<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
------------------------
SINTER METALS, INC.
(NAME OF SUBJECT COMPANY)
GKN PLC
GKN POWDER METALLURGY HOLDINGS, INC.
GKN POWDER METALLURGY, INC.
------------------------
(BIDDERS)
COMMON STOCK, $.001 PAR VALUE
------------------------
(TITLE OF CLASS OF SECURITIES)
82934Q101
------------------------
(CUSIP NUMBER OF COMMON STOCK)
DAVID J. TURNER
GKN POWDER METALLURGY, INC.
3300 UNIVERSITY DRIVE
AUBURN HILLS, MICHIGAN 48326-2362
(810) 377-1200
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS)
Copy:
JEAN E. HANSON, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004-1980
(212) 859-8000
------------------------
APRIL 29, 1997
(DATE OF EVENT WHICH REQUIRES FILING STATEMENT ON SCHEDULE 13D)
------------------------
CALCULATION OF FILING FEE
================================================================================
<TABLE>
<CAPTION>
TRANSACTION VALUATION* AMOUNT OF FILING FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
$385,617,589 $77,124
======================================================================================================
</TABLE>
* Estimated for the purpose of calculating the fee only. This amount assumes
the purchase of 10,422,097 shares of Common Stock of Sinter Metals, Inc. at
$37.00 per share. Such number of shares represents all outstanding shares of
Common Stock as of April 28, 1997, plus 330,300 shares issuable upon the
exercise of outstanding stock options.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C>
AMOUNT PREVIOUSLY PAID: N/A FILING PARTY: N/A
FORM OR REGISTRATION NO.: N/A DATE FILED: N/A
</TABLE>
================================================================================
Page 1 of 9 pages
The Index to Exhibits begins on Page 9
<PAGE> 2
SCHEDULE 14D-1 AND 13D
<TABLE>
<S> <C> <C>
- --------------------------
CUSIP No. 82934Q101 __
- --------------------------
- ------------------------------------------------------------------------------------------------
NAMES OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
GKN POWDER METALLURGY, INC.
- ------------------------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ]
2
- ------------------------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------------------------
SOURCE OF FUNDS
4
AF
- ------------------------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(e) or 2(f) [ ]
- ------------------------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- ------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
7 PERSON*
1,228,655
- ------------------------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
8 CERTAIN SHARES [ ]
- ------------------------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)*
9
APPROXIMATELY 11.8% OF THE SHARES OUTSTANDING ON A FULLY
DILUTED BASIS AS OF APRIL 30, 1997
- ------------------------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
10
CO
- ------------------------------------------------------------------------------------------------
</TABLE>
* See footnote on following page.
Page 2 of 9 Pages
<PAGE> 3
SCHEDULE 14D-1 AND 13D
<TABLE>
<S> <C> <C>
- --------------------------
CUSIP No. 82934Q101 __
- --------------------------
- ------------------------------------------------------------------------------------------------
NAMES OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
GKN POWDER METALLURGY HOLDINGS, INC.
- ------------------------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ]
2
- ------------------------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------------------------
SOURCE OF FUNDS
4
AF
- ------------------------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(e) or 2(f) [ ]
- ------------------------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- ------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
7 PERSON*
1,228,655
- ------------------------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
8 CERTAIN SHARES [ ]
- ------------------------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)*
9
APPROXIMATELY 11.8% OF THE SHARES OUTSTANDING ON A FULLY
DILUTED BASIS AS OF APRIL 30, 1997
- ------------------------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
10
CO
- ------------------------------------------------------------------------------------------------
</TABLE>
* See footnote on following page.
Page 3 of 9 Pages
<PAGE> 4
SCHEDULE 14D-1 AND 13D
<TABLE>
<S> <C> <C>
- --------------------------
CUSIP No. 82934Q101 __
- --------------------------
- ------------------------------------------------------------------------------------------------
NAMES OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
GKN plc
- ------------------------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ]
2
- ------------------------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------------------------
SOURCE OF FUNDS
4
WC
- ------------------------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
5 PURSUANT TO ITEMS 2(e) or 2(f) [ ]
- ------------------------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
ENGLAND
- ------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
7 PERSON*
1,228,655
- ------------------------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
8 CERTAIN SHARES [ ]
- ------------------------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)*
9
APPROXIMATELY 11.8% OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS AS OF APRIL
30, 1997
- ------------------------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
10
CO
- ------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* On April 29, 1997, GKN Powder Metallurgy, Inc. (the "Purchaser"), a direct
wholly owned subsidiary of GKN Powder Metallurgy Holdings, Inc. and an
indirect wholly owned subsidiary of GKN plc, entered into Stockholder
Agreements, dated as of April 29, 1997 (the "Stockholder Agreements"), with
Ronald G. Campbell, Joseph W. Carreras, Greg Heltzenrater, E. Joseph
Hochreiter, Michael T. Kestner, Donald L. LeVault, Richard A. McLean, Mary
Lynn Putney, William H. Roj and Charles E. Volpe, the beneficial owners of an
aggregate of 1,228,655 Shares (the "Selling Stockholders"), or approximately
11.8% of the outstanding shares of Common Stock (the "Shares") of Sinter
Metals, Inc. on a fully diluted basis. Pursuant to the Stockholder Agreements,
the Selling Stockholders have agreed to tender to the Purchaser all of their
Shares pursuant to the Offer no later than the third business day following
the commencement of the Offer and not to withdraw any Shares tendered into the
Offer. Pursuant to the Stockholder Agreements, the Selling Stockholders have
also delivered a proxy to the Purchaser to vote, or grant a consent or
approval in respect of, the Shares subject to the Stockholder Agreements in
favor of the Merger, the Merger Agreement dated as of April 29, 1997 and any
of the transactions contemplated by the Merger Agreement and against any
transaction with a third party that would impede, interfere with or attempt to
discourage the Merger Agreement (as defined in the Offer to Purchase). The
Stockholder Agreements are more fully described in Section 12 -- "Purpose of
the Offer and the Merger; Plans for the Company; the Merger Agreement;
Stockholder Agreements; Confidentiality Agreement" of the Offer to Purchase
dated May 2, 1997 (the "Offer to Purchase").
Page 4 of 9 Pages
<PAGE> 5
This Statement relates to a tender offer by GKN Powder Metallurgy, Inc., a
Delaware corporation (the "Purchaser") and a wholly owned subsidiary of GKN
Powder Metallurgy Holdings, Inc., a Delaware corporation ("Parent"), to purchase
all outstanding shares of Class A Common Stock, par value $.001 per share, and
all outstanding shares of Class B Common Stock, par value $.001 per share
(together, the "Shares"), of Sinter Metals, Inc., a Delaware corporation (the
"Company"), at a purchase price of $37.00 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated May 2, 1997 (the "Offer to Purchase") and in the
related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer") copies of which are
filed as Exhibits (a)(1) and (a)(2) hereto, respectively, and which are
incorporated herein by reference. Parent and the Purchaser have been formed by
GKN plc, a public limited company registered in England, in connection with the
Offer and the transactions contemplated thereby.
This Tender Offer Statement on Schedule 14D-1 also constitutes a Statement
on Schedule 13D with respect to the acquisition by GKN plc, Parent and the
Purchaser of beneficial ownership of the Shares subject to the Stockholder
Agreements. The item numbers and responses thereto below are in accordance with
the requirements of Schedule 14D-1.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Sinter Metals, Inc. The address of
the principal place of business of the Company is set forth in Section 8
("Certain Information Concerning the Company") of the Offer to Purchase and is
incorporated herein by reference.
(b) The information set forth in the Introduction to the Offer to Purchase
is incorporated herein by reference.
(c) The information set forth in Section 6 ("Price Range of Shares;
Dividends") of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a) through (d), (g) The information set forth in the Introduction and
Section 9 ("Certain Information Concerning GKN plc, Parent and the Purchaser")
of the Offer to Purchase, and in Schedules I and II thereto, is incorporated
herein by reference.
(e) and (f) Neither the Purchaser, Parent nor GKN plc or, to the best of
their knowledge, any of the persons listed in Schedules I or II of the Offer to
Purchase, has during the last five years (i) been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) None.
(b) The information set forth in the Introduction and Section 11
("Background of the Offer") and Section 9 ("Certain Information Concerning GKN
plc, Parent and the Purchaser") of the Offer to Purchase is incorporated herein
by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) and (b) The information set forth in Section 10 ("Source and Amount of
Funds") of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
Page 5 of 9 Pages
<PAGE> 6
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a) through (g) The information set forth in the Introduction, Section 7
("Effect of the Offer on the Market for Shares; Stock Quotation; Exchange Act
Registration and Margin Securities") and Section 12 ("Purpose of the Offer and
the Merger; Plans for the Company; the Merger Agreement; Stockholder Agreements;
Confidentiality Agreement") of the Offer to Purchase is incorporated herein by
reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) None.
(b) Not applicable.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the Introduction, Section 9 ("Certain
Information Concerning GKN plc, Parent and the Purchaser") and Section 12
("Purpose of the Offer and the Merger; Plans for the Company; The Merger
Agreement; Stockholder Agreements; Confidentiality Agreement") of the Offer to
Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Introduction and in Section 16 ("Fees and
Expenses") and Section 17 ("Miscellaneous") of the Offer to Purchase is
incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 9 ("Certain Information Concerning GKN
plc, Parent and Purchaser") of the Offer to Purchase, including the financial
statements and related notes thereto incorporated by reference in Section 9, is
incorporated herein by reference.
The incorporation by reference herein of the above-referenced financial
information does not constitute an admission that such information is material
to a decision by a stockholder of the Company whether to sell, tender or hold
shares being sought in the Offer.
ITEM 10. ADDITIONAL INFORMATION.
(a) The information set forth in the Introduction, Section 9 ("Certain
Information Concerning GKN plc, Parent and the Purchaser"), Section 11
("Background of the Offer") and Section 12 ("Purpose of the Offer and the
Merger; Plans for the Company; the Merger Agreement; Stockholder Agreements;
Confidentiality Agreement") of the Offer to Purchase is incorporated herein by
reference.
(b) and (c) The information set forth in Section 15 ("Certain Regulatory
and Legal Matters") of the Offer to Purchase is incorporated herein by
reference.
(d) The information set forth in Section 7 ("Effect of the Offer on the
Market for Shares; Stock Quotation; Exchange Act Registration and Margin
Securities") of the Offer to Purchase is incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, is incorporated herein by reference in its entirety.
Page 6 of 9 Pages
<PAGE> 7
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(a)(1) Offer to Purchase, dated May 2, 1997.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter from SBC Warburg Inc., as Dealer Manager, to Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(5) Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to
Clients.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form
W-9.
(a)(7) Summary Announcement, dated May 2, 1997.
(a)(8) Press Release issued by GKN plc on April 30, 1997.
(a)(9) Press Release issued by GKN plc on May 2, 1997.
(b) Not applicable.
(c)(1) Agreement and Plan of Merger, dated as of April 29, 1997, among Parent, the Purchaser
and the Company.
(c)(2) Agreement, dated as of April 29, 1997, by and between Citicorp Venture Capital, Ltd.
and GKN Powder Metallurgy, Inc.
(c)(3) Form of Stockholder Agreement for Individuals, dated as of April 29, 1997, by and
among GKN Powder Metallurgy, Inc., and each of Ronald G. Campbell, Joseph W.
Carreras, Greg Heltzenrater, E. Joseph Hochreiter, Michael T. Kestner, Donald L.
LeVault, Richard A. McLean, Mary Lynn Putney, William H. Roj and Charles E. Volpe.
(c)(4) Confidentiality Agreement, dated as of April 29, 1997, between GKN plc and Sinter
Metals, Inc.
(c)(5) Letter Agreement, dated April 29, 1997, between Joseph W. Carreras and GKN Powder
Metallurgy Holdings, Inc.
(d) None.
(e) Not applicable.
(f) None.
(g) GKN plc Report & Accounts 1996, including financial information for the GKN
consolidated group for the fiscal years ended December 31, 1992-1996.
</TABLE>
Page 7 of 9 Pages
<PAGE> 8
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: May 2, 1997
GKN Powder Metallurgy, Inc.
By: /s/ DAVID J. TURNER
------------------------------------
Name: David J. Turner
Title: President
GKN Powder Metallurgy Holdings, Inc.
By: /s/ DAVID J. TURNER
------------------------------------
Name: David J. Turner
Title: President
GKN plc
By: /s/ DAVID J. TURNER
------------------------------------
Name: David J. Turner
Title: Finance Director
Page 8 of 9 Pages
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------------------- ---------
<S> <C> <C>
(a)(1) Offer to Purchase, dated May 2, 1997. --
(a)(2) Letter of Transmittal. --
(a)(3) Notice of Guaranteed Delivery. --
(a)(4) Letter from SBC Warburg Inc., as Dealer Manager, to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees. --
(a)(5) Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees to Clients. --
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9. --
(a)(7) Summary Announcement, dated May 2, 1997. --
(a)(8) Press Release issued by GKN plc on April 30, 1997. --
(a)(9) Press Release issued by GKN plc on May 2, 1997. --
(b) Not applicable. --
(c)(1) Agreement and Plan of Merger, dated as of April 29, 1997, among Parent,
the Purchaser and the Company. --
(c)(2) Agreement, dated as of April 29, 1997, by and between Citicorp Venture
Capital, Ltd. and GKN Powder Metallurgy, Inc. --
(c)(3) Form of Stockholder Agreements for Individuals, dated as of April 29,
1997, by and among GKN Powder Metallurgy, Inc., Ronald G. Campbell,
Joseph W. Carreras, Greg Heltzenrater, E. Joseph Hochreiter, Michael T.
Kestner, Donald L. LeVault, Richard A. McLean, Mary Lynn Putney, William
H. Roj and Charles E. Volpe. --
(c)(4) Confidentiality Agreement, dated as of April 29, 1997, between GKN plc
and Sinter Metals, Inc.
(c)(5) Letter Agreement, dated April 29, 1997, between Joseph W. Carreras and
GKN Powder Metallurgy Holdings, Inc.
(d) None. --
(e) Not applicable. --
(f) None. --
(g) GKN plc Report & Accounts 1996, including financial information for the
GKN consolidated group for the fiscal years ended December 31, 1992-1996.
</TABLE>
Page 9 of 9 Pages
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SINTER METALS, INC.
AT
$37.00 NET PER SHARE
BY
GKN POWDER METALLURGY, INC.
A CORPORATION FORMED BY
GKN PLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, MAY 30, 1997, UNLESS THE OFFER IS EXTENDED.
THE BOARD OF DIRECTORS OF SINTER METALS, INC. (THE "COMPANY") HAS
UNANIMOUSLY APPROVED THE OFFER AND THE MERGER REFERRED TO HEREIN AND DETERMINED
THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES
PURSUANT THERETO.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS HEREINAFTER DEFINED)
OF THE OFFER THAT NUMBER OF SHARES WHICH WOULD REPRESENT AT LEAST A MAJORITY OF
THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS. SEE SECTIONS 12 AND 14.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares (as hereinafter defined) should either (i) complete and sign the Letter
of Transmittal (or a facsimile thereof) in accordance with the instructions in
the Letter of Transmittal and mail or deliver the certificate(s) representing
the tendered Shares, and all other required documents, to the Depositary or
tender such Shares pursuant to the procedure for book-entry transfer set forth
in Section 3 or (ii) request his broker, dealer, commercial bank, trust company
or other nominee to effect the transaction for him. A stockholder whose Shares
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee, must contact such person if he desires to tender such Shares.
A stockholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply with
the procedures for book-entry transfer on a timely basis may tender such Shares
by following the procedure for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent or to the Dealer Manager at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional copies
of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed
Delivery and other related materials may be obtained from the Information Agent
or from brokers, dealers, commercial banks and trust companies.
------------------------
The Dealer Manager for the Offer is:
SBC WARBURG INC.
May 2, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION
1. Terms of the Offer.............................................................. 4
2. Acceptance for Payment and Payment for Shares................................... 4
3. Procedure for Tendering Shares.................................................. 5
4. Withdrawal Rights............................................................... 8
5. Certain Federal Income Tax Consequences......................................... 8
6. Price Range of Shares; Dividends................................................ 9
7. Effect of the Offer on the Market for Shares, Stock Quotation, Exchange Act
Registration and Margin Securities............................................ 10
8. Certain Information Concerning the Company...................................... 11
9. Certain Information Concerning GKN plc, Parent and the Purchaser................ 13
10. Source and Amount of Funds...................................................... 16
11. Background of the Offer......................................................... 16
12. Purpose of the Offer and the Merger; Plans for the Company; the Merger
Agreement; Stockholder Agreements; Confidentiality Agreement.................. 17
13. Dividends and Distributions..................................................... 28
14. Certain Conditions to the Offer................................................. 29
15. Certain Regulatory and Legal Matters............................................ 30
16. Fees and Expenses............................................................... 32
17. Miscellaneous................................................................... 33
Schedule I -- CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF
GKN plc................................................................ I-1
Schedule II -- CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT AND THE PURCHASER............................................... II-1
</TABLE>
i
<PAGE> 3
TO THE HOLDERS OF COMMON STOCK OF
SINTER METALS, INC.:
INTRODUCTION
GKN Powder Metallurgy, Inc., a Delaware corporation (the "Purchaser") and a
wholly-owned subsidiary of GKN Powder Metallurgy Holdings, Inc., a Delaware
corporation ("Parent"), hereby offers to purchase all outstanding shares of
Class A Common Stock, par value $.001 per share (the "Class A Common Stock"),
and all outstanding shares of Class B Common Stock, par value $.001 per share
("Class B Common Stock" and, together with the Class A Common Stock, the
"Shares"), of Sinter Metals, Inc., a Delaware corporation (the "Company"), at a
purchase price of $37.00 per Share, net to the seller in cash, without interest
(the "Offer Price"), upon the terms and subject to the conditions set forth in
this Offer to Purchase and in the related Letter of Transmittal (which, together
with any amendments or supplements hereto or thereto, collectively constitute
the "Offer").
Parent and the Purchaser are corporations formed by GKN plc, a public
limited company registered in England, in connection with the Offer and the
transactions contemplated thereby. For information concerning GKN plc, see
Section 9.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of April 29, 1997 (the "Merger Agreement"), among Parent, the Purchaser and
the Company, pursuant to which, as promptly as practicable following the
consummation of the Offer and the satisfaction or waiver of certain conditions,
the Purchaser will be merged with and into the Company (the "Merger"). Following
the consummation of the Merger, the Company will be the surviving corporation
(the "Surviving Corporation"). GKN plc has agreed, pursuant to the Merger
Agreement, to unconditionally guarantee the obligations of Parent and the
Purchaser thereunder. In the Merger, each outstanding Share (other than Shares
held by the Company or owned by Parent or the Purchaser or any other subsidiary
of either Parent or the Purchaser and other than Shares held by stockholders, if
any, who perfect their appraisal rights under Delaware law) will be converted
into the right to receive $37.00, without interest thereon, in cash (the "Merger
Consideration"), and the Company will become a wholly-owned subsidiary of
Parent. See Section 12.
The Purchaser has entered into agreements, dated as of April 29, 1997, with
(i) Citicorp Venture Capital, Ltd. ("CVC"), pursuant to which CVC has agreed to
sell to the Purchaser pursuant to the Offer all of its 3,446,706 Shares
(representing approximately 33.1% of the outstanding Shares, on a fully diluted
basis), provided that the Merger Agreement is not terminated, and (ii) certain
other stockholders of the Company who beneficially own, in the aggregate,
1,228,655 Shares (representing approximately 11.8% of the outstanding Shares, on
a fully diluted basis), pursuant to which such stockholders have agreed to
tender their Shares pursuant to the Offer. See Section 12.
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares pursuant to the
Offer. The Purchaser will pay all fees and expenses of SBC Warburg Inc., which
is acting as Dealer Manager (the "Dealer Manager"), Citibank, N.A., which is
acting as the Depositary (the "Depositary"), and MacKenzie Partners, Inc. which
is acting as Information Agent (the "Information Agent"), incurred in connection
with the Offer. See Section 16.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS") HAS
UNANIMOUSLY APPROVED THE OFFER AND THE MERGER AND DETERMINED THAT THE TERMS OF
THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
STOCKHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY
ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES PURSUANT THERETO.
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), the Company's
financial advisor, has delivered to the Board of Directors its written opinion,
dated April 29, 1997, to the effect that, as of such date, the cash
consideration of $37.00 per Share to be received by the holders of the Shares in
the Offer and the Merger is
1
<PAGE> 4
fair to such holders from a financial point of view. Such opinion is set forth
in full as an annex to the Company's Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders of
the Company concurrently herewith.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE OF THE OFFER THAT NUMBER
OF SHARES WHICH WOULD REPRESENT AT LEAST A MAJORITY OF THE OUTSTANDING SHARES ON
A FULLY DILUTED BASIS (SUCH CONDITION, THE "MINIMUM CONDITION"). SEE SECTIONS 12
AND 14.
Subject to the terms of the Merger Agreement and the applicable rules and
regulations of the Securities and Exchange Commission (the "Commission"), the
Purchaser expressly reserves the right, in its sole discretion, at any time and
from time to time, and regardless of whether or not any of the events set forth
in Section 14 hereof shall have occurred or shall have been determined by the
Purchaser to have occurred, (i) to extend the period of time during which the
Offer is open, and thereby delay acceptance for payment of and the payment for
any Shares, by giving oral or written notice of such extension to the Depositary
and (ii) to amend the Offer in any other respect by giving oral or written
notice of such amendment to the Depositary.
If by 12:00 Midnight, New York City time, on May 30, 1997 (or any other
date or time then set as the Expiration Date), any or all conditions to the
Offer have not been satisfied or waived, the Purchaser reserves the right (but
shall not be obligated, other than as described below), subject to the terms and
conditions contained in the Merger Agreement and to the applicable rules and
regulations of the Commission, to (i) terminate the Offer and not accept for
payment any Shares and return all tendered Shares to tendering stockholders,
(ii) waive all of the unsatisfied conditions and, subject to complying with the
terms of the Merger Agreement and the applicable rules and regulations of the
Commission, accept for payment and pay for all Shares validly tendered prior to
the Expiration Date and not theretofore withdrawn, (iii) extend the Offer and,
subject to the right of stockholders to withdraw Shares until the Expiration
Date, retain the Shares that have been tendered during the period or periods for
which the Offer is extended or (iv) amend the Offer. The Merger Agreement also
provides that, so long as the Merger Agreement is in effect and the conditions
to the Offer have not been satisfied or waived, at the request of the Company,
the Purchaser will, and Parent will cause the Purchaser to, extend the Offer for
an aggregate period of not more than five business days (for all such
extensions) beyond the originally scheduled expiration date of the Offer. Such
period of five business days shall include any grace period contemplated by the
condition to the Offer described in paragraph (d) of Section 14 that extends
beyond the otherwise scheduled expiration date of the Offer.
There can be no assurance that the Purchaser will exercise its right to
extend the Offer. Any extension, waiver, amendment or termination will be
followed as promptly as practicable by public announcement thereof. In the case
of an extension, Rule 14e-1(d) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires that the announcement be issued no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date in accordance with the public announcement
requirements of Rule 14d-4(c) under the Exchange Act, subject to applicable law
(including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require
that any material change in the information published, sent or given to
stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change). Without limiting the obligation of the Purchaser under such rules or
the manner in which the Purchaser may choose to make any public announcement,
the Purchaser will not have any obligation to publish, advertise or otherwise
communicate any such public announcement other than by issuing a release to the
Dow Jones News Service.
Pursuant to the Merger Agreement, the Purchaser has reserved the right to
modify the terms of the Offer and waive any condition of the Offer, except that,
without the prior written consent of the Company, it may not (i) waive the
Minimum Condition, (ii) reduce the number of Shares subject to the Offer, (iii)
reduce the price per Share to be paid pursuant to the Offer, (iv) extend the
Offer, if all of the other Offer conditions are satisfied or waived, (v) change
the form of consideration payable in the Offer, (vi) amend or modify any term or
condition of the Offer (including the conditions described in Section 14) in any
manner adverse to the holders of Shares or (vii) impose additional conditions to
the Offer other than conditions required by applicable law. Notwithstanding such
limitations, the Purchaser may, in its sole discretion without the consent
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<PAGE> 5
of the Company, extend the Offer at any time and from time to time (i) if at the
then scheduled expiration date of the Offer any of the conditions to the
Purchaser's obligation to accept for payment and pay for Shares shall not have
been satisfied or waived, (ii) for any period required by any rule, regulation,
interpretation or position of the Commission or its staff applicable to the
Offer, (iii) for any period required by applicable law, and (iv) if all Offer
conditions are satisfied or waived but the number of Shares tendered is less
than 90% of the then outstanding number of Shares, for an aggregate period of
not more than 20 business days (for all such extensions under this clause (iv))
beyond the latest expiration date that would be permitted under clause (i), (ii)
or (iii) of this sentence. So long as the Merger Agreement is in effect and the
conditions to the Offer have not been satisfied or waived, at the request of the
Company, the Purchaser will, and Parent will cause the Purchaser to, extend the
Offer for an aggregate period of not more than five business days (for all such
extensions) beyond the originally scheduled expiration date of the Offer. Such
period of five business days shall include any grace period contemplated by the
condition to the Offer described in paragraph (d) of Section 14 that extends
beyond the otherwise scheduled expiration date of the Offer.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its acceptance for
payment of, or payment for, Shares or is unable to pay for Shares pursuant to
the Offer for any reason, then, without prejudice to the Purchaser's rights
under the Offer, the Depositary may retain tendered Shares on behalf of the
Purchaser, and such Shares may not be withdrawn except to the extent tendering
stockholders are entitled to withdrawal rights as described in Section 4.
However, the ability of the Purchaser to delay the payment for Shares that the
Purchaser has accepted for payment is limited by Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including, with the consent of the Company, the Minimum Condition), the
Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which an offer must remain open
following material changes in the terms of the offer or information concerning
such offer, other than a change in price or a change in the percentage of
securities sought, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. With
respect to a change in price or a change in the percentage of securities sought,
a minimum period of 10 business days is generally required to allow for adequate
dissemination to stockholders. As used in this Offer to Purchase, "business day"
has the meaning set forth in Rule 14d-1 under the Exchange Act.
Based on the representations and warranties of the Company contained in the
Merger Agreement and information provided by the Company, as of April 30, 1997,
(i) 7,548,416 shares of Class A Common Stock and 2,543,381 shares of Class B
Common Stock were outstanding, (ii) no shares of preferred stock were issued and
outstanding and (iii) employee stock options to purchase an aggregate of 330,300
shares of Class A Common Stock were outstanding. The Merger Agreement provides
that each share of Class B Common Stock purchased by the Purchaser pursuant to
the Offer shall be converted by the Company into one share of Class A Common
Stock immediately upon delivery to the Company of certificates representing such
shares and the notice required by the Merger Agreement.
Based on the foregoing, the Minimum Condition will be satisfied if
5,045,899 Shares are validly tendered and not withdrawn prior to the Expiration
Date. The number of Shares required to be validly tendered and not withdrawn in
order to satisfy the Minimum Condition will increase to the extent that
additional Shares are deemed to be outstanding on a fully diluted basis under
the Merger Agreement.
The consummation of the Merger is subject to the satisfaction or waiver of
a number of conditions, including, if required, the approval of the Merger by
the requisite vote or consent of the stockholders of the Company. Under the
General Corporation Law of the State of Delaware ("Delaware Law") and the
Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation"), the stockholder vote necessary to approve the Merger will be
the affirmative vote of a majority of the outstanding shares of Class A Common
Stock, including Shares held by the Purchaser and its affiliates. Accordingly,
if the Purchaser acquires a majority of the outstanding Shares, the Purchaser
will have the voting power required to approve
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<PAGE> 6
the Merger without the affirmative vote of any other stockholders of the
Company. Furthermore, if the Purchaser acquires at least 90% of the outstanding
Shares pursuant to the Offer or otherwise, the Purchaser would be able to effect
the Merger pursuant to the "short-form" merger provisions of Section 253 of the
Delaware Law, without prior notice to, or any action by, any other stockholder
of the Company. In such event, the Purchaser intends to effect the Merger as
promptly as practicable following the purchase of Shares in the Offer. The
Merger Agreement is more fully described in Section 12.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and pay for all Shares
validly tendered prior to the Expiration Date and not withdrawn in accordance
with Section 4. The term "Expiration Date" means 12:00 Midnight, New York City
time, on May 30, 1997, unless and until the Purchaser (subject to the terms of
the Merger Agreement) shall have extended the period of time during which the
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date at which the Offer, as so extended by the Purchaser, shall expire.
Consummation of the Offer is conditioned upon satisfaction of the Minimum
Condition and the other conditions set forth in Section 14. Subject to the terms
and conditions contained in the Merger Agreement, the Purchaser reserves the
right (but shall not be obligated) to waive any or all such conditions.
The Company has provided the Purchaser with its list of stockholders and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal and
other relevant materials will be mailed by the Purchaser to record holders of
Shares and will be furnished by the Purchaser to brokers, dealers, commercial
banks, trust companies and similar persons whose names, or the names of whose
nominees, appear on the stockholder lists or, if applicable, who are listed as
participants in a clearing agency's security position listing, for subsequent
transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will pay for all Shares
validly tendered prior to the Expiration Date, and not properly withdrawn in
accordance with Section 4, promptly after the Expiration Date. Any determination
concerning the satisfaction or waiver of such terms and conditions will be
within the sole discretion of the Purchaser, and such determination will be
final and binding on all tendering stockholders. See Sections 1 and 14. The
Purchaser expressly reserves the right, in its sole discretion, to delay
acceptance for payment of, or payment for, Shares in order to comply in whole or
in part with any applicable law. Any such delays will be effected in compliance
with Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after the termination
or withdrawal of the Offer).
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates for
such Shares or timely confirmation (a "Book-Entry Confirmation") of the
book-entry transfer of such Shares into the Depositary's account at The
Depository Trust Company or the Philadelphia Depository Trust Company (each, a
"Book-Entry Transfer Facility" and, collectively, the "Book Entry Transfer
Facilities") pursuant to the procedures set forth in Section 3, (ii) a Letter of
Transmittal (or facsimile thereof) properly completed and duly executed, with
any required signature guarantees, or an Agent's Message (as hereinafter
defined) in connection with a book-entry transfer and (iii) any other documents
required by the Letter of Transmittal.
The per Share consideration paid to any stockholder pursuant to the Offer
will be the highest per Share consideration paid to any other stockholder
pursuant to the Offer.
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<PAGE> 7
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Purchaser may enforce such
agreement against such participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares properly tendered to the Purchaser
and not withdrawn as, if and when the Purchaser gives oral or written notice to
the Depositary of the Purchaser's acceptance for payment of such Shares pursuant
to the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payment from the Purchaser
and transmitting payment to tendering stockholders. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE
PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
If the Purchaser is delayed in its acceptance for payment of, or payment
for, Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange Act,
which requires that a tender offeror pay the consideration offered or return the
tendered securities promptly after the termination or withdrawal of a tender
offer), the Depositary may, nevertheless, on behalf of the Purchaser, retain
tendered Shares, and any such Shares may not be withdrawn except to the extent
tendering stockholders are entitled to exercise, and duly exercise, withdrawal
rights as described in Section 4.
If any tendered Shares are not purchased pursuant to the Offer because of
an invalid tender or otherwise, certificates for any such Shares will be
returned, without expense to the tendering stockholder (or, in the case of
Shares delivered by book-entry transfer of such Shares into the Depositary's
account at a Book-Entry Transfer Facility pursuant to the procedures set forth
in Section 3, such Shares will be credited to an account maintained at the
appropriate Book-Entry Transfer Facility), as promptly as practicable after the
expiration or termination of the Offer.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to any of its wholly owned subsidiaries, the right to
purchase Shares tendered pursuant to the Offer, but any such transfer or
assignment will not relieve the Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering stockholders to receive payment
for Shares validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURE FOR TENDERING SHARES.
Valid Tender. For Shares to be validly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof), together with any required signature guarantees, or an
Agent's Message in connection with a book-entry transfer of Shares, and any
other documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase prior to the Expiration Date. In addition, either (i) certificates for
tendered Shares must be received by the Depositary along with the Letter of
Transmittal at one of such addresses or such Shares must be tendered pursuant to
the procedure for book-entry transfer set forth below (and a Book-Entry
Confirmation received by the Depositary), in each case prior to the Expiration
Date, or (ii) the tendering stockholder must comply with the guaranteed delivery
procedure set forth below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL
BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY
IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
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<PAGE> 8
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in any of the Book-Entry Transfer Facilities'
systems may make book-entry delivery of Shares by causing a Book-Entry Transfer
Facility to transfer such Shares into the Depositary's account at a Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures for such transfer. However, although delivery of Shares may be
effected through book-entry at a Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) with any required signature guarantees or an Agent's Message
in connection with a book-entry delivery of Shares, and any other documents
required by the Letter of Transmittal, must, in any case, be transmitted to, and
received by, the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase prior to the Expiration Date, or the tendering
stockholder must comply with the guaranteed delivery procedure described below.
DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH
BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (i) the Letter of Transmittal is signed by the registered holder
of Shares (which term, for purposes of this Section, includes any participant in
any of the Book-Entry Transfer Facilities whose name appears on a security
position listing as the owner of the Shares) tendered therewith and such
registered holder has not completed either the box entitled "Special Delivery
Instructions" or the box entitled "Special Payment Instructions" on the Letter
of Transmittal or (ii) such Shares are tendered for the account of a bank,
broker, dealer, credit union, savings association or other entity that is a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., or by a commercial bank or trust
company having an office or correspondent in the United States (each of the
foregoing, an "Eligible Institution"). In all other cases, all signatures on the
Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instructions 1 and 5 to the Letter of Transmittal. If the certificates for
Shares are registered in the name of a person other than the signer of the
Letter of Transmittal, or if payment is to be made or certificates for Shares
not tendered or not accepted for payment are to be issued to a person other than
the registered holder of the certificates surrendered, the tendered certificates
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name or names of the registered holders or owners appear
on the certificates, with the signatures on the certificates or stock powers
guaranteed as described above. See Instruction 5 to the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all of the following conditions are met:
(1) such tender is made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser herewith, is
received by the Depositary as provided below, prior to the Expiration Date;
and
(3) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to such Shares),
together with a properly completed and duly executed Letter of Transmittal
(or a manually signed facsimile thereof), with any required signature
guarantees and any other documents required by the Letter of Transmittal,
are received by the Depositary within three New York Stock Exchange, Inc.
("NYSE") trading days after the date of execution of such Notice of
Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by telegram, facsimile transmission or mail to the
Depositary and must include a signature guarantee by an Eligible Institution in
the form set forth in such Notice of Guaranteed Delivery.
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<PAGE> 9
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for the Shares or a Book-Entry
Confirmation with respect to such Shares, (ii) a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof), with
any required signature guarantees or an Agent's Message in connection with a
book-entry delivery of Shares, and (iii) any other documents required by the
Letter of Transmittal. Accordingly, tendering stockholders may be paid at
different times depending upon when certificates for Shares or Book-Entry
Confirmations are actually received by the Depositary. UNDER NO CIRCUMSTANCES
WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE
PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering stockholder and
the Purchaser upon the terms and subject to the conditions of the Offer.
Backup Withholding. Payments in connection with the Offer or the Merger
may be subject to "backup withholding" at a rate of 31%. Backup withholding
generally applies if the stockholder (a) fails to furnish his social security
number, (b) furnishes an incorrect taxpayer identification number ("TIN"), (c)
fails to properly include a reportable interest or dividend payment on his
federal income tax return or (d) under certain circumstances, fails to provide a
certified statement, signed under penalties of perjury, that the TIN provided is
his correct number and that he is not subject to backup withholding. Backup
withholding is not an additional tax but merely an advance payment, which may be
refunded to the extent it results in an overpayment of tax. Certain persons
generally are entitled to exemption from backup withholding, including
corporations and financial institutions. Certain penalties apply for failure to
furnish correct information and for failure to include reportable payments in
income. Each stockholder should consult with his own tax advisor as to his
qualification for exemption from backup withholding and the procedure for
obtaining such exemption. Tendering stockholders may be able to prevent backup
withholding by completing the Substitute Form W-9 included in the appropriate
Letter of Transmittal.
All stockholders surrendering Shares pursuant to the Offer should complete
and sign the main signature form and the Substitute Form W-9 included as part of
the Letter of Transmittal to provide the information and certification necessary
to avoid backup withholding (unless an applicable exemption exists and is proved
in a manner satisfactory to the Purchaser and the Depositary). Noncorporate
foreign stockholders should complete and sign the main signature form and a Form
W-8, Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 10 to the
Letter of Transmittal.
Appointment. By executing the Letter of Transmittal, the tendering
stockholder will irrevocably appoint designees of the Purchaser as such
stockholder's attorneys-in-fact and proxies in the manner set forth in the
Letter of Transmittal, each with full power of substitution, to the full extent
of such stockholder's rights with respect to the Shares tendered by such
stockholder and accepted for payment by the Purchaser and with respect to any
and all other Shares or other securities or rights issued or issuable in respect
of such Shares on or after May 2, 1997. All such proxies shall be considered
coupled with an interest in the tendered Shares. Such appointment will be
effective when, and only to the extent that, the Purchaser accepts for payment
Shares tendered by such stockholder as provided herein. Upon such acceptance for
payment, all prior powers of attorney and proxies given by such stockholder with
respect to such Shares or other securities or rights will, without further
action, be revoked and no subsequent powers of attorney and proxies may be given
(and, if given, will not be deemed effective). The designees of the Purchaser
will thereby be empowered to exercise all voting and other rights with respect
to such Shares or other securities or rights in respect of any annual, special
or adjourned meeting of the Company's stockholders, or otherwise, as they in
their sole discretion deem proper. The Purchaser reserves the right to require
that, in order for Shares to be deemed validly tendered, immediately upon the
Purchaser's acceptance for payment of such Shares, the Purchaser must be able to
exercise full voting and other rights with respect to such Shares and other
securities or rights, including voting at any meeting of stockholders then
scheduled.
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<PAGE> 10
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Purchaser, in its sole discretion, which
determination will be final and binding. The Purchaser reserves the absolute
right to reject any or all tenders determined by it not to be in proper form or
the acceptance for payment of or payment for which may, in the opinion of the
Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute
right, in its sole discretion, subject to the terms and conditions of the Merger
Agreement, to waive any of the conditions of the Offer, other than the Minimum
Condition, or any defect or irregularity in any tender with respect to any
particular Shares, whether or not similar defects or irregularities are waived
in the case of other Shares. No tender of Shares will be deemed to have been
validly made until all defects or irregularities relating thereto have been
cured or waived. None of Parent, the Purchaser, the Depositary, the Information
Agent, the Dealer Manager or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. The Purchaser's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to
the procedures set forth below at any time prior to the Expiration Date.
Thereafter, such tenders are irrevocable, except that tendered Shares may also
be withdrawn at any time after July 1, 1997, unless they have been accepted for
payment and paid for by the Purchaser pursuant to the Offer.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
must specify the name of the person having tendered the Shares to be withdrawn,
the number of Shares to be withdrawn and the name of the registered holder of
the Shares to be withdrawn, if different from the name of the person who
tendered the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted to
the Depositary and, unless such Shares have been tendered by an Eligible
Institution, the signatures on the notice of withdrawal must be guaranteed by an
Eligible Institution. If Shares have been tendered pursuant to the procedures
for book-entry transfer set forth in Section 3, the notice of withdrawal must
specify the name and number of the account at the appropriate BookEntry Transfer
Facility to be credited with the withdrawn Shares. Withdrawals of tenders of
Shares may not be rescinded, and any Shares properly withdrawn will thereafter
be deemed not validly tendered for any purposes of the Offer. However, withdrawn
Shares may be retendered by again following one of the procedures described in
Section 3 at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser in its sole
discretion, which determination will be final and binding. None of the
Purchaser, Parent, the Depositary, the Information Agent, the Dealer Manager or
any other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
THE FOLLOWING IS A SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES
OF THE OFFER AND THE MERGER TO HOLDERS WHOSE SHARES ARE PURCHASED PURSUANT TO
THE OFFER OR WHOSE SHARES ARE CONVERTED INTO THE RIGHT TO RECEIVE CASH IN THE
MERGER (INCLUDING PURSUANT TO THE EXERCISE OF APPRAISAL RIGHTS). THE DISCUSSION
APPLIES ONLY TO HOLDERS OF SHARES IN WHOSE HANDS SHARES ARE CAPITAL ASSETS, AND
MAY NOT APPLY TO SHARES RECEIVED UPON CONVERSION OF SECURITIES OR EXERCISE OF
WARRANTS OR OTHER RIGHTS TO ACQUIRE SHARES OR PURSUANT TO THE EXERCISE OF
EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, OR TO HOLDERS OF SHARES WHO
ARE IN SPECIAL TAX SITUATIONS (SUCH AS INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS OR NON-U.S. PERSONS).
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON CURRENT LAW.
8
<PAGE> 11
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF SHARES SHOULD
CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE
RULES DISCUSSED BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE
OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
OTHER INCOME TAX LAWS.
