<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 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
October 31, 1996, the registrant had the following number of shares 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.
--------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995.....3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months
Ended September 30, 1996 and 1995............5
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 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.............................11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......15
SIGNATURES....................................................16
</TABLE>
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<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SINTER METALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,752 $ 1,462
Accounts receivable, net of
allowance of $120 and $111,
respectively 14,611 11,129
Inventories 13,751 10,194
Other current assets 775 643
-------- --------
Total current assets 30,889 23,428
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 788 586
Buildings and building
improvements 7,465 6,251
Machinery and equipment 36,835 32,757
Construction-in-progress 5,619 1,113
-------- --------
50,707 40,707
Less accumulated depreciation (15,664) (12,024)
-------- --------
Total property, plant
and equipment 35,043 28,683
RESTRICTED CASH 5,856 ---
OTHER ASSETS 552 132
GOODWILL 17,773 12,977
-------- --------
TOTAL ASSETS $ 90,113 $ 65,220
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
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<PAGE> 4
<TABLE>
SINTER METALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 154 $ 267
Accounts payable 10,055 7,068
Accrued expenses 7,817 6,317
Income taxes payable 1,498 648
------- -------
Total current liabilities 19,524 14,300
------- -------
LONG-TERM OBLIGATIONS:
Term loan 9,316 2,291
Borrowings under revolving credit
agreement 6,505 2,141
Deferred income taxes 5,379 4,026
Other noncurrent liabilities 810 1,000
------- -------
Total long-term obligations 22,010 9,458
------- -------
Total liabilities 41,534 23,758
------- -------
STOCKHOLDERS' EQUITY:
Class A, par value $.001 per share;
authorized 20,000,000 shares;
issued and outstanding 5,009,747 and
5,004,747 shares, respectively 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 27,925 27,838
Cumulative translation adjustments 373 331
Retained earnings 20,274 13,286
------- -------
Total stockholders' equity 48,579 41,462
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $90,113 $65,220
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
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<PAGE> 5
<TABLE>
SINTER METALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $27,529 $22,664 $83,068 $69,392
Cost of sales 21,478 17,601 64,205 53,930
------- ------- ------- -------
GROSS PROFIT 6,051 5,063 18,863 15,462
Selling, general and
administrative expenses 2,447 1,919 7,322 5,476
Amortization of intangible
assets 105 81 300 242
------- ------- ------- -------
INCOME FROM OPERATIONS 3,499 3,063 11,241 9,744
Interest expense 100 137 288 220
Other(income) expense, net (39) 43 (60) 109
------- ------- ------- -------
INCOME BEFORE PROVISION
FOR INCOME TAXES 3,438 2,883 11,013 9,415
Provision for income taxes 1,250 1,050 4,025 3,600
------- ------- ------- -------
NET INCOME 2,188 1,833 6,988 5,815
======= ======= ======= =======
Net income per common share $ .29 $ .24 $ .93 $ .78
======= ======= ======= =======
Weighted average common
shares outstanding 7,552 7,548 7,549 7,483
======= ======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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<PAGE> 6
<TABLE>
SINTER METALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
-----------------------
1996 1995
--------- -------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 6,988 $ 5,815
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,930 2,915
Deferred income taxes 464 487
Other (228) 330
Cash provided (used) by working capital
items, net of acquisition
Accounts receivable, net (2,205) (1,950)
Inventories (2,126) (1,717)
Other current assets (24) (162)
Accounts payable 1,799 (1,056)
Accrued expenses 1,160 523
Accrued taxes 850 (205)
-------- -------
Net cash provided by operating activities 10,608 4,980
-------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,023) (2,727)
Acquisitions of business, net of cash acquired (9,802) (4,043)
Restricted cash (5,856) -0-
-------- -------
Net cash used by investing activities (21,681) (6,770)
-------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Term debt borrowings 7,195 138
Term debt repayments (283) -0-
Increase in net borrowings under
revolving credit line 4,364 1,466
Issuance of common stock 87 1,000
-------- -------
Net cash provided by financing activities 11,363 2,604
-------- -------
Net increase in cash 290 814
CASH, beginning of period 1,462 78
-------- -------
CASH, end of period $ 1,752 $ 892
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest $ 276 $ 177
======== =======
Cash payments for income taxes $ 2,556 $ 3,372
======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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<PAGE> 7
SINTER METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. ORGANIZATION:
------------
The Company's principal business consists of the engineering and production of
precision pressed powder metal parts 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 subsidiaries, SinterForm, Inc. and Kolsva Sinterteknik AB. All
significant intercompany transactions and accounts have been eliminated in the
accompanying consolidated financial statements.
