY NATIONAL BANK
By: /s/ Michael T. Kestner By:
--------------------------------- -----------------------------
Michael T. Kestner
Title: Chief Financial Officer Title:
--------------------------
MELLON BANK, N.A, individually
and as Agent
By:
---------------------------------
Title:
------------------------------
-4-
<PAGE> 1
EXHIBIT 4.2
SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER
-----------------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER (the
"Amendment") is dated as of June 28, 1996, by and among SINTER METALS, INC., a
Delaware corporation (the "Borrower"), the Lenders party hereto, the Issuing
Bank and MELLON BANK, N.A., a national banking association, as agent for the
Lenders (in such capacity, the "Agent").
RECITALS
--------
A. The Borrower, the Lenders, the Issuing Bank and the Agent
entered into a Credit Agreement, dated as of January 18, 1996, as amended by the
First Amendment to Credit Agreement dated as of April 10, 1996 (together with
all Exhibits and Schedules thereto, the "Credit Agreement"), under which the
Lenders agreed, subject to certain conditions, to make revolving credit loans to
the Borrower in an aggregate principal amount not to exceed $30,000,000.
B. The Borrower has agreed to acquire all of the issued and
outstanding shares of capital stock of SinterForm Incorporated, a Michigan
corporation ("SinterForm"), pursuant to the Stock Purchase Agreement, dated as
of July 18, 1996 (the "Purchase Agreement"), among Borrower and the four
individuals identified therein (collectively, the "Management Shareholders").
Pursuant to the Purchase Agreement, the aggregate purchase price to be paid to
the Management Shareholders is $8,500,000 in cash and 5,000 shares of Class A
Common Stock of the Borrower (the "Purchase Price").
C. The Borrower has requested that the Lenders waive the
requirements of Section 7.9(b)(iii) and certain provisions of Section 7.9(b)(vi)
of the Credit Agreement solely as such requirements apply to the purchase of the
issued and outstanding shares of capital stock of SinterForm pursuant to the
Purchase Agreement.
D. The parties desire to amend the Credit Agreement as set
forth herein.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
1. EFFECT OF AMENDMENT; DEFINITIONS.
All terms used herein that are defined in the Credit Agreement
shall have the meanings ascribed thereto in the Credit Agreement, unless the
context otherwise requires. The Credit Agreement shall be and hereby is amended
as provided in Section 2 hereof. Except as expressly amended in Section 2
hereof, the Credit Agreement shall continue in full force and effect in
accordance with its provisions on the date hereof. As used in the Credit
Agreement, the terms "Credit Agreement", "Agreement", "this Agreement",
"herein", "hereinafter", "hereto", "hereof", and words of similar import shall,
unless the context otherwise requires, mean the Credit Agreement as amended and
modified by this Amendment.
2. AMENDMENTS.
(A) Section 1.1 of the Credit Agreement is amended by adding
the following definition in alphabetical order:
"`SinterForm' shall mean Sinter Metals, Inc.--Zeeland,
a Michigan corporation, formerly known as SinterForm Incorporated."
(B) The last sentence of Section 4.14 of the Credit Agreement
is amended by inserting the following immediately after the word "KST": "and
SinterForm, both of which are wholly owned Subsidiaries of the Borrower."
(C) The proviso contained in Section 6.12 of the Credit
Agreement is amended by deleting the same and substituting the following in lieu
thereof:
"PROVIDED, HOWEVER, that notwithstanding the foregoing, KST
shall not be required to execute and deliver any of the foregoing unless and
until the aggregate principal amount of all intercompany loans from the Borrower
to KST shall at any time exceed Two Million Dollars ($2,000,000) and the
Borrower shall not be required to execute and deliver a Pledge Agreement in
respect of SinterForm unless and until the aggregate principal
-2-
<PAGE> 3
amount of all intercompany loans from the Borrower to SinterForm shall at any
time exceed Two Million Dollars ($2,000,000)."
(D) Section 7.1(a) of the Credit Agreement is amended by
deleting the same and substituting the following in lieu thereof:
"As of the last day of each fiscal quarter of each Fiscal
Year, the ratio of (i) Consolidated Total Liabilities as of the end of such
fiscal quarter, less cash of the Borrower on deposit in the Village of Richton
Park, Cook County, Illinois, Sinter Metals, Inc. Project Fund created under the
Trust Indenture, dated as of April 1, 1996, between the Borrower and Mellon
Bank, N.A., as trustee, in respect of the Bonds, as of the end of such fiscal
quarter, to (ii) Consolidated Tangible Net Worth as of the end of such fiscal
quarter shall not be more than 1.50 to 1.00."