The receipt of cash for Shares pursuant to the Offer or the Merger
(including pursuant to the exercise of appraisal rights) will be a taxable
transaction for federal income tax purposes under the Internal Revenue Code of
1986, as amended (and also may be a taxable transaction under applicable state,
local and other income tax laws). In general, for federal income tax purposes, a
holder of Shares will recognize gain or loss equal to the difference between his
adjusted tax basis in the Shares sold pursuant to the Offer or converted into
the right to receive cash in the Merger and the amount of cash received
therefor. Gain or loss must be determined separately for each block of Shares
(i.e., Shares acquired at the same cost in a single transaction) sold pursuant
to the Offer or converted to cash in the Merger. Such gain or loss will be
capital gain or loss (other than, with respect to the exercise of appraisal
rights, amounts, if any, which are or are deemed to be interest for federal
income tax purposes, which amounts will be taxed as ordinary income) and will be
long-term gain or loss if, on the date of sale (or, if applicable, the date of
the Merger), the Shares were held for more than one year. In the case of an
individual, net long-term capital gain may be subject to a reduced rate of tax
and net capital losses may be subject to limits on deductibility.
Payments in connection with the Offer or the Merger may be subject to
"backup withholding" as discussed in Section 3.
6. PRICE RANGE OF SHARES; DIVIDENDS.
According to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "Company Form 10-K") and information supplied to
the Purchaser by the Company, the Shares have traded on the NYSE under the
trading symbol "SNM" since October 26, 1994. The Company has never paid or
declared cash dividends on the Shares. The following table sets forth, for the
periods indicated, the high and low closing sale prices per Share as reported on
the NYSE:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995:
First Quarter.......................................... $10.000 $ 8.500
Second Quarter......................................... 10.500 8.875
Third Quarter.......................................... 11.250 10.000
Fourth Quarter......................................... 12.375 9.875
1996:
First Quarter.......................................... 15.500 11.625
Second Quarter......................................... 19.125 13.625
Third Quarter.......................................... 22.500 16.750
Fourth Quarter......................................... 30.250 20.000
1997:
First Quarter.......................................... 29.625 23.875
Second Quarter (through May 1, 1997)................... 36.625 26.000
</TABLE>
On April 28, 1997, the last full trading day before the public announcement
of the execution of the Merger Agreement, the closing sales price per Share as
reported on the NYSE was $26.375. On May 1, 1997, the last full trading day
before the commencement of the Offer, the closing sales price per Share as
reported on the NYSE was $36.625 per Share. STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE SHARES.
9
<PAGE> 12
7. EFFECT OF THE OFFER ON THE MARKET FOR SHARES; STOCK QUOTATION; EXCHANGE ACT
REGISTRATION AND MARGIN SECURITIES.
The purchase of Shares pursuant to the Offer will reduce the number of
holders of Shares and the number of Shares that might otherwise trade publicly
and could adversely affect the liquidity and market value of the remaining
Shares, if any, held by the public.
The Shares are currently listed and traded on the NYSE, which constitutes
the principal trading market for the Shares. Depending upon the number of Shares
purchased pursuant to the Offer, the Shares may no longer meet the requirements
of the NYSE for continued listing and may, therefore, be delisted from such
exchange. According to the NYSE's published guidelines, the NYSE would consider
delisting the Shares if, among other things, the number of publicly held Shares
(excluding Shares held by officers, directors, their immediate families and
other concentrated holdings of 10% or more) were less than 600,000, there were
fewer than 1,200 holders of at least 100 shares or the aggregate market value of
the publicly held Shares were less than $5 million. The Company has informed the
Purchaser that, as of April 30, 1997, there were 100 holders of record of Class
A Common Stock and one holder of Class B Common Stock and that 7,548,416 shares
of Class A Common Stock and 2,543,381 shares of Class B Common Stock were
outstanding. If, as a result of the purchase of Shares pursuant to the Offer,
the Shares no longer meet the requirements of the NYSE for continued listing and
the listing of Shares is discontinued, the market for the Shares could be
adversely affected.
If the NYSE were to delist the Shares, it is possible that the Shares would
trade on another securities exchange or in the over-the-counter market and that
price quotations for the Shares would be reported by such exchange or through
the National Association of Securities Dealers Automated Quotation National
Market System ("NASDAQ/NMS") or other sources. The extent of a public market for
the Shares and availability of such quotations would, however, depend upon such
factors as the number of holders and/or the aggregate market value of the
publicly held Shares at such time, the interest in maintaining a market in the
Shares on the part of securities firms, the possible termination of registration
of the Shares under the Exchange Act and other factors.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if the Shares are neither listed on a national
securities exchange nor held by 300 or more holders of record. Termination of
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to its stockholders and to
the Commission and would make certain provisions of the Exchange Act no longer
applicable to the Company, such as the short-swing profit recovery provisions of
Section 16(b) of the Exchange Act, the requirement of furnishing a proxy
statement pursuant to Section 14(a) of the Exchange Act in connection with
stockholders' meetings and the related requirement of furnishing an annual
report to stockholders, and the requirements of Rule 13e-3 under the Exchange
Act with respect to "going private" transactions. Furthermore, the ability of
"affiliates" of the Company and persons holding "restricted securities" of the
Company to dispose of such securities pursuant to Rule 144 or 144A promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), may be
impaired or eliminated.
The Purchaser intends to seek delisting of the Shares from the NYSE and to
cause the Company to apply for termination of registration of the Shares under
the Exchange Act as soon after the completion of the Offer as the requirements
for such delisting and termination are met. If registration of the Shares is not
terminated prior to the Merger, then the Shares will cease to be reported on the
NYSE and the registration of the Shares under the Exchange Act will be
terminated following the consummation of the Merger.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of the Shares. Depending upon factors similar to those
described above regarding listing and market quotations, it is possible that
following the Offer the Shares would no longer constitute "margin securities"
for the purposes of the margin regulations of the Federal Reserve Board and
therefore could no longer be used as collateral for loans made by brokers. If
registration of Shares under
10
<PAGE> 13
the Exchange Act were terminated, the Shares would no longer be "margin
securities" or be eligible for listing or NASDAQ/NMS reporting.
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
The historical information concerning the Company contained in this Offer
to Purchase, including financial information, has been taken from or based upon
publicly available documents and records on file with the Commission and other
public sources. None of Parent, the Purchaser or the Dealer Manager assumes any
responsibility for the accuracy or completeness of the information concerning
the Company contained in such documents and records or for any failure by the
Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information to Parent or the Purchaser.
The Company is a Delaware corporation with its principal place of business
located at The Terminal Tower, 50 Public Square, Suite 3200, Cleveland, Ohio
44113. According to the Company Form 10-K, the Company is the world's largest
independent manufacturer of precision pressed powder metal parts. With its
recent acquisitions of Krebsoge Sinterholding GmbH and its subsidiaries and
Powder Metal Holding, Inc. and its subsidiaries (collectively, the
"Acquisitions"), the Company manufactures and markets over 4,000 different
pressed powder metal parts for use principally in the automotive industry in
North America and Europe and, to a lesser extent, for use in the lawn and
garden, power tool and home appliance industries in North America and Europe.
At December 31, 1996, the Company operated 18 manufacturing facilities in
the United States, Germany, Sweden and Canada. At these facilities, the Company
uses powder metallurgy to transform metal alloys in powdered form into durable
high quality metal parts such as gears, bearings and sprockets.
Set forth below is certain selected historical consolidated financial
information with respect to the Company and its subsidiaries excerpted or
derived from the audited consolidated financial statements included in the
Company Form 10-K. More comprehensive financial information is included in such
reports and other documents filed by the Company with the Commission, including
an unaudited pro forma condensed consolidated statement of operations for the
year ended, and a pro forma capitalization table as of, December 31, 1996, which
were included in the Company's Registration Statement No. 333-18767 and prepared
to illustrate the effects of the Acquisitions, a new credit facility and an
equity offering in March 1997. The following summary is qualified in its
entirety by reference to such reports and such other documents and all the
financial information (including any related notes) contained therein. The
reports and other documents filed with the Commission should be available for
inspection and copies thereof should be obtainable in the manner set forth below
under "-- Available Information".
11
<PAGE> 14
SINTER METALS, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $57,778 $68,584 $82,479 $94,310 $111,888
Cost of sales........................... 45,606 54,061 64,765 73,245 86,176
------- ------- ------- ------- --------
Gross profit............................ 12,172 14,523 17,714 21,065 25,712
Selling, general and administrative
expenses.............................. 4,963 6,442 8,212 7,698 10,289
Amortization of intangible assets....... 319 308 302 332 415
------- ------- ------- ------- --------
Income from operations.................. 6,890 7,773 9,200 13,035 15,008
Interest expense........................ 2,769 5,107 1,956 287 456
Other expense (income), net............. 44 11 166 111 (153)
------- ------- ------- ------- --------
Income before income taxes and
extraordinary charge.................. 4,077 2,655 7,078 12,637 14,705
Provision for income taxes.............. 1,875 2,370 2,900 4,750 5,350
------- ------- ------- ------- --------
Net income before extraordinary
charge................................ 2,202 285 4,178 7,887 9,355
Extraordinary charge, net............... -- -- (580) -- --
------- ------- ------- ------- --------
Net income.............................. 2,202 285 3,598 7,887 9,355
Preferred dividends..................... (242) (242) (202) -- --
------- ------- ------- ------- --------
Net income applicable to common
stock............................ $ 1,960 $ 43 $ 3,396 $ 7,887 $ 9,355
------- ------- ------- ------- --------
PER SHARE DATA:
Income before extraordinary charge...... $ .47 $ .01 $ .72 $ 1.05 $ 1.24
Extraordinary charge.................... -- -- (.11) -- --
Net income.............................. .47 .01 .61 1.05 1.24
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (at end of period):
Working capital......................... $ 1,272 $ (180) $ 2,130 $ 9,128 $ 17,410
Total assets............................ 44,894 47,086 53,335 65,220 399,480
Short-term debt......................... 1,910 2,187 28 267 13,367
Long-term debt.......................... 21,127 20,013 2,736 4,432 232,918
Stockholders' equity.................... 5,038 5,599 32,244 41,462 50,561
Cash dividends paid on common stock..... -- -- -- -- --
</TABLE>
Available Information
The Company is subject to the reporting requirements of the Exchange Act
and, in accordance therewith, is required to file reports and other information
with the Commission relating to its business, financial condition and other
matters. Information as of particular dates concerning the Company's directors
and officers, their remuneration, options granted to them, the principal holders
of the Company's securities and any material interests of such persons in
transactions with the Company is required to be disclosed in proxy statements
distributed to the Company's stockholders and filed with the Commission. Such
reports, proxy statements and other information should be available for
inspection at the public reference facilities of the Commission located at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
12
<PAGE> 15
Commission located in the Northwestern Atrium Center, 500 West Madison Street
(Suite 1400), Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies should be obtainable, by mail, upon payment of
the Commission's customary charges, by writing to the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains an Internet site on the World Wide Web at http://www.sec.gov that
contains reports, proxy statements and other information. Such information
should also be available for inspection at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
9. CERTAIN INFORMATION CONCERNING GKN PLC, PARENT AND THE PURCHASER.
GKN plc is a publicly traded United Kingdom company, incorporated in
England in 1900. GKN plc's shares are listed on the London Stock Exchange and
are held by approximately 43,700 persons. On December 31, 1996, in excess of 352
million ordinary shares of L1 each were issued and outstanding. At the end of
1996, GKN plc and its subsidiaries employed approximately 30,000 persons, of
whom approximately 14,100 were in the United Kingdom, 12,300 in continental
Europe and 2,250 in the United States, and approximately 11,500 other persons
were employed in associated companies. The principal businesses of GKN plc and
its subsidiaries and associated companies are the designing, developing and
manufacturing of automotive and agritechnical components and products, aerospace
and defense products and the provision of industrial services. GKN plc and its
subsidiaries and associated companies have operations in some 40 countries, its
principal operations being in the United Kingdom, continental Europe and the
United States. GKN plc's registered office is located at P.O. Box 55, Ipsley
House, Ipsley Church Lane, Redditch, Worcestershire B98 OTL, United Kingdom.
Each of Parent and the Purchaser is a Delaware corporation, newly formed
indirectly by GKN plc for the purpose of effecting the Offer and the Merger. The
offices of Parent and the Purchaser are located at 3300 University Drive, Auburn
Hills, Michigan 48326-2362. Parent owns all the outstanding capital stock of the
Purchaser. Except as noted in this Offer to Purchase, it is not anticipated
that, prior to the consummation of the Offer and the Merger, the Purchaser or
Parent will have any significant assets or liabilities or will engage in any
activities other than those incident to the Offer and the Merger. See Section
10. GKN plc has unconditionally guaranteed the obligations of the Purchaser and
Parent under the Merger Agreement.
It has been the practice of GKN plc to include in its senior management
programs both long-term and short-term performance-related incentive
compensation arrangements. While general discussions concerning such
arrangements have been held with certain members of management of the Company,
and it is expected that appropriate arrangements will be implemented following
consummation of the Merger for the Company's senior management team, no
decisions have been made at this time with respect to the amount or nature of
any such arrangements.
For certain information concerning the directors and executive officers of
GKN plc, the Purchaser and Parent, see Schedules I and II, respectively, to this
Offer to Purchase.
Except as set forth in this Offer to Purchase: (i) none of GKN plc, Parent
or the Purchaser nor, to the best knowledge of any of the foregoing, any of the
persons listed in Schedule I or II to this Offer to Purchase or any associate or
majority-owned subsidiary of any of the foregoing, beneficially owns or has a
right to acquire any Shares or any other equity securities of the Company; (ii)
none of GKN plc, Parent or the Purchaser nor, to the best knowledge of any of
the foregoing, any of the persons or entities referred to in clause (i) above or
any of their executive officers, directors or subsidiaries has effected any
transaction in the Shares or any other equity securities of the Company during
the past 60 days; (iii) none of GKN plc, Parent or the Purchaser nor, to the
best knowledge of any of the foregoing, any of the persons listed in Schedule I
or II to this Offer to Purchase has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company, including, but not limited to, contracts, arrangements, understandings
or relationships concerning the transfer or voting thereof, joint ventures, loan
or option arrangements, puts or calls, guaranties of loans, guaranties against
loss or the giving or withholding of proxies, consents or authorizations; (iv)
since January 1, 1994, there have been no transactions or business relationships
that would be required to be disclosed under the rules and regulations of the
Commission between any of GKN plc,
13
<PAGE> 16
Parent or the Purchaser or any of their respective subsidiaries or, to the best
knowledge of any of GKN plc, Parent or the Purchaser, any of the persons listed
in Schedule I or II of this Offer to Purchase, on the one hand, and the Company
or any of its executive officers, directors or affiliates, on the other hand;
and (v) since January 1, 1994, there have been no contacts, negotiations or
transactions between any of GKN plc, Parent or the Purchaser or any of their
respective subsidiaries or, to the best knowledge of any of GKN plc, Parent or
the Purchaser, any of the persons listed in Schedule I or II of this Offer to
Purchase, on the one hand, and the Company or its subsidiaries or affiliates, on
the other hand, concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, an election of directors or a sale or other
transfer of a material amount of assets of the Company or any of its
subsidiaries.
None of GKN plc, Parent or the Purchaser had any relationship with the
Company prior to the commencement of the discussions which led to the execution
of the Merger Agreement. See Section 11. Each of GKN plc, Parent and the
Purchaser disclaims that it is an "affiliate" of the Company within the meaning
of Rule 13e-3 under the Exchange Act.
GKN plc currently furnishes the Commission with certain public reports and
documents required by foreign law or otherwise under Rule 12g3-2(b) under the
Exchange Act. Such reports and communications are available for inspection and
copying at the public reference facilities maintained by the Commission located
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Purchaser is not subject
to the informational reporting requirements of the Exchange Act, and,
accordingly, does not file reports or other information with the Commission
relating to its business, financial condition or other matters.
GKN plc's selected consolidated financial data included herein have been
prepared in accordance with applicable United Kingdom ("UK") accounting
standards, including the UK Companies Act of 1985, FRS 1 (Revised 1996) "Cash
Flow Statements" and FRS 8 "Related Party Disclosures," which represent
generally accepted accounting principles in the UK ("U.K. GAAP"). The GKN plc
Report & Accounts 1996 (the "Annual Report"), a copy of which has been filed
with the Commission as an exhibit to Schedule 14D-1, is incorporated herein by
reference. The Annual Report may be examined and copies may be obtained at the
places and in the manner set forth under the heading "-- Available Information"
in Section 8 of this Offer to Purchase. U.K. GAAP differs in certain significant
respects from United States generally accepted accounting principles ("U.S.
GAAP"). GKN plc has not determined its financial position or results of
operations for any period under U.S. GAAP. A summary of the significant
differences between UK accounting principles and U.S. GAAP is set forth below
under "-- Summary of Certain Significant Differences Between U.K. and U.S.
GAAP." The Purchaser, however, believes that the differences between the UK
accounting standards and U.S. GAAP are not material to a decision by a holder of
Shares whether to sell, tender or hold any Shares because any such differences
would not affect the ability of, or incentive to obtain sufficient funds to pay
for Shares to be acquired pursuant to the Offer. The selected consolidated
financial data are stated in pounds sterling. On April 29, 1997, The Wall Street
Journal reported that, as of April 28, 1997, one U.S. dollar equaled .6155
pounds sterling.
Set forth below is a summary of certain selected financial information with
respect to GKN plc for the years ended December 31, 1995 and 1996.
14
<PAGE> 17
GKN PLC
SELECTED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1995 1996
--------- ---------
<S> <C> <C>
Income Statement Data:
Sales (including share of associates)................. L3,304.7 L3,337.0
Net Earnings (before exceptional items)............... 199.2 228.7
Earnings Per Share (before exceptional items) (in
pence)............................................. 57.3 65.2
Balance Sheet Data:
Total Assets.......................................... 2,450.5 2,501.8
Total Liabilities..................................... 1,452.7 1,736.3
Stockholders' Equity.................................. 926.2 725.2
Minority Interests -- Equity.......................... 71.6 40.3
</TABLE>
Summary of Certain Significant Differences Between U.K. and U.S. GAAP
The consolidated accounts of GKN plc are prepared in accordance with U.K.
GAAP, which differs in certain respects from U.S. GAAP. The following is a
summary of the significant differences:
Goodwill. The excess of the cost of shares in subsidiaries and associates
over the fair value of underlying separable net assets at the date of
acquisition and other purchased goodwill is deducted from GKN plc's consolidated
stockholders' equity in the year of acquisition. Under U.S. GAAP, goodwill is
capitalized and amortized over its estimated useful life, but not more than 40
years.
Property. Freehold and long leasehold property may be revalued and the
surplus or deficit arising on such revaluation is included in GKN plc's
consolidated reserves which form part of ordinary stockholders' equity.
Revaluation of freehold and long leasehold property is not permitted under U.S.
GAAP.
Stocks. Stocks are valued at the lower of cost or realizable value. In the
UK, cost of stocks, other than long-term work in progress, is calculated using
FIFO (first in first out) or average. U.S. GAAP allows LIFO (last in first out)
to be used in addition to the two former methods.
Disposal of businesses. Profits and losses on disposal of a subsidiary or
associate under U.K. GAAP are calculated as the net of the surplus over (i)
carrying value plus (ii) amounts with respect to goodwill previously charged to
stockholders' equity. U.S. GAAP reflects the unamortized element of goodwill in
the calculation.
Dividends. Ordinary share dividends are provided in the financial year in
respect of which they are declared by the board of directors. Under U.S. GAAP,
such dividends are not provided for until the date declared.
Deferred Taxation. Deferred taxation is provided only where it is probable
that a taxation liability will crystallize. Under U.S. GAAP, as provided by
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" ("SFAS 109"), full provision must generally be made for all
potential taxation liabilities.
Pensions. Pension costs, based on actuarial assumptions and methods, are
charged in the accounts so as to allocate the cost of providing benefits over
the service lives of employees in a consistent manner approved by the actuary.
U.S. GAAP prescribes the method of actuarial valuation and also requires assets
to be assessed at fair value and the assessment of liabilities to be based on
current interest rates.
15
<PAGE> 18
10. SOURCE AND AMOUNT OF FUNDS.
The total amount of funds required by the Purchaser to purchase all of the
Shares, to acquire all of the employee stock options pursuant to the Offer and
the Merger and to pay related fees and expenses (approximately $5 million) is
expected to be approximately $391 million. The Company has a revolving credit
facility, under which approximately $185 million is outstanding, which provides
for a default upon a "change in control." In the event that any such debt is
accelerated, the Purchaser and GKN plc will provide, directly or indirectly,
additional funds to repay that debt. The Offer is not conditioned on the
obtaining of financing. The Purchaser expects to obtain all necessary funding
through capital contributions, advances or loans to be made by GKN plc, directly
or indirectly. GKN plc has sufficient funds available to it from its general
corporate funds to fund fully all of its requirements and the Purchaser's
requirements in connection with the Offer and the Merger.
11. BACKGROUND OF THE OFFER.
During the past few years, GKN plc has sought opportunities to expand its
powder metallurgy division. In doing so, it has considered the Company and
certain of its subsidiaries as possible acquisition candidates.
In November 1996, a representative of GKN plc met with a representative of
the Company in Detroit, Michigan to discuss the possible benefits that might
arise from a combination of the powder metallurgy business of GKN plc with that
of the Company or the possible acquisition of the Company by GKN plc. On
November 19, 1996, GKN plc entered into a confidentiality agreement with the
Company, pursuant to which the Company agreed to treat as confidential certain
information provided to it by or on behalf of GKN plc.
Discussions relating to a possible acquisition by GKN plc did not continue
beyond November 1996. The Company and GKN plc from time to time engaged in
discussions into early April 1997 exploring possible joint venture and similar
arrangements relating to the powder metallurgy businesses; however, no
agreements were reached. A series of discussions also took place during this
period between GKN plc and CVC regarding a possible arrangement relating to the
businesses and CVC's intentions with respect to its investment in the Company.
On April 10 and 11, 1997, representatives of GKN plc met with
representatives of the Company to continue discussions concerning a possible
arrangement relating to the two powder metallurgy businesses. Agreement could
not be reached. The acquisition of the Company as an alternative was then
discussed. A representative of CVC joined the meeting. The Company's business,
valuation parameters and general terms and conditions of a possible transaction
were discussed, including GKN plc's requirement that certain principal
stockholders sign agreements providing for the sale of Shares to GKN plc in an
acquisition.
On April 16, 1997, representatives of the Company, CVC and GKN plc met in
New York to further discuss the possibility of the acquisition of the Company by
GKN plc. The possibility of the grant to GKN plc of an option to acquire CVC's
Shares was raised.
Between April 22 and April 24, 1997, discussions continued with respect to
the form of a possible offer, the agreements required and clarification of open
items to be finalized. On April 24, 1997, the Company engaged Morgan Stanley to
assist the Company in its evaluation of a possible transaction with GKN plc and
the Board of Directors of the Company met to discuss the possible acquisition.
On April 25, 1997, the Board of Directors of GKN plc approved the acquisition of
the Company and appointed a Committee of the Board to further negotiate and
finalize terms.
Negotiations between representatives of GKN plc and the Company continued
with respect to the terms of the acquisition and the Stockholder Agreements (as
hereinafter defined). On April 27, 1997, the Board of Directors of the Company
again met to discuss the developments in the negotiations.
Negotiations continued thereafter, culminating in GKN plc and the Company
agreeing upon a form of Merger Agreement and a form of Stockholder Agreement.
A meeting of the Board of Directors of the Company was held on April 29,
1997 at which the definitive Merger Agreement and the form of Stockholder
Agreement were approved by the Board of Directors of the
16
<PAGE> 19
Company. Morgan Stanley delivered to the Board of Directors of the Company its
opinion to the effect that, as of April 29, 1997, the cash consideration of
$37.00 per Share to be received by the holders of Shares in the Offer and the
Merger is fair to such holders from a financial point of view. The Committee of
GKN plc's Board of Directors, at a meeting held on April 29, 1997, approved the
definitive Merger Agreement and the form of Stockholder Agreement.
On April 29, 1997, GKN plc entered into a confidentiality letter with the
Company in which GKN plc agreed to treat as confidential any information
provided to it by or on behalf of the Company, the Company agreed to negotiate
exclusively with GKN plc regarding GKN plc's proposed acquisition of the Company
until May 2, 1997, and GKN plc agreed that, if discussions relating to the
possible acquisition were abandoned by the parties, GKN plc would be subject to
certain restrictions on its ability to engage in certain actions involving the
Shares for a period of 18 months from the date of the letter.
On April 29, 1997, Mr. Joseph W. Carreras, the Company's Chairman and Chief
Executive Officer, also entered into a letter agreement (the "Letter Agreement")
with Parent whereby he indicated his present intent to remain employed by the
Company for three months following an acquisition by Parent.
The Merger Agreement and various Stockholder Agreements were executed and
the transactions were publicly announced on April 30, 1997.
12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; THE MERGER
AGREEMENT; STOCKHOLDER AGREEMENTS; CONFIDENTIALITY AGREEMENT.
Purpose of the Offer and the Merger
The purpose of the Offer is to enable Parent to acquire control of, and the
entire equity interest in, the Company. The purpose of the Merger is to acquire
all outstanding Shares not purchased pursuant to the Offer. Following the
completion of the Offer, Parent intends to acquire any remaining Shares not then
owned by Parent by consummating the Merger. In the Merger, each outstanding
Share (other than Shares held by the Company as treasury stock, or owned by
Parent, the Purchaser or any other subsidiary of either Parent or the Purchaser
and other than Shares held by stockholders who perfect appraisal rights, if any,
under the Delaware law) will be converted into the right to receive the Merger
Consideration, without interest, and the Company will become a wholly-owned
subsidiary of Parent.
The acquisition of the entire interest in the Company is structured as a
cash tender offer followed by a merger in order to expedite the opportunity for
Parent to obtain a controlling interest in the Company. Under Delaware Law and
the Certificate of Incorporation, the affirmative vote of the holders of a
majority of the outstanding Shares is required to approve the Merger. If the
Minimum Condition is satisfied, the Purchaser would have sufficient voting power
to approve the Merger without the affirmative vote of any other stockholder of
the Company.
Plans for the Company
If and to the extent that the Purchaser acquires control of the Company,
Parent and the Purchaser intend to conduct a detailed review of the Company and
its business and the existing powder metallurgy business of GKN plc in the
United Kingdom and Italy, with a view to integrating the management, production,
technology, administration and other processes of the Company's business with
those of the existing powder metallurgy business of GKN plc.
Except as noted in this Offer to Purchase, the Purchaser and Parent have no
present plans or proposals that would result in an extraordinary corporate
transaction, such as a merger, reorganization, liquidation, or sale or transfer
of a material amount of assets, involving the Company or any subsidiary of the
Company, a change or reduction in the Company's workforce or the closing of any
plant or facility of the Company, or any other material changes in the Company's
capitalization, dividend policy, corporate structure, business, composition of
its management or Board of Directors or policies of employment.
The Merger Agreement
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full
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text thereof, which is incorporated herein by reference and a copy of which has
been filed with the Commission as an exhibit to the Schedule 14D-1. The Merger
Agreement may be examined, and copies thereof may be obtained, as set forth in
Section 8.
The Offer. The Merger Agreement provides for the commencement of the
Offer. Parent and the Purchaser have expressly reserved the right to modify the
terms of the Offer and to waive any condition of the Offer, but without the
prior written consent of the Company, the Purchaser has agreed not to (i) waive
the Minimum Condition, (ii) reduce the number of Shares subject to the Offer,
(iii) reduce the price per Share to be paid pursuant to the Offer, (iv) extend
the Offer, if all of the Offer conditions are satisfied or waived, (v) change
the form of consideration payable in the Offer, (vi) amend or modify any term or
condition of the Offer (including the conditions described in Section 14) in any
manner adverse to the holders of Shares or (vii) impose additional conditions to
the Offer other than such conditions as are required by applicable laws.
Notwithstanding the foregoing, the Purchaser may, in its sole discretion without
the consent of the Company, extend the Offer at any time and from time to time
(A) if at the then scheduled expiration date of the Offer any of the conditions
to the Purchaser's obligation to accept for payment and pay for Shares shall not
have been satisfied or waived; (B) for any period required by any rule,
regulation, interpretation or position of the Commission or its staff applicable
to the Offer; (C) for any period required by applicable law; and (D) if all
Offer conditions are satisfied or waived but the number of Shares tendered is
less than 90% of the then outstanding number of Shares, for an aggregate period
of not more than 20 business days (for all such extensions under this clause
(D)) beyond the latest expiration date that would be permitted under clause (A),
(B) or (C) of this sentence. So long as the Merger Agreement is in effect and
the Offer conditions have not been satisfied or waived, at the request of the
Company, the Purchaser will, and Parent will cause the Purchaser to, extend the
Offer for an aggregate period of not more than five business days (for all such
extensions) beyond the originally scheduled expiration date of the Offer. Such
period of five business days shall include any grace period contemplated by the
condition to the Offer described in paragraph (d) of Section 14 that extends
beyond the otherwise scheduled expiration date of the Offer.
Consideration to be Paid in the Merger. The Merger Agreement provides
that, upon the terms (but subject to the conditions) set forth in the Merger
Agreement, the Purchaser will be merged with and into the Company and the
separate existence of the Purchaser will cease, and the Company shall be the
Surviving Corporation and shall be a wholly-owned subsidiary of the Parent. In
the Merger, each share of common stock, par value $.01 per share, of the
Purchaser outstanding immediately prior to the time of filing of a certificate
of merger relating to the Merger with the Secretary of State of the State of
Delaware, or such later time as is agreed by the parties (the "Effective Time"),
shall be converted into and exchanged for one validly issued, fully paid and
non-assessable share of Common Stock, par value $.01 per share, of the Surviving
Corporation. In the Merger, each Share issued and outstanding immediately prior
to the Effective Time (other than Shares owned by Parent or the Purchaser or
held by the Company, all of which shall be cancelled, and Shares held by
stockholders, if any, who perfect appraisal rights under Delaware Law) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive the Merger Consideration, without
interest. The Merger Agreement provides that (subject to the provisions of the
Merger Agreement) the closing of the Merger shall occur as soon as practicable
following the satisfaction or, to the extent permitted under the Merger
Agreement, waiver of the conditions to the Merger set forth in Article 9 of the
Merger Agreement.
Treatment of Stock Options. The Merger Agreement provides that all options
(individually, an "Option" and, collectively, the "Options") outstanding
immediately prior to the acceptance for payment of Shares pursuant to the Offer
under any of the Company's stock option plans, whether or not then exercisable,
shall be acquired by the Company at the Effective Time for a cash payment by the
Company, for each Share subject to an Option, in an amount equal to the excess
of Merger Consideration over the per share exercise price of such Option, if
any, without interest.
Board Representation. The Merger Agreement provides that, promptly upon
the purchase of Shares pursuant to the Offer, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, as will
give Parent representation on the Board of Directors equal to the product of (i)
the number of directors on the Board of Directors and (ii) the percentage that
the number of Shares purchased by the Purchaser or Parent or any affiliate bears
to the aggregate number of Shares outstanding, and the
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Company will, upon request by Parent, promptly increase the size of the Board of
Directors and/or exercise its best efforts to secure the resignations of such
number of directors as is necessary to enable Parent's designees to be elected
to the Board of Directors and will cause Parent's designees to be so elected. At
the request of Parent, the Company will use its reasonable best efforts to cause
such individuals designated by Parent to constitute the same percentage of (i)
each committee of the Board of Directors, (ii) the board of directors of each
subsidiary of the Company and (iii) the committees of each such board of
directors. The Company's obligations to appoint designees to the Board of
Directors are subject to Section 14(f) of the Exchange Act. The parties have
agreed to use their respective reasonable best efforts to ensure that at least
two of the members of the Board of Directors shall at all times prior to the
Effective Time be Continuing Directors (as defined in the Merger Agreement).
Stockholder Meeting. The Merger Agreement provides that, if required by
applicable law, the Company, acting through the Board of Directors, shall (i)
call a meeting of its stockholders (the "Stockholder Meeting") for the purpose
of voting on the Merger, (ii) hold the Stockholder Meeting as soon as
practicable after the purchase of Shares pursuant to the Offer and (iii) subject
to its fiduciary duties under applicable law as advised by outside counsel,
recommend to its stockholders the approval of the Merger. At the Stockholder
Meeting, Parent shall cause all the Shares then owned by Parent, the Purchaser
and any of their subsidiaries or affiliates to be voted in favor of the Merger.
The Merger Agreement provides that, notwithstanding the foregoing, if the
Purchaser, or any other direct or indirect subsidiary of Parent, shall acquire
at least 90 percent of the outstanding Shares, the parties thereto shall take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the expiration of the Offer without a meeting of
stockholders of the Company, in accordance with Section 253 of the Delaware Law.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to (i) the due
incorporation, existence and, subject to certain limitations, the qualification,
good standing, corporate power and authority of the Company and its
subsidiaries; (ii) the due authorization, execution, and delivery of the Merger
Agreement and certain ancillary documents executed in connection therewith and
the consummation of transactions contemplated thereby, and the validity and
enforceability thereof; (iii) subject to certain exceptions and limitations, the
compliance by the Company and its subsidiaries with all applicable foreign,
federal, state or local laws, statutes, ordinances, rules, regulations, orders,
judgments, rulings and decrees ("Laws") of any foreign, federal, state or local
judicial, legislative, executive, administrative or regulatory body or
authority, or any court, arbitration, board or tribunal ("Governmental Entity");
(iv) the capitalization of the Company, including the number of shares of
capital stock of the Company outstanding, the number of shares reserved for
issuance on the exercise of options and similar rights to purchase shares; (v)
the identity, ownership (subject to certain exceptions and limitations) and
capitalization of each of the Company's subsidiaries and ownership by the
Company and its subsidiaries of interests or investments in entities other than
subsidiaries of the Company or its subsidiaries; (vi) subject to certain
exceptions and limitations, the absence of consents and approvals necessary for
consummation by the Company of the Merger and the absence of any violations,
breaches or defaults which would result from compliance by the Company with any
provision of the Merger Agreement; (vii) compliance with the Securities Act and
the Exchange Act, in connection with each registration statement, report, proxy
statement or information statement (as defined under the Exchange Act) prepared
by it since October 1, 1994, each in the form (including exhibits and any
amendments thereto) filed with the Commission and the financial statements
included therein filed by the Company with the Commission, the Schedule 14D-9,
the information statement, if any, filed by the Company in connection with the
Offer pursuant to Rule 14f-1 under the Exchange Act; (viii) subject to certain
exceptions and limitations, the absence of pending or (to the knowledge of the
Company) threatened claims, actions, suits, proceedings, arbitrations,
investigations or audits (collectively, "Litigation") against the Company which
would have a material adverse effect on the business, results of operations or
financial condition of the Company and its subsidiaries, taken as a whole, or
the ability of the Company and its subsidiaries to conduct their business after
the Effective Time consistent with the manner currently conducted ("Material
Adverse Effect"); provided, however, that a Material Adverse Effect shall not
include any material adverse effect resulting from work stoppages in the U.S.
auto industry or any material adverse effect arising from any threatened or
actual termination or modification of the business relationships of the Company
or any
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of its subsidiaries with any of their customers or suppliers that commences
after the public announcement of the transactions contemplated hereby and the
absence of product recalls or post-sale warnings concerning any products sold by
the Company and its subsidiaries; (ix) the absence of certain changes or effects
since December 31, 1996; (x) certain tax matters; (xi) certain employee benefit
and ERISA matters; (xii) certain labor and employment matters; (xiii) certain
brokerage fees in connection with the transactions contemplated by the Merger
Agreement; (xiv) subject to certain exceptions and limitations, the possession
by the Company and its subsidiaries of necessary licenses, permits,
certificates, approvals and authorizations; (xv) certain environmental matters;
(xvi) subject to certain exceptions and limitations, title to assets; (xvii)
material contracts of the Company and its subsidiaries; (xviii) the required
vote of stockholders of the Company with respect to the transactions
contemplated by the Merger Agreement; (xix) intellectual property rights; and
(xx) insurance policies.
Parent and the Purchaser have also made certain representations and
warranties, including with respect to: (i) the due incorporation, existence,
good standing and, subject to certain limitations, corporate power and authority
of Parent and the Purchaser; (ii) the due authorization, execution and delivery
of the Merger Agreement and certain ancillary documents executed in connection
therewith and the consummation of transactions contemplated thereby, and the
validity and enforceability thereof; (iii) the accuracy and the adequacy of the
information contained in the documents pursuant to which the Offer is being
made, the Schedule 14D-1 required to be filed with the Commission, and any
amendment or supplement to any of the foregoing and the accuracy of the
information provided by Parent and the Purchaser for inclusion in the Schedule
14D-9; (iv) subject to certain exceptions and limitations, the absence of
consents and approvals necessary for consummation by Parent and the Purchaser,
and the absence of any violations, breaches or defaults which would result from
compliance by Parent and the Purchaser with any provision of the Merger
Agreement; and (v) the sufficiency of funds available to Parent and the
Purchaser for the consummation of the Offer and the Merger.
Conduct of Business Pending Merger. The Company has agreed that, from the
date of the Merger Agreement to the Effective Time, unless Parent has consented
in writing thereto, the Company will, and will cause each of its subsidiaries
to: (i) conduct its operations according to its usual, regular and ordinary
course of business consistent with past practice; (ii) use its reasonable best
efforts to preserve intact their business organizations, maintain in effect all
existing qualifications, licenses, permits, approvals and other authorizations,
keep available the services of their officers and employees and maintain
satisfactory relationships with those persons having business relationships with
them; (iii) promptly upon the discovery thereof notify Parent of the existence
of any breach of any representation or warranty contained in the Merger
Agreement (or, in the case of any representation or warranty that makes no
reference to Material Adverse Effect, any breach of such representation or
warranty in any material respect) or the occurrence of any event that would
cause any representation or warranty contained in the Merger Agreement no longer
to be true and correct (or in the case of any representation or warranty that
makes no reference to Material Adverse Effect, to no longer be true and correct
in any material respect); and (iv) promptly deliver to the Purchaser true and
correct copies of any report, statement or schedule filed with the Commission
subsequent to the date of the Merger Agreement, any internal monthly reports
prepared for or delivered to the Board of Directors after the date of the Merger
Agreement and monthly financial statements for the Company and its subsidiaries
for and as of each month end subsequent to the date of the Merger Agreement.
The Company has agreed that, from the date of the Merger Agreement to the
Effective Time, unless Parent has consented in writing thereto, the Company
shall not, and shall not permit any of its Subsidiaries to: (i) amend its
Certificate of Incorporation or Bylaws or comparable governing instruments; (ii)
issue, sell, pledge or register for issuance or sale any shares of its capital
stock or other ownership interest in the Company (other than issuances of shares
of Common Stock in respect of any exercise of stock options outstanding on the
date of the Merger Agreement and disclosed to Parent) or any of its
subsidiaries, or any securities convertible into or exchangeable for any such
shares or ownership interest, or any rights, warrants or options to acquire or
with respect to any such shares of capital stock, ownership interest, or
convertible or exchangeable securities; or accelerate any right to convert or
exchange or acquire any securities of the Company or any of its subsidiaries for
any such shares or ownership interest; (iii) effect any stock split or
conversion of its capital stock or otherwise change its capitalization as it
exists on the date of the Merger Agreement, other than as set forth in the
Merger Agreement or as
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contemplated by a Stockholder Agreement (see "-- Stockholder Agreements" below);
(iv) grant, confer or award any option, warrant, convertible security or other
right to acquire any shares of its capital stock or take any action, other than
as set forth in the Merger Agreement, to cause to be exercisable any otherwise
unexercisable option under any existing stock option plan; (v) declare, set
aside or pay any dividend or make any other distribution or payment with respect
to any shares of its capital stock or other ownership interests (other than such
payments by a wholly-owned subsidiary); (vi) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or capital stock
of any of its subsidiaries; (vii) sell, lease or otherwise dispose of any of its
assets (including capital stock of subsidiaries), except in the ordinary course
of business, none of which dispositions individually or in the aggregate will be
material; (viii) settle or compromise any pending or threatened Litigation,
other than settlements which involve solely the payment of money (without
admission of liability) not to exceed $250,000 in any one case; (ix) acquire by
merger, purchase or any other manner, any business or entity or otherwise
acquire any assets that are material, individually or in the aggregate, to the
Company and its subsidiaries taken as a whole, except for purchases of
inventory, supplies or capital equipment in the ordinary course of business
consistent with past practice; (x) incur or assume any long-term or short-term
debt, except for working capital purposes in the ordinary course of business
under the Company's existing credit agreement; (xi) assume, guarantee or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except wholly-owned
subsidiaries of the Company; (xii) make or forgive any loans, advances or
capital contributions to, or investments in, any other person; (xiii) make any
tax election or settle any tax liability; (xiv) waive or amend any term or
condition of any confidentiality or "standstill" agreement to which the Company
is a party; (xv) grant any stock related or performance awards; (xvi) enter into
any new employment, severance, consulting or salary continuation agreements with
any newly hired employees other than in the ordinary course of business or enter
into any of the foregoing with any existing officers, directors or employees or
grant any increases in compensation or benefits to employees other than
increases in the ordinary course of business; (xvii) adopt or amend in any
material respect or terminate any employee benefit plan or arrangement; (xviii)
amend in any material respect or terminate any employment agreement or severance
agreement entered into between the Company and certain of its officers and
employees within the five business days immediately prior to the date of the
Merger Agreement or waive any right of the Company thereunder; (xix) make any
material changes in the type or amount of their insurance coverage or permit any
insurance policy naming the Company or any subsidiary as a beneficiary or a loss
payee to be cancelled or terminated other than in the ordinary course of
business; (xx) make any capital expenditures in the aggregate for the Company
and its subsidiaries in excess of amounts reflected in the analysts' report for
the Company prepared by Morgan Stanley, dated April 10, 1997, or otherwise
acquire assets not in the ordinary course of business; (xxi) except in certain
circumstances and with prior written notice to Parent, change any material
accounting principles or practices used by the Company or its subsidiaries;
(xxii) except in certain circumstances, enter into any contracts for
derivatives; (xxiii) waive, relinquish, release or terminate any right or claim,
including any such right or claim under any material contract, or permit any
rights of material value to use any intellectual property to lapse or be
forfeited except, in each case, in the ordinary course of business consistent
with the past practice of the Company; (xxiv) take any action to cause the
Shares to be delisted from the NYSE prior to the completion of the Offer or the
Merger; or (xxv) agree in writing or otherwise to take any of the foregoing
actions.