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 POWDER METAL HOLDING, INC.:
----------------------------------------
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. In accordance with past
practice, the Company chose not to recognize in the accompanying statement of
operations its pro rata portion of PMH's first nine months of 1996 and 1995 net
income.
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
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<PAGE> 8
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, and 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 nine months
ended September 30, 1996 and 1995, as follows (dollars in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Net sales $82,604 $81,242
Gross profit 8,122 12,341
Net income $ 339 $ 3,706
======= =======
</TABLE>
On October 7, 1996, the Company entered into an agreement to purchase the
remaining 70% interest in PMH (Note 7).
4. INVENTORIES:
-----------
The major components of inventories were as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(Unaudited) (Audited)
<S> <C> <C>
Raw Materials $ 4,891 $ 2,945
Work-in-process 5,551 4,481
Finished goods 3,701 3,105
------- -------
$14,143 $10,531
LIFO reserve (392) (337)
------- -------
$13,751 $10,194
======= =======
</TABLE>
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<PAGE> 9
5. RESTRICTED CASH:
---------------
On April 10, 1996, the Company issued an industrial revenue bond aggregating
$7.2 million. The bond is a tax exempt floating interest rate bond and is being
used to fund the construction of a new plant facility in Chicago and anticipated
additional plant equipment. The unused portion of the proceeds are reflected in
the accompanying balance sheet as Restricted Cash.
6. 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 and
September 1996 (the New Revolver). The New Revolver is a $50 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 the Company's debt
was substantially the same as its carrying value at September 30, 1996 and
December 31, 1995.
7. ACQUISITIONS:
------------
Effective June 26, 1995, the Company purchased the stock of Kolsva Sinterteknik
AB for a combination of $3.8 million in cash and 100,000 shares of the Company's
Class A Common Stock. The cash portion of the transaction was financed through
the Company's revolving credit facility. As part of the transaction, the Company
assumed long-term debt of Sinterteknik aggregating approximately $1.9 million.
Effective July 18, 1996, the Company purchased the stock of SinterForm, Inc. for
a combination of $8.5 million in cash and 5,000 shares of the Company's Class A
Common Stock. The transaction was financed through the Company's revolving
credit agreement.
Both transactions were 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 fair value
at the date of acquisition. Proforma financial operating results as if the
acquisitions had been completed on January 1, 1995, are as follows (dollars in
thousands):
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<PAGE> 10
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------
1996 1995
---- ----
<S> <C> <C>
Net sales $91,151 $84,722
Gross profit 19,961 17,996
Income before taxes 11,345 10,136
Net income 7,093 6,382
Net income per share 0.94 0.84
</TABLE>
8. SUBSEQUENT EVENTS - ACQUISITION OF POWDER METAL HOLDING, INC. AND
KREBSOGE SINTERHOLDING GMBH
-----------------------------------------------------------------
On October 7, 1996, the Company entered into an agreement to purchase the
remaining 70% of the outstanding stock of PMH, and, in a related transaction, it
will acquire substantially all of the shares of Krebsoge Sinterholding GmbH,
Germany and Europe's largest precision pressed powder metal parts producer. The
combined purchase price is approximately $215 million. A senior bank commitment
has been obtained from Salomon Brothers Inc for $270 million, which is expected
to fund the acquisitions, to refinance the existing Company debt, and to provide
the Company's future working capital needs. The transaction is expected to close
in December, 1996.
- 10 -
<PAGE> 11
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. 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.
The Company has grown considerably since the original acquisition in 1991. The
growth is the result of its presence in the expanding pressed powder metal parts
market, coupled with an aggressive acquisition strategy. Since the original
acquisition, the Company has completed five additional acquisitions, including
the minority stake acquired in Powder Metal Holding, Inc. in 1993, Sweden's
Kolsva Sinterteknik ("Sinterteknik") in June 1995 and SinterForm, Inc.
("SinterForm") in July 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net Sales. Net sales increased $4.9 million, or 21.5%, to $27.5 million in the
third quarter of 1996 from $22.7 million in the comparable quarter of 1995. The
increase in net sales reflects the impact of the SinterForm acquisition,
increased penetration by the Company in the automotive market, increased
automotive production throughout North America, and a modest increase in the
selling price per unit.