(E) Section 7.5(e) of the Credit Agreement is amended by
deleting the same and substituting the following in lieu thereof:
"(e) Loans from the Borrower to KST and to SinterForm,
PROVIDED that the aggregate principal amount of all such loans at any
time to KST shall not exceed Two Million Dollars ($2,000,000) and that
the aggregate principal amount of all such loans at any time to
SinterForm shall not exceed Two Million Dollars ($2,000,000); and
PROVIDED FURTHER that both immediately before and after giving effect
to any such loan, no Potential Default or Event of Default has occurred
and is continuing or will occur;"
3. WAIVER. The Lenders hereby waive the requirements of (a)
Section 7.9(b)(iii) of the Credit Agreement solely as such requirements apply to
the purchase of the issued and outstanding shares of capital stock of SinterForm
pursuant to the Purchase Agreement to the extent that the Purchase Price exceeds
the amount permitted in Section 7.9(b)(iii) and (b) Section 7.9(b)(vi) of the
Credit Agreement to the extent that such Section requires Borrower to execute
and deliver to the Agent a Pledge Agreement, subject to Section 6.12 of the
Credit Agreement.
4. REPRESENTATIONS AND WARRANTIES; COVENANTS.
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<PAGE> 4
(A) The Borrower hereby represents and warrants that all
representations and warranties set forth in the Credit Agreement, as amended
hereby, are true and correct in all material respects, and that this Amendment
has been executed and delivered by a duly authorized officer of the Borrower and
constitutes the legal, valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms.
(B) The Borrower hereby represents and warrants that the
execution, delivery and performance by the Borrower of this Amendment and its
performance of the Credit Agreement, as amended hereby, have been authorized by
all requisite corporate action and will not (i) violate (a) any order of any
court, or any rule, regulation or order of any other agency of government, (b)
the Certificate of Incorporation or the By-Laws (including any amendment
thereto) or any other instrument of corporate governance of the Borrower, or (c)
any provision of any indenture, agreement or other instrument to which the
Borrower is a party, or by which the Borrower or any of its properties or assets
are or may be bound; (ii) be in conflict with, result in a breach of or
constitute, alone or with due notice or lapse of time or both, a default under
any indenture, agreement or other instrument referred to in (i)(c) above; or
(iii) result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever.
(C) The Borrower represents and warrants that (i) no Event of
Default or Potential Default has occurred and is continuing or will exist after
giving effect to the transactions contemplated by the Purchase Agreement, (ii)
the business and properties of SinterForm are within the Borrower's line of
business or a related line of business or use production or manufacturing
technology used in the Borrower's line of business, (iii) the Borrower has
delivered the pro forma financial statements required pursuant to Section 6.1(c)
of the Credit Agreement and no Event of Default or Potential Default is
disclosed or suggested in such statements, (iv) the Borrower has delivered the
Compliance Certificate required under the last sentence of Section 6.1(d) of the
Credit Agreement, and (v) the statements in Recital B are true and accurate, and
the Borrower has delivered a true and correct copy of the Purchase Agreement to
the Agent.
-4-
<PAGE> 5
(D) The Borrower covenants and agrees that it will cause
SinterForm to execute and deliver to the Agent a Subsidiary Guaranty, in form
and substance satisfactory to the Agent and the Lenders, as required by the
Credit Agreement on or before the date that the Borrower purchases the shares of
capital stock of SinterForm pursuant to the Purchase Agreement.
5. MISCELLANEOUS.
(A) This Amendment shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania, without reference to
principles of conflict of laws.
(B) This Amendment shall become effective upon execution and
delivery hereof by the Required Lenders and the Borrower. The Borrower agrees to
pay on demand all costs and expenses of the Agent, including reasonable
attorneys' fees and expenses, in connection with the preparation, execution and
delivery of this Amendment.
(C) The execution, delivery and performance by the Lenders,
the Issuing Bank and the Agent of this Amendment shall not constitute or, except
as expressly set forth herein, be deemed to be or construed as a waiver of any
right, power or remedy, or a waiver of any provision of the Credit Agreement, or
a waiver of any Potential Default or any Event of Default. Nothing herein shall
be deemed to entitle the Borrower to a consent to, or a waiver, amendment,
modification or other change of, any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document in similar or different circumstances. This Amendment is subject to the
provisions of Section 10.3 of the Credit Agreement.
(D) This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this Agreement as of the
date first above written.
-5-
<PAGE> 6
SINTER METALS, INC. KEYBANK NATIONAL ASSOCIATION
By: /s/ Ronald G. Campbell By: /s/ Richard A. Pohle
------------------------------- -----------------------------
Title: Assistant Treasurer Title: Vice President
---------------------------- --------------------------
MELLON BANK, N.A, individually
and as Agent
By: /s/ John Joseph Ligday
-------------------------------
Title: Assistant Vice President
----------------------------
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,663
<SECURITIES> 0
<RECEIVABLES> 13,062
<ALLOWANCES> 113
<INVENTORY> 10,723
<CURRENT-ASSETS> 26,986
<PP&E> 44,771
<DEPRECIATION> 14,510
<TOTAL-ASSETS> 76,694
<CURRENT-LIABILITIES> 15,878
<BONDS> 0
<COMMON> 7
0
0
<OTHER-SE> 46,296
<TOTAL-LIABILITY-AND-EQUITY> 76,694
<SALES> 55,539
<TOTAL-REVENUES> 55,539
<CGS> 42,727
<TOTAL-COSTS> 47,797
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> 7,575
<INCOME-TAX> 2,775
<INCOME-CONTINUING> 4,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,800
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