Conditions to the Merger. The respective obligations of each party to
effect the Merger are subject to the satisfaction or waiver, where permissible,
prior to the Effective Time, of the following conditions: (i) if approval of the
Merger Agreement and the Merger by the holders of Shares is required by
applicable law, the Merger Agreement and the Merger shall have been approved by
the requisite vote of such holders; and (ii) there shall not have been issued
any injunction or issued or enacted any Law which prohibits or has the effect of
prohibiting the consummation of the Merger or makes such consummation illegal.
The obligations of Parent and the Purchaser to effect the Merger shall be
further subject to the satisfaction or waiver on or prior to the Effective Time
of the condition that the Purchaser shall have accepted for payment and paid for
Shares tendered pursuant to the Offer, provided that the condition will be
deemed satisfied if the Purchaser's failure to accept for payment and pay for
such Shares is a breach of the Merger Agreement.
Access to Information. Under the Merger Agreement, from the date of the
Merger Agreement to the Effective Time, the Company shall, and shall cause its
subsidiaries to, (i) give Parent and its
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authorized representatives reasonable access to all books, records, personnel,
offices and other facilities and properties of the Company and its subsidiaries
and their accountants and accountants' work papers, (ii) permit the Parent to
make such copies and inspections thereof as the Parent may reasonably request
and
(iii) furnish the Parent with such financial and operating data and other
information with respect to the business and properties of the Company and its
subsidiaries as Parent may from time to time reasonably request; provided,
however, that no investigation or information furnished pursuant to the Merger
Agreement shall affect any representations or warranties made by the Company
therein or the conditions to the obligations of Parent to consummate the
transactions contemplated thereby.
No Solicitation. The Company has agreed in the Merger Agreement that
neither it nor any of its subsidiaries, nor any of their respective officers,
directors, employees, agents, affiliates or representatives, shall, directly or
indirectly, solicit, initiate or participate in or knowingly encourage, in any
way, any discussions or negotiations with, or provide any information to, or
afford any access to the properties, books or records of the Company or any of
its subsidiaries to, or otherwise assist, facilitate or knowingly encourage, any
corporation, partnership, person or other entity or group (other than Parent or
any affiliate or associate of Parent) with respect to any tender offer, merger,
consolidation, business combination, liquidation, reorganization, sale of
significant assets, sale of shares of capital stock or similar transactions
involving the Company or any subsidiary or any division of any thereof (an
"Alternative Proposal"), and shall immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties conducted
theretofore with respect to any of the foregoing; provided, however, that
nothing contained in the Merger Agreement shall prohibit the Company or the
Board of Directors from (i) complying with Rule 14d-9 or 14e-2(a) promulgated
under the Exchange Act with regard to an Alternative Proposal or (ii) prior to
the acceptance for payment of Shares by Purchaser pursuant to the Offer,
providing information (pursuant to a confidentiality agreement in reasonably
customary form) to, or engaging in any negotiation or discussions with, any
person or entity who has made an unsolicited bona fide Alternative Proposal
which the Board of Directors in good faith determines that it is required to
consider in the exercise of its fiduciary duties to the Company's stockholders
imposed by law. The Company is required to promptly notify the Purchaser in
writing if any such information is requested from the Company, if any such
negotiations or discussions are sought to be initiated with the Company or if
any party makes an Alternative Proposal, including the identity of the person or
group requesting such information, proposing to engage in such negotiations or
discussions or making such Alternative Proposal, the material terms and
conditions of any Alternative Proposals and any subsequent developments with
respect thereto. The terms of any confidentiality agreement entered into by the
Company and such a third party shall not be more favorable to or less
restrictive on such third party as the terms which apply to GKN plc pursuant to
the Confidentiality Agreement.
Fees and Expenses. Except as provided in the Merger Agreement, whether or
not the Offer or the Merger is consummated, all costs and expenses incurred in
connection with the transactions contemplated by the Merger Agreement shall be
paid by the party incurring such expenses.
The Merger Agreement provides that the Company will pay to the Purchaser
the amount of $12 million (the "Commitment Amount") as compensation to Parent
and its affiliates for incurring the costs and expenses related to the Offer and
the Merger and for their foregoing other opportunities, under the following
circumstances: (i) the Company terminates the Merger Agreement because of an
Alternative Proposal which the Board of Directors in good faith determines
represents a superior transaction for the stockholders of the Company as
compared to the Offer and the Merger and the Board of Directors determines,
after consultation with Jones, Day, Reavis & Pogue and Morgan Stanley, that it
is required by its fiduciary duties to the Company's stockholders imposed by law
to terminate the Merger Agreement, subject to certain provisos that would render
such termination right unavailable; (ii) Parent terminates the Merger Agreement
(x) because the Board of Directors failed to recommend, or withdraws, modifies
or amends in any manner adverse to the Purchaser or Parent, its approval or
recommendation of the Offer or the Merger, or recommended acceptance of any
Alternative Proposal, or resolved to do any of the foregoing (unless the
foregoing occurred solely as a result of the Parent's willful breach in any
material respect of its representations, warranties or obligations under the
Merger Agreement) or (y) because the Offer terminates or expires without the
Purchaser having purchased any Shares pursuant thereto as a result of the
Company's willful breach of its representations and warranties set forth in the
Merger Agreement or (iii) if the Offer terminates or expires and the Purchaser
has
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not purchased any shares pursuant thereto at a time when the Minimum Condition
shall not have been satisfied and (x) prior to the time the Merger Agreement is
terminated, an Alternative Proposal shall have been publicly announced by a
party other than the Purchaser or shall have been publicly known and (y) within
nine months after terminating the Merger Agreement, such party or any affiliate
thereof whether alone or as part of a "group" (as defined in the Exchange Act)
acquires a majority of the outstanding Shares.
The Company has agreed that under those circumstances where it is obligated
to pay the Commitment Amount to the Purchaser it also will reimburse Parent and
its affiliates for their reasonable out-of-pocket expenses, but not in excess of
$4 million in the aggregate, incurred in connection with or arising out of the
Offer, the Merger, the Merger Agreement and ancillary documents (including,
without limitation, amounts paid or payable to banks and investment bankers,
fees and expenses of counsel, accountants and consultants, and printing
expenses), regardless of when those expenses are incurred (collectively, the
"Expenses"). The Company also has agreed to reimburse Parent and its affiliates
for up to $4 million of Expenses if Parent terminates the Merger Agreement
because the Offer terminates or expires without the Purchaser having purchased
any Shares pursuant thereto as a result of the Company's non-willful breach of
its representations and warranties set forth in the Merger Agreement. The
Purchaser has agreed to reimburse the Company and its affiliates for up to $4
million of Expenses if Parent terminates the Merger Agreement because the Offer
terminates or expires without the Purchaser having purchased any Shares pursuant
to the Offer as a result of any change having occurred since the date of the
Merger Agreement which, individually or in the aggregate, has had, or would
have, a Material Adverse Effect, and such termination by Parent constitutes a
willful breach of the Purchaser's obligations under the Merger Agreement. The
Merger Agreement provides that, if either the Company or the Purchaser fails to
pay, in the case of the Company, the Commitment Amount or the Expenses described
above, and, in the case of the Purchaser, the Expenses described above, such
party will pay to the other party all costs and expenses incurred by it in
collecting such amounts, together with interest on those amounts at Chemical
Bank's prime rate.
Other Agreements. The Merger Agreement provides that, subject to the terms
and conditions provided in the Merger Agreement, the Company, Parent and the
Purchaser shall: (a) cooperate with one another in (i) determining which
regulatory filings are required or permitted to be made prior to the Effective
Time with, and which consents, approvals, permits, authorizations or waivers are
required or permitted to be obtained prior to the Effective Time from,
Governmental Entities or other third parties in connection with the execution
and delivery of the Merger Agreement and certain other ancillary documents and
the consummation of the transactions contemplated thereby and (ii) timely making
all such regulatory filings and timely seeking all such consents, approvals,
permits, authorizations and waivers; and (b) use their reasonable best efforts
to take, or cause to be taken, all other actions and do, or cause to be done,
all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by the Merger Agreement. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purpose of the Merger Agreement, the proper officers and directors of
Parent and the Surviving Corporation shall take all such necessary action.
Credit Agreement. The Merger Agreement provides that the Company shall use
its reasonable best efforts to obtain waivers or consents from its lenders
pursuant to an Amended and Restated Credit Agreement, dated as of April 23,
1997, among the Company, certain of its subsidiaries, the lenders named therein,
NBD Bank and Salomon Brothers Inc. (the "Credit Agreement") necessary so that
the consummation of the Merger will not result in an event of default or
otherwise permit termination of the Credit Agreement or the acceleration of the
Company's obligations thereunder, but that any failure by the Company to obtain
such waivers, approvals or consents shall not constitute a breach of covenant by
the Company under the Merger Agreement or result in any liability by the Company
to the Purchaser or Parent. The Company has made certain representations and
warranties with respect to the ability of the Company to terminate the Credit
Agreement without any prepayment fees or penalties, other than customary LIBOR
breakage costs.
Conversion of Shares of Class B Common Stock. The Merger Agreement
provides that the Company shall convert all shares of Class B Common Stock
purchased by the Purchaser pursuant to the Offer into shares of Class A Common
Stock immediately upon delivery to the Company of certificates representing such
shares and the notice required by the Merger Agreement, and the Company has
represented and warranted that, upon such conversion, the Purchaser shall have
the same rights with respect to Shares it owns
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of Class A Common Stock, including voting rights, as those of holders of Class A
Common Stock as of the date of the Merger Agreement.
Real Property Transfer Taxes. The Merger Agreement provides that any
liability for real property transfer taxes, real property gains taxes or similar
taxes imposed with respect to the property of the Company by any state, local or
foreign taxing authority with respect to the Offer and the Merger shall be paid
or caused to be paid by the Purchaser.
Termination. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of Parent and the Board of Directors
(the latter being effected by a majority of the Continuing Directors if
such consent occurs following the election or appointment of Parent's
designees to the Board of Directors);
(b) by the Company, if the Purchaser shall have failed to commence the
Offer within five business days after the date of the Merger Agreement;
(c) by the Company, if Parent or the Purchaser materially breaches any
of their respective representations or warranties or covenants contained in
the Merger Agreement and, with respect to any breach that can be remedied,
the breach is not remedied within five business days after the Company has
furnished the Parent or the Purchaser with written notice of such failure;
(d) by the Purchaser or the Company:
(i) if the Effective Time shall not have occurred on or before
October 31, 1997 (provided that the right to terminate the Merger
Agreement pursuant to this clause (i) shall not be available to any
party whose failure to fulfill any obligation under the Merger Agreement
has been the cause of or resulted in the failure of the Effective Time
to occur on or before such date);
(ii) if there shall be any statute, law, rule or regulation that
makes consummation of the Offer or the Merger illegal or prohibited or
if any court of competent jurisdiction or other Governmental Entity
shall have issued an order, judgment, decree or ruling, or taken any
other action restraining, enjoining or otherwise prohibiting the Offer
or Merger and such order, judgment, decree, ruling or other action shall
have become final and non-appealable; or
(iii) if the Offer terminates or expires on account of the failure
of any condition specified in Section 14 without the Purchaser having
purchased any Shares thereunder (provided that the right to terminate
the Merger Agreement pursuant to this clause (iii) shall not be
available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of or resulted in the failure of any
such condition);
(e) by the Company at any time prior to the acceptance for payment of
Shares by the Purchaser pursuant to the Offer, if there is an Alternative
Proposal which the Board of Directors in good faith determines represents a
superior transaction for the stockholders of the Company as compared to the
Offer and the Merger, and the Board of Directors determines, after
consultation with Jones, Day, Reavis & Pogue and Morgan Stanley, that it is
required by its fiduciary duties to the Company's stockholders imposed by
law to terminate the Merger Agreement; provided, however, that the right to
terminate the Merger Agreement in such event shall not be available (i) if
the Company has breached in any material respect its obligations not to
solicit Alternative Proposals, or (ii) if, prior to or concurrently with
any purported termination pursuant to this clause (e), the Company shall
not have paid the Commitment Amount and the Expenses, if applicable, or
(iii) if the Company has not provided Parent and the Purchaser with at
least three business days' prior written notice of its intent to so
terminate the Merger Agreement together with a summary of the material
terms and conditions of the Alternative Proposal; and
(f) by Parent, if the Board of Directors shall have failed to
recommend, or shall have withdrawn, modified or amended in any manner
adverse to Parent or the Purchaser, its approval or recommendation
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of the Offer or the Merger or shall have recommended acceptance of any
Alternative Proposal, or shall have resolved to do any of the foregoing.
Insurance; Indemnification. The Merger Agreement provides that Parent will
cause the Surviving Corporation to purchase a three-year pre-paid noncancellable
directors and officers insurance policy covering the current and all former
directors and officers of the Company with respect to acts or failures to act
prior to the Effective Time, in a single aggregate amount over the three-year
period immediately following the date of closing of the Merger equal to the
policy limit for the Company's current directors and officers insurance policy
(the "Current Policy"). If such insurance is not obtainable at an annual cost
per covered year not in excess of the annual premium paid by the Company for the
Current Policy (the "Cap") times 1.5, then Parent will cause the Surviving
Corporation to purchase policies providing at least the same coverage as the
Current Policy and containing terms and conditions no less advantageous to the
current and former directors and officers of the Company than the Current Policy
with respect to acts or failures to act prior to the Effective Time; provided,
however, that Parent and the Surviving Corporation shall not be required to
obtain policies providing such coverage except to the extent that such coverage
can be provided at an annual cost of no greater than the Cap; and, if equivalent
coverage cannot be obtained, or can be obtained only by paying an annual premium
in excess of the Cap, Parent or the Surviving Corporation shall be required to
obtain only as much coverage as can be obtained by paying an annual premium
equal to the Cap.
Parent has also agreed to cause the Surviving Corporation to keep in effect
in its By-Laws provisions for a period of not less than six years from the
Effective Time (or, in the case of matters occurring prior to the Effective Time
which have not been resolved prior to the sixth anniversary of the Effective
Time, until such matters are finally resolved) which provide for exculpation of
director and officer liability and indemnification (and advancement of expenses
related thereto) of the past and present officers and directors of the Company
to the fullest extent permitted by the Delaware Law which provisions shall not
be amended except as required by applicable law or except to make changes
permitted by law that would enhance the rights of past or present officers or
directors to indemnification or advancement of expenses.
The Merger Agreement provides that, from and after the Effective Time,
Parent shall indemnify and hold harmless, to the fullest extent permitted under
applicable law, each person who is, or has been at any time prior to the date of
the Merger Agreement or who becomes prior to the Effective Time, an officer or
director of the Company or any subsidiary against all losses, claims, damages,
liabilities, costs or expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement (collectively, "Losses") in connection
with any litigation arising before or after the Effective Time out of or
pertaining to acts or omissions, or alleged acts or omissions, by them in their
capacities as such, which acts or omissions existed or occurred prior to the
Effective Time.
If the Merger is consummated, the Surviving Corporation shall, to the
fullest extent permitted under applicable law, indemnify and hold harmless
Parent and any person or entity who was a stockholder, officer, director or
affiliate of Parent prior to the Effective Time against any Losses in connection
with any Litigation arising out of or pertaining to any of the transactions
contemplated by the Merger Agreement or certain ancillary documents relating
thereto. Parent is required to periodically advance expenses as incurred with
respect to the foregoing to the fullest extent permitted under applicable law
provided that the person to whom the expenses are advanced provides an
undertaking to repay such advance if it is ultimately determined that such
person is not entitled to indemnification.
The Surviving Corporation will control the defense, through its counsel, of
any action brought against any person seeking indemnification pursuant to the
preceding two paragraphs (an "Indemnified Party"). Counsel for the Indemnified
Party shall be selected by the Indemnified Party and will be permitted to
participate in the defense of such action at the Surviving Corporation's
expense.
If, after the Effective Time, Parent or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger, or (ii) transfers all or substantially all of
its properties and assets to any person, then, in each such case, proper
provisions shall be made so that successors and
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assigns of Parent or the Surviving Corporation, as case may be, shall assume all
of the foregoing with respect to indemnification.
Certain Employee Matters. The Merger Agreement provides that, from and
after the Effective Time, the Surviving Corporation and its respective
subsidiaries will honor, and Parent will cause the Surviving Corporation to
honor, in accordance with their terms all existing employment and severance
agreements between the Company or any of its subsidiaries and any officer,
director or employee of the Company or any of its subsidiaries, to the extent
the same shall have been previously disclosed to the Purchaser, and all benefits
or other amounts earned or accrued to the extent vested or which become vested
in the ordinary course through the Effective Time under all employee benefit
plans of the Company and any of its subsidiaries.
Amendment. To the extent permitted by applicable law, the Merger Agreement
may be amended by action taken by or on behalf of the Board of Directors (by
action of a majority of the Continuing Directors if such amendment occurs
following the election or appointment of Parent's designees, if applicable) and
the Purchaser at any time before or after adoption of the Merger Agreement by
the stockholders of the Company but, after any such stockholder approval, no
amendment shall be made which decreases the Merger Consideration or which
adversely affects the rights of the Company's stockholders thereunder without
the approval of such stockholders. The Merger Agreement may not be amended
except by an instrument in writing signed on behalf of all of the parties.
Timing. The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by the Purchaser pursuant to the Offer. Although Parent has agreed to
cause the Merger to be consummated on the terms contained in the Merger
Agreement, there can be no assurance as to the timing of the Merger.
GKN plc Guarantee. GKN plc has agreed, pursuant to the Merger Agreement,
to unconditionally guarantee the obligations of Parent and the Purchaser
thereunder.
Stockholder Agreements.
The following is a summary of the material terms of the agreements entered
into by the Purchaser with CVC (the "CVC Agreement") and with Messrs. Campbell,
Carreras, Heltzenrater, Hochreiter, Kestner, LeVault, McLean, Roj and Volpe and
Ms. Putney (the "Selling Stockholders") on April 29, 1997. This summary is
qualified in its entirety by reference to the CVC Agreement and to the form of
individual agreement entered into with the Selling Stockholders (the "Individual
Stockholder Agreements" and the CVC Agreement and the Individual Stockholder
Agreements, collectively, the "Stockholder Agreements"), copies of which have
been filed with the Commission as exhibits to the Schedule 14D-1, and which are
incorporated herein by reference. The CVC Agreement and the form of Individual
Stockholder Agreement may be examined and copies obtained at the place and in
the manner set forth under the heading "-- Available Information" in Section 8
of this Offer to Purchase.
CVC Agreement. Pursuant to the CVC Agreement, CVC agreed to sell to the
Purchaser in the Offer all of its 3,446,706 Shares (representing approximately
33.1% of the outstanding Shares, on a fully diluted basis), provided that the
Merger Agreement is not terminated.
Individual Stockholder Agreements. Pursuant to the Individual Stockholder
Agreements, the Selling Stockholders have agreed to tender to the Purchaser
pursuant to the Offer all of the 1,228,655 Shares they beneficially own, in the
aggregate, representing approximately 11.8% of the outstanding Shares, on a
fully diluted basis, no later than the third business day following the
commencement of the Offer and not to withdraw any Shares tendered into the
Offer. The Individual Stockholder Agreements also provide that, during the time
the Individual Stockholder Agreements are in effect, the Selling Stockholders
will vote all of their Shares (i) in favor of the Merger, the Merger Agreement
and any of the transactions contemplated by the Merger Agreement and (ii)
against any action or agreement that would impede, interfere with or attempt to
discourage the Offer or the Merger, or would result in a breach in any material
respect of any covenant, representation or warranty or any other obligation of
the Company under the Merger Agreement. The Individual Stockholder Agreements
further provide that, in the event the Selling Stockholders fail to vote all
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of the Shares in the manner described in the preceding sentence, the Purchaser
will be irrevocably appointed the proxy of the Selling Stockholders pursuant to
Section 212 of the Delaware Law.
If, after April 29, 1997, the Selling Stockholders exercise any options to
purchase Shares, the Stockholder Agreements are applicable to all of the Shares
issued upon such exercise (the "Additional Shares") as if such Additional Shares
had been issued and outstanding as of April 29, 1997; provided, however, that
the Additional Shares shall be tendered no later than the second business day
following such exercise. The Individual Stockholder Agreements further provide
that, in the event a Selling Stockholder does not exercise any or all of his or
her options to purchase Shares sufficiently in advance of the expiration of the
Offer to permit the tender of such Additional Shares issued upon such exercise
prior to the expiration of the Offer, the Selling Stockholder will not exercise
such options, and such options will be acquired by the Company in consideration
of a cash payment as set forth in the Merger Agreement.
The Individual Stockholder Agreements will terminate on the earlier of (i)
the date on which the Purchaser purchases all of the Shares pursuant to the
Offer and (ii) the date on which notice is given, or publication of a press
release or other announcement is made, by the Purchaser, the Company or the
Purchaser and the Company, jointly, that it or they, as the case may be, has or
have terminated the Merger Agreement in accordance with its terms (which notice
or publication will be operative for all purposes of terminating the Individual
Stockholder Agreements, without further action).
The Individual Stockholder Agreements contain various customary
representations and warranties by the Selling Stockholders, including those
relating to title to the Shares being sold and authority to execute, deliver and
perform the Individual Stockholder Agreements. The Individual Stockholder
Agreements also contain various customary representations and warranties by
Parent and the Purchaser, including those relating to the authority to execute,
deliver and perform the Individual Stockholder Agreements, among others.
Confidentiality Agreement
Pursuant to an agreement dated as of April 29, 1997 (the "Confidentiality
Agreement") between the Company and GKN plc, the Company has supplied GKN plc
with certain confidential, non-public information about the Company. GKN plc has
agreed in the Confidentiality Agreement that it, together with its directors,
officers, employees, agents, lenders, partners and representatives, will keep
confidential all such information supplied by the Company and that, among other
things, if discussions relating to a possible acquisition of the Company by GKN
plc are abandoned by the parties, GKN plc will not, without the consent of the
Company, enter into or propose to enter into any business combination,
acquisition or other transaction relating to the Company or acquire or offer to
acquire any securities of the Company or seek or offer to control or influence
the management, Board of Directors or policies of the Company (collectively, the
"Standstill Provisions") until October 29, 1998. If such discussions are
abandoned by the parties, the Company has agreed to waive certain of the
Standstill Provisions prior to entering into an agreement with a third party
(other than Parent or the Purchaser) pursuant to which such third party would
acquire all or substantially all of the stock or assets of the Company in order
to permit GKN plc to make a proposal with respect to such a transaction. The
Confidentiality Agreement also provides that the Company will negotiate
exclusively with GKN plc regarding GKN plc's proposed acquisition of the Company
until May 2, 1997. The Confidentiality Agreement is incorporated herein by
reference, and a copy of it has been filed with the Commission as an exhibit to
the Schedule 14D-1. The Confidentiality Agreement may be examined and copies may
be obtained at the place and in the manner set forth under the heading
"-- Available Information" in Section 8 of this Offer to Purchase.
Other Matters
Section 203 of the Delaware Law. Section 203 of the Delaware Law limits
the ability of a Delaware corporation to engage in business combinations with
"interested stockholders" (defined as any beneficial owner of 15% or more of the
outstanding voting stock of the corporation) unless, among other things, the
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corporation's board of directors has given its prior approval to either the
business combination or the transaction which resulted in the stockholder's
becoming an "interested stockholder". On April 29, 1997, the Board of Directors
approved the Offer, the Merger, the Merger Agreement and the Stockholder
Agreements and the transactions contemplated thereby for purposes of Section
203, and, therefore, Section 203 is inapplicable to the Offer and the Merger.
Appraisal Rights. No appraisal rights are available to holders of Shares
in connection with the Offer. However, if the Merger is consummated, holders of
Shares will have certain rights under Section 262 of the Delaware Law to dissent
and demand appraisal of, and payment in cash for the fair value of, their
Shares. Such rights, if the statutory procedures are complied with, could lead
to a judicial determination of the fair value (excluding any element of value
arising from accomplishment or expectation of the Merger) required to be paid in
cash to such dissenting holders for their Shares. Any such judicial
determination of the fair value of Shares could be based upon considerations
other than in addition to the Offer Price and the market value of the Shares,
including asset values and the investment value of the Shares. The value so
determined could be more or less than the Offer Price or the Merger
Consideration.
If any holder of Shares who demands appraisal under Section 262 of the
Delaware Law fails to perfect, or effectively withdraws or loses his right to
appraisal, as provided in the Delaware Law, the Shares of such holder will be
converted into the Merger Consideration in accordance with the Merger Agreement.
A stockholder may withdraw his demand for appraisal by delivery to Parent of a
written withdrawal of his demand for appraisal and acceptance of the Merger.
Failure to follow the steps required by Section 262 of the Delaware Law for
perfecting appraisal rights may result in the loss of such rights.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
("Rule 13e-3"), which is applicable to certain "going private" transactions.
Rule 13e-3 requires, among other things, that certain financial information
concerning the Company and certain information relating to the fairness of the
proposed transaction and the consideration offered to minority stockholders in
such transaction be filed with the Commission and disclosed to stockholders
prior to consummation of the transaction.
Parent believes that Rule 13e-3 will not be applicable to the Merger
because of the exemption afforded by Rule 13e-3(g)(1), among other things.
However, under certain circumstances, Rule 13e-3 could be applicable to the
Merger or other business combination in which Parent seeks to acquire the
remaining Shares it does not beneficially own following the purchase of Shares
pursuant to the Offer. For example, if the Merger as consummated is not
substantially similar to the Merger as described in this Offer to Purchase and
the Merger Agreement, Rule 13e-3 could apply. However, the terms and conditions
of the Merger are governed by the Merger Agreement, and any amendment to the
Merger Agreement must be approved by each party thereto. If Parent has exercised
its right to appoint directors to the Board of Directors following its purchase
of Shares pursuant to the Offer, any such amendment must be approved on behalf
of the Company by a majority of the directors of the Company then in office who
have not been designated by Parent.
There can be no assurance that the Merger will take place, even though each
party has agreed in the Merger Agreement to use its best efforts to cause the
Merger to occur, because the Merger is subject to certain conditions, some of
which are beyond the control of either the Purchaser or the Company.
13. DIVIDENDS AND DISTRIBUTIONS.
The Merger Agreement provides that, prior to the Effective Time, neither
the Company nor any of its subsidiaries will, among other things, (i) issue,
sell, pledge or register for issuance or sale any shares of its capital stock or
other ownership interest in the Company (other than issuances of Shares in
respect of any exercise of stock options outstanding on the date of the Merger)
or any of the Company's subsidiaries, or any securities convertible into or
exchangeable for any such shares or ownership interest, or any rights, warrants
or options to acquire or with respect to any such shares of capital stock,
ownership interest, or convertible or exchangeable securities; or accelerate any
right to convert or exchange or acquire any securities of the Company or any of
the Company's subsidiaries for any such shares or ownership interest; (ii)
effect any stock split or conversion of any of its capital stock or otherwise
change its capitalization as it exists on the date
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hereof, other than as set forth in the Merger Agreement or as contemplated by a
Stockholder Agreement; (iii) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital stock or
other ownership interests (other than such payments by a wholly-owned
subsidiary); or (iv) directly or indirectly redeem, purchase or otherwise
acquire any Shares.
14. CERTAIN CONDITIONS TO THE OFFER.
Notwithstanding any other term of the Offer or the Merger Agreement, the
Purchaser shall not be required to accept for payment or pay for, subject to any
applicable rules and regulations of the Commission, including Rule 14e-1(c) of
the Exchange Act, any Shares not theretofore accepted for payment or paid for
and may terminate or amend the Offer as to such Shares unless (i) there shall
have been validly tendered and not withdrawn prior to the expiration of the
Offer that number of Shares which would represent at least a majority of the
outstanding Shares on a fully diluted basis and (ii) any waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 applicable to the
purchase of Shares pursuant to the Offer shall have expired or been terminated.
Furthermore, notwithstanding any other term of the Offer or the Merger
Agreement, the Purchaser shall not be required to accept for payment or, subject
to the aforesaid, to pay for any Shares not theretofore accepted for payment or
paid for, and may terminate or amend the Offer if at any time on or after the
date of the Merger Agreement and prior to the expiration date of the Offer, any
of the following conditions exist or shall occur and remain in effect:
(a) a court of competent jurisdiction or other United States
Governmental Entity shall have issued an order, judgment, decree or ruling
on the merits in connection with an action, suit or proceeding brought by
any United States Governmental Entity (i) which challenges or seeks to
restrict the acquisition by Parent or the Purchaser (or any of their
affiliates or subsidiaries) of Shares pursuant to the Offer or seeks to
restrain or prohibit the consummation of the Offer or the Merger or obtain
damages in connection therewith, (ii) which seeks to make the purchase of
or payment for some or all of the Shares pursuant to the Offer or the
Merger illegal, (iii) which seeks to impose material limitations on the
ability of Parent, the Purchaser, the Surviving Corporation (or any of
their respective affiliates or subsidiaries) effectively to acquire,
operate or hold, or to require Parent, the Purchaser or the Surviving
Corporation or any of their respective affiliates or subsidiaries to
dispose of or hold separate, any material portion of their assets or
business or the Company's assets or business, or (iv) which seeks to impose
material limitations on the ability of Parent, the Purchaser or their
affiliates or subsidiaries to exercise full rights of ownership of the
Shares purchased by it, including, without limitation, the right to vote
the Shares purchased by it on all matters properly presented to the
stockholders of the Company; or
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any Governmental Entity,
any Law or there shall have been issued any injunction resulting in any of
the consequences referred to in subsection (a) above; or
(c) the Merger Agreement shall have been terminated in accordance with
its terms; or
(d) (i) the representations and warranties made by the Company in the
Merger Agreement (without giving effect to any materiality limitations
contained therein) shall not be true and correct as of the date of the
consummation of the Offer as though made on or as of that date (other than
representations and warranties made as of a specified date) except for any
breach or breaches which, in the aggregate, would not have a Material
Adverse Effect or (ii) the Company shall have breached or failed to comply
in any material respect with any of its obligations under the Merger
Agreement (and, with respect to any such failure that can be remedied, the
failure is not remedied within five business days after the Purchaser has
given the Company written notice thereof); or
(e) any person (other than Parent or the Purchaser or one or more of
their affiliates or subsidiaries) shall have entered into an agreement in
principle or definitive agreement with the Company with respect to a tender
or exchange offer for any Shares or a merger, consolidation or other
business combination with or involving the Company; or
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(f) the Board of Directors shall have modified or amended its
recommendation of the Offer or the Merger in any manner adverse to Parent
or Purchaser or shall have withdrawn its recommendation of the Offer or the
Merger or shall have recommended acceptance of any Alternative Proposal or
resolved to do so; or
(g) since the date of the Merger Agreement, any change shall have
occurred which, individually or in the aggregate, has had, or would have, a
Material Adverse Effect; or
(h) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or in the over the counter market in the United States or in the
London Stock Exchange for a period in excess of ten consecutive trading
hours, (ii) a declaration of any banking moratorium by any United Kingdom
or United States federal or state authorities or any suspension of payments
in respect of banks, by any such authorities or (iii) a commencement of a
war, armed hostilities or any other international or national calamity
directly or indirectly involving the United States, the United Kingdom or
Germany, other than any war, armed hostilities or other international
calamity involving the former Yugoslavia, which is reasonably expected to
have a Material Adverse Effect or to materially adversely affect Parent's
or the Purchaser's ability to complete to Offer or the Merger.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser and may be asserted by Parent and the Purchaser regardless of the
circumstances (including any action or inaction by Parent or the Company) giving
rise to any such condition and, except for the Minimum Condition, may be waived
by Parent or the Purchaser, in whole or in part, at any time and from time to
time, in the sole discretion of Parent. The failure by Parent or the Purchaser
at any time to exercise any of the foregoing rights will not be deemed a waiver
of any right, the waiver of such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances, and each right will be deemed an ongoing right which may be
asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered Shares not theretofore accepted for payment shall forthwith be returned
by the Depositary to the tendering stockholders.
15. CERTAIN REGULATORY AND LEGAL MATTERS.
Except as described in this Section 15, based on a review of publicly
available filings made by the Company with the Commission and other publicly
available information concerning the Company, as well as certain representations
made to the Purchaser and Parent in the Merger Agreement by the Company, neither
the Purchaser nor Parent is aware of any license or regulatory permit that
appears to be material to the business of the Company and its subsidiaries,
taken as a whole, that might be adversely affected by the Purchaser's
acquisition of Shares as contemplated herein or of any approval or other action
by any Governmental Entity that would be required for the acquisition or
ownership of Shares by the Purchaser as contemplated herein. Should any such
approval or other action be required, the Purchaser and Parent currently
contemplate that such approval or other action will be sought, except as
described below under "-- State Takeover Laws". While, except as otherwise
expressly described in this Section 15, the Purchaser does not presently intend
to delay the acceptance for payment of, or payment for, Shares tendered pursuant
to the Offer, pending the outcome of any such matter, there can be no assurance
that any such approval or other action, if needed, would be obtained or would be
obtained without substantial conditions or that failure to obtain any such
approval or other action might not result in consequences adverse to the
Company's business, or that certain parts of the Company's business might not
have to be disposed of if such approvals were not obtained or such other actions
were not taken or in order to obtain any such approval or other action. If
certain types of adverse action are taken with respect to the matters discussed
below, the Purchaser could decline to accept for payment or pay for any Shares
tendered. See Section 14 for certain conditions to the Offer.
State Takeover Laws. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, stockholders, executive offices or places of business in such states. In
Edgar v. MITE Corp., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which
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involved state securities laws that made the takeover of certain corporations
more difficult, imposed a substantial burden on interstate commerce and
therefore was unconstitutional. In CTS Corp. v. Dynamics Corp. of America,
however, the Supreme Court of the United States held that a state may, as a
matter of corporate law and, in particular, those laws concerning corporate
governance, constitutionally disqualify a potential acquiror from voting on the
affairs of a target corporation without prior approval of the remaining
stockholders, provided that such laws were applicable only under certain
conditions.
The Company is incorporated under the laws of Delaware. Section 203 of the
Delaware Law prevents an "Interested Stockholder" (defined generally as a person
with 15% or more of the corporation's outstanding voting stock) from engaging in
a "Business Combination" (defined to include a variety of transactions,
including mergers) with a Delaware corporation for three years following the
date such person becomes an Interested Stockholder, unless (i) before such
person became an Interested Stockholder, the board of directors of the
corporation approved the transaction in which the Interested Stockholder became
an Interested Stockholder or approved the Business Combination, or (ii) upon
consummation of the transaction which resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by certain employee stock ownership plans), or (iii)
following the transaction in which such person became an Interested Stockholder,
the Business Combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the Interested Stockholder. The Board of Directors has unanimously
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer, for purposes of Section 203 of the Delaware Law, and the
restrictions of such Section 203 are, accordingly, not applicable to Parent, the
Purchaser or affiliates or associates of the Purchaser as a result of the
consummation of the transactions contemplated by this Offer to Purchase.
Neither the Purchaser nor Parent has currently complied with any state
takeover statute or regulation, except for a filing under the Ohio Control Bid
Statute. The Purchaser reserves the right to challenge the applicability or
validity of any state law purportedly applicable to the Offer or the Merger, and
nothing in this Offer to Purchase or any action taken in connection with the
Offer or the Merger is intended as a waiver of such right. If it is asserted
that any state takeover statute is applicable to the Offer or the Merger and an
appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer or the Merger, the Purchaser might be required to file
certain information with, or to receive approvals from, the relevant state
authorities, and the Purchaser might be unable to accept for payment or pay for
Shares tendered pursuant to the Offer or be delayed in consummating the Offer or
the Merger. In such case, the Purchaser may not be obliged to accept for payment
or pay for any Shares tendered pursuant to the Offer.
United States Antitrust. The Federal Trade Commission (the "FTC") and the
Antitrust Division of the United States Department of Justice frequently
scrutinize the legality under the antitrust laws of transactions such as the
Purchaser's proposed acquisition of the Company. At any time before or after the
Purchaser's purchase of Shares pursuant to the Offer, the Antitrust Division or
the FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or the consummation of the Merger or seeking the
divestiture of Shares acquired by the Purchaser or the divestiture of
substantial assets of Parent or its subsidiaries, or the Company or its
subsidiaries. Private parties may also bring legal action under the antitrust
laws under certain circumstances. There can be no assurance that a challenge to
the Offer on antitrust grounds will not be made or, if such a challenge is made,
of the results thereof.
Foreign Antitrust. The Purchaser is advised that certain filing
obligations and review procedures exist in a number of other jurisdictions in
which GKN plc, the Company and their respective subsidiaries own property and
conduct business, including, without limitation, Canada, Germany and Sweden. In
connection with the acquisition of the Shares pursuant to the Offer, the laws of
certain of these foreign countries may require the filing of information with,
or obtaining the approval of, governmental authorities therein. After
commencement of the Offer, the Purchaser will seek further information regarding
the applicability of any such laws and currently intends to take such action as
they may require. However, the Purchaser has no
31
<PAGE> 34
present intention to delay the acceptance for payment of or the payment for
Shares pursuant to the Offer pending the completion of such filings and the
obtaining of such approvals. Such governments might attempt to impose additional
conditions on the Company's or GKN plc's operations conducted in such countries
as a result of the acquisition of Shares pursuant to the Offer. There can be no
assurance that the Purchaser will be able to cause the Company or any subsidiary
to satisfy or comply with such laws or that compliance or noncompliance will not
have adverse consequences for GKN plc, the Company or any subsidiary after the
purchase of Shares pursuant to the Offer.
Exon-Florio. Under the Exon-Florio Amendment to the Defense Production Act
of 1950 and the regulations thereunder ("Exon-Florio"), the President of the
United States is authorized to prohibit or suspend acquisitions, mergers or
takeovers by foreign persons of persons engaged in interstate commerce in the
United States if the President determines, after investigation, that such
foreign persons in exercising control of such acquired persons might take action
that threatens to impair the national security of the United States and that
other provisions of existing law do not provide adequate authority to protect
national security. Pursuant to Exon-Florio, notice of an acquisition by a
foreign person may be made to the Committee on Foreign Investment in the United
States ("CFIUS") either voluntarily by the parties to such proposed acquisition,
merger or takeover or by any member of CFIUS. CFIUS is comprised of
representatives of the Departments of the Treasury, State, Commerce, Defense and
Justice, the Office of Management and Budget, the Office of Science and
Technology Policy, the United States Trade Representative's Office of Management
and Budget, the Office of Science and Technology Policy, the United States Trade
Representative's Office and the Council of Economic Advisors, as well as the
Assistant to the President for National Security Affairs and the Assistant to
the President for Economic Policy.
A determination that an investigation is called for must be made within 30
days after notification of a proposed acquisition, merger or takeover is first
filed with CFIUS. Any such investigation must be completed within 45 days of
such determination. Any decision by the President to take action must be
announced within 15 days of the completion of the investigation. Exon-Florio
does not require the filing of a notification, nor does it prohibit the
consummation of an acquisition, merger or takeover if a notification is not
made. If no notification is made, however, such an acquisition, merger or
takeover thereafter remains indefinitely subject to divestment should the
President subsequently determine that the national security of the United States
has been threatened or impaired. The Purchaser and the Company expect to file
with CFIUS, on or about the date hereof, a joint voluntary notice of the
transactions contemplated by the Merger Agreement. Although the Purchaser
believes that the transactions contemplated by the Merger Agreement should not
raise any national security concerns, there can be no assurance that CFIUS will
not determine to conduct an investigation of the proposed transaction and, if an
investigation is commenced, there can be no assurance regarding the outcome of
such investigation.
Other Regulatory Approval. A change in ownership of the Company would
require various regulatory notifications and approvals at the federal, state and
local government levels. At the state and local levels, there are licensing and
certification requirements. States and municipalities may require notification
of a change in ownership for such facilities, or new licenses or certifications,
prior to consummation of any change of control transaction. The Company will
seek to obtain all necessary licenses or certifications as expeditiously as
possible.
16. FEES AND EXPENSES.
SBC Warburg Inc. is acting as Dealer Manager in connection with the Offer
and serving as financial advisor to Parent in connection with the Offer and the
Merger. GKN plc has agreed, pursuant to an engagement letter, to pay to SBC
Warburg Inc. an advisory fee, based upon the aggregate consideration paid in the
transaction, including debt retired or assumed, in an amount equal to 0.65% of
such consideration (subject to a maximum of $3.6 million), upon the acquisition
of 50% or more of the outstanding Shares. In the event that the Merger Agreement
is terminated, GKN plc has agreed to pay to SBC Warburg Inc. a termination fee
of 15% of any break-up fee received by GKN plc as a result of such termination.
The Purchaser and GKN plc have also agreed to reimburse the Dealer Manager for
its out-of-pocket expenses, including the reasonable fees and expenses of its
counsel, in connection with the Offer. The Purchaser and
32
<PAGE> 35
GKN plc have agreed to indemnify the Dealer Manager and certain related persons
against certain liabilities and expenses, including certain liabilities under
the federal securities laws.