The increased penetration in the automotive market is evidenced by an
approximate 24.9% increase in automotive sales experienced by the Company during
the third quarter of 1996 over the third quarter of 1995, while North American
light vehicle production during the same period increased only 6.8%.
Gross profit. Gross profit increased by $1.0 million, or 19.5%, to $6.1 million
in 1996. The gross profit margin decreased from 22.3% in the third quarter of
1995 to 22.0% in the comparable period in 1996. The decrease is primarily
attributable to a change in product mix, and the inclusion of SinterForm which
historically experiences lower gross margins. SinterForm's margins are expected
to improve over time as a result of synergies resulting from the acquisition.
- 11 -
<PAGE> 12
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $.5 million in 1996 to $2.4 million. However,
selling, general and administrative expenses as a percentage of sales remained
relatively constant at 8.9% in 1996, compared to 8.5% in 1995.
Income from operations. Income from operations increased by $.4 million, or
14.2%, in 1996, as compared to 1995. Income from operations as a percent of net
sales decreased from 13.5% in 1995 to 12.7% in 1996, reflecting the change in
product mix and the increase in selling, general and administrative expenses.
Income Taxes. The provision for income taxes increased to $1.3 million in 1996
from $1.1 million in 1995 reflecting the increase in pre-tax income.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net Sales. Net sales increased $13.7 million, or 19.7%, to $83.1 million in the
first nine months of 1996 from $69.4 million in the comparable period of 1995.
The increase in net sales reflects the impact of the Sinterteknik acquisition,
the SinterForm acquisition, increased penetration by the Company in the
automotive market and a modest increase in selling price per unit.
The increased penetration in the automotive market is evidenced by an
approximate 11.6% increase in automotive sales experienced by the Company in the
first nine months of 1996 over the first nine months of 1995, while North
American light vehicle production during the same period declined by .7%.
Gross profit. Gross profit increased by $3.4 million, or 22.0%, to $18.9 million
in 1996. The gross profit margin increased from 22.3% in 1995 to 22.7% in 1996.
The increase is principally attributable to a change in product mix and the
inclusion of the Sinterteknik, for a full nine months, which consistently
reports a higher gross margin than the domestic plants.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.8 million in 1996 to $7.3 million.
Similarly, selling, general and administrative expenses as a percentage of sales
increased from 7.9% to 8.8% for the first nine months of 1995 and 1996,
respectively. The increase in selling, general and administrative expenses in
1996 is primarily attributable to the inclusion of Sinterteknik for nine months
of 1996 as compared to two months of 1995. Sinterteknik historically reports
higher selling, general and administrative expenses as a percentage of sales
than the domestic plants.
Income from operations. Income from operations increased by $1.5 million, or
15.4%, in 1996, as compared to 1995. Income from operations as a percent of net
sales decreased from 14.0% in 1995 to 13.5% in 1996, reflecting the increase in
selling, general and administrative expenses described above.
- 12 -
<PAGE> 13
Income Taxes. The provision for income taxes was $4.0 million in 1996 and $3.6
million in 1995 reflecting the increase in pretax income offset in part by the
favorable income tax rate in Sweden.
LIQUIDITY AND CAPITAL RESOURCES
Debt Structure. 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
tax-exempt industrial development bonds to fund these capital needs.
To provide ongoing liquidity and to fund short-term working capital
requirements, the Company in September 1996 expanded and amended its revolving
credit agreement. The revised credit agreement is unsecured and provides $50
million of funds for working capital needs, capital expenditures and to fund
potential acquisitions. Under the new agreement, the Company had available at
September 30, 1996 approximately $34 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.
Acquisitions. 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 consisted of $8.5 million of cash and five thousand shares of the
Company's Class A Common Stock. The cash portion of the purchase price was
funded utilizing the Company's revolving credit agreement.
On October 7, 1996, the Company entered into an agreement to purchase the
remaining 70% of the outstanding stock of Powder Metal Holding Inc., the U.S.'s
second largest producer of precision pressed powder metal parts, and, in a
related transaction, it will acquire substantially all of the shares of Krebsoge
Sinterholding GmbH. The combined purchase price approximates $215 million. A
senior bank commitment has been obtained from Salomon Brothers Inc for $270
million, which is expected to fund the acquisitions, to refinance the existing
Sinter debt and to provide for the Company's future working capital needs. The
transaction is expected to close in December 1996.