SBC Warburg Inc. has from time to time provided investment banking,
financial advisory and other services to GKN plc and its affiliates. In the
ordinary course of its business, SBC Warburg Inc. trades debt and equity
securities of GKN plc and may trade securities of the Company for its own
account and accounts of its customers, and, accordingly, it may at any time have
a net long or short position in such securities.
The Purchaser has retained MacKenzie Partners, Inc. to act as the
Information Agent and Citibank, N.A. to serve as the Depositary in connection
with the Offer. The Information Agent and the Depositary each will receive
reasonable and customary compensation for their services, be reimbursed for
certain reasonable out-of-pocket expenses and be indemnified against certain
liabilities and expenses in connection therewith, including certain liabilities
under the federal securities laws.
Except as described herein, neither the Purchaser nor Parent will pay any
fees or commissions to any broker or dealer or other person (other than the
Dealer Manager) in connection with the solicitation of tenders of Shares
pursuant to the Offer. Brokers, dealers, banks and trust companies will be
reimbursed by the Purchaser upon request for customary mailing and handling
expenses incurred by them in forwarding material to their customers.
17. MISCELLANEOUS.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. Neither the Purchaser nor Parent is aware of any jurisdiction in
which the making of the Offer or the tender of Shares in connection therewith
would not be in compliance with the laws of such jurisdiction. If the Purchaser
or Parent becomes aware of any state law prohibiting the making of the Offer or
the acceptance of Shares pursuant thereto in such state, the Purchaser will make
a good faith effort to comply with any such state statute or seek to have such
state statute declared inapplicable to the Offer. If, after such good faith
effort, the Purchaser cannot comply with any such state statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the holders
of Shares in such jurisdiction. In any jurisdiction the securities, blue sky or
other laws of which require the Offer to be made by a licensed broker or dealer,
the Offer is being made on behalf of the Purchaser by the Dealer Manager or one
or more registered brokers or dealers licensed under the laws of such
jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR PARENT NOT CONTAINED HEREIN OR IN
THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE
DELIVERY OF THIS OFFER TO PURCHASE NOR ANY PURCHASE PURSUANT TO THE OFFER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF PARENT, THE PURCHASER OR THE COMPANY SINCE THE DATE AS OF WHICH
INFORMATION IS FURNISHED OR THE DATE OF THIS OFFER TO PURCHASE.
The Purchaser or Parent has filed with the Commission the Schedule 14D-1
pursuant to Rule 14d-3 under the Exchange Act, furnishing certain additional
information with respect to the Offer. In addition, the Company has filed with
the Commission the Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act,
setting forth its recommendation with respect to the Offer and the reasons for
such recommendation and furnishing certain additional related information. Such
Schedules and any amendments thereto, including exhibits, should be available
for inspection and copies should be obtainable in the manner set forth in
Sections 8 and 9 (except that they will not be available at the regional offices
of the Commission).
GKN POWDER METALLURGY, INC.
May 2, 1997
33
<PAGE> 36
SCHEDULE I
CERTAIN INFORMATION CONCERNING THE DIRECTORS
AND EXECUTIVE OFFICERS OF GKN PLC
Set forth below are the name, present principal occupation or employment
and five-year employment history of each director and executive officer of GKN
plc. Unless otherwise indicated below, each person listed below is a British
citizen. The principal business address of GKN plc is P.O. Box 55, Ipsley House,
Ipsley Church Lane, Redditch, Worcestershire B98 0TL, England.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
AND PRINCIPAL BUSINESS ADDRESS
AT WHICH SUCH OCCUPATION IS MATERIAL OCCUPATIONS
NAME CONDUCTED WITHIN THE LAST 5 YEARS
- ---------------------- ---------------------------------- ---------------------------
<S> <C> <C>
Sir David Lees........ Chairman, GKN plc Sir David Lees was
50 George Street appointed Chairman and
London W1A 2BB, England Chief Executive in 1988 and
became non-executive
Chairman on January 1,
1997. He is also the
non-executive Chairman of
Courtaulds plc and a non-
executive director of The
Bank of England.
C.K. Chow............. Chief Executive, GKN plc Between 1991 and January
7 Cleveland Row 1993, Mr. Chow was Regional
London SW1A 1DB, England Director -- North Pacific
in the Gases Division of
The BOC Group. He was
appointed Group Operating
Officer and Chief
Executive -- Gases in
January 1993 and, in
January 1994, he was
appointed to the Board of
The BOC Group plc as
Managing Director and Chief
Executive -- Gases. Mr.
Chow joined GKN plc in July
1996 as Chief Executive
designate and became Chief
Executive on January 1,
1997. He is also a
non-executive director of
Standard Chartered Bank
plc. Mr. Chow is a British
Overseas National.
Marcus Beresford...... Managing Director, Mr. Beresford joined GKN as
GKN Industrial Services an executive Director on
7 Cleveland Row August 1, 1992 and on
London SW1A 1DB, England November 1, 1992, he was
appointed Managing
Director, GKN Industrial
Services. Between 1991 and
July 1992, Mr. Beresford
was a Director of Siemens
plc. He is a non- executive
director of CAMAS plc.
</TABLE>
I-1
<PAGE> 37
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
AND PRINCIPAL BUSINESS ADDRESS
AT WHICH SUCH OCCUPATION IS MATERIAL OCCUPATIONS
NAME CONDUCTED WITHIN THE LAST 5 YEARS
- ---------------------- ---------------------------------- ---------------------------
<S> <C> <C>
Trevor C. Bonner, Managing Director, Mr. Bonner was appointed a
CBE................. GKN Automotive and Director of GKN plc in
Agritechnical Products 1985, a Managing Director
P.O. Box 4128, Chester Road in 1987 and became Managing
Erdington, Birmingham B24 0AW, Director, GKN Automotive
England and Agritechnical Products
in 1994. He is a
non-executive director of
Avon Rubber PLC.
David J. Wright....... Managing Director, Mr. Wright joined GKN in
GKN Aerospace and 1989 as Managing Director
Special Vehicles of GKN Defence. He became
Yeovil, Chief Executive of GKN
Somerset BA20 2YD, Defence in May 1991 and was
England appointed to the Board in
April 1995 as Managing
Director, GKN Aerospace and
Special Vehicles.
Brian D. Insch........ Human Resources Director, Mr. Insch has been Human
GKN plc Resources Director, GKN plc
P.O. Box 55 since 1987.
Ipsley House
Ipsley Church Lane
Redditch, Worcestershire B98 0TL,
England
David J. Turner....... Finance Director, GKN plc Mr. Turner joined GKN plc
7 Cleveland Row in November 1993 on
London SW1A 1DB, England appointment to the Board as
Finance Director. Between
1984 and September 1993, he
was Finance Director of
Booker plc.
Roy D. Brown.......... Business Group President for Between 1991 and 1992, Mr.
Food and Beverages in Europe, Brown was Chairman of Lever
Unilever plc Brothers Ltd. In May 1992,
Weena 455, 3013 AL he was appointed Regional
Rotterdam, Netherlands Director -- Africa and
Middle East, Central and
Eastern Europe of Unilever
plc and in January 1997 he
was appointed Business
Group President for Food
and Beverages in Europe. He
was appointed a
non-executive Director of
GKN plc in January 1996.
</TABLE>
I-2
<PAGE> 38
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
AND PRINCIPAL BUSINESS ADDRESS
AT WHICH SUCH OCCUPATION IS MATERIAL OCCUPATIONS
NAME CONDUCTED WITHIN THE LAST 5 YEARS
- ---------------------- ---------------------------------- ---------------------------
<S> <C> <C>
The Baroness Hogg..... Chairman, London Economics Ltd Between 1990 and 1995,
66 Chiltern Street Baroness Hogg was Head of
London W1M 1PR, England the Policy Unit at No. 10
Downing Street. In December
1995 she became a Director
of London Economics Ltd and
was appointed Chairman in
January 1997. The Baroness
was appointed a
non-executive Director of
GKN plc in November 1996.
Dr. Klaus H. Murmann.. Chairman and Chief Executive Dr. Murmann has been
Officer, Sauer-Sundstrand Group Chairman and Chief
Sauer Getriebe AG Executive Officer of
Krokamp 35, Postfach 2460 Sauer-Sundstrand Group
24531 Neumunster, Germany since April 1989. He was
appointed a non-executive
Director of GKN plc in
1995. Dr. Murmann is a
citizen of Germany.
Sir Bryan Nicholson... Non-executive Chairman of British Until October 1992, Sir
United Provident Association Ltd. Bryan was Chairman and
BUPA House Chief Executive of The Post
15-19 Bloomsbury Way Office and he remained
London WC1A 2BA, England part-time Chairman until
December 1992. He was
appointed non-executive
Chairman of British United
Provident Association
(BUPA) in March 1992. In
December 1991, he was
appointed a non-executive
Director of GKN plc.
Dr. John Parker....... Chairman of Babcock Dr. Parker was Chairman and
International Group plc Chief Executive of Harland
The Lodge and Wolff Holdings plc
Badminton Court between 1983 and October
Church Street 1993. He remained a non-
Amersham executive Director of that
Bucks HP7 0DD, England company until January 1996.
He was appointed Joint
Deputy Chairman and Chief
Executive of Babcock
International Group plc in
October 1993 and became
Chairman in July 1994. He
was appointed a
non-executive Director of
GKN plc in 1993.
Grey Denham........... Company Secretary, GKN plc Mr. Denham joined GKN plc
P.O. Box 55 in 1980, became Head of
Ipsley House Legal Department in 1986
Ipsley Church Lane and was appointed Company
Redditch, Worcestershire Secretary in May 1996.
B98 0TL, England
</TABLE>
I-3
<PAGE> 39
SCHEDULE II
CERTAIN INFORMATION CONCERNING THE
DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT AND THE PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. Set forth below are the
name, present principal occupation or employment and five-year employment
history of each director and executive officer of Parent. All persons listed
below are British citizens, and each such person's business address is as
indicated below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION MATERIAL
AND PRINCIPAL BUSINESS ADDRESS OCCUPATIONS
OFFICE HELD AT WHICH SUCH OCCUPATION IS WITHIN THE LAST 5
NAME IN PARENT CONDUCTED YEARS
- ------------------------ --------------- ------------------------------- -------------------
<S> <C> <C> <C>
David J. Turner Director and Finance Director, GKN plc Mr. Turner joined
President 7 Cleveland Row GKN plc in November
London SW1A 1DB, England 1993 on appointment
to the Board as
Finance Director.
Between 1984 and
September 1993, he
was Finance
Director of Booker
plc.
Trevor C. Bonner, CBE Director and Managing Director, Mr. Bonner was
Vice President GKN Automotive and appointed a
Agritechnical Products Director of GKN plc
P.O. Box 4128, Chester Road in 1985, a Managing
Erdington, Birmingham B24 0AW, Director in 1987
England and became Managing
Director, GKN
Automotive and
Agritechnical
Products in 1994.
He is a
non-executive
director of Avon
Rubber PLC.
Rufus A. Ogilvie Smals Director, Vice Head of Legal Department Mr. Ogilvie Smals
President and GKN plc joined GKN plc in
Secretary P.O. Box 55 1975, became Deputy
Ipsley House Head of Legal
Ipsley Church Lane Department in 1987
Redditch, Worcestershire B98 and was appointed
0TL, Head of Legal
England Department of GKN
plc in October
1995.
</TABLE>
2. DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER. Unless otherwise
indicated below, all information concerning each person listed below is the same
as shown above.
<TABLE>
<CAPTION>
OFFICE HELD
NAME IN THE PURCHASER
- --------------------------------------------------------- ---------------------------------------
<S> <C>
David J. Turner.......................................... Director and President
Trevor C. Bonner, CBE.................................... Director and Vice President
Rufus A. Ogilvie Smals................................... Director, Vice President and Secretary
</TABLE>
II-1
<PAGE> 40
Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal and certificates for Shares and any other required documents
should be sent or delivered by each stockholder of the Company or his broker,
dealer, commercial bank, trust company or other nominee to the Depositary at one
of the addresses set forth below:
The Depositary for the Offer is:
CITIBANK, N.A.
------------------------
<TABLE>
<S> <C> <C>
By Hand: By Mail: By Overnight Carrier:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
Corporate Trust Window c/o Citibank Data Distribution, Inc. c/o Citicorp Data Distribution, Inc.
111 Wall Street, 5th Floor Paramus, New Jersey 07653 404 Selte Drive
New York, New York 10043 Paramus, New Jersey 07652
</TABLE>
Facsimile for Eligible Institutions:
(201) 262-3240
To Confirm Fax Only:
(800) 422-2077
------------------------
Any questions or requests for assistance or additional copies of the Offer
to Purchase and the Letter of Transmittal and Notice of Guaranteed Delivery may
be directed to the Information Agent or the Dealer Manager at their respective
telephone numbers and locations listed below. Stockholders may also contact
their broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS LOGO]
156 Fifth Avenue
New York, New York 10010
(call collect) (212) 929-5500
or Call Toll-Free (800) 322-2885
The Dealer Manager for the Offer is:
SBC WARBURG INC.
277 Park Avenue
New York, New York 10172
(800) 223-3006 or (212) 224-7806 (Call Collect)
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
SINTER METALS, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED MAY 2, 1997
BY
GKN POWDER METALLURGY, INC.
A CORPORATION FORMED BY
GKN plc
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, MAY 30, 1997, UNLESS THE OFFER IS
EXTENDED.
The Depositary for the Offer is:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Hand: By Mail: By Overnight Carrier:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citibank Data Distribution, c/o Citibank Data Distribution,
Corporate Trust Window Inc. Inc.
111 Wall Street, 5th Floor P.O. Box 7072 404 Sette Drive
New York, New York 10043 Paramus, New Jersey 07653 Paramus, New Jersey 07652
</TABLE>
Facsimile for Eligible Institutions:
(201) 262-3240
To Confirm Fax Only:
(800-422-2077)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN THAT SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU
MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED
BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by holders of Shares (as
defined below) (the "Tendering Stockholders") if certificates evidencing Shares
("Certificates") are to be forwarded herewith or, unless an Agent's Message (as
defined in the Offer to Purchase) is used, if delivery of Shares is to be made
by book-entry transfer to an account maintained by Citibank, N.A. (the
"Depositary") at The Depository Trust Company ("DTC") or the Philadelphia
Depository Trust Company ("PDTC") (each a "Book-Entry Transfer Facility")
pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as
defined below).
Tendering Stockholders whose Certificates for Shares are not immediately
available or who cannot deliver their Certificates for, or a Book-Entry
Confirmation (as defined in Section 3 of the Offer to Purchase)
<PAGE> 2
with respect to, their Shares and all other required documents to the Depositary
prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase)
may tender their Shares according to the guaranteed delivery procedures set
forth in Section 3 of the Offer to Purchase. See Instruction 2 hereof. DELIVERY
OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE OF SHARES NUMBER OF
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) CERTIFICATE REPRESENTED BY SHARES
APPEAR(S) ON THE CERTIFICATE(S)) NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2)
------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Total Shares
------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed by holders of Shares delivering Shares by Book-Entry
Transfer.
(2) Unless otherwise indicated, it will be assumed that all Shares represented
by Certificates delivered to the Depositary are being tendered. See
Instruction 4.
================================================================================
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER
FACILITY, AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY
TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER).
Name of Tendering Institution:
-----------------------------------------------------------------------------
Check Box of Book-Entry Transfer Facility:
[ ] DTC [ ] PDTC
<TABLE>
<S> <C>
Account Number: Transaction Code Number:
- -------------------------------- --------------------------
</TABLE>
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING.
PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
--------------------------------------------------------------------------
Window Ticket Number (if any):
---------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-------------------------------------------------------
Name of Institution which Guaranteed Delivery:
------------------------------------------------------------
If delivery is by book-entry transfer, check box of Applicable Book-Entry
Transfer Facility:
[ ] DTC [ ] PDTC
<TABLE>
<S> <C>
Account Number: Transaction Code Number:
- -------------------------------- --------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE
ACCOMPANYING INSTRUCTIONS CAREFULLY.
2
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to GKN Powder Metallurgy, Inc. (the
"Purchaser"), a Delaware corporation and a wholly-owned subsidiary of GKN Powder
Metallurgy Holdings, Inc., a Delaware corporation ("Parent"), the
above-described shares of Class A Common Stock, par value $.001 per share, and
of Class B Common Stock, par value $.001 per share (the "Shares"), of Sinter
Metals, Inc., a Delaware corporation ("Company"), at a purchase price of $37.00
per Share, net to the seller in cash, without interest thereon, upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated May 2,
1997 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in
this Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively, constitute the "Offer"). Each of Parent and the Purchaser
have been formed by GKN plc, a public limited company registered in England, in
connection with the Offer and the transactions contemplated thereby. The Offer
is being made in connection with the Agreement and Plan of Merger, dated as of
April 29, 1997, among Parent, the Purchaser and the Company. The undersigned
understands that the Purchaser reserves the right to transfer or assign, in
whole or from time to time in part, to one or more of its or Parent's
affiliates, the right to purchase all or any portion of the Shares tendered
pursuant to the Offer, but any such transfer or assignment will not relieve the
Purchaser of its obligations under the Offer or prejudice the rights of
Tendering Stockholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of, or payment for,
Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms or conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Purchaser all right,
title and interest in and to all of the Shares that are being tendered hereby
and any and all other Shares or other securities issued or issuable in respect
of such Shares on or after May 2, 1997 (a "Distribution") and irrevocably
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares (and any
Distributions), with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest) to (i) deliver
Certificates evidencing such Shares (and Distributions), or transfer ownership
of such Shares (and any Distributions) on the account books maintained by a
Book-Entry Transfer Facility together, in any such case, with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Purchaser,
upon receipt by the Depositary as the undersigned's agent, of the purchase price
with respect to such Shares, (ii) present such Shares (and all Distributions)
for transfer on the books of the Company and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares (and any
Distributions), all in accordance with the terms and subject to the conditions
of the Offer.
The undersigned hereby irrevocably appoints each of Trevor C. Bonner, David
J. Turner and Rufus A. Ogilvie Smals (each, a "Purchaser Designee") the
attorney-in-fact and proxy of the undersigned, each with full power of
substitution, to the full extent of the undersigned's rights with respect to all
Shares tendered hereby and accepted for payment and paid for by the Purchaser
(and any Distributions), including, without limitation, the right to vote such
Shares (and any Distributions) in such manner as each such attorney and proxy or
his substitute shall, in his sole discretion, deem proper. All such powers of
attorney and proxies, being deemed to be irrevocable, shall be considered
coupled with an interest in the Shares tendered herewith. Such appointment will
be effective when, and only to the extent that, the Purchaser accepts such
Shares for payment. Upon such acceptance for payment, all prior powers of
attorney and proxies given by the undersigned with respect to such Shares (and
any Distributions) will be revoked, without further action, and no subsequent
powers of attorneys and proxies may be given with respect thereto (and, if
given, will be deemed ineffective). The Purchaser Designees will, with respect
to the Shares (and any Distributions), for which such appointment is effective,
be empowered to exercise all voting and other rights of the undersigned with
respect to such Shares (and any distributions) as they in their sole discretion
may deem proper. The Purchaser reserves the absolute right to require that, in
order for Shares to be deemed validly tendered, immediately upon the acceptance
for payment of such Shares, the Purchaser or the Purchaser Designees are able to
exercise full voting rights and all other rights which inure to a record and
beneficial holder with respect to such Shares (and any Distributions) including
voting at any meeting of stockholders then scheduled.
3
<PAGE> 4
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators, trustee in bankruptcy, personal and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. Except as stated in the Offer to Purchase, this
tender is irrevocable, provided that the Shares tendered pursuant to the Offer
may be withdrawn prior to their acceptance for payment.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and any Distributions) and that, when the same are accepted for
payment and paid for by the Purchaser, the Purchaser will acquire good,
marketable and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances, and that the Shares tendered hereby (and
any Distributions) will not be subject to any adverse claim. The undersigned,
upon request, will execute and deliver any additional documents deemed by the
Depositary or the Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of Shares tendered hereby (and any Distributions). In
addition, the undersigned shall promptly remit and transfer to the Depositary
for the account of the Purchaser any and all Distributions issued to the
undersigned on or after May 2, 1997 in respect of the Shares tendered hereby,
accompanied by appropriate documentation of transfer, and, pending such
remittance and transfer or appropriate assurance thereof, the Purchaser shall be
entitled to all rights and privileges as owner of any such Distributions and may
withhold the entire purchase price or deduct from the purchase price the amount
of value thereof, as determined by the Purchaser in its sole discretion.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser with respect to such Shares upon the terms and subject to the
conditions of the Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, the Purchaser may not be required to accept for payment
any of the Shares tendered hereby or may accept for payment fewer than all of
the Shares tendered hereby.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue a check for the purchase price and/or return any Certificates
evidencing Shares not tendered or not accepted for payment in the names(s) of
the registered holder(s) appearing under "Description of Shares Tendered."
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price and/or return any Certificates
evidencing Shares not tendered or not accepted for payment (and accompanying
documents, as appropriate) to the address(es) of the registered holder(s)
appearing under "Description of Shares Tendered." In the event that both the
"Special Payment Instructions" and the "Special Delivery Instructions" are
completed, please issue the check for the purchase price and/or return any such
Certificates evidencing Shares not tendered or not accepted for payment (and
accompanying documents, as appropriate) in the name(s) of, and deliver such
check and/or return such Certificates (and accompanying documents, as
appropriate) to, the person(s) so indicated. Unless otherwise indicated herein
under "Special Payment Instructions," in the case of a book-entry delivery of
Shares, please credit the account maintained at the Book-Entry Transfer Facility
indicated above with respect to any Shares not accepted for payment. The
undersigned recognizes that the Purchaser has no obligations pursuant to the
"Special Payment Instructions" to transfer any Shares from the name of the
registered holder thereof if the Purchaser does not accept for payment any of
the Shares tendered hereby.
4
<PAGE> 5
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Certificates for Shares not tendered or not
accepted for payment and/or the check for the purchase price of Shares
accepted for payment are to be issued in the name of someone other than
the undersigned, or if Shares delivered by book-entry transfer that are
not accepted for payment are to be returned by credit to an account
maintained at a Book-Entry Transfer Facility, other than to the account
indicated above.
Issue (check appropriate box(es)):
[ ] Check to:
[ ] Certificate(s) to:
Name
----------------------------------------------------
Address
---------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9)
[ ] Credit unpurchased Shares tendered by book-entry transfer to the
account set forth below:
[ ] DTC [ ] PDTC
(check one)
------------------------------------------------------------
(DTC/PDTC ACCOUNT NUMBER)
============================================================
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Certificates for Shares not tendered or not
accepted for payment and/or the check for the purchase price of Shares
accepted for payment are to be sent to someone other than the undersigned
or to the undersigned at an address other than that shown above.
Mail (check appropriate box(es)):
[ ] Check to:
[ ] Certificate(s) to:
Name
----------------------------------------------------
Address
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9)
------------------------------------------------------------
5
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below,
signatures on this Letter of Transmittal must be guaranteed by a bank, broker,
dealer, credit union, savings association or other entity that is a member in
good standing of a recognized Medallion Program approved by The Securities
Transfer Association, Inc. (an "Eligible Institution"), unless the Shares
tendered hereby are tendered (i) by the registered holder (which term, for
purposes of this document, shall include any participant in a Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of Shares) of such Shares who has completed neither the box labeled "Special
Payment Instructions" nor the box labeled "Special Delivery Instructions" herein
or (ii) for the account of an Eligible Institution. See Instruction 5. If the
Certificates are registered in the name of a person other than the signer of
this Letter of Transmittal, or if payment is to be made or delivered to, or
Certificates evidencing unpurchased Shares are to be issued or returned to, a
person other than the registered owner, then the tendered Certificates must be
endorsed or accompanied by duly executed stock powers, in either case signed
exactly as the name or names of the registered owner or owners appear on the
Certificates or stock powers guaranteed by an Eligible Institution as provided
herein. See Instruction 5.
2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed
by Tendering Stockholders if Certificates evidencing Shares are to be forwarded
herewith or if delivery of Shares is to be made pursuant to the procedures for
book-entry transfer set forth in Section 3 of the Offer to Purchase. For a
Tendering Stockholder to validly tender Shares pursuant to the Offer, either (a)
a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof) with any required signature guarantees or an Agent's
Message (as defined in the Offer to Purchase) in connection with a book-entry
delivery of Shares, and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth herein on or prior to the Expiration Date or (ii) Shares must be delivered
pursuant to the procedures for book-entry transfer set forth in Section 3 of the
Offer to Purchase and a Book-Entry Confirmation must be received by the
Depositary on or prior to the Expiration Date or (b) the Tendering Stockholder
must comply with the guaranteed delivery procedures set forth below and in
Section 3 of the Offer to Purchase.
Tendering Stockholders whose Certificates are not immediately available or
who cannot deliver their Certificates and all other required documents to the
Depositary or complete the procedures for book-entry transfer on or prior to the
Expiration Date may tender their Shares by properly completing and duly
executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery
procedures set forth in Section 3 of the Offer to Purchase. Pursuant to such
procedure: (i) such tender must be made by or through an Eligible Institution,
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Purchaser, must be received by
the Depositary prior to the Expiration Date, and (iii) the Certificates
representing all tendered Shares in proper form for transfer, or a Book-Entry
Confirmation with respect to all tendered Shares, together with a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) with any required signature guarantees or an Agent's Message
in connection with a book-entry delivery of Shares, and any other documents
required by this Letter of Transmittal, must be received by the Depositary
within three NYSE trading days after the date of such Notice of Guaranteed
Delivery. If Certificates are forwarded separately to the Depositary, a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) must accompany each such delivery.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ANY
OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING
STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All Tendering Stockholders, by execution of
this Letter of Transmittal (or a facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
6
<PAGE> 7
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
information required under "Description of Shares Tendered" should be listed on
a separate signed scheduled attached hereto.
4. PARTIAL TENDERS. If fewer than all the Shares represented by any
Certificates delivered to the Depositary herewith are to be tendered hereby,
fill in the number of Shares which are to be tendered in the box entitled
"Number of Shares Tendered." In such case, a new Certificate for the remainder
of the Shares that were evidenced by your old certificate(s) will be sent,
without expense, to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" or this Letter of Transmittal, as soon
as, as promptly as practicable after the Expiration Date. All Shares represented
by Certificate(s) delivered to the Depositary will be deemed to have been
tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, INSTRUMENTS OF TRANSFER AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the registered
holder(s) of the Shares tendered hereby, the signature(s) must correspond with
the name(s) as written on the face of the Certificates without alteration,
enlargement or any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Certificates.
If this Letter of Transmittal or any Certificates or instruments of
transfer are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to the Purchaser of such person's authority to so
act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of Certificates or
separate instruments of transfer are required unless payment is to be made, or
Certificates not tendered or not purchased are to be issued or returned, to a
person other than the registered holder(s). Signatures on such Certificates or
instruments of transfer must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares evidenced by the Certificate(s) listed and
transmitted hereby, the Certificate(s) must be endorsed or accompanied by
appropriate instruments of transfer, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on the Certificate(s). Signatures
on any such Certificates or instruments of transfer must be guaranteed by an
Eligible Institution.
6. TRANSFER TAXES. Except as set forth in this Instruction 6, the
Purchaser will pay or cause to be paid any transfer taxes with respect to the
transfer and sale of Shares to it or its order pursuant to the Offer. If,
however, payment of the purchase price is to be made to, or (in the
circumstances permitted hereby) if Certificates for Shares not tendered or not
purchased are to be registered in the name of, any person other than the
registered holder(s), or if tendered Certificates are registered in the name of
any person other than the person(s) signing this Letter of Transmittal, the
amount of any transfer taxes (whether imposed on the registered holder(s) or
such persons) payable on account of the transfer to such person will be deducted
from the purchase price unless satisfactory evidence of the payment of such
taxes or exemption therefrom is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Certificate(s) listed in this Letter of
Transmittal.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check and/or
Certificates for unpurchased Shares are to be issued in the name of a person
other than the signer of this Letter of Transmittal or if a check is to be sent
and/or such Certificates are to be returned to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal must be
7
<PAGE> 8
completed. If any tendered Shares are not purchased for any reason and such
Shares are delivered by Book-Entry Transfer Facility, such Shares will be
credited to an account maintained at the appropriate Book-Entry Transfer
Facility.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance may be directed to the Information Agent or the Dealer Manager at
their respective addresses or telephone numbers set forth below and requests for
additional copies of the Offer to Purchase, this Letter of Transmittal and the
Notice of Guaranteed Delivery may be directed to the Information Agent or
brokers, dealers, commercial banks and trust companies and such materials will
be furnished at the Purchaser's expense.
9. WAIVER OF CONDITIONS. The conditions of the Offer may be waived by the
Purchaser, in whole or in part, at any time or from time to time, in the
Purchaser's sole discretion.
10. BACKUP WITHHOLDING. Each Tendering Stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9, which is provided under "Important Tax Information" below
and to certify that the stockholder is not subject to backup withholding.
Failure to provide the information on the Substitute Form W-9 may subject the
Tendering Stockholder to 31% federal income tax backup withholding on the
payment of the purchase price for the Shares. The Tendering Stockholder should
indicate in the box in Part III of the Substitute Form W-9 if the Tendering
Stockholder has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the Tendering Stockholder has indicated
in the box in Part III that a TIN has been applied for and the Depositary is not
provided with a TIN by the time of payment, the Depositary will withhold 31% of
all payments of the purchase price, if any, made thereafter pursuant to the
Offer until a TIN is provided by the Depositary.
11. LOST OR DESTROYED CERTIFICATES. If any Certificate representing
Shares has been lost or destroyed, the holder(s) should promptly notify the
Company's transfer agent and registrar, First Union National Bank of North
Carolina. The holders will then be instructed as to the procedure to be followed
in order to replace such Certificate. This Letter of Transmittal and related
documents cannot be processed until the procedures for replacing lost or
destroyed Certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
THEREOF (TOGETHER WITH CERTIFICATES OR A BOOK-ENTRY CONFIRMATION FOR SHARES AND
ANY OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY, OR A NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE
EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Tendering Stockholder whose tendered Shares
are accepted for payment is required to provide the Depositary (as payor) with
such Tendering Stockholder's correct TIN on Substitute Form W-9 below. If such
Tendering Stockholder is an individual, the TIN is his social security number.
If the Tendering Stockholder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, such Tendering
Stockholder should so indicate on the Substitute Form W-9. If the Depositary is
not provided with the correct TIN, the Tendering Stockholder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, payments that
are made to such Tendering Stockholders with respect to Shares purchased
pursuant to the Offer may be subject to backup federal income tax withholding.
Certain Tendering Stockholders (including, among others, all corporations
and certain foreign individuals) are exempt recipients not subject to these
backup withholding and reporting requirements. In order for a foreign individual
to qualify as an exempt recipient, that Tendering Stockholder must submit a
statement, signed under penalties of perjury, attesting to that individual's
exempt status. Forms for such statements may be obtained from the Depositary.
See the enclosed Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 for additional instructions.
8
<PAGE> 9
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the Tendering Stockholder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If backup withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup federal income tax withholding on payments of the
purchase price for Shares purchased pursuant to the Offer, a Tendering
Stockholder must provide the Depositary with his or her correct TIN by
completing the Substitute Form W-9 below, certifying that the TIN provided on
Substitute Form W-9 is correct (or that such Tendering Stockholder is awaiting a
TIN) and that (1) such Tendering Stockholder has not been notified by the
Internal Revenue Service that he or she is subject to backup withholding as a
result of failure to report all interest or dividends or (2) the Internal
Revenue Service has notified the Tendering Stockholder that he or she is no
longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The Tendering Stockholder is required to give the Depositary the social
security number or employer identification number of the record owner of the
Shares tendered hereby. If the Shares are registered in more than one name or
are not in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidelines on which number to report. If the Tendering Stockholder
has not been issued a TIN and has applied for a number or intends to apply for a
number in the near future, he or she should write "Applied For" in the space
provided for in the TIN in Part III, and sign and date the Substitute Form W-9.
If "Applied For" is written in Part III and the Depositary is not provided with
a TIN by the time of payment, the Depositary will withhold 31% on all payments
of the purchase price made thereafter until a TIN is provided to the Depositary.
9
<PAGE> 10
IMPORTANT
TENDERING STOCKHOLDER: SIGN HERE AND COMPLETE
SUBSTITUTE FORM W-9 ON REVERSE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF TENDERING STOCKHOLDER(S))
Dated:
- --------------------------- , 1997
(Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
Certificate(s) or on a security position listing or by the person(s) authorized
to become registered holder(s) by certificates and documents transmitted
herewith. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, please set forth full title and see
Instruction 5).
Name(s) ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (Full Title)
----------------------------------------------------------------
- --------------------------------------------------------------------------------
(SEE INSTRUCTION 5)
Address-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone No.
--------------------------------------------------------
(HOME)
- --------------------------------------------------------------------------------
(BUSINESS)
Taxpayer Identification or Social Security No.
----------------------------------------------
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY
FINANCIAL INSTITUTIONS:
PLACE MEDALLION GUARANTEE IN SPACE BELOW
10
<PAGE> 11
<TABLE>
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
PAYER'S NAME: CITIBANK, N.A.
========================================================================================================
SUBSTITUTE PART I -- Please provide your TIN in the PART III -- Social Security Number
FORM W-9 box at the right and certify by signing and or Employer Identification Number
dating below. --------------------------------------
(If awaiting TIN write "Applied For")
------------------------------------------------------------------------------------
DEPARTMENT OF THE PART II -- For Payees exempt from backup withholding, see the enclosed Guidelines
TREASURY for Certification of Taxpayer Identification Number on Substitute Form W-9 and
INTERNAL REVENUE complete as instructed therein.
SERVICE Certification -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct TIN (or I am waiting for a number
to be issued to me); and
(2) I am not subject to backup withholding either because I have not been notified
by the Internal Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or the IRS has
notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS: You must cross out Item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received
another notification from the IRS that you were no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines).
PAYER'S REQUEST FOR
TAXPAYER
IDENTIFICATION
NUMBER ("TIN")
AND CERTIFICATION
------------------------------------------------------------------------------------
Name:
(Please Print)
Signature: Date: ________________
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TIN.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to me, and
either (1) I have mailed or delivered an application to receive a TIN to the
appropriate IRS Center or Social Security Administration Office or (2) I intend
to mail or deliver an application in the near future. I understand that if I do
not provide a TIN by the time of payment, 31% of all payments pursuant to the
Offer made to me thereafter will be withheld until I provide a number.
SIGNATURE
- ----------------------------------------------------------------- DATE
- ---------------
11
<PAGE> 12
The Information Agent for the Offer is:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
(call collect) (212) 929-5500
or Call Toll-Free (800) 322-2885
The Dealer Manager for the Offer is:
SBC WARBURG INC.
277 Park Avenue
New York, New York 10172
(800) 223-3006 or (212) 224-7806 (Call Collect)
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
SINTER METALS, INC.
This form, or one substantially equivalent hereto, must be used to accept
the Offer (as defined below) if certificates for shares of Class A Common Stock,
par value $.001 per share, and of Class B Common Stock, par value $.001 per
share (the "Shares"), of Sinter Metals, Inc., a Delaware corporation (the
"Company"), are not immediately available or the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Depositary prior to the Expiration Date (as
defined in the Offer to Purchase). This Notice of Guaranteed Delivery may be
delivered by hand or facsimile transmission or mailed to the Depositary. See
Section 3 of the Offer to Purchase, dated May 2, 1997 (the "Offer to Purchase").
The Depositary for the Offer is:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Hand: By Mail: By Overnight Carrier:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
Corporate Trust Window c/o Citibank Data Distribution, c/o Citibank Data Distribution,
Inc. Inc.
111 Wall Street, 5th Floor P.O. Box 7072 404 Sette Drive
New York, New York 10043 Paramus, New Jersey 07653 Paramus, New Jersey 07652
</TABLE>
Facsimile for Eligible Institutions:
(201) 262-3240
To confirm fax only:
(800-422-2077)
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION OF INSTRUMENTS VIA FACSIMILE TRANSMISSION, OTHER THAN AS SET FORTH
ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal or an
Agent's Message (as defined in the Offer to Purchase) and certificates for
Shares to the Depositary within the time period shown herein. Failure to do so
could result in a financial loss to such Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to GKN Powder Metallurgy, Inc. (the
"Purchaser"), a Delaware corporation and a wholly-owned subsidiary of GKN Powder
Metallurgy Holdings, Inc. ("Parent"), a Delaware corporation, upon the terms and
subject to the conditions set forth in the Offer to Purchase and in the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively constitute the "Offer"), receipt of each of which is
hereby acknowledged, the number of Shares indicated below, pursuant to the
guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase.
Each of Parent and the Purchaser have been formed by GKN plc, a public limited
company registered in England, in connection with the Offer and the transactions
contemplated thereby.
<TABLE>
<S> <C>
Number of Shares: SIGN HERE
-----------------------------------
Certificate No(s). (if available): Name(s) of Record Holder(s):
- --------------------------------------------- ---------------------------------------------
- --------------------------------------------- ---------------------------------------------
(PLEASE PRINT)
If Shares will be tendered by
book-entry transfer: Addresses:
-----------------------------------
(Zip Code)
Name of Tendering Institutions Area Code and Telephone No.:
- --------------------------------------------- ---------------------------------------------
Account No.: at
-----------------------------
[ ] The Depository Trust Company Signature(s):
--------------------------------
[ ] Philadelphia Depository Trust Company Dated: , 1997
---------------------------------
</TABLE>
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, as Eligible Institution (as such term is defined in
Section 3 of the Offer to Purchase), hereby guarantees to deliver to the
Depositary the certificates representing the Shares tendered hereby, in proper
form for transfer, or a Book-Entry Confirmation (as defined in Section 3 of the
Offer to Purchase) with respect to transfer of such Shares into the Depositary's
account at The Depository Trust Company or the Philadelphia Depositary Trust
Company, in each case, together with a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof) with any required
signature guarantees or an Agent's Message (as defined in the Offer to Purchase)
in the case of a book-entry delivery of Shares, and any other documents required
by the Letter of Transmittal, all within three New York Stock Exchange trading
days after the date hereof.
<TABLE>
<S> <C>
Name of Firm:
-------------------------------- ---------------------------------------------
(AUTHORIZED SIGNATURE)
Address: Name:
- --------------------------------------------- ----------------------------------------
- --------------------------------------------- Title:
---------------------------------------
- ---------------------------------------------
Zip Code Date:
----------------------------------------
Area Code and Tel. No.:
----------------------
</TABLE>
DO NOT SEND CERTIFICATES FOR SHARES AND/OR RIGHTS WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES SHOULD BE SENT TOGETHER WITH LETTER OF TRANSMITTAL.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SINTER METALS, INC.
AT
$37.00 NET PER SHARE
BY
GKN POWDER METALLURGY, INC.
A CORPORATION FORMED BY
GKN plc
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON FRIDAY, MAY 30, 1997, UNLESS THE OFFER IS EXTENDED.
To Brokers, Dealers, Commercial Banks, May 2, 1997
Trust Companies and Other Nominees:
We have been appointed by GKN Powder Metallurgy, Inc., a Delaware
corporation (the "Purchaser") and a wholly-owned subsidiary of GKN Powder
Metallurgy Holdings, Inc., a Delaware corporation ("Parent"), to act as Dealer
Manager in connection with the Purchaser's offer to purchase all outstanding
shares of Common Stock, par value $.001 per share, and of Class B Common stock,
par value $.001 per share (the "Shares"), of Sinter Metals, Inc., a Delaware
corporation (the "Company"), at a purchase price of $37.00 per Share, net to the
seller in cash, without interest, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated May 2, 1997 (the "Offer to Purchase")
and in the related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer") enclosed herewith.
Each of Parent and the Purchaser have been formed by GKN plc, a public limited
company registered in England ("GKN plc"), in connection with the Offer and
transactions contemplated thereby. The Offer is being made in connection with
the Agreement and Plan of Merger dated as of April 29, 1997, among Parent, the
Purchaser and the Company (the "Merger Agreement"). Holders of Shares whose
certificates for such Shares (the "Certificates") are not immediately available
or who cannot deliver their Certificates and all other required documents to the
Depositary or complete the procedures for book-entry transfer prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender
their Shares according to the guaranteed delivery procedures set forth in
Section 3 of the Offer to Purchase.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares in your name or in the name of your nominee.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Offer to Purchase, dated May 2, 1997.
2. The Letter of Transmittal to tender Shares for your use and for
the information of your clients. Facsimile copies of the Letter of
Transmittal may be used to tender Shares.
3. A letter to stockholders of the Company from Joseph Carreras,
Chief Executive Officer, together with a Solicitation/Recommendation
Statement on Schedule 14D-9 filed with the Securities and Exchange
Commission by the Company and mailed to the stockholders of the Company.
4. The Notice of Guaranteed Delivery for Tender of Shares to be used
to accept the Offer if following the guaranteed delivery procedures set
forth in Section 3 of the Offer to Purchase.
<PAGE> 2
5. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name, with space provided
for obtaining such clients' instructions with regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
7. A return envelope addressed to Citibank, N.A. (the "Depositary").
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, MAY 30, 1997, UNLESS
THE OFFER IS EXTENDED.
Please note the following:
1. The tender price is $37.00 per Share, net to the seller in cash,
without interest.
2. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the Expiration Date (as defined
in the Offer to Purchase) of the Offer that number of Shares which would
represent at least a majority of the outstanding Shares on a fully diluted
basis.
3. The Offer is being made for all of the outstanding Shares.
4. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the transfer of Shares pursuant to the
Offer. However, federal income tax backup withholding at a rate of 31% may
be required, unless an exemption is available or unless the required
taxpayer identification information is provided. See Instruction 10 of the
Letter of Transmittal.
5. The Board of Directors of the Company has unanimously approved the
Offer and the Merger (as defined in the Offer to Purchase) and determined
that the terms of the Offer and the Merger are fair to, and in the best
interests of, the stockholders of the Company, and recommends that the
stockholders of the Company accept the Offer and tender all of their Shares
pursuant thereto.
6. Notwithstanding any other provision of the Offer, payment for
Shares accepted for payment pursuant to the Offer will in all cases be made
only after timely receipt by the Depositary of (a) Certificates pursuant to
the procedures set forth in Section 3 of the Offer to Purchase or a timely
Book-Entry Confirmation (as defined in the Offer to Purchase) with respect
to such Shares, (b) a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) with any required
signature guarantees or an Agent's Message (as defined in the Offer to
Purchase) in connection with a book-entry delivery of Shares, and (c) any
other documents required by the Letter of Transmittal. Accordingly,
tendering stockholders may be paid at different times depending upon when
Certificates for Shares or Book-Entry Confirmations (as defined in the
Offer to Purchase) are actually received by the Depositary.
In order to take advantage of the Offer, (i) a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof) with any
required signature guarantees or an Agent's Message in connection with a
book-entry delivery of Shares, and any other documents required by the Letter of
Transmittal should be sent to the Depositary and (ii) Certificates representing
the tendered Shares or a timely Book-Entry Confirmation should be delivered to
the Depositary in accordance with the instructions set forth in the Letter of
Transmittal and the Offer to Purchase.
If holders of Shares wish to tender, but it is impracticable for them to
forward their Certificates or other required documents or complete the
procedures for book-entry transfer prior to the Expiration Date, a tender may be
effected by following the guaranteed delivery procedures specified in Section 3
of the Offer to Purchase.
2
<PAGE> 3
None of the Purchaser, Parent or GKN plc, or any officer, director,
stockholder, agent or other representative of the Purchaser, Parent or GKN plc,
will pay any fees or commissions to any broker, dealer or other person (other
than the Dealer Manager, the Depositary and the Information Agent as described
in the Offer to Purchase) for soliciting tenders of Shares pursuant to the
Offer. The Purchaser will, however, upon request, reimburse you for customary
mailing and handling expenses incurred by you in forwarding any of the enclosed
materials to your clients. The Purchaser will pay or cause to be paid any
transfer taxes payable on the transfer of Shares to it, except as otherwise
provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
MacKenzie Partners, Inc., the Information Agent for the Offer, at 156 Fifth
Avenue, New York, New York 10010, (800) 322-2885 or SBC Warburg Inc., the Dealer
Manager, at 277 Park Avenue, New York, New York 10172, (800) 223-3006 or (212)
224-7806 (call collect).
Requests for copies of the enclosed materials may be directed to the
Information Agent at its address and telephone number above.
Very truly yours,
SBC WARBURG INC.
277 PARK AVENUE
NEW YORK, NEW YORK 10172
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF PARENT, THE PURCHASER, THE DEPOSITARY, THE
INFORMATION AGENT, THE DEALER MANAGER OR ANY AFFILIATE OF ANY OF THEM, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SINTER METALS, INC.
AT
$37.00 NET PER SHARE
BY
GKN POWDER METALLURGY, INC.
A CORPORATION FORMED BY
GKN plc
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, MAY 30, 1997, UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated May 2,
1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute the
"Offer") relating to an offer by GKN Powder Metallurgy, Inc., a Delaware
corporation (the "Purchaser") and a wholly-owned subsidiary of GKN Powder
Metallurgy Holdings, Inc., a Delaware corporation ("Parent"), to purchase all
outstanding shares of Class A Common Stock, par value $.001 per share, and all
outstanding shares of Class B Common Stock, par value $.001 per share (together,
the "Shares"), of Sinter Metals, Inc, a Delaware corporation ("Company"), at a
purchase price of $37.00 per Share, net to the seller in cash, without interest,
upon the terms and subject to the conditions set forth in the Offer. The Offer
is being made in connection with the Agreement and Plan of Merger, dated as of
April 29, 1997, among Parent, the Purchaser and the Company (the "Merger
Agreement"). Each of Parent and the Purchaser have been formed by GKN plc, a
public limited company registered in England, in connection with the Offer and
the transactions contemplated thereby. This material is being forwarded to you
as the beneficial owner of Shares carried by us in your account but not
registered in your name.
WE ARE (OR OUR NOMINEE IS) THE HOLDER OF RECORD OF SHARES HELD BY US FOR
YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF
RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED
TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD
BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish to have us
tender any or all of the Shares held by us for your account pursuant to the
terms and conditions set forth in the Offer.
Please note the following:
1. The tender price is $37.00 per Share, net to the seller in cash,
without interest.
2. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the Expiration Date (as defined
in the Offer to Purchase) of the Offer that number of Shares which would
represent at least a majority of the outstanding Shares on a fully diluted
basis.
3. The Offer is being made for all of the outstanding Shares.
<PAGE> 2
4. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the transfer of Shares pursuant to the
Offer. However, federal income tax backup withholding at a rate of 31% may
be required, unless an exemption is provided or unless the required
taxpayer identification information is provided. See Instruction 10 of the
Letter of Transmittal.
5. The Board of Directors of the Company has unanimously approved the
Offer and the Merger (as defined in the Offer to Purchase) and determined
that the terms of the Offer and the Merger are fair to, and in the best
interests of, the stockholders of the Company, and recommends that the
stockholders of the Company accept the Offer and tender all of their Shares
pursuant thereto.
6. Notwithstanding any other provision of the Offer, payment for
Shares accepted for payment pursuant to the Offer will in all cases be made
only after timely receipt by the Depositary of (a) Certificates pursuant to
the procedures set forth in Section 3 of the Offer to Purchase or a timely
Book-Entry Confirmation (as defined in the Offer to Purchase) with respect
to such Shares, (b) a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) with any required
signature guarantees or an Agent's Message (as defined in the Offer to
Purchase) in connection with a book-entry delivery of Shares, and (c) any
other documents required by the Letter of Transmittal. Accordingly,
tendering stockholders may be paid at different times depending upon when
Certificates for Shares or Book-Entry Confirmations are actually received
by the Depositary.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, MAY 30, 1997, UNLESS THE OFFER IS EXTENDED.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing, detaching and returning
to us the instruction form set forth below. If you authorize the tender of your
Shares, all such Shares will be tendered unless otherwise indicated in such
instruction form. An envelope to return your instruction to us is enclosed.
PLEASE FORWARD YOUR INSTRUCTIONS TO US AS SOON AS POSSIBLE TO ALLOW US AMPLE
TIME TO TENDER YOUR SHARES ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of Shares residing in any jurisdiction in which the making of
the Offer or acceptance thereof would not be in compliance with the securities
laws of such jurisdiction. However, the Purchaser may, in its discretion, take
such action as it may deem necessary to make the Offer in any jurisdiction and
extend the Offer to holders of Shares in such jurisdiction.
In any jurisdiction where the securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer will be deemed to
be made on behalf of the Purchaser by SBC Warburg Inc. or one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO
THE OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SINTER METALS, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated May 2, 1997 (the "Offer to Purchase") and the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively constitute the "Offer") in connection with the offer by
GKN Powder Metallurgy, Inc., a Delaware corporation (the "Purchaser") and a
wholly owned subsidiary of GKN Powder Metallurgy Holdings, Inc., a Delaware
corporation ("Parent"), to purchase all outstanding shares of Class A Common
Stock, par value $.001 per share, and all outstanding shares of Class B Common
Stock, par value $.001 per share (together, the "Shares"), of Sinter Metals,
Inc., a Delaware corporation ("Company"), at a purchase price of $37.00 per
Share, net to the seller in cash, without interest, upon the terms and subject
to the conditions set forth in the Offer. Each of Parent and the Purchaser have
been formed by GKN plc, a public limited company registered in England, in
connection with the Offer and the transactions contemplated thereby. The Offer
is being made in connection with the Agreement and Plan of Merger, dated as of
April 29, 1997, among Parent, the Purchaser and the Company (the "Merger
Agreement").
This will instruct you to tender to the Purchaser the number of Shares
indicated below (or if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
Number of Shares to be Tendered:* ____________
SIGN HERE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name(s))
- --------------------------------------------------------------------------------
(Area Code and Telephone Number(s))
- --------------------------------------------------------------------------------
(Taxpayer Identification or
Social Security Number(s))
Dated:
- ------------------------------------------, 1997
- ---------------
*Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
3
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- --------------------------------------------------------------------------------
<S> <C> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first individual
on the account(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint funds,
either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult, or if the minor
account) is the only contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for incompetent person(3)
a designated ward, minor,
or incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(4)
account that is not
a legal or valid
trust under State law
8. Sole proprietorship The owner(4)
account
<CAPTION>
- --------------------------------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF --
- --------------------------------------------------------------------------------
<S> <C> <C>
9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable or The organization
educational organization
account
12. Partnership account held The partnership
in the name of the
partnership
13. Association, club or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State
or local government,
school district or
prison) that receives
agricultural program
payments
- --------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show your individual name. You may also enter your business name. You may
use either your Social Security Number or your Employer Identification
Number.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service (the "IRS") and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization or any agency or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a) of the Code.
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1) of the Code.
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under Section 1441 of
the Code.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payment made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
- - Payments described in section 6049(b)(5) of the Code to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451 of the Code.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE
FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NON-RESIDENT ALIEN OR A FOREIGN
ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL
REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see Sections 6041, 6041A(a), 6045, and 6050A and 6050N
of the Code and the regulations promulgated therein.
PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividends,
interest or other payments to give taxpayer identification numbers to payers who
must report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividends and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
<PAGE> 1
Exhibit (a)(7)
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is made solely by the Offer to Purchase, dated May 2,
1997, and the related Letter of Transmittal and is not being made to, nor will
tenders be accepted from or on behalf of, holders of Shares in any jurisdiction
in which the making of the Offer or acceptance thereof would not be in
compliance with the laws of such jurisdiction. In those jurisdictions where
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on behalf of the
Purchaser by SBC Warburg Inc. or one or more registered brokers or dealers
licensed under the laws of such jurisdictions.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SINTER METALS, INC.
AT
$37.00 NET PER SHARE
BY
GKN POWDER METALLURGY, INC.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
GKN PLC
GKN Powder Metallurgy, Inc., a Delaware corporation (the "Purchaser")
which is a wholly owned subsidiary of GKN Powder Metallurgy Holdings, Inc., a
Delaware corporation ("Parent"), and an indirect wholly owned subsidiary of GKN
plc, a public limited company registered in England, hereby offers to purchase
all outstanding shares of Class A Common Stock, par value $.001 per share, and
all outstanding shares of Class B Common Stock, $.001 par value per share
(together, the "Shares"), of Sinter Metals, Inc., a Delaware corporation (the
"Company"), at a purchase price of $37.00 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated May 2, 1997 (the "Offer to Purchase"), and in the
related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MAY 30, 1997, UNLESS THE OFFER IS EXTENDED.
The Offer is being made pursuant to the Agreement and Plan of Merger
dated as of April 29, 1997 (the "Merger Agreement"), among Parent, the Purchaser
and the Company, pursuant to which, as promptly as practicable following the
later of the consummation of the Offer and the satisfaction or waiver of certain
conditions, the Purchaser will be merged with and into the Company (the
"Merger"). Following the consummation of the Merger, the Company will be the
surviving corporation. In the Merger, each outstanding Share (other than Shares
held by the Company as treasury stock or by any subsidiary of the Company, or
owned by Parent, the Purchaser or any other subsidiary of either Parent or the
Purchaser and other than Shares held by stockholders, if any, who perfect their
appraisal rights under Delaware law) will be converted into the right to receive
$37.00, without interest thereon, in cash.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
OFFER AND THE MERGER AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER ALL
OF THEIR SHARES PURSUANT THERETO.
<PAGE> 2
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as hereinafter defined)
of the Offer that number of Shares which would represent at least a majority of
the outstanding Shares on a fully diluted basis.
For purposes of the Offer, the Purchaser will be deemed to have
accepted for payment, and thereby purchased, Shares properly tendered to the
Purchaser and not withdrawn as, if and when the Purchaser gives oral or written
notice to Citibank, N.A. (the "Depositary") of the Purchaser's acceptance for
payment of such Shares pursuant to the Offer. Upon the terms and subject to the
conditions of the Offer, payment for Shares accepted for payment pursuant to the
Offer will be made by deposit of the purchase price therefor with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payment from the Purchaser and transmitting payment to tendering
stockholders.
Payment for Shares accepted for payment pursuant to the Offer will
be made only after timely receipt by the Depositary of (i) certificates for such
Shares or timely confirmation of the book-entry transfer of such Shares into the
Depositary's account at a Book-Entry Transfer Facility (as defined in the Offer
to Purchase) pursuant to the procedures set forth in the Offer to Purchase, (ii)
a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof) with any required signature guarantees or an Agent's
Message (as defined in the Offer to Purchase) in connection with a book-entry
delivery of shares, and (iii) any other documents required by the Letter of
Transmittal.
If by 12:00 Midnight, New York City time, on May 30, 1997 (or any other
date or time then set as the Expiration Date), any or all conditions to the
Offer have not been satisfied or waived, the Purchaser reserves the right (but
shall not be obligated, except as otherwise provided in the Merger Agreement),
subject to the terms and conditions contained in the Merger Agreement and to the
applicable rules and regulations of the Securities and Exchange Commission (the
"Commission"), to (i) terminate the Offer and not accept for payment any Shares
and return all tendered Shares to tendering stockholders, (ii) waive all the
unsatisfied conditions and, subject to complying with the terms of the Merger
Agreement and the applicable rules and regulations of the Commission, accept for
payment and pay for all Shares validly tendered prior to the Expiration Date and
not theretofore withdrawn, (iii) extend the Offer and, subject to the right of
stockholders to withdraw Shares until the Expiration Date, retain the Shares
that have been tendered during the period or periods for which the Offer is
extended or (iv) amend the Offer. The term "Expiration Date" means 12:00
Midnight, New York City time, on May 30, 1997, unless and until the Purchaser
(subject to the terms of the Merger Agreement) shall have extended the period of
time during which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date at which the Offer, as so extended by the
Purchaser, shall expire. Subject to the terms of the Merger Agreement and the
applicable rules and regulations of the Commission, the Purchaser expressly
reserves the right, in its sole discretion, at any time and from time to time,
and regardless of whether or not any of the conditions set forth in the Offer to
Purchase shall have been satisfied or shall have been determined by the
Purchaser to have been satisfied, (i) to extend the period of time during which
the Offer is open, and thereby delay acceptance for payment of and the payment
for any Shares, by giving oral or written notice of such extension to the
Depositary and (ii) to amend the Offer in any other respect by giving oral or
written notice of such amendment to the Depositary. The Purchaser shall not have
any obligation to pay interest on the purchase price for tendered Shares whether
or not the Purchaser exercises such rights.
Shares tendered pursuant to the Offer may be withdrawn pursuant to the
procedures set forth below at any time prior to the Expiration Date. Thereafter,
such tenders are irrevocable, except that they may also be withdrawn at any time
after July 1, 1997, unless accepted for payment and paid for by the Purchaser
pursuant to the Offer. For a withdrawal to be effective, a written, telegraphic
or facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover of the Offer to
Purchase and must specify the name of the person having tendered the Shares to
be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder of the Shares to be withdrawn, if different from the name of
the person who tendered the Shares. If certificates for Shares have been
delivered or otherwise identified to the Depositary, then, prior to the physical
release of such certificates, the serial numbers shown on such certificates must
be submitted to the Depositary and, unless such Shares have been tendered by an
Eligible Institution, the signatures on the notice of withdrawal must be
guaranteed by an Eligible Institution. If Shares have been tendered pursuant to
the procedures for book-entry transfer set forth in the Offer to Purchase, the
notice of withdrawal must specify the name and number of the account at
<PAGE> 3
the appropriate Book-Entry Transfer Facility to be credited with the withdrawn
Shares. Withdrawals of tenders of Shares may not be rescinded, and any Shares
properly withdrawn will thereafter be deemed not validly tendered for any
purposes of the Offer. However, withdrawn Shares may be retendered by again
following one of the procedures described in the Offer to Purchase at any time
prior to the Expiration Date. All questions as to the form and validity
(including time of receipt) of notices of withdrawal will be determined by the
Purchaser in its sole discretion, which determination will be final and binding.
None of the Purchaser, Parent, the Depositary, the Information Agent, the Dealer
Manager or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification.
The information required to be disclosed by Paragraph (e)(1)(vii) of
Rule 14d-6 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, is contained in the Offer to Purchase and is
incorporated herein by reference.
The Company has provided the Purchaser its list of stockholders and
security position listings for the purpose of disseminating the Offer to holders
of Shares. The Offer to Purchase and the related Letter of Transmittal and other
relevant materials will be mailed by the Purchaser to record holders of Shares
and will be furnished by the Purchaser to brokers, dealers, commercial banks,
trust companies and similar persons whose names, or the names of whose nominees,
appear on the stockholder lists or, if applicable, who are listed as
participants in a clearing agency's security position listing, for subsequent
transmittal to beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
Requests for copies of the Offer to Purchase and the related Letter of
Transmittal and other tender offer material may be directed to the Information
Agent or the Dealer Manager as set forth below, and copies will be furnished
promptly at the Purchaser's expense. No fees or commissions will be payable to
brokers, dealers or other persons other than the Information Agent, the Dealer
Manager, and the Depositary for soliciting tenders of Shares pursuant to the
Offer.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS, INC. LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
CALL TOLL-FREE (800)322-2885
The Dealer Manager for the Offer is:
SBC WARBURG INC.
277 Park Avenue
New York, New York 10172
(800) 223-3006 or (212) 224-7806 (Call Collect)
May 2, 1997
<PAGE> 1
Exhibit(a)(8)
GKN PLC AND SINTER METALS, INC. ANNOUNCE MERGER AGREEMENT
NEW YORK AND CLEVELAND, OH APRIL 30, 1997 - GKN plc (LSE GKN) and Sinter Metals
(NYSE: SNM) jointly announce that they have today signed a merger agreement for
GKN to acquire Sinter Metals for $570 million in cash, including the assumption
of approximately $184 million of debt. The acquisition will be financed from the
existing cash resources of GKN. GKN will shortly commence a tender offer to
acquire all outstanding shares of Class A and Class B Common Stock of Sinter
Metals for $37 per share. The transaction is subject to normal regulatory
approvals, and the tender offer is expected to close in late May 1997.
GKN has entered into agreements with certain stockholders of Sinter Metals,
including Citicorp Venture Capital Ltd. and/or a charitable foundation
established by Citicorp and and Mr. Joseph Carreras, Chairman and Chief
Executive Officer of Sinter Metals, in which such shareholders have agreed to
tender into the offer shares representing in the aggregate 42.9% of the
outstanding Common Stock on a fully diluted basis, subject to certain
conditions. SBC Warburg Inc. will act as dealer manager for the tender.
Powder metallurgy is a growing industry with output increasing in North America
at an estimated compound annual rate of 11% over the past three years, and in
Europe at 6% over the same period. Sinter Metals is the world's largest
independent manufacturer of precision pressed powder metal components with
operations in the USA, Canada, Germany and Sweden. It serves customers in the
automotive sector, representing some 70% of production, with the balance of 30%
in the home appliance, power tool and lawn and garden industries. Sinter Metals
will be combined with GKN's powder metallurgy interests in the UK and Italy,
further advancing GKN's strategy to achieve a global capability in this area.
The management of Sinter Metals, which has taken the group from one with sales
of $51 million in 1991 to a pro forma $373 million in 1996, will remain with the
Company and will have responsibility for the enlarged business.
Commenting on the transaction, CK Chow, GKN's Chief Executive, said:
"The acquisition of Sinter Metals will position GKN as the world's largest
supplier of precision pressed powder metal components, with estimated annual
1997 sales of some $530 million. It is expected to be earnings enhancing in the
first 12 months.
Joseph Carreras, Chairman and Chief Executive Officer of Sinter Metals, said:
"This combination represents an excellent opportunity for Sinter Metals to
continue its goal of being the global powder metallurgy supplier of choice. The
addition of GKN's operations provides additional capabilities and capacities to
better serve our customers. I
<PAGE> 2
am also particularly proud of the return to shareholders that the company has
generated since its initial public offering in November 1994."
Mr. Chow and Mr. Carreras noted that the merger will enable the enlarged
business to achieve further growth through the introduction of new products,
geographical expansion and further acquisitions. It will also provide
opportunities for synergies through sharing technology, the improved utilization
of production capacity and expanding the customer base.
GKN is a global industrial company with sales exceeding [pound sterling]3.3
billion ($5.4 billion). It designs, develops and manufactures automotive and
agritechnical components as well as aerospace and defense products and provides
a range of industrial services. GKN is already a leading global supplier of
constant velocity joints to the automotive industry and this strategic
acquisition will increase the value of GKN products per vehicle.
GKN is a UK FT-SE 100 company. Its operations are based in more than 40
countries around the world employing some 30,000 people in its subsidiaries and
a further 11,500 in associated companies.
Contact Public Affairs Department of GKN plc, 44 152 751 7715 or Investor
Relations of Sinter Metals, Inc. 216 771 6700
<PAGE> 1
Exhibit (a)(9)
GKN COMMENCES TENDER OFFER FOR SINTER METALS
NEW YORK AND CLEVELAND, OH, MAY 2, 1997 - GKN plc (LSE: GKN) and Sinter Metals,
Inc. (NYSE: SNM) today announced that in accordance with the previously
announced merger agreement, GKN Powder Metallurgy, Inc., a GKN company, today
commenced a tender offer for all the shares of Class A and Class B Common Stock
of Sinter Metals at a purchase price of $37 per share.
The offer and withdrawal rights will expire at 12:00 midnight, New York City
time, on Friday, May 30, 1997, unless the offer is extended. The offer is
subject to certain conditions which are described in an Offer to Purchase being
mailed to all shareholders of Sinter Metals. Citibank, N.A. will act as
depositary for the tender, MacKenzie Partners, Inc. as information agent and SBC
Warburg Inc. will act as dealer manager.
Sinter Metals produces precision pressed powder metal parts for use principally
in the automotive, lawn and garden, power tool and home appliance industries.
The company has ten production facilities in North America and eight in Europe
employing more than 3,000 people.
GKN is a global industrial company with sales exceeding [pound sterling]3.3
billion ($5.4 billion). It designs, develops and manufactures automotive and
agritechnical components as well as aerospace and defence products and provides
a range of industrial services. GKN is a UK FT-SE 100 company. Its operations
are based in some 40 countries around the world employing some 30,000 people in
its subsidiaries and a further 11,500 in associated companies.
Contact:
GKN Public Affairs Department 011 44 171 930 2424
Sinter Metals Investor Relations 216 771 6700
<PAGE> 1
EXHIBIT(C)(1)
Conformed Copy
----------------------------------------
AGREEMENT AND PLAN OF MERGER
among
GKN POWDER METALLURGY HOLDINGS, INC.,
GKN POWDER METALLURGY, INC.
and
SINTER METALS, INC.
Dated as of April 29, 1997
----------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE 1 ................................................................... 1
1. The Offer ............................................................ 1
1.1. The Offer ................................................... 1
1.2. Actions by Purchaser and Merger Sub ......................... 3
1.3. Actions by the Company ...................................... 3
1.4. Directors ................................................... 5
ARTICLE 2 ................................................................... 6
2. The Merger ........................................................... 6
2.1. The Merger .................................................. 6
2.2. The Closing ................................................. 6
2.3. Effective Time .............................................. 7
ARTICLE 3 ................................................................... 7
3. Certificate of Incorporation and Bylaws of the Surviving
Corporation. ..................................................... 7
3.1. Certificate of Incorporation ................................ 7
3.2. Bylaws ...................................................... 7
ARTICLE 4 ................................................................... 7
4. Directors and Officers of the Surviving Corporation. ................. 7
4.1. Directors ................................................... 7
4.2. Officers .................................................... 7
ARTICLE 5 ................................................................... 8
5. Effect of the Merger on Securities of Merger Sub and the
Company. ......................................................... 8
5.1. Merger Sub Stock. ........................................... 8
5.2. Company Securities. ......................................... 8
5.3. Exchange of Certificates Representing Common Stock. ......... 9
5.4. Adjustment of Merger Consideration .......................... 11
5.5. Dissenting Company Stockholders ............................. 11
5.6. Merger Without Meeting of Stockholders ...................... 11
ARTICLE 6 ................................................................... 11
6. Representations and Warranties of Company. ........................... 11
6.1. Existence; Good Standing; Corporate Authority. .............. 11
6.2. Authorization, Validity and Effect of Agreements ............ 12
6.3. Compliance with Laws ........................................ 13
6.4. Capitalization .............................................. 13
6.5. Subsidiaries ................................................ 14
6.6. No Violation ................................................ 14
<PAGE> 3
6.7. Company Reports; Offer Documents ........................... 15
6.8. Litigation ................................................. 16
6.9. Absence of Certain Changes ................................. 17
6.10. Taxes ..................................................... 18
6.11. Employee Benefit Plans .................................... 18
6.12. Labor and Employment Matters .............................. 20
6.13. Brokers ................................................... 20
6.14. Licenses and Permits ...................................... 20
6.15. Environmental Compliance and Disclosure ................... 20
6.16. Title to Assets ........................................... 21
6.17. Material Contracts ........................................ 22
6.17. Required Vote of Company Stockholders ..................... 22
6.19. Intellectual Property Rights .............................. 22
6.20. Insurance Policies ........................................ 23
ARTICLE 7 .................................................................. 23
7. Representations and Warranties of Purchaser and Merger Sub. ......... 23
7.1. Existence; Good Standing; Corporate Authority .............. 23
7.2. Authorization, Validity and Effect of Agreements ........... 23
7.3. Offer Documents ............................................ 24
7.4. No Violation ............................................... 24
7.5. Financing .................................................. 25
ARTICLE 8 .................................................................. 25
8. Covenants. .......................................................... 25
8.1. No Solicitation ............................................ 25
8.2. Interim Operations ......................................... 26
8.3. Company Stockholder Approval; Proxy Statement .............. 28
8.4. Filings; Other Action ...................................... 30
8.5. Access to Information ...................................... 31
8.6. Publicity .................................................. 31
8.7. Further Action ............................................. 31
8.8. Insurance; Indemnity. ...................................... 31
8.9. Restructuring of Merger .................................... 33
8.10. Employee Benefit Plans .................................... 33
8.11. Credit Agreement .......................................... 34
8.12. Conversion of Class B Common Stock ........................ 34
8.13. Real Property Transfer Taxes .............................. 34
8.14. Annual Meeting of Stockholders ............................ 34
ARTICLE 9 .................................................................. 35
9. Conditions. ......................................................... 35
9.1. Conditions to Each Party's Obligation to Effect the
Merger ................................................ 35
(ii)
<PAGE> 4
9.2. Conditions to Obligation of Purchaser and Merger Sub
to Effect the Merger .................................. 35
ARTICLE 10 ................................................................. 35
10. Termination; Amendment; Waiver. .................................... 35
10.1. Termination ............................................... 35
10.2. Effect of Termination ..................................... 37
10.3. Amendment ................................................. 37
10.4. Extension; Waiver ......................................... 37
ARTICLE 11 ................................................................. 38
11. General Provisions. ................................................ 38
11.1. Nonsurvival of Representations and Warranties ............. 38
11.2. Notices ................................................... 38
11.3. Assignment; Binding Effect ................................ 38
11.4. Entire Agreement .......................................... 39
11.5. Fees and Expenses ......................................... 39
11.6. Governing Law ............................................. 40
11.7. Headings .................................................. 41
11.8. Interpretation ............................................ 41
11.9. Investigations ............................................ 41
11.10. Severability ............................................. 41
11.11. Enforcement of Agreement ................................. 41
11.12. Counterparts ............................................. 42
11.13. Obligation of Purchaser .................................. 42
EXHIBITS
EXHIBIT A Conditions of the Offer
EXHIBIT B Notice and Certificate
(iii)
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
April 29, 1997, among GKN Powder Metallurgy Holdings, Inc., a Delaware
corporation ("Purchaser"), GKN Powder Metallurgy, Inc., a Delaware corporation
and a wholly owned subsidiary of Purchaser ("Merger Sub"), and Sinter Metals,
Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Boards of Directors of Purchaser and the Company
each have determined that it is in the best interests of their respective
companies and stockholders for Purchaser to acquire the Company upon the terms
and subject to the conditions set forth herein;
WHEREAS, the parties hereto desire to make certain
representations, warranties, covenants and agreements in connection herewith;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Purchaser and Merger Sub are entering into agreements with certain
stockholders of the Company pursuant to which such stockholders shall agree to
take certain actions to support the transactions contemplated by this Agreement
(the "Stockholder Agreements"); and
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE OFFER
1.1 The Offer.
(a) Subject to the provisions of this Agreement and this
Agreement not having been terminated in accordance with Article 10 hereof, as
promptly as practicable but in any event within five business days after the
date hereof, Merger Sub shall commence, within the meaning of Rule 14d-2 under
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), an offer to purchase all of the
outstanding shares of Class A Common Stock, par value $.001 per share ("Class A
Common Stock"), and Class B Common Stock, par value $.001 per share ("Class B
Common Stock," and, together with the Class A Common Stock, the "Common Stock"),
of the Company at a price of $37.00 per share of Common Stock, net to the seller
in cash (the "Offer"). The obligation of Merger Sub to commence the Offer and
accept for payment, and pay for, any shares of
<PAGE> 6
Common Stock tendered pursuant to the Offer shall be subject to the conditions
set forth in Exhibit A hereto and to the terms and conditions of this Agreement.
Subject to the provisions of this Agreement, the Offer shall expire 20 business
days after the date of its commencement, unless this Agreement is terminated in
accordance with Article 10, in which case the Offer (whether or not previously
extended in accordance with the terms hereof) shall expire on such date of
termination.
(b) Merger Sub expressly reserves the right to modify the
terms of the Offer and to waive any condition of the Offer, except that, without
the prior written consent of the Company, Merger Sub shall not (i) waive the
Minimum Condition (as defined in Exhibit A), (ii) reduce the number of shares of
Common Stock subject to the Offer, (iii) reduce the price per share of Common
Stock to be paid pursuant to the Offer, (iv) extend the Offer, if all of the
Offer conditions are satisfied or waived, (v) change the form of consideration
payable in the Offer, (vi) amend or modify any term or condition of the Offer
(including the conditions set forth on Exhibit A) in any manner adverse to the
holders of Common Stock or (vii) impose additional conditions to the Offer other
than such conditions required by applicable Law (as hereinafter defined).
Notwithstanding anything herein to the contrary, Merger Sub may, in its sole
discretion without the consent of the Company, extend the Offer at any time and
from time to time (i) if at the then scheduled expiration date of the Offer any
of the conditions to Merger Sub's obligation to accept for payment and pay for
shares of Common Stock shall not have been satisfied or waived, (ii) for any
period required by any rule, regulation, interpretation or position of the
Securities and Exchange Commission (the "SEC") or its staff applicable to the
Offer, (iii) for any period required by applicable Law and (iv) if all Offer
conditions are satisfied or waived but the number of shares of Common Stock
tendered is less than 90% of the then outstanding number of shares of Common
Stock, for an aggregate period of not more than 20 business days (for all such
extensions under this clause (iv)) beyond the latest expiration date that would
be permitted under clause (i), (ii) or (iii) of this sentence. So long as this
Agreement is in effect and the conditions to the Offer have not been satisfied
or waived, at the request of the Company, Merger Sub shall extend the Offer for
an aggregate period of not more than 5 business days (for all such extensions)
beyond the originally scheduled expiration date of the Offer. Such period of 5
business days shall include any grace period contemplated by clause (d)(ii) of
Exhibit A that extends beyond the otherwise scheduled expiration date of the
Offer. Subject to the terms and conditions of the Offer and this Agreement,
Merger Sub shall accept for payment and pay for, in accordance with the terms of
the Offer, all shares of Common Stock validly tendered and not withdrawn
pursuant to the Offer as soon as practicable after the expiration of the Offer.
2
<PAGE> 7
1.2. Actions by Purchaser and Merger Sub.
(a) As soon as reasonably practicable following execution of
this Agreement, but in no event later than five business days from the date
hereof, Purchaser and Merger Sub shall file with the SEC a Tender Offer
Statement on Schedule 14D-1 with respect to the Offer, which shall contain an
offer to purchase and a related letter of transmittal and any other ancillary
documents pursuant to which the Offer shall be made (such Schedule 14D-1 and the
documents therein pursuant to which the Offer will be made, together with any
supplements or amendments thereto, the "Offer Documents"). The Company and its
counsel shall be given a reasonable opportunity to review and comment upon the
Offer Documents prior to the filing thereof with the SEC. The Offer Documents
shall comply as to form in all material respects with the requirements of the
Exchange Act, and, on the date filed with the SEC and on the date first
published, sent or given to the Company's stockholders, the Offer Documents
shall not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that no representation is made by Purchaser or
Merger Sub with respect to information supplied by the Company for inclusion in
the Offer Documents. Each of Purchaser, Merger Sub and the Company agrees
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that such information shall have become false or
misleading in any material respect, and each of Purchaser, Merger Sub and the
Company further agrees to take all steps necessary to cause the Offer Documents
as so corrected to be filed with the SEC and to be disseminated to holders of
shares of Common Stock, in each case as and to the extent required by applicable
federal securities laws. Purchaser and Merger Sub agree to provide the Company
and its counsel in writing with any comments Purchaser, Merger Sub or their
counsel may receive from the SEC or its staff with respect to the Offer
Documents promptly after receipt of such comments.
(b) Purchaser shall provide or cause to be provided to Merger
Sub all of the funds necessary to purchase any shares of Common Stock that
Merger Sub becomes obligated to purchase pursuant to the Offer.
1.3. Actions by the Company.
(a) The Company hereby approves of and consents to the Offer
and represents and warrants that the Board of Directors of the Company (the
"Board of Directors" or the "Board") at a meeting duly called and held has duly
adopted resolutions (i) approving this Agreement, the Offer and the Merger (as
hereinafter defined), determining that the Merger is advisable and that the
terms of the Offer and Merger are fair to, and in the best interests of, the
Company's stockholders and recommending that the Company's stockholders accept
the Offer and approve the Merger and this Agreement, and (ii) taking all action
necessary to render Section 203 of the Delaware General Corporation Law (the
"DGCL") and Article X of the Company's
3
<PAGE> 8
Certificate of Incorporation inapplicable to the Offer, the Merger, this
Agreement and any of the transactions contemplated hereby and the Stockholder
Agreements and any of the transactions contemplated thereby. The Company further
represents and warrants that the Board of Directors has received the written
opinion of Morgan Stanley & Co. (the "Financial Advisor") that the proposed
consideration to be received by the holders of shares of Common Stock pursuant
to the Offer and the Merger is fair to such holders from a financial point of
view (the "Fairness Opinion"). The Company hereby consents to the inclusion in
the Offer Documents of the recommendation of the Board of Directors described in
the first sentence of this Section 1.3(a). The Company hereby represents and
warrants that it has been authorized by the Financial Advisor to permit the
inclusion of the Fairness Opinion and references thereto, subject to prior
review and consent by the Financial Advisor (such consent not to be unreasonably
withheld) in the Offer Documents, the Schedule 14D-9 (as hereinafter defined)
and the Proxy Statement (as hereinafter defined). The Company has been advised
by each of its directors and executive officers that each such person intends to
tender all shares of Common Stock owned by such person pursuant to the Offer,
except to the extent of any restrictions created by Section 16(b) of the
Exchange Act. If the Company's Board of Directors determines that its fiduciary
duties require it to withdraw, modify or amend its recommendations described
above, such withdrawal, amendment or modification shall not constitute a breach
of this Agreement but shall have the effects specified herein.
(b) On the date the Offer Documents are filed with the SEC,
the Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9") containing the recommendations described in
the first sentence of Section 1.3(a) (subject to the last sentence of Section
1.3(a)) and shall mail the Schedule 14D-9 to the stockholders of the Company. To
the extent practicable, the Company shall cooperate with Purchaser in mailing or
otherwise disseminating the Schedule 14D-9 with the appropriate Offer Documents
to the Company's stockholders. Purchaser and its counsel shall be given a
reasonable opportunity to review and comment upon the Schedule 14D-9 prior to
the filing thereof with the SEC. The Schedule 14D-9 shall comply as to form in
all material respects with the requirements of the Exchange Act and, on the date
filed with the SEC and on the date first published, sent or given to the
Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Purchaser or Merger Sub for inclusion in the Schedule 14D-9. Each of the
Company, Purchaser and Merger Sub agrees promptly to correct any information
provided by it for use in the Schedule 14D-9 if and to the extent that such
information shall have become false or misleading in any material respect, and
the Company further agrees to take all steps necessary to cause the Schedule
14D-9 as so corrected to be filed with the SEC and to be disseminated to the
holders of shares of Common Stock, in each case as and to the extent required by
4
<PAGE> 9
applicable federal securities laws. The Company agrees to provide Purchaser and
Merger Sub and their counsel in writing with any comments the Company or its
counsel may receive from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its
transfer agent to furnish Merger Sub with mailing labels containing the names
and addresses of the record holders of Common Stock as of a recent date and of
those persons becoming record holders subsequent to such date, together with
copies of all lists of stockholders, security position listings and computer
files and all other information in the Company's possession or control regarding
the beneficial owners of Common Stock, and shall furnish to Merger Sub such
information and assistance (including updated lists of stockholders, security
position listings and computer files) as Merger Sub may reasonably request in
communicating the Offer to the Company's stockholders. Subject to the
requirements of law, and except for such steps as are necessary to disseminate
the Offer Documents and any other documents necessary to consummate the Offer
and the Merger, Purchaser and Merger Sub and each of their affiliates and
associates shall hold in confidence the information contained in any of such
labels, lists and files, shall use such information only in connection with the
Offer and the Merger, and, if this Agreement is terminated, shall promptly
deliver to the Company all copies of such information then in their possession
or under their control.
(d) Subject to the terms and conditions of this Agreement, if there
shall occur a change in law or in a binding judicial interpretation of existing
law which would, in the absence of action by the Company or the Board, prevent
the Merger Sub, were it to acquire a specified percentage of the shares of
Common Stock then outstanding, from approving and adopting this Agreement by its
affirmative vote as the holder of a majority of shares of Common Stock and
without the affirmative vote of any other stockholder, the Company will use its
best efforts to promptly take or cause such action to be taken.
1.4. Directors.
(a) Promptly upon the purchase of shares of Common Stock pursuant to
the Offer, Purchaser shall be entitled to designate such number of directors,
rounded up to the next whole number, as will give Purchaser representation on
the Board of Directors equal to the product of (i) the number of directors on
the Board of Directors and (ii) the percentage that the number of shares of
Common Stock purchased by Merger Sub or Purchaser or any affiliate thereof bears
to the aggregate number of shares of Common Stock outstanding (the
"Percentage"), and the Company shall, upon request by Purchaser, promptly
increase the size of the Board of Directors and/or exercise its best efforts to
secure the resignations of such number of directors as is necessary to enable
Purchaser's designees to be elected to the Board of Directors and shall cause
Purchaser's designees to be so elected. At the request of Purchaser, the Company
will use its reasonable best efforts to cause such individuals designated by
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Purchaser to constitute the same Percentage of (i) each committee of the Board,
(ii) the board of directors of each Subsidiary (as hereinafter defined) and
(iii) the committees of each such board of directors. The Company's obligations
to appoint designees to the Board of Directors shall be subject to Section 14(f)
of the Exchange Act. The Company shall take, at its expense, all action
necessary to effect any such election, and shall include in the Schedule 14D-9
the information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. Purchaser will supply to the Company in writing and be
solely responsible for any information with respect to itself and its nominees,
directors and affiliates required by Section 14(f) and Rule 14f-1.
Notwithstanding the foregoing, the parties hereto shall use their respective
reasonable best efforts to ensure that at least two of the members of the Board
of Directors shall at all times prior to the Effective Time (as hereinafter
defined) be Continuing Directors (as hereinafter defined).
(b) Following the election or appointment of Purchaser's designees
pursuant to this Section 1.4 and prior to the Effective Time, the approval of a
majority of the directors of the Company then in office who are not designated
by Purchaser (the "Continuing Directors") shall be required to authorize (and
such authorization shall constitute the authorization of the Board of Directors
and no other action on the part of the Company, including any action by any
other director of the Company, shall be required to authorize) any termination
of this Agreement by the Company, any amendment of this Agreement requiring
action by the Board of Directors, any extension of time for the performance of
any of the obligations or other acts of Purchaser or Merger Sub, and any waiver
of compliance with any of the agreements or conditions contained herein for the
benefit of the Company.
ARTICLE 2
THE MERGER
2.1. The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 2.3), Merger Sub shall be merged
with and into the Company in accordance with this Agreement and the applicable
provisions of the DGCL, and the separate corporate existence of Merger Sub shall
thereupon cease (the "Merger"). The Company shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"). The Merger shall have the effects specified in the DGCL.
2.2. The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at the
offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New
York, New York, at 10:00 a.m., local time, as soon as practicable following the
satisfaction (or waiver if permissible) of the conditions set forth in Article
9. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
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2.3. Effective Time. If all the conditions to the Merger set forth in
Article 9 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 10, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
251 of the DGCL to be properly executed and filed in accordance with such
Section on the Closing Date. The Merger shall become effective at the time of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL or at such later time which the parties
hereto shall have agreed upon and designated in such filing as the effective
time of the Merger (the "Effective Time").