Operations. Net cash provided by operating activities increased in 1996 by
approximately $5.6 million to $10.6 million from the 1995 level of $5.0 million.
Net cash provided by operating activities is principally generated from net
income of the Company, non cash charges for depreciation, which are substantial
due to the capital intensive nature of the Company's business and changes in
working capital.
Capital expenditures aggregated $6.0 and $2.7 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.
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<PAGE> 14
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 its existing
indebtedness, 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.
- 14 -
<PAGE> 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K. The Company filed a Current
Report on Form 8-K dated July 18, 1996, announcing
the acquisition of SinterForm, Inc. At the time of
the filing, it was impractical to provide either the
financial statements of SinterForm or the required
proforma financial statements. These financial
statements were filed in an amendment to the Form 8-K
on September 30, 1996.
(b) See attached Exhibit Index.
4.2 Revolving Credit Agreement - Third Amendment
27 Financial Data Schedule
- 15 -
<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
September 30, 1996, to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: November 13, 1996 SINTER METALS, INC.
---------------------
/s/ Joseph W. Carreras
------------------------------
Joseph W. Carreras
Chairman of the Board and Chief
Executive Officer
/s/ Michael T. Kestner
------------------------------
Michael T. Kestner
Vice President and Chief Financial
Officer (Chief Accounting Officer)
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<PAGE> 1
Exhibit 4.2
THIRD AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is
dated as of September __, 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 and the Second
Amendment to Credit Agreement and Waiver dated as of June 28, 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.
2. Amendments.
----------
(A) The definition of "Revolving Credit Note" in Section 1.1
of the Credit Agreement is amended by deleting the same and substituting the
following in lieu thereof:
"`Revolving Credit Note' shall mean the promissory note of the
Borrower executed and delivered under Section 2.1(c) hereof and any
promissory note issued in substitution therefor pursuant to Sections
2.13(b) or 10.14(c) hereof or in connection with any amendment of this
Agreement or
1
<PAGE> 2
otherwise, together with all extensions, renewals,
refinancings or refundings thereof in whole or part."
(B) The last sentence in Section 2.1(a) of the Credit
Agreement is amended by deleting the same and substituting the following in lieu
thereof:
"The sum of the Revolving Credit Committed Amounts of
the Lenders shall not exceed Fifty Million Dollars ($50,000,000)
at any time."
(C) Section 2.4(b)(i) of the Credit Agreement is amended by
deleting the same and substituting the following in lieu thereof:
"(i) Except and to the extent that the conditions set forth in
Section 2.4(b)(ii) below apply on a particular day, the "Applicable
Margin" for each applicable interest rate Option for any day shall mean
the applicable percentage set forth below:
<TABLE>
<CAPTION>
Interest Rate Option Applicable Margin
-------------------- -----------------
<S> <C>
Base Rate Option 0.000%
Offered Rate Option 1.000%
Euro-Rate Option 1.000%"
</TABLE>
(D) Section 7.1(a) of the Credit Agreement is amended by
deleting the same and substituting the following in lieu thereof:
"(a) RATIO OF CONSOLIDATED TOTAL LIABILITIES TO CONSOLIDATED
NET WORTH. 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 Net Worth as of the end of such fiscal quarter shall not be
more than 1.60 to 1.00."
(E) Section 7.1(b) of the Credit Agreement is amended by
deleting the same and substituting the following in lieu thereof:
"(b) RATIO OF CONSOLIDATED FUNDED DEBT TO CONSOLIDATED EBITDA.
As of the last day of each fiscal quarter of each Fiscal Year, the ratio of
Consolidated Funded Debt 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
-2-
<PAGE> 3
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 Consolidated
EBITDA for the period of four (4) fiscal quarters ending on such day, considered
as a single accounting period, shall not be more than 2.50 to 1.00."
(F) The amounts set forth as the "Initial Revolving Credit
Committed Amounts" below the names of the Lenders on the signature pages of the
Credit Agreement are amended as follows: (i) by deleting the number
"$18,000,000" as the Initial Revolving Credit Committed Amount under the
signature of Mellon Bank and substituting "$30,000,000" in lieu thereof; and
(ii) by deleting the number "$12,000,000" as the Initial Revolving Credit
Committed Amount under the signature of Society National Bank and substituting
"$20,000,000" in lieu thereof.