ARTICLE 3
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
3.1. Certificate of Incorporation. The Certificate of Incorporation of
Merger Sub in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended in
accordance with applicable law and the terms thereof.
3.2. Bylaws. The Bylaws of Merger Sub in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law, the terms thereof and the Surviving
Corporation's Certificate of Incorporation.
ARTICLE 4
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
4.1. Directors. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law and the Surviving Corporation's Certificate of
Incorporation and Bylaws.
4.2. Officers. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law and the Surviving Corporation's Certificate of
Incorporation and Bylaws.
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ARTICLE 5
EFFECT OF THE MERGER ON SECURITIES
OF MERGER SUB AND THE COMPANY
5.1. Merger Sub Stock. At the Effective Time, each share of common
stock, $.01 par value per share, of Merger Sub outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of common stock, $.01 par value per share,
of the Surviving Corporation.
5.2. Company Securities.
(a) At the Effective Time, each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of Common
Stock owned by Purchaser or Merger Sub or held by the Company, all of which
shall be cancelled, and other than shares of Dissenting Common Stock (as
hereinafter defined)) shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into the right to receive the per
share consideration paid upon consummation of the Offer, without interest (the
"Merger Consideration").
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time, all shares of Common Stock shall cease to
be outstanding and shall be cancelled and retired and shall cease to exist, and
each holder of shares of Common Stock (other than Merger Sub, Purchaser and the
Company) shall thereafter cease to have any rights with respect to such shares
of Common Stock, except the right to receive, without interest, the Merger
Consideration in accordance with Section 5.3 upon the surrender of a certificate
or certificates (a "Certificate") representing such shares of Common Stock.
(c) Each share of Common Stock issued and held in the Company's
treasury at the Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be cancelled and retired without payment of any
consideration therefor.
(d) All outstanding stock options (individually, an "Option" and,
collectively, the "Options") heretofore granted under any stock option program
or arrangement of the Company (collectively, the "Stock Option Plans") that are
outstanding immediately prior to the acceptance for payment of shares of Common
Stock pursuant to the Offer shall be acquired by the Company at the Effective
Time for a cash payment by the Company of an amount equal to (i) the excess, if
any, of (A) the Merger Consideration over (B) the exercise price per share of
Common Stock subject to such Option, multiplied by (ii) the number of shares of
Common Stock for which such Option shall not theretofore have been exercised.
The Company represents and warrants that no consents of the holders of Options
are necessary to effectuate the foregoing cash-out. Either prior to or as soon
as practicable following the
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consummation of the Offer, the Board of Directors (or if appropriate, any
committee administering the Stock Option Plans) shall adopt such resolution or
take other such actions as are required to cause any Option that is not
exercisable as of the date hereof, to become exercisable at the Effective Time.
All amounts payable pursuant to this Section 5.2(d) shall be subject to any
required withholding of taxes and shall be paid without interest. In addition,
any amounts payable pursuant to this Section 5.2(d) to any current or former
director, officer or employee who has a loan outstanding from the Company shall
be reduced by the principal amount and interest due with respect to such loan as
of the Effective Time. The balance of any such loan still outstanding, if any,
after giving effect to the foregoing, shall remain due and payable in accordance
with the terms of such loan as in effect on the date hereof. The Stock Option
Plans shall terminate as of the Effective Time, and the provisions in any other
Company Benefit Plans (as defined in Section 6.11) providing for the issuance,
transfer or grant of any capital stock of the Company or any interest in respect
of any capital stock of the Company shall be deleted as of the Effective Time,
and the Company shall ensure that following the Effective Time, no holder of an
Option or any participant in any Stock Option Plan or other Company Benefit Plan
shall have any right thereunder to acquire any capital stock of the Company or
of the Surviving Corporation. As of the date hereof, no Options have been issued
pursuant to the Company's 1997 Stock Option Plan for Non-Employee Directors (the
"Non-Employee Directors Plan") and the Company hereby agrees that no Options
shall be issued pursuant to such plan prior to the Effective Time. The Company
represents and warrants that each director of the Company otherwise entitled to
receive Options pursuant to the Non-Employee Directors Plan has waived in
writing his or her right to receive such Options.
5.3. Exchange of Certificates Representing Common Stock.
(a) Prior to the Effective Time, Purchaser shall appoint a commercial
bank or trust company having net capital of not less than $20 million, or such
other party reasonably satisfactory to the Company, to act as paying agent
hereunder for payment of the Merger Consideration upon surrender of Certificates
(the "Paying Agent"). Purchaser shall cause the Surviving Corporation to provide
the Paying Agent with cash in amounts necessary to pay for all the shares of
Common Stock pursuant to Section 5.2(a) and, in connection with the Options,
pursuant to Section 5.2(d), as and when such amounts are needed by the Paying
Agent. Such amounts shall hereinafter be referred to as the "Exchange Fund."
(b) Promptly after the Effective Time, Purchaser shall cause the
Paying Agent to mail to each holder of record of shares of Common Stock (i) a
letter of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to such Certificates shall pass, only upon delivery of
the Certificates to the Paying Agent and which letter shall be in such form and
have such other provisions as Purchaser may reasonably specify and (ii)
instructions for effecting the surrender of such Certificates in exchange for
the Merger Consideration. Upon surrender of a Certificate to the Paying Agent
together with such letter of transmittal, duly executed and
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<PAGE> 14
completed in accordance with the instructions thereto, and such other documents
as may reasonably be required by the Paying Agent, the holder of such
Certificate shall promptly receive in exchange therefor the amount of cash into
which shares of Common Stock theretofore represented by such Certificate shall
have been converted pursuant to Section 5.2, and the shares represented by the
Certificate so surrendered shall forthwith be cancelled. No interest will be
paid or will accrue on the cash payable upon surrender of any Certificate. In
the event of a transfer of ownership of Common Stock which is not registered in
the transfer records of the Company, payment may be made with respect to such
Common Stock to such a transferee if the Certificate representing such shares of
Common Stock is presented to the Paying Agent, accompanied by all documents
reasonably required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid.
(c) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
cancelled and exchanged as provided in this Article 5.
(d) Any portion of the Exchange Fund (including the proceeds of any
interest and other income received by the Paying Agent in respect of all such
funds) that remains unclaimed by the former stockholders of the Company six
months after the Effective Time shall be delivered to the Surviving Corporation.
Any former stockholders of the Company who have not theretofore complied with
this Article 5 shall thereafter look only to the Surviving Corporation for
payment of any Merger Consideration that may be payable in respect of each share
of Common Stock such stockholder holds as determined pursuant to this Agreement,
without any interest thereon.
(e) None of Purchaser, the Company, the Surviving Corporation, the
Paying Agent or any other person shall be liable to any former holder of shares
of Common Stock for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(f) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by the Surviving Corporation,
the posting by such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Paying Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration payable in
respect thereof pursuant to this Agreement.
(g) Except as otherwise provided herein, Purchaser shall pay all
charges and expenses, including those of the Paying Agent, in connection with
the exchange of the Merger Consideration for Certificates.
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5.4. Adjustment of Merger Consideration. If, subsequent to the date of
this Agreement but prior to the Effective Time, the outstanding shares of Common
Stock shall have been changed into a different number of shares or a different
class as a result of a stock split, reverse stock split, stock dividend,
subdivision, reclassification, split, combination, exchange, recapitalization or
other similar transaction, the Merger Consideration shall be appropriately
adjusted.
5.5. Dissenting Company Stockholders. Notwithstanding any provision of
this Agreement to the contrary, if required by the DGCL but only to the extent
required thereby, shares of Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by holders of such
shares of Common Stock who have properly exercised appraisal rights with respect
thereto in accordance with Section 262 of the DGCL (the "Dissenting Common
Stock") will not be exchangeable for the right to receive the Merger
Consideration, and holders of such shares of Dissenting Common Stock will be
entitled to receive payment of the appraised value of such shares of Common
Stock in accordance with the provisions of such Section 262 unless and until
such holders fail to perfect or effectively withdraw or lose their rights to
appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such right, such
shares of Common Stock will thereupon be treated as if they had been converted
into and to have become exchangeable for, at the Effective Time, the right to
receive the Merger Consideration, without any interest thereon. The Company will
give Purchaser prompt notice of any demands received by the Company for
appraisals of shares of Common Stock. The Company shall not, except with the
prior written consent of Purchaser, make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
5.6. Merger Without Meeting of Stockholders. Notwithstanding the
foregoing, if Merger Sub, or any other direct or indirect subsidiary of
Purchaser, shall acquire at least 90 percent of the outstanding shares of Common
Stock, the parties hereto shall take all necessary and appropriate action to
cause the Merger to become effective as soon as practicable after the expiration
of the Offer without a meeting of stockholders of the Company, in accordance
with Section 253 of the DGCL.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections of the disclosure
letter, dated the date hereof, delivered by the Company to Purchaser (the
"Disclosure Letter"), the Company hereby represents and warrants to Purchaser
and Merger Sub as follows:
6.1. Existence; Good Standing; Corporate Authority. Each of the Company and
its Subsidiaries (as defined in Section 11.8) is (i) a corporation duly
incorporated,
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validly existing and in good standing under the laws of its jurisdiction of
incorporation and (ii) is duly licensed or qualified to do business as a foreign
corporation and is in good standing under the laws of any other state of the
United States or the laws of any foreign jurisdiction, if applicable, in which
the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary, except where the
failure to be so qualified or to be in good standing, individually or in the
aggregate, would not have a material adverse effect on the business, results of
operations or financial condition of the Company and its Subsidiaries, taken as
a whole, or the ability of the Company and its Subsidiaries to conduct their
business after the Closing consistent with the manner currently conducted (a
"Material Adverse Effect"); provided, however, that a Material Adverse Effect
shall not include any material adverse effect resulting from work stoppages in
the U.S. auto industry or any material adverse effect arising from any
threatened or actual termination or modification of the business relationships
of the Company or any of its Subsidiaries with any of their customers or
suppliers that commences after the public announcement of the transactions
contemplated hereby. To the knowledge of the Company, as of the date hereof
there is no such change in relations with any such customers or suppliers
pending or threatened. Each of the Company and its Subsidiaries has all
requisite corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted. The Company has heretofore delivered
to Purchaser true and correct copies of the Certificate of Incorporation and
Bylaws of the Company and each of its Subsidiaries as currently in effect.
6.2. Authorization, Validity and Effect of Agreements. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby or executed in
connection herewith (the "Ancillary Documents") and subject, if required with
respect to the consummation of the Merger, to the approval of holders of at
least a majority of the outstanding shares of Class A Common Stock, to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Ancillary Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly and validly authorized by the Board of Directors, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and the Ancillary Documents or to consummate the transactions
contemplated hereby and thereby (other than the approval of this Agreement by
the holders of a majority of the shares of Common Stock if required by
applicable law). This Agreement has been, and any Ancillary Document at the time
of execution will have been, duly and validly executed and delivered by the
Company, and (assuming this Agreement and such Ancillary Documents each
constitutes a valid and binding obligation of Purchaser and Merger Sub)
constitutes and will constitute the valid and binding obligations of the
Company, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
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6.3. Compliance with Laws. Except as set forth in the Disclosure
Letter, neither the Company nor any of its Subsidiaries is in violation of any
foreign, federal, state or local law, statute, ordinance, rule, regulation,
order, judgment, ruling or decree ("Laws") of any foreign, federal, state or
local judicial, legislative, executive, administrative or regulatory body or
authority or any court, arbitration, board or tribunal ("Governmental Entity")
applicable to the Company or any of its Subsidiaries or any of their respective
properties or assets, except for violations which, individually or in the
aggregate, would not have a Material Adverse Effect.
6.4. Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Class A Common Stock, 5,000,000 shares of Class
B Common Stock and 5,000,000 shares of preferred stock, $.001 par value
("Preferred Stock"). As of April 28, 1997, (a) 7,548,416 shares of Class A
Common Stock were issued and outstanding, (b) 2,543,381 shares of Class B Common
Stock were issued and outstanding, (c) no shares of Preferred Stock were issued
and outstanding, (d) Options to purchase an aggregate of 330,300 shares of
Common Stock were outstanding, 474,505 shares of Common Stock were reserved for
issuance upon the exercise of such outstanding Options, 144,205 shares of Common
Stock were reserved for future grants under the Stock Option Plans and no stock
appreciation rights or limited stock appreciation rights were outstanding other
than those attached to such Options, (e) 33,400 shares of Class A Common Stock
were held by the Company in its treasury, and (f) no shares of capital stock of
the Company were held by the Company's Subsidiaries. The Company has no
outstanding bonds, debentures, notes or other obligations entitling the holders
thereof to vote (or which are convertible into or exercisable for securities
having the right to vote) with the stockholders of the Company on any matter.
Since April 28, 1997, the Company (i) has not issued any shares of Common Stock
other than upon the exercise of Options, (ii) has granted no Options to purchase
shares of Common Stock under the Stock Option Plans and (iii) has not split,
combined, converted or reclassified any of its shares of capital stock. All
issued and outstanding shares of Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. Except as set
forth in this Section 6.4 or in the Disclosure Letter, there are no other shares
of capital stock or voting securities of the Company, and no existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate the Company or any of its Subsidiaries
to issue, transfer or sell any shares of capital stock of, or equity interests
in, the Company or any of its Subsidiaries. Except as set forth in the
Disclosure Letter, there are no outstanding obligations of the Company or any
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company and there are no performance awards outstanding under the
Stock Option Plan or any other outstanding stock-related awards. After the
Effective Time, the Surviving Corporation will have no obligation to issue,
transfer or sell any shares of capital stock of the Company or the Surviving
Corporation pursuant to any Company Benefit Plan (as defined in Section 6.11).
Except as set forth in the Disclosure Letter, there are no voting trusts or
other agreements or understandings to which the Company
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or any of its Subsidiaries or any of the Company's directors or officers is a
party with respect to the voting of capital stock of the Company or any of its
Subsidiaries.
6.5. Subsidiaries. Except as set forth in the Disclosure Letter, (i)
the Company owns, directly or indirectly through a Subsidiary, all of the
outstanding shares of capital stock (or other ownership interests having by
their terms ordinary voting power to elect directors or others performing
similar functions with respect to such Subsidiary) of each of the Company's
Subsidiaries, and (ii) each of the outstanding shares of capital stock (or other
ownership interests having by their terms ordinary voting power to elect
directors or others performing similar functions with respect to such
Subsidiary) of each of the Company's Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable, and is owned, directly or indirectly, by
the Company free and clear of all liens, pledges, security interests, claims or
other encumbrances ("Encumbrances"). The Disclosure Letter sets forth for each
Subsidiary of the Company: (i) its name and jurisdiction of incorporation or
organization; (ii) its authorized capital stock or share capital; (iii) the
number of issued and outstanding shares of capital stock or share capital; and
(iv) the holder or holders of such shares. Except for interests in the Company's
Subsidiaries or as set forth in the Disclosure Letter, neither the Company nor
any of its Subsidiaries owns directly or indirectly any interest or investment
(whether equity or debt) in any corporation, partnership, joint venture,
business, trust or other entity.
6.6. No Violation. Except as set forth in the Disclosure Letter,
neither the execution and delivery by the Company of this Agreement or any of
the Ancillary Documents nor the consummation by the Company of the transactions
contemplated hereby or thereby will: (i) violate, conflict with or result in a
breach of any provisions of the Certificate of Incorporation or Bylaws of the
Company; (ii) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, result in the termination or in a right of
termination of, accelerate the performance required by or benefit obtainable
under, result in the triggering of any payment, penalty or other obligations
pursuant to, result in the creation of any Encumbrance upon any of the
properties of the Company or its Subsidiaries under, or result in there being
declared void, voidable, or without further binding effect, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust
or any license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which the Company or any of its
Subsidiaries is a party, or by which the Company or any of its Subsidiaries or
any of their respective properties is bound (each, a "Contract" and,
collectively, "Contracts"), except for any such breach, default or right with
respect to which requisite waivers or consents have been obtained or any of the
foregoing matters which individually or in the aggregate would not have a
Material Adverse Effect; (iii) require any consent, approval or authorization
of, license, permit or waiver by, or declaration, filing or registration
(collectively, "Consents") with, any Governmental Entity, including any such
Consent under the Laws of any foreign jurisdiction, other than (x) the filings
provided for in Section 2.3 and the filings required under the Exchange Act and
the Securities Act of
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1933, as amended (the "Securities Act"), and (y) the filing required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the filing
required under the Exon-Florio Amendment to the Defense Production Act of 1950
("Exon-Florio Amendment"), and any Consents required or permitted to be obtained
pursuant to the Laws of any foreign jurisdiction relating to antitrust matters
or competition ("Foreign Antitrust Laws") (collectively, "Other Antitrust
Filings and Consents," and, together with the other filings described in clauses
(x) and (y) above, "Regulatory Filings"), except for those Consents the failure
of which to obtain or make individually or in the aggregate would not have a
Material Adverse Effect or prevent or delay the consummation of the transactions
contemplated hereby; or (iv) violate any Laws applicable to the Company, any of
its Subsidiaries or any of their respective assets, except for violations which
individually or in the aggregate would not have a Material Adverse Effect or
adversely affect the ability of the Company to consummate the transactions
contemplated hereby.
6.7. Company Reports; Offer Documents.
(a) The Company has delivered or otherwise made available to
Purchaser each registration statement, report, proxy statement or information
statement (as defined under the Exchange Act) prepared by it since October 1,
1994, each in the form (including exhibits and any amendments thereto) filed
with the SEC (collectively, the "Company Reports"). As of their respective
dates, the Company Reports (i) complied as to form in all material respects with
the applicable requirements of the Securities Act, the Exchange Act, and the
rules and regulations thereunder and (ii) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of the Company, Krebsoge Sinterholding GmbH
("Krebsoge") and Powder Metal Holding, Inc. ("Powder Metal") included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presents the consolidated financial position of the
Company and its Subsidiaries, Krebsoge and its Subsidiaries, and Powder Metal
and its Subsidiaries, respectively, as of its respective date, and each of the
consolidated statements of income, retained earnings and cash flows of the
Company, Krebsoge and Powder Metal, respectively, included in or incorporated by
reference into the Company Reports (including any related notes and schedules)
fairly presents the results of operations, retained earnings or cash flows, as
the case may be, of the Company and its Subsidiaries, Krebsoge and its
Subsidiaries, and Powder Metal and its Subsidiaries, respectively, for the
periods set forth therein, in the case of the Company and Powder Metal, in
accordance with United States generally accepted accounting principles, and, in
the case of Krebsoge, in accordance with German generally accepted accounting
principles, in each case consistently applied during the periods involved,
except as may be noted therein. The unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1996, included in the
Company Reports, is based on assumptions that provide a reasonable basis for
presenting the significant effects directly attributable to the transactions
reflected therein, the related pro forma adjustments give appropriate effect to
such assumptions and the pro forma
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column reflects the proper application of such adjustments to the respective
historical financial statement amounts. Except as set forth in the Disclosure
Letter, neither the Company nor any of its Subsidiaries has any liabilities or
obligations, contingent or otherwise, except (i) liabilities and obligations in
the respective amounts reflected or reserved against in the Company's
consolidated balance sheet as of December 31, 1996, Krebsoge's consolidated
balance sheet as of December 19, 1996 and Powder Metal's consolidated balance
sheet as of November 22, 1996, in each case included in the Company Reports
(collectively, the "1996 Balance Sheet") or (ii) liabilities and obligations
incurred in the ordinary course of business by each such company since the
respective balance sheet date which individually or in the aggregate would not
have a Material Adverse Effect.
(b) None of the Schedule 14D-9, the information statement, if any,
filed by the Company in connection with the Offer pursuant to Rule 14f-1 under
the Exchange Act (the "Information Statement"), any schedule required to be
filed by the Company with the SEC or any amendment or supplement thereto, at the
respective times such documents are filed with the SEC or first published, sent
or given to the Company's stockholders, will contain any untrue statement of a
material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading except that no
representation is made by the Company with respect to information supplied by
Purchaser or Merger Sub specifically for inclusion in the Schedule 14D-9 or
Information Statement or any amendment or supplement. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in the Offer Documents will, at the date of filing with the SEC,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time prior to the Effective Time the Company shall obtain
knowledge of any facts with respect to itself, any of its officers and directors
or any of its Subsidiaries that would require the supplement or amendment to any
of the foregoing documents in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or to comply
with applicable Laws, such amendment or supplement shall be promptly filed with
the SEC and, as required by Law, disseminated to the stockholders of the
Company, and in the event Purchaser shall advise the Company as to its obtaining
knowledge of any facts that would make it necessary to supplement or amend any
of the foregoing documents, the Company shall promptly amend or supplement such
document as required and distribute the same to its stockholders.
6.8. Litigation. Except as set forth in the Disclosure Letter, (i)
there are no claims, actions, suits, proceedings, arbitrations, investigations
or audits (collectively, "Litigation") by a Governmental Entity pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries, at law or in equity, other than those in the ordinary course of
business which individually or in the aggregate
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would not have a Material Adverse Effect, (ii) there are no claims, actions,
suits, proceedings or arbitrations by a third party other than a Governmental
Entity pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, at law or at equity other than those in the
ordinary course of business which individually or in the aggregate would not
have a Material Adverse Effect, and (iii) there are no claims, actions, suits,
proceedings or arbitrations pending by the Company against a third party at law
or in equity and the Company does not currently intend to initiate any such
matters against a third party. Except as set forth in the Disclosure Letter, no
Governmental Entity has indicated an intention to conduct any audit,
investigation or other review with respect to the Company or any of its
Subsidiaries which investigation or review, if adversely determined,
individually or in the aggregate would have a Material Adverse Effect. Except as
set forth in the Disclosure Letter, since January 1, 1995, there has not been
any product recall or post-sale warning by the Company or any of its
Subsidiaries or any of their customers concerning any products manufactured,
shipped, sold, marketed, distributed, processed or merchandised by the Company
or any of its Subsidiaries.
6.9. Absence of Certain Changes. Except as set forth in the
Disclosure Letter, since December 31, 1996, the Company and its Subsidiaries
have conducted their business only in the ordinary course of such business
consistent with past practices, and there has not been (i) any events or states
of fact which individually or in the aggregate would have a Material Adverse
Effect; (ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock; (iii) any repurchase, redemption
or any other acquisition by the Company or its Subsidiaries of any outstanding
shares of capital stock or other securities of, or other ownership interests in,
the Company or its Subsidiaries; (iv) any material change in accounting
principles, practices or methods; (v) any entry into any employment agreement
with, or any increase in the rate or terms (including, without limitation, any
acceleration of the right to receive payment) of compensation payable or to
become payable by the Company or any of its Subsidiaries to, their respective
directors, officers or employees, except for increases occurring in the ordinary
course of business in accordance with their customary practices which do not
exceed $500,000, in the aggregate, annually and employment agreements entered
into in the ordinary course of business which do not provide for annual
compensation which exceeds $100,000, in the aggregate; (vi) any increase in the
rate or terms (including, without limitation, any acceleration of the right to
receive payment) of any bonus, insurance, pension or other employee benefit plan
or arrangement covering any such directors, officers or employees, except
increases occurring in the ordinary course of business in accordance with its
customary practices which do not exceed $1,000,000 in the aggregate; (vii) any
entry into any Contract or transaction by the Company or any Subsidiary or
modification of any existing Contract which is material to the Company and its
Subsidiaries taken as a whole whether or not in the ordinary course of business;
(viii) any revaluation by the Company or any of its Subsidiaries of any of their
respective assets, including, without limitation, write-downs of inventory or
write-offs of accounts receivable other than in the ordinary course of business
consistent with past practices; or (ix) any action by the
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Company which if taken after the date hereof would constitute a breach of
clauses (viii), (xii), (xiii), (xiv), (xvii), (xix), (xxii) or (xxiii) of
Section 8.2(b) hereof. The Company does not know of any events or states of
facts with respect to the Krebsoge Joint Ventures (as defined in Section 11.8)
which individually or in the aggregate would have a Material Adverse Effect.
6.10. Taxes. Except as set forth in the Disclosure Letter, the
Company and each of its Subsidiaries have timely filed all material Tax Returns
required to be filed by any of them. All such Tax Returns are true, correct and
complete, except for such instances which individually or in the aggregate would
not have a Material Adverse Effect. All Taxes of the Company and its
Subsidiaries which are (i) shown as due on such Returns, (ii) otherwise due and
payable or (iii) claimed or asserted by any taxing authority to be due, have
been paid, except for those Taxes being contested in good faith and for which
adequate reserves have been established in the financial statements included in
the Company Reports in accordance with generally accepted accounting principles.
The Company does not know of any proposed or threatened Tax claims or
assessments which, if upheld, would individually or in the aggregate have a
Material Adverse Effect. Except as set forth in the Disclosure Letter, the
Company and each Subsidiary have withheld and paid over to the relevant taxing
authority all Taxes required to have been withheld and paid in connection with
payments to employees, independent contractors, creditors, stockholders or other
third parties, except for such Taxes which individually or in the aggregate
would not have a Material Adverse Effect. For purposes of this Agreement, (a)
"Tax" (and, with correlative meaning, "Taxes") means any federal, state, local
or foreign income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, premium, withholding, alternative or added
minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, imposed by any Governmental Entity, and
(b) "Tax Return" means any return, report or similar statement required to be
filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
6.11. Employee Benefit Plans. All material employee benefit plans
covering employees of the Company or any of its Subsidiaries (the "Company
Benefit Plans") and all employee agreements providing compensation, severance or
other benefits to any current or former executive employee of the Company or any
of its Subsidiaries are set forth in the Disclosure Letter. To the extent
applicable, the Company Benefit Plans comply with the requirements of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the
Internal Revenue Code of 1986, as amended (the "Code"), and any other applicable
Law, except for such noncompliance which individually or in the aggregate would
not have a Material Adverse Effect. Except as set forth on the Disclosure
Letter, each Company Benefit Plan intended to be qualified under Section 401(a)
of the Code has received a determination letter and continues to satisfy the
requirements for such qualification (other than such noncompliance which can be
corrected without material liability to the
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Company). With respect to each benefit plan maintained or contributed to by the
Company, any of its Subsidiaries or any ERISA Affiliate (as hereinafter defined)
of the Company which is covered by Title IV of ERISA or Section 412 of the Code
(i) there is no accumulated funding deficiency relating to the plan, (ii) no
reportable event (within the meaning of Section 4043 of ERISA) has occurred that
presents a material risk of liability to the Company arising under Tittle IV of
ERISA and (iii) the Company Reports fairly reflect the funded status of such
plans (including the book reserves relating thereto) and nothing has occurred
since December 31, 1996 with respect to such funded status that would have a
Material Adverse Effect. No Company Benefit Plan nor the Company nor any
Subsidiary has incurred any liability or penalty under Section 4975 of the Code
or Section 502(i) of ERISA or has engaged in any transaction that is reasonably
likely to result in any such liability or penalty, in each case that would have
a Material Adverse Effect. There is no pending or, to the knowledge of the
Company, anticipated Litigation against or otherwise involving any of the
Company Benefit Plans and no Litigation (excluding claims for benefits incurred
in the ordinary course of Company Benefit Plan activities) has been brought
against or with respect to any such Company Benefit Plan, except for any of the
foregoing which individually or in the aggregate would not have a Material
Adverse Effect. All contributions required to be made as of the date hereof to
the Company Benefit Plans have been made or provided for, except for any such
contribution that, if not made or provided for, would not have a Material
Adverse Effect. Except as described in the Company Reports or as required by
Law, neither the Company nor any of its Subsidiaries maintains or contributes to
any plan or arrangement which provides or has any material liability to provide
life insurance or medical or other employee welfare benefits to any employee or
former employee upon his retirement or termination of employment, and neither
the Company nor any of its Subsidiaries has ever represented, promised or
contracted (whether in oral or written form) to any employee or former employee
that such benefits would be provided. Except as set forth in the Disclosure
Letter, the execution of, and performance of the transactions contemplated in,
this Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any benefit plan, policy,
arrangement or agreement or any trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee. Except as set forth in the Disclosure
Letter no payment or benefit which will or may be made by the Company, any of
its Subsidiaries, any ERISA Affiliate or Purchaser or Merger Sub with respect to
any employee will constitute an "excess parachute payment" within the meaning of
Section 280G(b)(1) of the Code.
For purposes of this Agreement, "ERISA Affiliate" means any business
or entity which is a member of the same "controlled group of corporations,"
under "common control" or an "affiliated service group" with an entity within
the meanings of Section 414(b), (c) or (m) of the Code, or required to be
aggregated with the entity under Section 414(o) of the Code, or is under "common
control" with the entity, within
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the meaning of Section 4001(a)(14) of ERISA, or any regulations promulgated or
proposed under any of the foregoing Sections.
6.12. Labor and Employment Matters. Except as set forth in the
Disclosure Letter, neither the Company nor any of its Subsidiaries is a party
to, or bound by, any collective bargaining agreement or other Contract or
understanding with a labor union or labor organization, and, except for such
matters which individually or in the aggregate would not have a Material Adverse
Effect, there is no (i) unfair labor practice, labor dispute (other than routine
individual grievances) or labor arbitration proceeding pending or, to the
knowledge of the Company, threatened against the Company or its Subsidiaries,
(ii) to the knowledge of the Company, activity or proceeding by a labor union or
representative thereof to organize any employees of the Company or any of its
Subsidiaries, or (iii) lockouts, strikes, slowdowns, work stoppages or threats
thereof by or with respect to such employees.
6.13. Brokers. The Company has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Purchaser or the Company to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby, except that the Company has retained Morgan Stanley & Co. Incorporated
as the Financial Advisor, the arrangements with which have been disclosed in
writing to Purchaser prior to the date hereof.
6.14. Licenses and Permits. Except as set forth in the Disclosure
Letter, the Company and its Subsidiaries have all necessary licenses, permits,
certificates, approvals and authorizations (collectively, "Permits") required to
lawfully conduct their respective businesses as presently conducted, except for
those Permits the lack of which individually or in the aggregate would not have
a Material Adverse Effect, and (a) no Permit is subject to revocation or
forfeiture by virtue of any existing circumstances, (b) there is no Litigation
pending or, to the knowledge of the Company, threatened to modify or revoke any
Permit, and (c) no Permit is subject to any outstanding order, decree, judgment,
stipulation or investigation that would be likely to affect such Permit, where
the effect of the foregoing individually or in the aggregate would have a
Material Adverse Effect.
6.15. Environmental Compliance and Disclosure. (a) To the knowledge
of the Company, except as set forth in the Disclosure Letter or except for any
matters which individually or in the aggregate would not have a Material Adverse
Effect, (i) the Company and each of its Subsidiaries is in full compliance with
all applicable Laws in effect on or prior to the date hereof relating to
Environmental Matters (as defined below), (ii) the Company and each of its
Subsidiaries has obtained, and is in full compliance with, all Permits required
by applicable Laws for the use, storage, treatment, transportation, release,
emission and disposal of raw materials, by-products, wastes and other substances
used or produced by or otherwise relating to the
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operations of any of them, (iii) there are no underground storage tanks on or
under any property owned or leased by the Company or any of its Subsidiaries,
(iv) there are no polychlorinated biphenyls, asbestos or asbestos-containing
materials present at any property owned or leased by the Company or any of its
Subsidiaries and (v) there are no past or present events, conditions, activities
or practices that would prevent compliance or continued compliance by the
Company and each of its Subsidiaries with any Law or give rise to any
Environmental Liability (as defined below). The Company has provided Purchaser
with true and correct copies of all environmental reports relating to the
Company or any of its Subsidiaries or any of their assets.
(b) As used in this Agreement, the term "Environmental Matters"
means any matter arising out of or relating to pollution or protection of the
environment or human safety or health, including matters relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes including petroleum and its
fractions, radiation, gases, biohazards and all toxic substances and agents of
whatever type or nature into ambient air, surface water, ground water, or land,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
chemicals or toxic substances and or hazardous substances or wastes including
petroleum and its fractions, radiation, gases, biohazards and all toxic
substances and agents of whatever type or nature. "Environmental Liability"
shall mean any liability or obligation arising under any Law, including common
law or contractual indemnity obligations, that results from, or is based upon or
related to, the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release, or
threatened release into the environment, of any pollutant, contaminant, chemical
or toxic or hazardous substance or waste.
6.16. Title to Assets. Except as set forth in the 1996 Balance
Sheet, the Company and each of its Subsidiaries has good title to all of its
real and personal properties and assets reflected on the 1996 Balance Sheet and
material to its business (other than assets disposed of since December 31, 1996
in the ordinary course of business consistent with past practice) or acquired
since December 31, 1996, in each case free and clear of all Encumbrances except
for (i) Encumbrances which secure indebtedness which is properly reflected in
the 1996 Balance Sheet; (ii) liens for Taxes accrued but not yet payable; (iii)
liens arising as a matter of law in the ordinary course of business with respect
to obligations incurred after the date of the 1996 Balance Sheet, provided that
the obligations secured by such liens are not delinquent; and (iv) such
imperfections of title and Encumbrances, if any, as individually or in the
aggregate would not have a Material Adverse Effect. Except as set forth in the
Disclosure Letter, the Company and each of its Subsidiaries either own, or have
valid leasehold interests in, all properties and assets used by them in the
conduct of their business except where the absence of such ownership or
leasehold interest would not individually or in the aggregate have a Material
Adverse Effect.
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6.17. Material Contracts. The Disclosure Letter sets forth a list of
all (i) Contracts for borrowed money or guarantees thereof, (ii) Contracts to
acquire or dispose of any businesses or any material assets, (iii) Contracts
involving any swap or option transaction relating to commodities, interest
rates, foreign exchange, or currency or other similar transactions customarily
known as a derivative ("Derivatives"); (iv) Contracts containing an agreement by
the Company or any Subsidiary restricting its ability to engage in any line of
business or other activity; (v) Contracts entered into by the Company, any of
its Subsidiaries or their respective predecessors since December 1, 1991
involving the purchase, sale or other acquisition or disposition by such parties
of one or more business units, divisions or entities (including former
Subsidiaries) with respect to which the Company's or any of its Subsidiary's
surviving liability (including indemnities), or other obligations (including
deferred payment and earn-out obligations), could reasonably be expected to
exceed $1,000,000, or which require funds to be held in trust or escrow for the
benefit of a third party; (vi) Contracts involving the investment, including by
way of capital contribution, loan or advance, by the Company or any of its
Subsidiaries of more than $3,000,000 in any other person, firm or entity; (vii)
Contracts to purchase powder metals or atmospheres that are material to the
Company and its Subsidiaries and (viii) other Contracts which involve the
payment or receipt of $5,000,000 or more per year. All Contracts to which the
Company or any of its Subsidiaries is a party or by which any of their
respective assets is bound are valid and binding, in full force and effect and
enforceable against the Company or any of its Subsidiaries, as the case may be,
and, to the knowledge of the Company, the other parties thereto in accordance
with their respective terms, subject to applicable bankruptcy, insolvency or
other similar laws relating to creditors' rights and general principles of
equity, except where the failure to be so valid and binding, in full force and
effect or enforceable would not individually or in the aggregate have a Material
Adverse Effect. There is not under any such Contract, any existing default, or
event, which after notice or lapse of time, or both, would constitute a default,
by the Company or any of its Subsidiaries, or to the Company's knowledge, any
other party, other than any such defaults or event which, individually or in the
aggregate, would not have a Material Adverse Effect.
6.18. Required Vote of Company Stockholders. Unless the Merger may
be consummated in accordance with Section 253 of the DGCL, the only vote of the
stockholders of the Company required to adopt this Agreement and approve the
Merger is the affirmative vote of the holders of a majority of the outstanding
shares of Class A Common Stock.
6.19. Intellectual Property Rights. Except as disclosed in the
Disclosure Letter, (i) the Company and its Subsidiaries each owns or has the
right to use pursuant to license, sublicense, agreement or permission all of its
Intellectual Property (as defined below) except where the absence of any
thereof, individually or in the aggregate, would not have a Material Adverse
Effect, and (ii) to the knowledge of the Company, neither the Company nor any of
its Subsidiaries has interfered with, infringed upon or misappropriated any
Intellectual Property rights of third parties which
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interference, infringement or misappropriation individually or in the aggregate
would have a Material Adverse Effect. "Intellectual Property" means all patents,
patent applications, know how, trademarks, service marks, logos, trade names and
corporate names, copyrights, computer software, management information systems
and other intellectual property and proprietary rights.
6.20. Insurance Policies. The Company and each of its Subsidiaries
maintain in force insurance policies and bonds in such amounts and against such
liabilities and hazards as are consistent with industry practice. A complete
list of all material insurance policies is set forth in the Disclosure Letter.
Except as set forth in the Disclosure Letter, neither the Company nor any of its
Subsidiaries is now liable, nor will any of them become liable, for any
retroactive premium adjustment not reflected in the 1996 Balance Sheet or
otherwise provided for as set forth in such Schedule. All policies are valid and
enforceable and in full force and effect, all premiums owing in respect thereof
have been timely paid, and neither the Company nor any of its Subsidiaries has
received any notice of any premium increase or cancellation with respect to any
of its insurance policies or bonds. Except as set forth in the Disclosure
Letter, and except for any matters which individually or in the aggregate would
not have a Material Adverse Effect, there are no claims pending as to which the
insurer has denied liability or is reserving its rights, and all claims have
been timely and properly filed. Within the last three years, neither the Company
nor any of its Subsidiaries has been refused any insurance coverage sought or
applied for, and the Company has no reason to believe that their existing
insurance coverage cannot be renewed as and when the same shall expire, upon
terms and conditions standard in the market at the time renewal is sought.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Purchaser and Merger Sub hereby represent and warrant to the Company
as follows:
7.1. Existence; Good Standing; Corporate Authority. Each of
Purchaser and Merger Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted, except where the failure
to have such power and authority individually or in the aggregate would not
materially adversely affect the ability of Purchaser or Merger Sub to consummate
the transactions contemplated by this Agreement.
7.2. Authorization, Validity and Effect of Agreements. Each of
Purchaser and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and the Ancillary Documents and to consummate
the
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transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Ancillary Documents and the consummation by Purchaser and
Merger Sub of the transactions contemplated hereby and thereby have been duly
and validly authorized by the respective Boards of Directors of Purchaser and
Merger Sub and by Purchaser as the sole stockholder of Merger Sub and no other
corporate proceedings on the part of Purchaser or Merger Sub are necessary to
authorize this Agreement and the Ancillary Documents or to consummate the
transactions contemplated hereby and thereby. This Agreement has been, and any
Ancillary Documents at the time of execution will have been, duly and validly
executed and delivered by Purchaser and Merger Sub, and (assuming this Agreement
and such Ancillary Documents each constitutes a valid and binding obligation of
the Company) constitutes and will constitute the valid and binding obligations
of each of Purchaser and Merger Sub, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
7.3. Offer Documents. None of the Offer Documents, any schedule
required to be filed by Purchaser or Merger Sub with the SEC or any amendment or
supplement will contain, on the date of filing with the SEC, any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by Purchaser or Merger Sub with respect to
information supplied by the Company specifically for inclusion in the Offer
Documents, any schedule required to be filed with the SEC or any amendment or
supplement. None of the information supplied by Purchaser or Merger Sub in
writing specifically for inclusion or incorporation by reference in the Schedule
14D-9 will, at the date of filing with the SEC, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time prior
to the Effective Time either Purchaser or Merger Sub shall obtain knowledge of
any facts with respect to itself, any of its officers and directors or any of
its Subsidiaries that would require the supplement or amendment to any of the
foregoing documents in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or to comply with
applicable Laws, such amendment or supplement shall be promptly filed with the
SEC and, as required by Law, disseminated to the stockholders of the Company,
and in the event the Company shall advise Purchaser or Merger Sub as to its
obtaining knowledge of any facts that would make it necessary to supplement or
amend any of the foregoing documents, Purchaser or Merger Sub shall promptly
amend or supplement such document as required and distribute the same to the
stockholders of the Company.
7.4. No Violation. Neither the execution and delivery of this
Agreement or any of the Ancillary Documents by Purchaser and Merger Sub nor the
consummation by them of the transactions contemplated hereby or thereby will
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(i) violate, conflict with or result in any breach of any provision of the
respective Certificates of Incorporation or By-Laws of Purchaser or Merger Sub;
(ii) violate, conflict with, result in a breach of any provision of, constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination or in a right of
termination of, accelerate the performance required by or benefit obtainable
under, result in the triggering of any payment or other obligations pursuant to,
result in the creation of any Encumbrance upon any of the properties of
Purchaser or Merger Sub under, or result in there being declared void, voidable,
or without further binding effect, any Contract to which Purchaser or Merger Sub
is a party, or by which Purchaser or Merger Sub or any of their respective
properties is bound, except for any such breach, default or right with respect
to which requisite waivers or consents have been obtained or any of the
foregoing matters which individually or in the aggregate would not have a
material adverse effect on the ability of Purchaser or Merger Sub to consummate
the transactions contemplated hereby; (iii) other than the Regulatory Filings,
require any Consent of any Governmental Entity, the lack of which individually
or in the aggregate would have a material adverse effect on the ability of
Purchaser or Merger Sub to consummate the transactions contemplated hereby; or
(iv) violate any Laws applicable to Purchaser or the Merger Sub or any of their
respective assets, except for violations which individually or in the aggregate
would not have a material adverse effect on the ability of Purchaser or Merger
Sub to consummate the transactions contemplated hereby;
7.5. Financing. On the date hereof, Purchaser has access to funds
sufficient to consummate the Offer and the Merger on the terms contemplated
hereby. At the consummation of the Offer and at the Effective Time, Purchaser
will have, and will cause Merger Sub to have, funds available to it sufficient
to consummate the Offer and the Merger on the terms contemplated hereby.
ARTICLE 8
COVENANTS
8.1. No Solicitation. Neither the Company nor any of its
Subsidiaries, nor any of their respective officers, directors, employees,
agents, affiliates or representatives (including, without limitation, any
investment banker, attorney or accountant retained by the Company or any of its
Subsidiaries) shall, directly or indirectly, solicit, initiate or participate
in, or knowingly encourage, in any way, any discussions or negotiations with, or
provide any information to, or afford any access to the properties, books or
records of the Company or any of its Subsidiaries to, or otherwise assist,
facilitate or knowingly encourage, any corporation, partnership, person or other
entity or group (other than Purchaser or any affiliate or associate of
Purchaser) with respect to any tender offer, merger, consolidation, business
combination, liquidation, reorganization, sale of significant assets, sale of
shares of capital stock or similar transactions involving the Company or any
Subsidiary or any division of any thereof (an "Alternative Proposal"), and shall
immediately cease and cause to be
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terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing; provided, however,
that nothing contained in this Section 8.1 shall prohibit the Company or its
Board of Directors from (i) complying with Rule 14d-9 or Rule 14e-2(a)
promulgated under the Exchange Act with regard to an Alternative Proposal or
(ii) prior to the acceptance for payment of shares of Common Stock by Merger Sub
pursuant to the Offer, providing information (pursuant to a confidentiality
agreement in reasonably customary form) to, or engaging in any negotiations or
discussions with, any person or entity who has made an unsolicited bona fide
Alternative Proposal which the Board of Directors in good faith determines,
after consultation with Jones, Day, Reavis & Pogue ("Outside Counsel"), that it
is required to consider in the exercise of its fiduciary duties to the Company's
stockholders imposed by law. The Company shall promptly notify Purchaser in
writing if any such information is requested from the Company, if any such
negotiations or discussions are sought to be initiated with the Company or if
any party makes an Alternative Proposal, including the identity of the person or
group requesting such information, proposing to engage in such negotiations or
discussions or making such Alternative Proposal, the material terms and
conditions of any Alternative Proposal and any subsequent developments with
respect thereto. The terms of any confidentiality agreement entered into between
the Company and a third party permitted by this Section 8.1 shall not be more
favorable to, or less restrictive on, such third party as the terms applicable
to GKN plc set forth in the letter agreement, dated as of April 28, 1997,
between the Company and GKN plc (the "Confidentiality Agreement") relating to
the confidential treatment of Information (as defined therein).
8.2. Interim Operations.
(a) From the date of this Agreement to the Effective Time, unless
Purchaser has consented in writing thereto, the Company shall, and shall cause
each of its Subsidiaries to, (i) conduct its operations according to its usual,
regular and ordinary course of business consistent with past practice; (ii) use
its reasonable best efforts to preserve intact their business organizations,
maintain in effect all existing qualifications, licenses, permits, approvals and
other authorizations referred to in Sections 6.1 and 6.14, keep available the
services of their officers and employees and maintain satisfactory relationships
with those persons having business relationships with them; (iii) promptly upon
the discovery thereof notify Purchaser of the existence of any breach of any
representation or warranty contained herein (or, in the case of any
representation or warranty that makes no reference to Material Adverse Effect,
any breach of such representation or warranty in any material respect) or the
occurrence of any event that would cause any representation or warranty
contained herein no longer to be true and correct (or, in the case of any
representation or warranty that makes no reference to Material Adverse Effect,
to no longer be true and correct in any material respect); and (iv) promptly
deliver to Purchaser true and correct copies of any report, statement or
schedule filed with the SEC subsequent to the date of this Agreement, any
internal monthly reports prepared for or delivered to the Board of Directors
after the
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date hereof and monthly financial statements for the Company and its
Subsidiaries for and as of each month end subsequent to the date of this
Agreement.
(b) From and after the date of this Agreement to the Effective Time,
unless Purchaser has consented in writing thereto, the Company shall not, and
shall not permit any of its Subsidiaries to, (i) amend its Certificate of
Incorporation or Bylaws or comparable governing instruments; (ii) issue, sell,
pledge or register for issuance or sale any shares of its capital stock or other
ownership interest in the Company (other than issuances of Common Stock in
respect of any exercise of Options outstanding on the date hereof and disclosed
in the Disclosure Letter) or any of the Subsidiaries, or any securities
convertible into or exchangeable for any such shares or ownership interest, or
any rights, warrants or options to acquire or with respect to any such shares of
capital stock, ownership interest, or convertible or exchangeable securities; or
accelerate any right to convert or exchange or acquire any securities of the
Company or any of its Subsidiaries for any such shares or ownership interest;
(iii) effect any stock split or conversion of any of its capital stock or
otherwise change its capitalization as it exists on the date hereof, other than
as set forth in this Agreement or contemplated by a Stockholder Agreement; (iv)
grant, confer or award any option, warrant, convertible security or other right
to acquire any shares of its capital stock or take any action, other than as set
forth in this Agreement, to cause to be exercisable any otherwise unexercisable
option under any existing stock option plan; (v) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any shares of
its capital stock or other ownership interests (other than such payments by a
wholly-owned Subsidiary); (vi) directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or capital stock of any of its
Subsidiaries; (vii) sell, lease or otherwise dispose of any of its assets
(including capital stock of Subsidiaries), except in the ordinary course of
business, none of which dispositions individually or in the aggregate will be
material; (viii) settle or compromise any pending or threatened Litigation,
other than settlements which involve solely the payment of money (without
admission of liability) not to exceed $250,000 in any one case; (ix) acquire by
merger, purchase or any other manner, any business or entity or otherwise
acquire any assets that are material, individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole, except for purchases of
inventory, supplies or capital equipment in the ordinary course of business
consistent with past practice; (x) incur or assume any long-term or short-term
debt, except for working capital purposes in the ordinary course of business
under the Company's existing credit agreement set forth in the Disclosure
Letter; (xi) assume, guarantee or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person except wholly owned Subsidiaries of the Company; (xii) make or forgive
any loans, advances or capital contributions to, or investments in, any other
person; (xiii) make any Tax election or settle any Tax liability; (xiv) waive or
amend any term or condition of any confidentiality or "standstill" agreement to
which the Company is a party; (xv) grant any stock related or performance
awards; (xvi) enter into any new employment, severance, consulting or salary
continuation agreements with any newly hired employees other than in the
ordinary course of business or enter into any of the foregoing with any
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existing officers, directors or employees or grant any increases in compensation
or benefits to employees other than increases in the ordinary course of
business; (xvii) adopt or amend in any material respect or terminate any
employee benefit plan or arrangement; (xviii) amend in any material respect or
terminate any employment agreement or severance agreement entered into between
the Company and certain of its officers and employees within the five business
days immediately prior to the date hereof or waive any right of the Company
thereunder; (xix) make any material changes in the type or amount of their
insurance coverage or permit any insurance policy naming the Company or any
Subsidiary as a beneficiary or a loss payee to be cancelled or terminated other
than in the ordinary course of business; (xx) make any capital expenditures in
the aggregate for the Company and its Subsidiaries in excess of the amounts
reflected in the analyst's report for the Company prepared by Morgan Stanley &
Co., Incorporated, dated April 10, 1997, a true and complete copy of which has
previously been delivered to Purchaser, or otherwise acquire assets not in the
ordinary course of business; (xxi) except as may be required by law or generally
acceptable accounting principles and with prior written notice to Purchaser,
change any material accounting principles or practices used by the Company or
its Subsidiaries; (xxii) enter into any Contracts for Derivatives, except for
spot, option and forward Contracts entered into in the ordinary course of
business consistent with the past practice of the Company and with the Company's
policies regarding Derivatives as previously disclosed to Purchaser; (xxiii)
waive, relinquish, release or terminate any right or claim, including any such
right or claim under any material Contract or permit any rights of material
value to use any Intellectual Property to lapse or be forfeited, in each case,
except in the ordinary course of business consistent with the past practice of
the Company; (xxiv) take any action to cause the Common Stock to be delisted
from the New York Stock Exchange prior to the completion of the Offer or the
Merger; or (xxv) agree in writing or otherwise to take any of the foregoing
actions.
8.3. Company Stockholder Approval; Proxy Statement.
(a) If approval or action in respect of the Merger by the
stockholders of the Company is required by applicable law, the Company, through
its Board of Directors, shall (i) call a meeting of its stockholders (the
"Stockholders Meeting") for the purpose of voting upon the Merger, (ii) hold the
Stockholders Meeting as soon as practicable following the purchase of shares of
Common Stock pursuant to the Offer, and (iii) subject to the fiduciary duties of
the Board of Directors under applicable law as advised by Outside Counsel,
recommend to its stockholders the approval of the Merger. The Company's
obligations pursuant to clauses (i) and (ii) of the preceding sentence shall not
be affected by the withdrawal or modification by the Board of Directors of its
recommendation of the Merger in accordance with clause (iii) of the preceding
sentence. The record date for the Stockholders Meeting shall be a date
subsequent to the date Purchaser or Merger Sub becomes a record holder of Common
Stock purchased pursuant to the Offer.
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(b) If required by applicable law, the Company will, as soon as
practicable following the expiration of the Offer, prepare and file a
preliminary Proxy Statement (such proxy statement, and any amendments or
supplements thereto, the "Proxy Statement") or, if applicable, an Information
Statement with the SEC with respect to the Stockholders Meeting and will use its
best efforts to respond to any comments of the SEC or its staff and to cause the
Proxy Statement to be cleared by the SEC. The Company will notify Purchaser of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Purchaser with copies of all
correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the Proxy
Statement or the Merger. The Company shall give Purchaser and its counsel the
opportunity to review the Proxy Statement prior to its being filed with the SEC
and shall give Purchaser and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of the Company and Purchaser agrees to use its
best efforts, after consultation with the other parties hereto, to respond
promptly to all such comments of and requests by the SEC. As promptly as
practicable after the Proxy Statement has been cleared by the SEC, the Company
shall mail the Proxy Statement to the stockholders of the Company. If at any
time prior to the approval of this Agreement by the Company's stockholders there
shall occur any event that should be set forth in an amendment or supplement to
the Proxy Statement, the Company will prepare and mail to its stockholders such
an amendment or supplement.
(c) The Company represents and warrants that the Proxy Statement
will comply as to form in all material respects with the Exchange Act and, at
the respective times filed with the SEC and distributed to stockholders of the
Company, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representation or warranty as to any information included in the Proxy Statement
which was provided by Purchaser or Merger Sub. Purchaser represents and warrants
that none of the information supplied by Purchaser or Merger Sub for inclusion
in the Proxy Statement will, at the respective times filed with the SEC and
distributed to stockholders of the Company, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Company shall use its reasonable best efforts to obtain the
necessary approvals by its stockholders of the Merger, this Agreement and the
transactions contemplated hereby.
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(e) Purchaser agrees, subject to applicable law, to cause all shares
of Common Stock purchased by Merger Sub pursuant to the Offer and all other
shares of Common Stock owned by Purchaser, Merger Sub or any other subsidiary or
affiliate of Purchaser to be voted in favor of the approval of the Merger.
8.4. Filings; Other Action.
Subject to the terms and conditions herein provided, the Company,
Purchaser and Merger Sub shall: (a) promptly make their respective filings and
thereafter make any other required submissions under the HSR Act and the
Exon-Florio Amendment with respect to the Offer and, if applicable, the Merger;
(b) cooperate and consult with one another in (i) determining which Regulatory
Filings are required or, in the case of Other Antitrust Filings and Consents,
permitted to be made prior to the Effective Time with, and which Consents are
required or, in the case of Other Antitrust Filings and Consents, permitted to
be obtained prior to the Effective Time from Governmental Entities or other
third parties in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, and all Consents
required to transfer to the Company any Permits or registrations held on behalf
of the Company or any of its Subsidiaries by or in the name of distributors,
brokers or sales agents; (ii) preparing all Regulatory Filings and all other
filings, submissions and presentations required or prudent to obtain all
Consents, including by providing to the other parties drafts of such material
reasonably in advance of the anticipated filing or submission dates; and (iii)
timely making all such Regulatory Filings and timely seeking all such Consents
and (c) use their reasonable best efforts to take, or cause to be taken, all
other action and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated by
this Agreement. Each of Purchaser and the Company shall use its reasonable best
efforts to contest any proceeding seeking a preliminary injunction or other
legal impediment to, and to resolve any objections as may be asserted by any
Governmental Entity with respect to, the Offer and/or the Merger under the HSR
Act or Foreign Antitrust Laws, provided that the foregoing shall not require
Purchaser to take any action that could directly or indirectly (x) impose
limitations on the ability of Purchaser or Merger Sub (or any of their
affiliates or Subsidiaries) effectively to acquire, operate or hold, or require
Purchaser, Merger Sub or the Company or any of their respective affiliates or
Subsidiaries to dispose of or hold separate, any portion of their respective
assets or business (y) restrict any future business activity by Purchaser,
Merger Sub, the Company or any of their affiliates or Subsidiaries or (z)
otherwise adversely affect Purchaser, Merger Sub, the Company or any of their
respective affiliates or Subsidiaries. If, at any time after the Effective Time,
any further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of Purchaser and the Surviving
Corporation shall take all such necessary action.
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8.5. Access to Information.
(a) From the date of this Agreement to the Closing Date, the Company
shall, and shall cause its Subsidiaries to, during normal business hours and
upon reasonable advance notice (i) give Purchaser and its authorized
representatives reasonable access to all books, records, personnel, offices and
other facilities and properties of the Company and its Subsidiaries and their
accountants and accountants' work papers, (ii) permit Purchaser to make such
copies and inspections thereof as Purchaser may reasonably request and (iii)
furnish Purchaser with such financial and operating data and other information
with respect to the business and properties of the Company and its Subsidiaries
as Purchaser may from time to time reasonably request; provided, however, that
no investigation or information furnished pursuant to this Section 8.5 shall
affect any representations or warranties made by the Company herein or the
conditions to the obligations of Purchaser to consummate the transactions
contemplated hereby. Purchaser shall limit the number of persons provided with
access to the Company's properties or personnel in order to minimize disruption
to the Company and not to interfere unreasonably with the Company's operations.
Representatives of the Company may accompany Purchaser's representatives on any
tours of the Company's facilities provided to Purchaser or its representatives
pursuant to this Section 8.5. Such tours shall be made during normal business
hours and upon reasonable advance notice.
(b) All such information and access shall be subject to the
provisions of the Confidentiality Agreement.
8.6. Publicity. The initial U.S. press release relating to this
Agreement shall be a joint press release and thereafter the Company and
Purchaser shall consult with each other before issuing any such press release or
otherwise making public statements with respect to the transactions contemplated
hereby and in making any filings with any Governmental Entity or with any U.S.
securities exchange or the London Stock Exchange with respect thereto.
8.7. Further Action. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Merger.
8.8. Insurance; Indemnity.
(a) Purchaser will cause the Surviving Corporation to purchase a
three-year pre-paid noncancellable directors and officers insurance policy
covering the current and all former directors and officers of the Company with
respect to acts or failures to act prior to the Effective Time, in a single
aggregate amount over the three-year period immediately following the Closing
Date equal to the policy limit for the Company's current directors and officers
insurance policy (the "Current Policy"). If such
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insurance is not obtainable at an annual cost per covered year not in excess of
the annual premium paid by the Company for the Current Policy (the "Cap") times
1.5, then Purchaser will cause the Surviving Corporation to purchase policies
providing at least the same coverage as the Current Policy and containing terms
and conditions no less advantageous to the current and former directors and
officers of the Company than the Current Policy with respect to acts or failures
to act prior to the Effective Time; provided, however, that Purchaser and the
Surviving Corporation shall not be required to obtain policies providing such
coverage except to the extent that such coverage can be provided at an annual
cost of no greater than the Cap; and, if equivalent coverage cannot be obtained,
or can be obtained only by paying an annual premium in excess of the Cap,
Purchaser or the Surviving Corporation shall only be required to obtain as much
coverage as can be obtained by paying an annual premium equal to the Cap.
(b) Purchaser shall cause the Surviving Corporation to keep in
effect in its By-Laws provisions for a period of not less than six years from
the Effective Time (or, in the case of matters occurring prior to the Effective
Time which have not been resolved prior to the sixth anniversary of the
Effective Time, until such matters are finally resolved) which provide for
exculpation of director and officer liability and indemnification (and
advancement of expenses related thereto) of the past and present officers and
directors of the Company to the fullest extent permitted by the DGCL which
provisions shall not be amended except as required by applicable law or except
to make changes permitted by law that would enhance the rights of past or
present officers and directors to indemnification or advancement of expenses.
(c) From and after the Effective Time, Purchaser shall indemnify and
hold harmless, to the fullest extent permitted under applicable law, each person
who is, or has been at any time prior to the date hereof or who becomes prior to
the Effective Time, an officer or director of the Company or any Subsidiary
against all losses, claims, damages, liabilities, costs or expenses (including
attorneys' fees), judgments, fines, penalties and amounts paid in settlement
(collectively, "Losses ") in connection with any Litigation arising before or
after the Effective Time out of or pertaining to acts or omissions, or alleged
acts or omissions, by them in their capacities as such, which acts or omissions
occurred prior to the Effective Time. Without limiting the foregoing, the
Purchaser shall periodically advance expenses as incurred with respect to the
foregoing to the fullest extent permitted under applicable law provided that the
person to whom the expenses are advanced provides an undertaking to repay such
advance if it is ultimately determined that such person is not entitled to
indemnification.
(d) If the Merger shall have been consummated, the Surviving
Corporation shall, to the fullest extent permitted under applicable law,
indemnify and hold harmless Purchaser and any person or entity who was a
stockholder, officer, director or affiliate of Purchaser prior to the Effective
Time against any Losses in connection with any Litigation arising out of or
pertaining to any of the transactions contemplated by this Agreement or the
Ancillary Documents.
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(e) If, after the Effective Time, Purchaser or Surviving
Corporation of any of their respective successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger, or (ii)
transfers all or substantially all of its properties and assets to any person,
then, in each such case, proper provisions shall be made so that successors and
assigns of Purchaser or Surviving Corporation, as the case may be, shall assume
all of the obligations set forth in this Section 8.8. The provisions of this
Section 8.8 are intended for the benefit of and shall be enforceable by each
person who is now or has been at any time prior to the date of this Agreement,
or who becomes prior to the Effective Time, an officer or director of the
Company or any of its Subsidiaries.
(f) If any Litigation described in paragraph (c) or (d) of this
Section 8.8 (each, an "Action") arises or occurs, the Surviving Corporation
shall control the defense of such Action with counsel selected by the Surviving
Corporation, which counsel shall be reasonably acceptable to the party seeking
indemnification pursuant to paragraph (c) or (d) of this Section 8.8 (each, an
"Indemnified Party"), provided that the Indemnified Party shall be permitted to
participate in the defense of such Action through counsel selected by the
Indemnified Party, which counsel shall be reasonably acceptable to the Surviving
Corporation, at the Indemnified Party's expense. Notwithstanding the foregoing,
if there is any conflict between the Surviving Corporation and any Indemnified
Party or there are additional defenses available to any Indemnified Party, such
Indemnified Party shall be permitted to participate in the defense of such
Action with counsel selected by the Indemnified Party, which counsel shall be
reasonably acceptable to the Surviving Corporation, at the Surviving
Corporation's expense; provided, however, that the Surviving Corporation shall
not be obligated to pay the reasonable fees and expenses of more than one
counsel for all Indemnified Parties in any single Action except to the extent
that, in the opinion of counsel for the Indemnified Parties, two or more of such
Indemnified Parties have conflicting interests in the outcome of such Action.
The Surviving Corporation shall not be liable for any settlement effected
without its written consent, which consent shall not unreasonably be withheld.
8.9. Restructuring of Merger. Upon the mutual agreement of
Purchaser and the Company, the Merger shall be restructured in the form of a
forward subsidiary merger of the Company into Merger Sub, with Merger Sub being
the surviving corporation, or as a merger of the Company into Purchaser, with
Purchaser being the surviving corporation. In such event, this Agreement shall
be deemed appropriately modified to reflect such form of merger.
8.10. Employee Benefit Plans. From and after the Effective Time, the
Surviving Corporation and its respective subsidiaries will honor, in accordance
with their terms, all existing employment and severance agreements between the
Company or any of its Subsidiaries and any officer, director, or employee of the
Company or any of its Subsidiaries to the extent the same shall have been
previously disclosed to Purchaser in the Disclosure Letter and all benefits or
other amounts earned or accrued
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to the extent vested or which become vested in the ordinary course, through the
Effective Time under all employee benefit plans of the Company and any of its
Subsidiaries, in each case to the extent the same have been previously disclosed
to Purchaser in the Disclosure Letter and are in effect on the date hereof.
8.11. Credit Agreement. The Company shall use its reasonable best
efforts to obtain waivers, approvals or consents from the Lenders party to the
Amended and Restated Credit Agreement, dated as of April 23, 1997, among the
Company, certain of the Company's Subsidiaries, the Lenders named therein, NBD
Bank and Salomon Brothers Inc. (the "Credit Agreement") necessary so that the
consummation of any of the transactions contemplated by this Agreement shall not
result in an event of default or otherwise permit termination of the Credit
Agreement or the acceleration of the Company's obligations thereunder, without
payment of any fee by or cost to the Company except as agreed to in advance in
writing by Purchaser. Purchaser and Merger Sub hereby agree that any failure by
the Company to obtain such waivers, approvals or consents shall not constitute a
breach of covenant by the Company for any purpose under this Agreement and that
the Company will have no liability to Purchaser or Merger Sub as a result of any
such failure. The Company agrees to keep Purchaser informed with respect to the
status of negotiations with the Lenders regarding such waivers or consents. The
Company hereby represents and warrants that the Company's obligations under the
Credit Agreement may be prepaid and the Credit Agreement terminated by the
Company without any prepayment fees or penalties, other than customary LIBOR
breakage costs.
8.12. Conversion of Shares of Class B Common Stock. Upon delivery by
Merger Sub to the Company of certificates representing shares of Class B Common
Stock and a notice and certificate in substantially the form attached as Exhibit
B hereto or such other form which otherwise complies with the requirements of
the Company's Certificate of Incorporation, the Company shall immediately effect
the conversion of such shares into shares of Class A Common Stock and issue a
certificate representing such shares of Class A Common Stock to Merger Sub. The
Company hereby represents and warrants that upon such conversion, Merger Sub
shall have the same rights with respect to shares of Class A Common Stock issued
to it upon such conversion, including, without limitation, voting rights, as
those of holders of shares of Class A Common Stock on the date hereof.
8.13 Real Property Transfer Taxes. Any liability for real property
transfer taxes, real property gains taxes or similar taxes imposed with respect
to the property of the Company by any state, local or foreign taxing authority
with respect to the Offer and the Merger shall be paid or caused to be paid by
Purchaser.
8.14 Annual Meeting of Stockholders. The Company shall postpone the
holding of its Annual Meeting of Stockholders (the "Company Annual Meeting")
indefinitely pending consummation of the Merger unless the Company is otherwise
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required to hold the Company Annual Meeting by applicable Law or the rules and
regulations of the NYSE.
ARTICLE 9
CONDITIONS
9.1. Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction or waiver, where permissible, prior to the Effective Time, of
the following conditions:
(a) If approval of this Agreement and the Merger by the holders of
Common Stock is required by applicable law, this Agreement and the Merger shall
have been approved by the requisite vote of such holders.
(b) There shall not have been issued any injunction or issued or
enacted any Law which prohibits or has the effect of prohibiting the
consummation of the Merger or makes such consummation illegal.
9.2. Conditions to Obligation of Purchaser and Merger Sub to
Effect the Merger. The obligations of Purchaser and Merger Sub to effect the
Merger shall be further subject to the satisfaction or waiver on or prior to the
Effective Time of the condition that Merger Sub shall have accepted for payment
and paid for shares of Common Stock tendered pursuant to the Offer; provided
that the right to assert this condition shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of such condition.
ARTICLE 10
TERMINATION; AMENDMENT; WAIVER
10.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of the Board of Directors of the
Company (subject to Section 1.4(b)) and Purchaser;
(b) by the Company, if Merger Sub shall have failed to commence
the Offer within five business days after the date of this Agreement;
(c) by the Company, if Purchaser or Merger Sub materially breaches
any of their respective representations or warranties or covenants contained in
this
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Agreement and, with respect to any such breach that can be remedied, the breach
is not remedied within five business days after the Company has furnished
Purchaser or Merger Sub with written notice of such failure;
(d) by Purchaser or the Company:
(i) if the Effective Time shall not have occurred on or
before October 31, 1997 (provided that the right to terminate this
Agreement pursuant to this clause (i) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has
been the cause of or resulted in the failure of the Effective Time to
occur on or before such date);
(ii) if there shall be any statute, law, rule or regulation
that makes consummation of the Offer or the Merger illegal or
prohibited or if any court of competent jurisdiction or other
Governmental Entity shall have issued an order, judgment, decree or
ruling, or taken any other action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, judgment, decree,
ruling or other action shall have become final and non-appealable; or
(iii) if the Offer terminates or expires on account of the
failure of any condition specified in Exhibit A without Merger Sub
having purchased any shares of Common Stock thereunder (provided that
the right to terminate this Agreement pursuant to this clause (iii)
shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in
the failure of any such condition); or
(e) by the Company, at any time prior to the acceptance for
payment of shares of Common Stock by Merger Sub pursuant to the Offer, if there
is an Alternative Proposal which the Board of Directors in good faith determines
represents a superior transaction for the stockholders of the Company as
compared to the Offer and the Merger, and the Board of Directors determines,
after consultation with Outside Counsel and the Financial Advisor, that it is
required by its fiduciary duties to the Company's stockholders imposed by law to
terminate this Agreement; provided, however, that the right to terminate this
Agreement pursuant to this Section 10.1(e) shall not be available (i) if the
Company has breached in any material respect its obligations under Section 8.1,
or (ii) if, prior to or concurrently with any purported termination pursuant to
this Section 10.1(e), the Company shall not have paid the fees and expenses
contemplated by Section 11.5, or (iii) if the Company has not provided Purchaser
and Merger Sub with at least three business days' prior written notice of its
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intent to so terminate this Agreement together with a summary of the material
terms and conditions of the Alternative Proposal; and
(f) by Purchaser, if the Board of Directors shall have failed to
recommend, or shall have withdrawn, modified or amended in any manner adverse to
Purchaser or Merger Sub, its approval or recommendation of the Offer or the
Merger, or shall have recommended acceptance of any Alternative Proposal, or
shall have resolved to do any of the foregoing.
10.2. Effect of Termination. If this Agreement is terminated and the
Merger is abandoned pursuant to Section 10.1 hereof, this Agreement, except for
the provisions of Sections 1.3(c), 8.5(b), 8.6 and Article 11, shall terminate,
without any liability on the part of any party or its directors, officers or
stockholders. Nothing herein shall relieve any party to this Agreement of
liability for breach of this Agreement or prejudice the ability of the
non-breaching party to seek damages from any other party for any breach of this
Agreement, including, without limitation, attorneys' fees and the right to
pursue any remedy at law or in equity.
10.3. Amendment. To the extent permitted by applicable law, this
Agreement may be amended by action taken by or on behalf of the Board of
Directors of the Company (subject to Section 1.4) and Purchaser at any time
before or after adoption of this Agreement by the stockholders of the Company
but, after any such stockholder approval, no amendment shall be made which
decreases the Merger Consideration or which adversely affects the rights of the
Company's stockholders hereunder without the approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of all of the parties.
10.4. Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken by or on behalf of the Board of Directors of
the Company (subject to Section 1.4) and Purchaser, may (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document, certificate
or writing delivered pursuant hereto by any other applicable party or (iii)
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
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ARTICLE 11
GENERAL PROVISIONS
11.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
11.2. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to Purchaser or Merger Sub: If to the Company:
GKN Powder Metallurgy Holdings, Inc. Sinter Metals, Inc.
3300 University Drive Terminal Tower
Auburn Hills, Michigan 48326 50 Public Square, Suite 3200
Facsimile: (800) 377-1200 Cleveland, Ohio 44113
Attention: David J. Turner Facsimile: (216) 344-7631
Attention: Joseph W. Carreras
With a copy to: With a copy to:
Fried, Frank, Harris, Jones, Day, Reavis & Pogue
Shriver & Jacobson North Point, 901 Lakeside Avenue
One New York Plaza Cleveland, Ohio 44114
New York, New York 10004 Facsimile: (216) 579-0212
Facsimile: (212) 859-4000 Attention: Christopher M. Kelly, Esq.
Attention: Jean E. Hanson, Esq.
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
11.3. Assignment; Binding Effect. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that either Purchaser
or Merger Sub (or both) may assign its rights hereunder (including, without
limitation, the right to make the Offer and/or to purchase shares of Common
Stock in the Offer) to a wholly owned subsidiary but nothing shall relieve the
assignor from its obligations hereunder. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit
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<PAGE> 43
of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, except for
the provisions of Section 8.8, nothing in this Agreement, expressed or implied,
is intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
11.4. Entire Agreement. This Agreement, the Confidentiality
Agreement, the Disclosure Letter, the Exhibits, the Ancillary Documents and any
other documents delivered by the parties in connection herewith constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto.
11.5. Fees and Expenses.
(a) Except as provided in Section 11.5(b), whether or not the
Offer or the Merger is consummated, all costs and expenses incurred in
connection with the transactions contemplated by this Agreement shall be paid by
the party incurring such expenses.
(b)(1) To compensate Purchaser and its affiliates for entering into
this Agreement and taking action to consummate the transactions hereunder and
incurring the costs and expenses related thereto and other losses and expenses,
including the forgoing by Purchaser of other opportunities, the Company and
Purchaser agree that the Company shall pay to Purchaser, an aggregate amount
equal to $12,000,000 (the "Commitment Amount") if this Agreement is terminated
(i) by the Company pursuant to Section 10.1(e); (ii) by Purchaser (x) pursuant
to Section 10.1(f) (unless the event described therein occurs solely as a result
of Purchaser's willful breach in any material respect of its representations,
warranties, covenants or agreements set forth in this Agreement) or (y) pursuant
to Section 10.1(d)(iii) because of the failure of the condition set forth in
paragraph (d) of Exhibit A as a result of the Company's willful breach of its
representations or warranties set forth in this Agreement; or (iii) pursuant to
Section 10.1(d)(iii) at a time when the Minimum Condition shall not have been
satisfied and (x) prior to the time this Agreement is terminated, an Alternative
Proposal shall have been publicly announced by a party other than Purchaser or
shall have been publicly known and (y) within nine months after the termination
of this Agreement, such party or any affiliate thereof either alone or as part
of a "group" (as defined in the Exchange Act) acquires a majority of the
outstanding shares of Common Stock (a "Stock Acquisition").
The Commitment Amount shall be payable (x) at the time of
termination if such amount becomes payable pursuant to clause (i) above, (y) on
the next business day following termination if such Amount becomes payable
pursuant to clause (ii) above, and (z) on the next business day following the
occurrence of a Stock Acquisition, if such amount becomes payable pursuant to
clause (iii) above.
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<PAGE> 44
(2) (i) The Company shall reimburse Purchaser and its affiliates
for the reasonable out-of-pocket expenses of Purchaser and its affiliates, not
to exceed $4,000,000 in the aggregate, incurred in connection with or arising
out of the Offer, the Merger, this Agreement and the Ancillary Documents and the
transactions contemplated hereby (including, without limitation, amounts paid or
payable to banks and investment bankers, fees and expenses of counsel,
accountants and consultants, and printing expenses), regardless of when those
expenses are incurred, (i) if this Agreement is terminated and Purchaser is
entitled to the Commitment Amount pursuant to Section 11.5(b)(1) or (ii) if this
Agreement is terminated by Purchaser pursuant to Section 10.1(d)(iii) because of
the failure of the condition set forth in paragraph (d) of Exhibit A under
circumstances where Purchaser is not entitled to the Commitment Amount.
(ii) Purchaser shall reimburse the Company and its affiliates
for the reasonable out-of-pocket expenses of the Company and its affiliates, not
to exceed $4,000,000 in the aggregate, incurred in connection with or arising
out of the Offer, the Merger, this Agreement and the Ancillary Documents and the
transactions contemplated hereby (including, without limitation, amounts paid or
payable to banks and investment bankers, fees and expenses of counsel,
accountants and consultants, and printing expenses), regardless of when those
expenses are incurred, if Purchaser terminates this Agreement pursuant to
Section 10.1(d)(iii) because of the failure of the condition set forth in
paragraph (g) of Exhibit A and such termination constitutes a willful breach of
Purchaser's obligations pursuant to this Agreement.
(3) Each of Purchaser and the Company acknowledges that the
agreements contained in this Section 11.5(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
the other party would not enter into this Agreement. Accordingly, if either
Purchaser or the Company fails to promptly pay any amounts owing pursuant to
this Section 11.5(b) when due, such party shall in addition thereto pay to the
other party and its affiliates all costs and expenses (including fees and
disbursements of counsel) incurred in collecting such amounts, together with
interest on such amounts (or any unpaid portion thereof) from the date such
payment was required to be made until the date such payment is received by such
party at the prime rate of Chemical Bank as in effect from time to time during
such period.
11.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws. Each of the Company, Purchaser and Merger Sub
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States of
America located in the State of Delaware (the "Delaware Courts") for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), waives any objection to the laying of venue of any such
litigation in the Delaware Courts and agrees not to plead or claim
40
<PAGE> 45
in any Delaware Court that such litigation brought therein has been brought in
an inconvenient forum.
11.7. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
11.8. Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." As used in this Agreement, the words "Subsidiary," "affiliate" and
"associate" shall have the meanings ascribed thereto in Rule 12b-2 under the
Exchange Act; provided, however, that each of PEAK Werkstoff GmbH, Krebsoge
Feida Danyang Filters, Krebsoge Excel (Filters) PVT. Ltd., Sintered Metals
Components, (Pty) Ltd., and Sinter Metals Foreign Sales Corporation
(collectively, the "Krebsoge Joint Ventures") (i) shall, if a consolidated
subsidiary of the Company or Krebsoge for purposes of financial statements
prepared in accordance with United States or German generally accepted
accounting principles as the case may be, be deemed a "Subsidiary" for purposes
of references to financial statements in this Agreement and (ii) shall not
otherwise be deemed a Subsidiary for purposes of this Agreement.
11.9. Investigations. No action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement.
11.10. Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
11.11. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware Court, this
being in addition to any other remedy to which they are entitled at law or in
equity. The prevailing party in any judicial action
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<PAGE> 46
shall be entitled to receive from the other party reimbursement for the
prevailing party's reasonable attorney's fees and disbursements, and court
costs.
11.12. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all, of the parties
hereto.
11.13. Obligation of Purchaser. Whenever this Agreement requires
Merger Sub to take any action, such requirement shall be deemed to include an
undertaking on the part of Purchaser to cause Merger Sub to take such action.
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<PAGE> 47
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
SINTER METALS, INC.
By: /s/ Joseph W. Carreras
-----------------------------------
Name: Joseph W. Carreras
Title: Chairman and Chief Executive Officer
GKN POWDER METALLURGY HOLDINGS, INC.
By: /s/ David Turner
-----------------------------------
Name: David Turner
Title: President
GKN POWDER METALLURGY, INC.
By: /s/ R.A. Ogilvie Smals
-----------------------------------
Name: R.A. Ogilvie Smals
Title: Vice President
GKN plc hereby unconditionally guarantees the obligations of
Purchaser and Merger Sub hereunder.
GKN PLC
By: /s/ David Turner
--------------------------------------------
Name: David Turner
--------------------------------------
Title: Finance Director
--------------------------------------
43
<PAGE> 48
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or the Agreement and
Plan of Merger (the "Merger Agreement"), Merger Sub shall not be required to
accept for payment or pay for, subject to any applicable rules and regulations
of the SEC, including Rule 14e-1(c) of the Exchange Act, any shares of Common
Stock not theretofore accepted for payment or paid for and may terminate or
amend the Offer as to such shares of Common Stock unless (i) there shall have
been validly tendered and not withdrawn prior to the expiration of the Offer
that number of shares of Common Stock which would represent at least a majority
of the outstanding shares of Common Stock on a fully diluted basis
(collectively, the "Minimum Condition") and (ii) any waiting period under the
HSR Act applicable to the purchase of shares of Common Stock pursuant to the
Offer shall have expired or been terminated. Furthermore, notwithstanding any
other term of the Offer or the Merger Agreement, Merger Sub shall not be
required to accept for payment or, subject as aforesaid, to pay for any shares
of Common Stock not theretofore accepted for payment or paid for, and may
terminate or amend the Offer if at any time on or after the date of the Merger
Agreement and prior to the expiration of the Offer, any of the following
conditions exist or shall occur and remain in effect:
(a) a court of competent jurisdiction or other United States
Governmental Entity shall have issued an order, judgment, decree or
ruling on the merits in connection with an action, suit or proceeding
brought by any United States Governmental Entity (i) which challenges
or seeks to restrict the acquisition by Purchaser or Merger Sub (or any
of their affiliates or Subsidiaries) of shares of Common Stock pursuant
to the Offer or seeks to restrain or prohibit the consummation of the
Offer or the Merger, or obtain damages in connection therewith (ii)
which seeks to make the purchase of or payment for some or all of the
shares of Common Stock pursuant to the Offer or the Merger illegal;
(iii) which seeks to impose material limitations on the ability of
Purchaser, Merger Sub, the Surviving Corporation or any of their
respective affiliates or Subsidiaries effectively to acquire, operate
or hold, or to require Purchaser, Merger Sub or the Surviving
Corporation or any of their respective affiliates or Subsidiaries to
dispose of or hold separate, any material portion of their assets or
business or the Company's assets or business or (iv) which seeks to
impose material limitations on the ability of Purchaser, Merger Sub or
their affiliates or Subsidiaries to exercise full rights of ownership
of the shares of Common Stock purchased by it, including, without
limitation, the right to vote the shares purchased by it on all matters
properly presented to the stockholders of the Company; or
A-1
<PAGE> 49
(b) there shall have been promulgated, enacted, entered,
enforced or deemed applicable to the Offer or the Merger, by any
Governmental Entity, any Law or there shall have been issued any
injunction resulting in any of the consequences referred to in
subsection (a) above; or
(c) the Merger Agreement shall have been terminated in
accordance with its terms; or
(d) (i) the representations and warranties made by the Company
in the Merger Agreement (without giving effect to any materiality
limitations contained therein) shall not be true and correct as of the
date of consummation of the Offer as though made on and as of that date
(other than representations and warranties made as of a specified date)
except for any breach or breaches which, in the aggregate, would not
have a Material Adverse Effect or (ii) the Company shall have breached
or failed to comply in any material respect with any of its obligations
under this Agreement and, with respect to any such failure that can be
remedied, the failure is not remedied within five business days after
Purchaser has furnished the Company with written notice of such
failure; or
(e) any person (other than Purchaser, Merger Sub or one or
more of their affiliates or Subsidiaries) shall have entered into an
agreement in principle or definitive agreement with the Company with
respect to a tender or exchange offer for any shares of Common Stock,
or a merger, consolidation or other business combination with or
involving the Company; or
(f) the Board of Directors shall have modified or amended its
recommendation of the Offer or the Merger in any manner adverse to
Purchaser or Merger Sub or shall have withdrawn its recommendation of
the Offer or the Merger or shall have recommended acceptance of any
Alternative Proposal or shall have resolved to do so; or
(g) since the date of the Merger Agreement, any change shall
have occurred which, individually or in the aggregate, has had, or
would have, a Material Adverse Effect; or
(h) there shall have occurred (i) any general suspension of,
or limitation on prices for, trading in securities on any national
securities exchange or in the over the counter market in the United
States, or in the London Stock Exchange for a period in excess of ten
consecutive trading hours, (ii) a declaration of any banking moratorium
by any United Kingdom or United States federal or state authorities or
any suspension of payments in respect of banks, by any such authorities
or (iii) a commencement of a war, armed hostilities or any other
international or national calamity directly or indirectly involving the
United States, the United Kingdom or Germany, other than any war, armed
hostilities or other international calamity involving the former
Yugoslavia, which is
A-2
<PAGE> 50
reasonably expected to have a Material Adverse Effect or to materially
adversely affect Purchaser or Merger Sub's ability to complete the
Offer or the Merger.
The foregoing conditions are for the sole benefit of Purchaser and
Merger Sub and may be asserted by Purchaser or Merger Sub regardless of the
circumstances (including any action or inaction by Purchaser or the Company)
giving rise to any such condition and, except for the Minimum Condition, may be
waived by Purchaser or Merger Sub, in whole or in part, at any time and from
time to time, in the sole discretion of Purchaser. The failure by Purchaser or
Merger Sub at any time to exercise any of the foregoing rights will not be
deemed a waiver of any right, the waiver of such right with respect to any
particular facts or circumstances shall not be deemed a waiver with respect to
any other facts or circumstances, and each right will be deemed an ongoing right
which may be asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions,
all tendered shares of Common Stock not theretofore accepted for payment shall
forthwith be returned by the depositary to the tendering stockholders.
A-3
<PAGE> 51
EXHIBIT B
NOTICE AND CERTIFICATE
GKN Powder Metallurgy, Inc. ("GKN"), as the holder of [ ]
shares of Class B Common Stock, par value $.001 per share, of Sinter Metals,
Inc. (the "Company"), desires to convert all of such shares into such number of
shares of Class A Common Stock as provided for in the Company's Certificate of
Incorporation. GKN hereby states, for the benefit of the Company and its
stockholders, that such conversion will not violate, or cause the violation of,
any regulatory provision applicable to a small business investment company. The
shares of Class A Common Stock to be issued to GKN pursuant to this Notice and
Certificate shall be issued in a single certificate in the name of GKN as the
holder thereof.