3. Representations and Warranties; Covenants.
-----------------------------------------
(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.
4. 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.
-3-
<PAGE> 4
(B) This Amendment shall become effective upon execution and
delivery hereof by the Required Lenders and the Borrower and upon the execution
and delivery by the Borrower to the Agent of the Revolving Credit Notes in
substantially the forms attached hereto as Exhibits A-1 and A-2. Upon the
execution and delivery of such Revolving Credit Notes, the Agent shall deliver
to the Borrower the originals of each of the Revolving Credit Notes executed by
Borrower on the Closing Date marked "exchanged" or "replaced." 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.
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 and as Issuing
Bank
By: /s/ John Joseph Liqday
---------------------------
Title: Assistant Vice President
------------------------
- 4 -
<PAGE> 5
EXHIBIT A-1
SINTER METALS, INC.
Amended and Restated Revolving Credit Note
------------------------------------------
$30,000,000 January 18, 1996
FOR VALUE RECEIVED, the undersigned, SINTER METALS, INC., a
Delaware corporation (the "Borrower"), promises to pay to the order of MELLON
BANK, N.A. (the "Lender") on or before the Revolving Credit Maturity Date, and
at such earlier dates as may be required by the Agreement (as defined below),
the lesser of (i) the principal sum of Thirty Million Dollars ($30,000,000) or
(ii) the aggregate unpaid principal amount of all Revolving Credit Loans made by
the Lender to the Borrower from time to time pursuant to the Agreement. The
Borrower further promises to pay to the order of the Lender interest on the
unpaid principal amount hereof from time to time outstanding at the rate or
rates per annum determined pursuant to the Agreement, payable on the dates set
forth in the Agreement.
This Note is one of the "Revolving Credit Notes" as referred
to in, and is entitled to the benefits of, the Credit Agreement, dated as of
January 18, 1996, by and among the Borrower, the Lenders party thereto from time
to time, the Issuing Bank referred to therein and Mellon Bank, N.A., a national
banking association, as Agent for the Lenders (as the same has heretofore been
and may be amended, modified or supplemented from time to time, the
"Agreement"), which among other things provides for the acceleration of the
maturity hereof upon the occurrence of certain events and for prepayments in
certain circumstances and upon certain terms and conditions. Terms defined in
the Agreement have the same meanings herein.
The Borrower hereby expressly waives presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note and the
Agreement, and an action for amounts due hereunder or thereunder shall
immediately accrue.
This Note shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
principles of choice of law.
THE BORROWER AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY
ATTORNEY OF ANY COURT OF RECORD WITHIN THE UNITED STATES OR ELSEWHERE, UPON THE
OCCURRENCE OF ANY EVENT OF DEFAULT UNDER THE AGREEMENT, UNDER THIS REVOLVING
CREDIT NOTE OR UNDER ANY OF THE OTHER LOAN DOCUMENTS, TO APPEAR FOR AND CONFESS
JUDGMENT AGAINST THE BORROWER AS OF ANY TERM IN FAVOR OF THE LENDER OR ANY
HOLDER OF THIS REVOLVING CREDIT NOTE, FOR ALL SUMS DUE AND UNPAID UNDER THIS
REVOLVING CREDIT NOTE, WHETHER BY ACCELERATION OR NOT, WITH OR WITHOUT
DECLARATION, WITH COST OF SUIT, RELEASE OF ALL ERRORS, WITHOUT STAY OF EXECUTION
AND WITH TEN PERCENT (10%) ADDED FOR COLLECTION FEE. THE BORROWER ALSO WAIVES
THE RIGHT OF INQUISITION OF ANY REAL ESTATE LEVIED ON, VOLUNTARILY CONDEMNS THE
SAME, AUTHORIZES THE PROTHONOTARY OR CLERK TO ENTER THE WRIT OF EXECUTION ON
SAID VOLUNTARY CONDEMNATION, AGREES THAT SAID REAL ESTATE MAY BE SOLD ON A WRIT
OF EXECUTION, AND ALSO WAIVES AND RELEASES ALL RELIEF FROM ANY AND
ALL APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR ENACTED IN
THE FUTURE. IF A COPY OF THIS REVOLVING CREDIT NOTE, VERIFIED BY AFFIDAVIT OF
THE LENDER OR ANY SUCH HOLDER OF THIS REVOLVING CREDIT NOTE OR SOMEONE
AUTHORIZED TO ACT ON THE BEHALF OF THE LENDER OR ANY SUCH HOLDER, HAS
5
<PAGE> 6
BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL
REVOLVING CREDIT NOTE AS A WARRANT OF ATTORNEY. THE AUTHORITY AND POWER TO
APPEAR FOR AND ENTER JUDGMENT AGAINST THE BORROWER WILL NOT BE EXHAUSTED BY ANY
SINGLE EXERCISE OF THE AUTHORIZED POWER, AND THE SAME MAY BE EXERCISED FROM TIME
TO TIME AS OFTEN AS THE HOLDER DEEMS NECESSARY OR DESIRABLE; AND THIS INSTRUMENT
WILL BE A SUFFICIENT WARRANT.
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO
NOTICE AND COURT TRIAL. A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWER OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THIS AGREEMENT OR ANY
OTHER CAUSE.
IN WITNESS WHEREOF, and intending to be legally bound, the
Borrower has executed, issued and delivered this Revolving Credit Note as of
January 18, 1996.
ATTEST: SINTER METALS, INC.
/s/ Ronald G. Campbell By: /s/ Michael T. Kestner
- ---------------------- -------------------------
Assistant Secretary Chief Financial Officer
6
<PAGE> 7
ACKNOWLEDGMENT
STATE OF OHIO )
) S.S.
COUNTY OF CUYAHOGA )
On this 19th day of September, 1996, before me, Gloria T.
Sturghill the undersigned authority in and for said County and State, personally
appeared Michael T. Kestner who acknowledged himself to be the Chief Financial
Officer of Sinter Metals, Inc., a Delaware corporation, and that he as such
Officer, being authorized to execute the foregoing Revolving Credit Note on
behalf of Sinter Metals, Inc., executed the foregoing Revolving Credit Note on
behalf of Sinter Metals, Inc. for the purposes set forth in the foregoing
Revolving Credit Note by signing the name of the corporation by himself as
Officer.
IN WITNESS WHEREOF, I hereunto set my official hand and seal.
/s/ Gloria T. Sturghill
-----------------------
Notary Public
(Notarial Seal)
My Commission Expires: June 16, 1997
7
<PAGE> 8
EXHIBIT A-2
SINTER METALS, INC.
Amended and Restated Revolving Credit Note
------------------------------------------
$20,000,000 January 18, 1996
FOR VALUE RECEIVED, the undersigned, SINTER METALS, INC., a
Delaware corporation (the "Borrower"), promises to pay to the order of KEYBANK
NATIONAL ASSOCIATION (the "Lender") on or before the Revolving Credit Maturity
Date, and at such earlier dates as may be required by the Agreement (as defined
below), the lesser of (i) the principal sum of Twenty Million Dollars
($20,000,000) or (ii) the aggregate unpaid principal amount of all Revolving
Credit Loans made by the Lender to the Borrower from time to time pursuant to
the Agreement. The Borrower further promises to pay to the order of the Lender
interest on the unpaid principal amount hereof from time to time outstanding at
the rate or rates per annum determined pursuant to the Agreement, payable on the
dates set forth in the Agreement.
This Note is one of the "Revolving Credit Notes" as referred
to in, and is entitled to the benefits of, the Credit Agreement, dated as of
January 18, 1996, by and among the Borrower, the Lenders party thereto from time
to time, the Issuing Bank referred to therein and Mellon Bank, N.A., a national
banking association, as Agent for the Lenders (as the same has heretofore been
and may be amended, modified or supplemented from time to time, the
"Agreement"), which among other things provides for the acceleration of the
maturity hereof upon the occurrence of certain events and for prepayments in
certain circumstances and upon certain terms and conditions. Terms defined in
the Agreement have the same meanings herein.
The Borrower hereby expressly waives presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note and the
Agreement, and an action for amounts due hereunder or thereunder shall
immediately accrue.
This Note shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
principles of choice of law.
THE BORROWER AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY
ATTORNEY OF ANY COURT OF RECORD WITHIN THE UNITED STATES OR ELSEWHERE, UPON THE
OCCURRENCE OF ANY EVENT OF DEFAULT UNDER THE AGREEMENT, UNDER THIS REVOLVING
CREDIT NOTE OR UNDER ANY OF THE OTHER LOAN DOCUMENTS, TO APPEAR FOR AND CONFESS
JUDGMENT AGAINST THE BORROWER AS OF ANY TERM IN FAVOR OF THE LENDER OR ANY
HOLDER OF THIS REVOLVING CREDIT NOTE, FOR ALL SUMS DUE AND UNPAID UNDER THIS
REVOLVING CREDIT NOTE, WHETHER BY ACCELERATION OR NOT, WITH OR WITHOUT
DECLARATION, WITH COST OF SUIT, RELEASE OF ALL ERRORS, WITHOUT STAY OF EXECUTION
AND WITH TEN PERCENT (10%) ADDED FOR COLLECTION FEE. THE BORROWER ALSO WAIVES
THE RIGHT OF INQUISITION OF ANY REAL ESTATE LEVIED ON, VOLUNTARILY CONDEMNS THE
SAME, AUTHORIZES THE PROTHONOTARY OR CLERK TO ENTER THE WRIT OF EXECUTION ON
SAID VOLUNTARY CONDEMNATION, AGREES THAT SAID REAL ESTATE MAY BE SOLD ON A WRIT
OF EXECUTION, AND ALSO WAIVES AND RELEASES ALL RELIEF FROM ANY AND ALL
APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR ENACTED IN THE
FUTURE. IF A COPY OF THIS REVOLVING CREDIT NOTE, VERIFIED
8
<PAGE> 9
BY AFFIDAVIT OF THE LENDER OR ANY SUCH HOLDER OF THIS REVOLVING CREDIT NOTE OR
SOMEONE AUTHORIZED TO ACT ON THE BEHALF OF THE LENDER OR ANY SUCH HOLDER, HAS
BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL
REVOLVING CREDIT NOTE AS A WARRANT OF ATTORNEY. THE AUTHORITY AND POWER TO
APPEAR FOR AND ENTER JUDGMENT AGAINST THE BORROWER WILL NOT BE EXHAUSTED BY ANY
SINGLE EXERCISE OF THE AUTHORIZED POWER, AND THE SAME MAY BE EXERCISED FROM TIME
TO TIME AS OFTEN AS THE HOLDER DEEMS NECESSARY OR DESIRABLE; AND THIS INSTRUMENT
WILL BE A SUFFICIENT WARRANT.
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO
NOTICE AND COURT TRIAL. A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWER OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THIS AGREEMENT OR ANY
OTHER CAUSE.
IN WITNESS WHEREOF, and intending to be legally bound, the
Borrower has executed, issued and delivered this Revolving Credit Note as of
January 18, 1996.
ATTEST: SINTER METALS, INC.
By: Michael T. Kestner
/s/ Ronald G. Campbell ---------------------------
- ------------------------
Assistant Secretary Title: Chief Financial Officer
------------------------
9
<PAGE> 10
ACKNOWLEDGMENT
STATE OF OHIO )
) S.S.
COUNTY OF CUYAHOGA )
On this 19th day of September, 1996, before me, Gloria T.
Sturghill the undersigned authority in and for said County and State, personally
appeared Michael T. Kestner who acknowledged himself to be the Chief Financial
Officer of Sinter Metals, Inc., a Delaware corporation, and that he as such
Officer, being authorized to execute the foregoing Revolving Credit Note on
behalf of Sinter Metals, Inc., executed the foregoing Revolving Credit Note on
behalf of Sinter Metals, Inc. for the purposes set forth in the foregoing
Revolving Credit Note by signing the name of the corporation by himself as
Officer.
IN WITNESS WHEREOF, I hereunto set my official hand and seal.
/s/ Gloria T. Sturghill
-----------------------
Notary Public
(Notarial Seal)
My Commission Expires:
10
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,752
<SECURITIES> 0
<RECEIVABLES> 14,731
<ALLOWANCES> 120
<INVENTORY> 13,751
<CURRENT-ASSETS> 30,889
<PP&E> 50,707
<DEPRECIATION> 15,664
<TOTAL-ASSETS> 90,113
<CURRENT-LIABILITIES> 19,524
<BONDS> 0
<COMMON> 7
0
0
<OTHER-SE> 48,572
<TOTAL-LIABILITY-AND-EQUITY> 90,113
<SALES> 83,068
<TOTAL-REVENUES> 83,068
<CGS> 64,205
<TOTAL-COSTS> 71,827
<OTHER-EXPENSES> (60)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288
<INCOME-PRETAX> 11,013
<INCOME-TAX> 4,025
<INCOME-CONTINUING> 6,988
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,988
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
</TABLE>