Dated as of GKN POWDER METALLURGY, INC.
___________________, 1997
By: _________________________________
Name: _________________________
Title: _________________________
B-1
<PAGE> 1
EXHIBIT (C)(2)
April 29 - In the year of our Lord 1997
CVC or a foundation established by same agrees to sell all its Sinter
Metals stock to GKN for $37 a share under the offer made to the stockholders.
William T. Comfort
Chairman Citicorp
Venture Capital
This letter will remain in effect until the merger agreement is
terminated in accordance with its terms.
/s/William T. Comfort
Agreed:
/s/David Turner
- --------------------------------
David Turner
for and on behalf of GKN plc
by David Turner
Financial Director
30/4/97
<PAGE> 1
Exhibit (c)(3)
STOCKHOLDER AGREEMENT
Stockholder Agreement (this "Agreement"), dated as of April
29, 1997, between GKN Powder Metallurgy Holdings, Inc., a Delaware corporation
("Purchaser") and __________ ("Stockholder").
Background
A. Stockholder beneficially owns ______ shares of Class A
Common Stock, par value $.001 per share ("Class A Common Stock"), of which
______ are held of record by Stockholder and ________ are shares of Class A
Common Stock issuable upon exercise of stock options held by Stockholder, and no
shares of Class B Common Stock, par value $.001 per share ("Class B Common
Stock," and together with the Class A Common Stock, the "Common Stock"), of
Sinter Metals, Inc., a Delaware corporation (the "Company").
B. Concurrently herewith, Purchaser, GKN Power Metallurgy,
Inc., a Delaware corporation and a wholly owned subsidiary of Purchaser ("Merger
Sub"), and the Company are entering into an Agreement and Plan of Merger, of
even date herewith (the "Merger Agreement"), pursuant to which Merger Sub has
agreed to make a tender offer (the "Offer") for all outstanding shares of Common
Stock at $37.00 per share (the "Offer Price"), net to the seller in cash, to be
followed by a merger of Merger Sub with and into the Company.
C. As a condition to the willingness of Purchaser to enter
into the Merger Agreement, Purchaser has required that Stockholder agree, and,
in order to induce Purchaser to enter into the Merger Agreement, Stockholder has
agreed, among other things, (i) to tender all of the shares of Class A Common
Stock and Class B Common Stock now owned or which may hereafter be acquired by
Stockholder (the "Shares") to Merger Sub pursuant to the Offer, (ii) to appoint
Purchaser as Stockholder's proxy to vote the Shares, and (iii) with respect to
certain questions put to stockholders of the Company for a vote, to vote the
Shares, in each case, in accordance with the terms and conditions of this
Agreement.
<PAGE> 2
In consideration of the mutual covenants and agreements contained herein and
other good and valuable consideration, the adequacy of which is hereby
acknowledged, and intending to be legally bound hereby, the parties hereto agree
as follows:
Agreement
1. Tender of Shares. Stockholder agrees to tender and sell to
Merger Sub all of the Shares pursuant to and in accordance with the terms of the
Offer. Stockholder agrees that Stockholder shall deliver to the depositary for
the Offer, no later than the third Business Day (as defined below) following the
commencement of the Offer pursuant to Section 1.1 of the Merger Agreement, a
letter of transmittal together with the certificates for the Shares.
Notwithstanding any term of the Offer to the contrary, Stockholder agrees not to
withdraw any Shares tendered into the Offer pursuant to this Section 1 during
the term of this Agreement. Stockholder hereby acknowledges and agrees that
Merger Sub's obligation to accept for payment and pay for the Shares in the
Offer is subject to the terms and conditions of the Offer. Stockholder hereby
permits Purchaser and Merger Sub to publish and disclose in the Offer Documents
and, if approval of the Company's stockholders is required under applicable law,
the Proxy Statement (including all documents and schedules filed with the SEC),
his or her identity and ownership of the Shares and the nature of his or her
commitment, arrangements and understandings under this Agreement. For purposes
of this Agreement, the term "Business Day" shall mean a day on which banks are
not required or authorized to be closed in the City of New York.
2. Adjustments Upon Changes in Capitalization. In the event of
any change in the number of issued and outstanding shares of Common Stock by
reason of any stock dividend, subdivision, merger, recapitalization,
combination, conversion or exchange of shares, or any other change in the
corporate or capital structure of the Company (including, without limitation,
the declaration or payment of an extraordinary dividend of cash or securities)
which would have the effect of diluting or otherwise adversely affecting
Purchaser's rights and privileges under this Agreement, the number and kind of
the Shares and the consideration
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<PAGE> 3
payable in respect of the Shares shall be appropriately and equitably adjusted
to restore to Purchaser his or her rights and privileges under this Agreement.
3. Representations and Warranties of Stockholder. Stockholder hereby
represents and warrants to Purchaser as follows:
3.1. Title to the Shares. Stockholder is the owner (both
beneficially and of record) of the Shares (which term as of the date hereof is
composed of _____ shares of Class A Common Stock and no shares of Class B Common
Stock), the Shares constitute all of the shares of Common Stock owned by
Stockholder, and Stockholder does not have any rights of any nature to acquire
any additional shares of Common Stock other than pursuant to options to purchase
______ shares of Class A Common Stock. Except for the Lock-up Agreement dated
March 4, 1997 executed by Stockholder in favor of Morgan Stanley & Co.
Incorporated (the restrictions of which have been waived for purposes of the
Offer and the Merger) and the Stockholder Agreement dated October 18, 1994 among
the Company and the stockholders listed on Exhibit A thereto, Stockholder owns
all of the Shares free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on
Stockholder's voting rights, charges and other encumbrances of any nature
whatsoever, and, except as provided in this Agreement, Stockholder has not
appointed or granted any proxy, which appointment or grant is still effective,
with respect to any of the Shares. Stockholder has sole voting power and sole
power to issue instructions with respect to the matters set forth in Sections 1
and 6 hereof, sole power of disposition, sole power to demand appraisal rights
and sole power to agree to all of the matters set forth in this Agreement, in
each case with respect to the Shares, with no limitations, qualifications or
restrictions on such rights, subject to applicable securities laws and the terms
of this Agreement. Upon delivery to Purchaser by Stockholder of a certificate or
certificates evidencing the Shares and payment for the Shares pursuant to the
Offer, Purchaser will receive good and valid title to the Shares, free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on Purchaser's voting rights, charges and other
encumbrances of any nature whatsoever.
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<PAGE> 4
3.2. Authority Relative to This Agreement. Stockholder has all
necessary power and authority to execute and deliver this Agreement, to perform
his or her obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Stockholder and the
consummation by Stockholder of the transactions contemplated hereby have been
duly and validly authorized by all necessary action on the part of Stockholder.
This Agreement has been duly and validly executed and delivered by Stockholder
and, assuming the due authorization, execution and delivery by Purchaser,
constitutes a legal, valid and binding obligation of Stockholder, enforceable
against Stockholder in accordance with its terms. There is no beneficiary or
holder of a voting trust certificate or other interest of any trust of which
Stockholder is a trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by Stockholder of the
transactions contemplated hereby.
3.3. No Conflict. The execution and delivery of this Agreement
by Stockholder does not, and the performance of this Agreement by Stockholder
will not, (a) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except for (i) requirements of federal and state securities
laws and (ii) requirements arising out of the HSR Act, (b) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
Stockholder or by which any property or asset of Stockholder is bound or
affected, or (c) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance of any nature
whatsoever on any property or asset of Stockholder, including the Shares,
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
Stockholder is a party or by which Stockholder or any property or asset of
Stockholder, including the Shares, is bound or affected, except in each case to
the extent any such breach or default, whether taken singly or in the aggregate,
would not have a material
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<PAGE> 5
adverse effect on Stockholder or his or her ability to consummate the
transactions contemplated hereby.
3.4. Waiver of Appraisal Rights. Stockholder hereby waives any
rights of appraisal or rights to dissent in the Merger that he or she may have.
3.5. Acknowledgment. Stockholder understands and acknowledges
that Purchaser is entering into the Merger Agreement in reliance upon
Stockholder's execution and delivery of this Argument.
3.6. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of Stockholder for his or her own behalf.
4. Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to Stockholder as follows:
4.1. Authority Relative to This Agreement. Purchaser has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Purchaser and the
consummation by Purchaser of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of
Purchaser. This Agreement has been duly and validly executed and delivered by
Purchaser and, assuming the due authorization, execution and delivery by
Stockholder, constitutes a legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms.
4.2. No Conflict. The execution and delivery of this Agreement
by Purchaser does not, and the performance of this Agreement by Purchaser will
not, (a) require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except for (i) requirements of federal and state securities laws and
(ii) requirements arising out of the HSR Act and Exon Florio, (b) conflict with
or violate the certificate of incorporation or bylaws or equivalent
organizational documents of Purchaser, (c) conflict with or violate any law,
rule, regulation, order, judgment or decree
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<PAGE> 6
applicable to Purchaser or by which any property or asset of Purchaser is bound
or affected, or (d) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance of any nature
whatsoever on any property or asset of Purchaser pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Purchaser is a party or by which
Purchaser or any property or asset of Purchaser is bound or affected, except in
each case to the extent any such breach or default, whether taken singly or in
the aggregate, would not have a material adverse effect on Purchaser or its
ability to consummate the transactions contemplated hereby.
4.3. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission from Stockholder
in connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of Purchaser.
5. Covenants of Stockholder.
5.1. No Disposition or Encumbrance of Shares; No Acquisition
of Shares. (a) Stockholder hereby covenants and agrees that, except as
contemplated by this Agreement, Stockholder shall not offer, or agree to, sell,
transfer, tender, assign, hypothecate or otherwise dispose of, or create or
permit to exist any security interest, lien, claim, pledge, option, right of
first refusal, agreement, limitation on Stockholder's voting rights, charge or
other encumbrance of any nature whatsoever with respect to, the Shares now owned
or that may hereafter be acquired by Stockholder.
(b) Stockholder hereby covenants and agrees that it
shall not, and shall not offer to agree to, acquire any additional shares of
Common Stock or options, warrants or other rights to acquire shares of Common
Stock, without the prior written consent of Purchaser.
5.2. No Solicitation of Transactions. Subject to Section 9.14,
Stockholder, in his or her individual capacity, shall not, directly or
indirectly, through any agent
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<PAGE> 7
or representative or otherwise, solicit, initiate or participate in, or
knowingly encourage, in any way, any discussions or negotiations with, or
provide any information to, or afford any access to the properties, books or
records of the Company or any of its Subsidiaries to, or otherwise assist,
facilitate or knowingly encourage any corporation, partnership, person or other
entity or group (collectively "Person") (other than Purchaser and any affiliate
of Purchaser) with respect to an Alternative Proposal and shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Stockholder, in his or her individual capacity, hereby represents
that neither he or she nor his or her agents or representatives is now engaged
in any discussions or negotiations with any Person (other than Purchaser or
Merger Sub) with respect to any of the foregoing and will promptly notify
Purchaser if any Person attempts to engage in any such discussions or
negotiations with Stockholder.
6. Voting Agreement; Proxy of Stockholder.
6.1. Voting Agreement. Stockholder hereby agrees that, during
the time this Agreement is in effect, at any meeting of the stockholders of the
Company, however called, and in any action by written consent of the
stockholders of the Company, Stockholder shall (a) vote all of the Shares in
favor of the Merger, the Merger Agreement (as amended from time to time) and any
of the transactions contemplated by the Merger Agreement; (b) vote the Shares
against any action or agreement that would result in a breach in any material
respect of any covenant, representation or warranty or any other obligation of
the Company under the Merger Agreement; and (c) vote the Shares against any
action or agreement that would impede, interfere with or attempt to discourage
the Offer or the Merger, including, but not limited to: (i) any extraordinary
corporate transaction (other than the Merger), such as a merger, reorganization,
recapitalization or liquidation involving the Company or any Subsidiary; (ii) a
sale or transfer of a material amount of assets of the Company or any
Subsidiary; (iii) any change in the management or board of directors of the
Company, except as otherwise agreed to in writing by
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<PAGE> 8
Purchaser; (iv) any material change in the present capitalization or dividend
policy of the Company; or (v) any other material change in the Company's
corporate structure or business.
6.2. Irrevocable Proxy. Stockholder agrees that, in the event
Stockholder shall fail to comply with the provisions of Section 6.1 hereof as
determined by Purchaser in its sole discretion, such failure shall result,
without any further action by Stockholder, in the irrevocable appointment of
Purchaser as the attorney and proxy of Stockholder pursuant to the provisions of
section 212 of the DGCL, during and for the term of this Agreement, with full
power of substitution, to vote, and otherwise act (by written consent or
otherwise) with respect to all shares of Common Stock, including the Shares,
that Stockholder is entitled to vote at any meeting of stockholders of the
Company (whether annual or special and whether or not an adjourned or postponed
meeting) or consent in lieu of any such meeting or otherwise, on the matters and
in the manner specified in Section 6.1 hereof. THIS PROXY AND POWER OF ATTORNEY
IS IRREVOCABLE AND COUPLED WITH AN INTEREST. Stockholder hereby affirms that the
irrevocable proxy set forth in Section 6.2 is given to secure performance of the
duties of Stockholder under this Agreement. Stockholder hereby revokes,
effective upon the execution and delivery of the Merger Agreement by the parties
thereto, all other proxies and powers of attorney with respect to the Shares
that Stockholder may have heretofore appointed or granted, and no subsequent
proxy or power of attorney (except in furtherance of Stockholder's obligations
under Section 6.1 hereof) shall be given or written consent executed (and if
given or executed, shall not be effective) by Stockholder with respect thereto
so long as this Agreement remains in effect.
7. Option Shares. If, after the date hereof, Stockholder exercises any
option to purchase Common Stock, the provisions of this Agreement shall be
applicable to all of the shares of Common Stock issued upon such exercise (the
"Additional Shares") as if such Additional Shares had been issued and
outstanding as of the date hereof; provided, however, that the provisions of
Section 1 shall be modified to provide that the Additional Shares shall be
tendered no later than the second Business Day following such exercise.
Stockholder further agrees that,
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<PAGE> 9
in the event Stockholder does not exercise any or all of Stockholder's options
to purchase Common Stock sufficiently in advance of the expiration of the Offer
to permit the tender of such Additional Shares issued upon such exercise prior
to the expiration of the Offer, Stockholder will not exercise such options, and
such options will be acquired by the Company in consideration of a cash payment
as set forth in the Merger Agreement.
8. Termination. This Agreement shall terminate on the earlier of (i)
the Termination Date (as hereinafter defined) or (ii) the date on which Merger
Sub purchases all of the Shares pursuant to the Offer in accordance with Section
1. For purposes of this Agreement, "Termination Date" means the date on which
notice is given, or publication of a press release or other announcement is
made, by Purchaser, the Company or Purchaser and the Company, jointly, that it
or they, as the case may be, has or have terminated the Merger Agreement in
accordance with its terms (which notice or publication will be operative for all
purposes of terminating this Agreement, without further action).
9. Miscellaneous.
9.1. Expenses. Except as otherwise provided herein, all costs
and expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.
9.2. Further Assurances. Stockholder and Purchaser will
execute and deliver all such further documents and instruments and take all such
further action as may be necessary in order to consummate the transactions
contemplated hereby.
9.3. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
9.4. Entire Agreement. This Agreement constitutes the entire
agreement between Purchaser and Stockholder with respect to the subject matter
hereof and
-9-
<PAGE> 10
supersedes all prior agreements and understandings, both written and oral,
between Purchaser and Stockholder with respect to the subject matter hereof.
9.5. Assignment. This Agreement shall not be assigned by
operation of law or otherwise, except that Purchaser may assign all or any of
its rights and obligations hereunder to any wholly-owned subsidiary of
Purchaser, provided that no such assignment shall relieve Purchaser of its
obligations hereunder if such assignee does not perform such obligations.
9.6. Parties in Interest. This Agreement shall be binding
upon, inure solely to the benefit of, and be enforceable by, the parties hereto
and their successors and permitted assigns. Nothing in this Agreement, express
or implied, is intended to or shall confer upon any other person any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
9.7. Amendment; Waiver. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto. Any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any agreement or condition contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
9.8. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
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<PAGE> 11
9.9. Notices. Except as otherwise provided herein, any notice
required to be given herein shall be sufficient if in writing, and sent by
facsimile transmission (with a confirmation copy sent by overnight courier), by
courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
if to Purchaser:
GKN Powder Metallurgy Holdings, Inc.
3300 University Drive
Auburn Mills, Michigan 48326
Attention: David J. Turner
Facsimile: (800) 377-1370
Telephone: (800) 377-1200
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Jean E. Hanson, Esq.
Facsimile: (212) 859-4000
Telephone: (212) 859-8198
if to Stockholder:
c/o Sinter Metals, Inc.
Terminal Tower
50 Public Square, Suite 3200
Cleveland, Ohio 44113
Facsimile: (216) 344-7631
Telephone: (216) 771-6700
-11-
<PAGE> 12
with a copy of all communications to Stockholder to:
Jones, Day, Reavis & Pogue
North Point, 901 Lakeside Avenue
Cleveland, Ohio 47114
Attention: Christopher M. Kelly, Esq.
Facsimile: (216) 579-0212
Telephone: (216) 586-3939
9.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without regard
to any principles of choice of law or conflicts of law of such state. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any state or federal court sitting in the City of New
York.
9.11. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
9.12. Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
9.13. Defined Terms. Capitalized terms used herein but not
defined shall have the meanings ascribed thereto in the Merger Agreement.
9.14. Director and Officer. Notwithstanding anything herein to
the contrary, the covenants and agreements set forth herein shall not prevent
Stockholder, in his or her capacity as an officer and director of the Company,
from taking any action, subject to the applicable provisions of the Merger
Agreement, while acting in such capacity as an officer and director of the
Company.
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<PAGE> 13
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed and delivered as of the date first written above.
GKN POWDER METALLURGY
HOLDINGS, INC.
By:
--------------------------------
Name: David J. Turner
Title: President
By:
--------------------------------
Name:
-------------------------
-13-
<PAGE> 1
EXHIBIT (c)(4)
SINTER METALS, INC.
50 PUBLIC SQUARE
TERMINAL TOWER, SUITE 3200
CLEVELAND, OH 44113
April 29, 1997
GKN plc
7 Cleveland Row
London SW1A 1DB
England
Attention: David J. Turner, Esq.
GENTLEMEN:
To assist you in your evaluation (the "Evaluation") of the business and
prospects of Sinter Metals, Inc., a Delaware corporation (the "Company"), in
connection with a possible business combination or similar transaction with the
Company involving the Company's stock or all or a substantial part of the
Company's assets or business (a "Transaction"), the Company is prepared to
furnish to you certain information which is confidential, proprietary or
otherwise not generally available to the public. As a condition to, and in
consideration of, the Company furnishing the Information, you agree as follows:
1. Nondisclosure of Information. The Information will (a) be kept
confidential by you, (b) not be used by you in any manner detrimental to the
Company, and (c) not be used other than in connection with the Evaluation and
the Transaction. You may, however, disclose the Information to your
Representatives, but only if your Representatives reasonably need to know the
Information in connection with the Evaluation. You will (i) inform each of your
Representatives receiving Information of the confidential nature of the
Information and of this letter agreement, (ii) direct your Representatives to
treat the Information confidentially and not to use it other than in connection
with the Evaluation and the Transaction, and (iii) be responsible for any
improper use of the Information by you or your Representatives (including,
without limitation, your Representatives who, subsequent to the first date of
disclosure of Information hereunder, become your former Representatives).
Without the prior consent of the Company or your prior written consent, as
appropriate, or except as otherwise provided herein, you and the Company will
not, and will direct your Representatives not to, disclose to any person (1)
that the Information has been made available to you, (2) that discussions
regarding a Transaction are taking place, or (3) any other facts with respect to
the discussions between you and the Company. The restrictions set forth in the
immediately preceding sentence shall terminate upon the execution of a
Definitive Agreement.
2. Notice Preceding Compelled Disclosure. If you or any of your
Representatives are requested, pursuant to a subpoena, civil investigative
demand or similar process or other oral or written request issued by a court of
competent jurisdiction or a federal, state, local or foreign governmental or
regulatory body or agency, to disclose any Information, you will promptly notify
the Company to permit the Company to seek a protective order or take other
appropriate action. You will also cooperate in the Company's efforts to obtain a
protective order or other reasonable assurance that confidential treatment will
be accorded the Information. If, in the absence of a protective order, you or
any of your Representatives are compelled as a matter of law to disclose the
Information, you will disclose, without liability hereunder, to the party
compelling disclosure only that part of the Information as is required by law to
be disclosed (in which case, prior to such disclosure, you will advise and
consult with the Company and its counsel as to such disclosure and the nature
and wording of such disclosure), and you will use your reasonable best efforts
to obtain confidential treatment for any Information so disclosed.
3. Treatment of Information. As soon as possible upon the Company's written
request or upon a determination to terminate the Evaluation made by you or the
Company (if no Transaction results) you and your Representatives will return to
the Company all tangible Information which has been provided to you and will
destroy (or, at your option, return to the Company) all Information prepared by
you or your
1
<PAGE> 2
Representatives. Such destruction (or return) will be confirmed in writing to
the Company. Any Information not so destroyed (or returned) will remain subject
to this letter agreement. You hereby acknowledge that you are aware and that
your Representatives have been advised by you that the United States securities
laws prohibit any person who has material non-public information from purchasing
or selling securities of such company or from communicating the information to
any other person under circumstances in which it is reasonably foreseeable that
such person is likely to purchase or sell such securities.
4. Public Information. The term "Information" does not include, and this
letter agreement will not apply to, information that (a) is or becomes generally
available to the public through no action by you or your Representatives in
violation of the provisions of this letter agreement, or (b) is or becomes
available to you on a nonconfidential basis from a source, other than the
Company or its Representatives, which you believe, after reasonable inquiry, is
not prohibited from disclosing such portions to you by a contractual, legal or
fiduciary obligation, or (c) you or your Representatives can prove was obtained
as a result of work which is independent of and not based on any of the
Information.
5. No Warranty of Accuracy. You understand that the Company will endeavor
to include in the Information materials it believes to be relevant for the
Evaluation, but you acknowledge that neither the Company nor any Representative
of the Company makes any representation or warranty as to the accuracy or
completeness of any Information except as otherwise provided in the Definitive
Agreement. You agree that neither the Company nor any of its Representatives
will have any liability to you or your Representatives resulting from the use of
the Information by you or any of your Representatives, except, in the case of
the Company, as otherwise provided in the Definitive Agreement. You also agree
that if you determine to enter into the Transaction, such determination will be
based solely on the terms of the Definitive Agreement and on your own
investigation, analysis and assessment of the business to be acquired.
6. Certain Actions. (a) During the course of the Evaluation, you and your
Representatives will only direct your inquiries that are made to the Company
regarding the Transaction to the following directors, officers and employees of
the Company: Joseph W. Carreras, Michael T. Kestner, Ronald A. Campbell and Ian
B. Hessel.
(b) As of the date of this letter agreement, except as previously disclosed
by you to the Company in writing, you confirm that you do not beneficially own
any securities of the Company, whether equity or debt securities, or any direct
or indirect options or other rights to acquire any such securities
("Securities"). If discussions relating to a possible Transaction have been
terminated by either party, you agree that for a period of eighteen months from
the date of this letter agreement, except in accordance with Section 6(d) hereof
or otherwise with the consent of the Company, you will not (A) propose or
publicly announce or otherwise disclose an intent to propose, or enter into or
agree to enter into, singly or with any other person or directly or indirectly,
(i) any form of business combination, acquisition, or other transaction relating
to the Company or any majority-owned affiliate thereof, (ii) any form of
restructuring, recapitalization or similar transaction with respect to the
Company or any such affiliate, or (iii) any demand, request or proposal to
amend, waive or terminate any provision of this paragraph, or (B) (i) acquire,
or offer, propose or agree to acquire, by purchase or otherwise, any Securities,
(ii) make, or in any way participate in, any solicitation of proxies with
respect to any Securities (including by the execution of action by written
consent), become a participant in any election contest with respect to the
Company, seek to influence any person with respect to any Securities or demand a
copy of the Company's list of its stockholders or other books and records, (iii)
participate in or encourage the formation of any partnership, syndicate, or
other group which owns or seeks or offers to acquire beneficial ownership of any
Securities or which seeks to effect control of the Company or for the purpose of
circumventing any provision of this letter agreement, or (iv) otherwise act,
alone or in concert with others (including by providing financing for another
person), to seek or to offer to control or influence, in any manner, the
management, Board of Directors, or policies of the Company.
(c) You further agree that, for a period of eighteen (18) months from the
date of this letter agreement, you will not directly or indirectly solicit for
employment or employ any of the current officers or employees of the Company
with whom you have had contact or who was specifically identified to you during
the period of the Evaluation, without obtaining the prior written consent of the
Company; provided, however, that the
2
<PAGE> 3
foregoing provision will not prevent you from employing any such person who
contacts you on his or her own initiative without any direct or indirect
solicitation by or encouragement from you.
(d) The Company, prior to entering into an agreement with a third party not
affiliated with the Company pursuant to which such third party would acquire all
or substantially all of the stock or assets of the Company, shall notify you of
such event in order to provide you with a reasonable opportunity to make a
proposal for a Transaction and the terms of subparagraph 6(b)(B)(i) and (iv)
shall be waived solely for the purposes of permitting you to make such a
proposal. For purposes of the immediately preceding sentence, "reasonable
opportunity" shall be as determined by the Board of Directors of the Company, in
its reasonable discretion, based on the circumstances at such time in light of
the Board's fiduciary duties. In addition, such terms shall not be applicable to
the purchase and sale of any securities of the Company by (i) independent
third-party managers of any of your pension or other related employee benefit
plans or (ii) ordinary brokerage or trading transactions by your financial
advisors acting as a securities dealer on behalf of or institutional investors
unaffiliated with you who are purchasing solely for investment purposes, in
either case, only to the extent that any of such persons have not received any
of the Information or do not have knowledge of the existence of a possible
transaction involving the Company, and who are acting as passive investors in
the Company.
(e) The provisions of this Paragraph 6 will survive for the periods stated
above notwithstanding that some or all of the Information has become publicly
disclosed or outdated or that any portion of this letter agreement has become
inoperative as to any portion of the Information.
7. Certain Obligations Only on Definitive Agreement. No agreement providing
for any Transaction will be deemed to exist unless and until a Definitive
Agreement has been executed and delivered by the Company and each of the other
parties thereto, and you hereby irrevocably waive any claims (including, without
limitation, claims related to an alleged breach of contract) in connection with
any Transaction unless and until a Definitive Agreement has been so executed and
delivered and then only in accordance with the terms thereof and applicable law.
Unless and until a Definitive Agreement has been so executed and delivered, none
of the Company or any of its Representatives has any legal obligation to you of
any kind with respect to any Transaction because of this letter agreement or any
other written or oral expression with respect to any Transaction, except, in the
case of this letter agreement, for the matters specifically agreed to herein.
You agree that you will not have any claims against the Company or any of its
Representatives arising out of or relating to any Transaction other than those
claims, if any, arising out of or relating to a Definitive Agreement with the
Company and then only in accordance with the terms of such Definitive Agreement.
8. General Provisions. No failure or delay in exercising any right
hereunder will operate as a waiver thereof, nor will any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right. No document or other action purporting to have been signed
on behalf of or to bind the Company will be operative for purposes of this
letter agreement unless it is in writing and is signed by the Chairman and Chief
Executive Officer, President or a Vice President of the Company while such
person was still in office. This letter agreement will be binding on and inure
to the benefit of the parties hereto and their respective successors and
assigns. In addition, because money damages would not be a sufficient remedy for
any violation of the terms of this letter agreement, the parties hereto will be
entitled to specific performance and injunctive relief as remedies for any
violation, in addition to all other remedies available at law or equity. You
hereby consent to personal jurisdiction in any action brought in any federal or
state court within the State of Delaware having subject matter jurisdiction in
the matter for purposes of any action arising out of this letter agreement. This
letter agreement will be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to the principles of conflict of
laws thereof.
9. Exclusivity. Until the earlier of (i) 11:59 p.m. New York City time on
May 2, 1997 or (ii) the date on which a Definitive Agreement is executed,
neither the Company nor any of its Representatives shall, directly or
indirectly, encourage, solicit, initiate or participate in any way in any
discussions or negotiations with, or provide any information to, or afford any
access to the properties, books or records of the Company or any of its
subsidiaries to, or otherwise assist, facilitate or encourage, any corporation,
partnership, person or other entity or group (other than you and your
Representatives) with respect to any tender offer, merger, consolidation,
business combination, liquidation, reorganization, sale of significant assets,
sale of shares of
3
<PAGE> 4
capital stock or similar transactions involving the Company or any subsidiary or
any division of any thereof and shall immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing.
10. Certain Definitions. As used in this letter agreement, (a) the terms or
phrases "affiliate," "beneficial owner," "election contest," "equity security,"
"group," "participant," "person," "proxy," "security," and "solicitation" (and
the plurals thereof) will be ascribed a meaning no less broad than the broadest
definition or meaning of such terms under the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder, (b) the term
"Company" and any word referring to the Company includes the Company and its
affiliates, (c) the term "you" and "your" includes the entity named as the
addressee of this letter agreement and its affiliates, (d) with the exceptions
that are set forth in Section 4 hereof, the information concerning the Company
furnished to you as contemplated by this letter agreement, whether furnished by
the Company or any of its Representatives, together with all written or
electronically stored documentation prepared by you or your Representatives
based upon, reflecting or incorporating, in whole or in part, such information
or the Evaluation is herein referred to as the "Information," (e) any director,
officer, employee, agent, lender, partner or representative, including, without
limitation, any accountant, attorney, and financial advisor, is herein referred
to as a "Representative," and (f) a definitive, written agreement providing for
a Transaction that is executed by us and you and that states it is intended to
be binding is herein referred to as a "Definitive Agreement;" provided, however,
that a Definitive Agreement does not include a letter of intent or any other
preliminary agreement, whether or not executed, nor does it include any actual
or purported written or verbal acceptance of any offer or bid.
Please sign and return one copy of this letter agreement to evidence your
acceptance of and agreement to the foregoing, whereupon this letter agreement
will become the binding obligation of each of the undersigned.
SINTER METALS, INC.
By: /s/ Joseph W. Carreras
------------------------------------
Name: Joseph W. Carreras
Title: Chairman and Chief Executive
Officer
Accepted and agreed to as of
the date first above written:
GKN plc
By: /s/ David J. Turner
- ------------------------------------
Name: David J. Turner
Title: Finance Director
4
<PAGE> 1
EXHIBIT (c)(5)
TERMINAL TOWER
50 PUBLIC SQUARE/SUITE 3200
[SINTER METALS, INC. LOGO] CLEVELAND, OH 44113
SINTER TELEPHONE: (216) 771-6700
METALS, INC. FAX: (216) 344-7631
- --------------------------------------------------------------------------------
JOSEPH W. CARRERAS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
April 29, 1997
GKN Powder Metallurgy Holdings, Inc.
3300 University Drive
Auburn Hills, Michigan 48321
Dear Sirs:
Reference is made to the Agreement and Plan of Merger, dated as of the
date hereof (the "Agreement"), between you and your subsidiary and Sinter
Metals, Inc. (the "Company"). This letter is to inform you that I currently
anticipate to continue my employment with the Company as Chief Executive Officer
for at least three months following the acquisition of shares of Common Stock
pursuant to the Offer (as each term is defined in the Agreement). I intend to
work with you in good faith towards achieving our goals during what undoubtedly
will be a most challenging period following the Company's acquisition.
Very truly yours,
/s/ Joseph W. Carreras
<PAGE> 1
EXHIBIT (g)
[LOGO]
GKN plc REPORT & ACCOUNTS 1996
A GLOBAL BUSINESS COMMITTED TO EXCELLENCE
<PAGE> 2
[LOGO]
CONTENTS
Corporate Profile 2
----------------------------------------------------------------
Chairman's Statement 4
Directors 8
Review of Operations 15
People and the Community 40
Financial Review 47
Financial Statements 54
Directors' Report 77
Remuneration Committee Report 80
Notice of Meeting 87
Subject Index 92
- 1 - GKN REPORT & ACCOUNTS 1996
<PAGE> 3
CORPORATE PROFILE
GKN is a strategically focused group of companies committed to
excellence. With annual sales exceeding(pound)3 billion it has
operations in some 40 countries. The Group employs 30,000 people in its
subsidiaries and a further 11,500 in associated companies. GKN is a
world leader in many of its operations. These include designing,
developing and manufacturing automotive and agritechnical components;
aerospace and defence products; and the provision of industrial
services.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C> <C>
Sales 3337.0 3304.7
Profit before tax 92.8 322.4
Profit before tax and exceptional items 363.1 328.0
(Loss)/earnings per share (12.0)p 53.9p
Earnings per share before exceptional items 65.2p 57.3p
Dividend per share 26.5p 24.0p
Net cash resources 528.3 464.3
</TABLE>
GKN REPORT & ACCOUNTS 1996 - 2 -
<PAGE> 4
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
AEROSPACE AND SPECIAL VEHICLES
INDUSTRIAL SERVICES
<PAGE> 5
CHAIRMAN'S STATEMENT
Introduction 1996 was another record year for GKN in both pre-tax
................. profits and earnings per share before exceptional
items. The net cash of [pound sterling] 528 million
at the end of the year provides a sound platform
for further growth.
Strategy Our ongoing strategy is to reduce the cyclical
................. imbalance of the Group by concentrating on core
businesses that are influenced by different business
cycles and to balance the cash consuming businesses
with those that generate cash. Underlying this
strategy is the drive for growth and our strong
financial position will be used to grow our existing
businesses organically and to add to them through
acquisitions where there is a good strategic fit.
Operations Detailed comments on Operations in 1996 are contained
................. in the Review of Operations on pages 13 to 39. Some
of the more important features are summarised below.
...Automotive GKN is the world market leader in constant velocity
................. joints. This position is sustained by substantial
expenditure on product and process development which,
on driveline products, was [pound sterling] 61
million in 1996.
The new automotive driveline plant near Florence, in
which [pound sterling] 50 million has been invested,
was officially opened in July and is now operating at
planned production levels. Our capability to produce
driveline products throughout the world continues to
grow and production in subsidiary and associated
companies now takes place in 18 countries with the
prospect of adding at least a further two in 1997. In
a number of countries, GKN has multiple production
facilities.
Growth in 1996 was not restricted to the core
driveline business and good performances were
achieved in the businesses producing powder
metallurgy components, wheels and automotive
structural parts. Emitec, which produces metal
substrates for catalytic converters, also performed
well and its new production facility in North America
will be fully operational in the middle of 1997.
...Aerospace At the end of 1996 the order book exceeded [pound
and Special Vehicles sterling] 4.2 billion with deliveries planned through
................. to the year 2003. We are extremely active in export
markets across our product range, and successes in
1996 included a four year contract for the support of
Warrior in Kuwait, an order for the supply of 40
Piranha armoured vehicles for the State of Qatar, and
an order from the German government for seven Super
Lynx helicopters. A number of important contracts
have been won for the supply of aircraft structures
and environmental systems and looking forward these
are business areas in which we wish to expand.
GKN REPORT & ACCOUNTS 1996 - 4 -
<PAGE> 6
--------------------------------
[LOGO]
[PHOTO]
4
Sir David Lees (right) with C K Chow, Chief Executive
...Industrial The growth of the Chep pallet and container pooling
Services operations continued in 1996 and by the end of the
................. year Chep businesses in which GKN has a 50% or
greater interest controlled 62 million pallets in 16
countries. This compares with 53 million in 1995 and
44 million in 1994. Product development plays an
important part in the Chep business and work
continues on the development of specialised
containers for reusable secondary packaging and a low
cost full specification plastic pallet. The business
for automotive containers continues to grow.
Cleanaway, in which GKN has a 50% interest, made good
progress in 1996 and expanded in continental Europe
with further investment in Holland and also through
the acquisition of Mabeg, a waste management company
based in northern Germany.
- 5 - CHAIRMAN'S STATEMENT
<PAGE> 7
Meineke The litigation involving Meineke Discount Muffler
litigation Shops Inc, a wholly owned subsidiary of GKN, is
................. referred to in the notes to the accounts on page 72.
On 6th March 1997, judgement was entered by a US
District Court in North Carolina against Meineke and
one of its subsidiaries, its immediate parent, GKN
Parts Industries Corporation, and its ultimate
parent, GKN plc, awarding damages to the plaintiffs
of $591 million plus interest of $10 million accruing
since the jury verdict issued on 18th December 1996.
This will be reduced by not less than 34% being the
value of the releases given by certain franchisees.
The judgement will be the subject of further legal
submissions which will take a month or so to resolve.
Thereafter, we shall be free to file an appeal with
the US Court of Appeals, which it is expected will
take about 18 months to be determined.
We are advised that our grounds for appeal are very
strong and cover both substantive and procedural
issues. As we are in the middle of a legal process,
it would be inappropriate to comment further on the
case at this time. As a matter of prudence, we have
made a provision in the 1996 accounts of [pound
sterling] 270 million, based on the judgement
referred to above and which includes the legal costs
of appeal and interest accruing until the end of
1998. This provision should not be interpreted as
our view of the likely outcome of an appeal.
Results The results for 1996 are described in detail in the
................. Financial Review on pages 47 to 52.
Profit before tax and exceptional items at [pound
sterling] 363 million was more than 10% higher than
in 1995. The strengthening of sterling in the latter
months of the year had an adverse effect on the
translation of overseas profits.
Further progress was again made in 1996 in margin
improvement and this was reflected in each of the
three business segments. For the Group as a whole,
the pre-exceptional operating profit margin to sales
increased from 9-7% in 1995 to 10-5%. Additional
information is contained in the segmental analysis on
page 74.
The generation of cash is an essential precursor to
the delivery of the Group's growth objectives and
another strong cash flow performance was achieved in
1996. At the end of the year net cash amounted to
[pound sterling] 528 million or [pound sterling] 334
million after deduction of advance payments from
customers. This latter figure is [pound sterling] 111
million higher than at the end of the preceding year.
Dividend Earnings per share before exceptional items increased
................. by 13.8%. The total dividend for 1996 is increased by
10.4% from 24.0p to 26.5p. The cover for the
increased dividend before exceptional items is 2.5
times.
Employees There are 30,000 people working in our subsidiary
................. companies and a further 11,500 in our joint venture
and associated companies. Our success is due, more
than anything else, to their efforts which are
gratefully acknowledged.
GKN REPORT & ACCOUNTS 1996 - 6 -
<PAGE> 8
The Board Over the last 15 months or so shareholders have been
................. kept informed about our succession plans in
anticipation of my reaching normal retirement age at
the end of 1996. We announced last April that Mr C K
Chow would be joining the Board as Chief Executive
designate on 1st July 1996, having completed almost
20 years with The BOC Group, the last two of which as
a Main Board Director with responsibility for the
Gases Division.
On 1st January this year, Mr Chow became Chief
Executive of the Group and I became Chairman in a
non-executive capacity. Many companies have now split
the role of Chairman and Chief Executive reflecting
what today is considered to be good corporate
governance practice. For the division of
responsibility to be fully effective, it is essential
that the respective roles of the Chairman and the
Chief Executive are unambiguous and that there is
mutual respect and understanding between the two
individuals. In this regard, 1997 has started well.
At the end of 1996, Sir Peter Cazalet retired as a
non-executive Director and Deputy Chairman, having
joined the Board in that capacity in 1989. His
contributions to the Board and to the Remuneration
and Audit Committees, of which he was Chairman, have
been considerable and, on a personal note, his
support and advice have been greatly appreciated.
We were pleased to announce in November the
appointment of The Baroness Hogg as a non-executive
Director. Sarah Hogg is Chairman of London Economics
and has a wide experience in policy, economics and
business journalism.
The role of the non-executive Director is not only
about corporate governance, important and time
consuming though that is. It is also about working
with the executive Directors to grow and develop the
company. That is best done if the Board operates as a
single and effective unit which is what we both aim
for and are achieving.
Outlook In 1997 our automotive businesses should improve
................. although markets are forecast to be fairly flat in
Europe and North America. Chep should again have a
strong year and further advances are expected in
Aerospace and Special Vehicles.
Although the recent strength of sterling will not
have a significant transaction impact, it will affect
the translation of overseas profits. Nevertheless, we
expect 1997 to be another year of progress for GKN.
/s/ DAVID LEES
10th March 1997
- 7 - CHAIRMAN'S STATEMENT
<PAGE> 9
DIRECTORS
[PHOTOS]
5
GKN REPORT & ACCOUNTS 1996 - 8 -
<PAGE> 10
----------------------------
[LOGO]
[PHOTOS]
The GKN Board at the new GKN Componenti Firenza plant in Campi Bisenzio near
Florence, Italy.
Foreground (left to right):
C K Chow
Trevor Bonner
Sir David Lees
Dr John Parker
David Turner
The Baroness Hogg
Sir Bryan Nicholson
Background (left to right):
Marcus Beresford
Dr Klaus Murmann
David Wright
Sir Peter Cazalet
Brian Insch
Grey Denham (Secretary)
Roy Brown
- 9 - GKN REPORT & ACCOUNTS 1996
<PAGE> 11
DIRECTORS' BIOGRAPHIES
Sir David Lees Age 60. Joined GKN in 1970. Appointed Chairman and
CHAIRMAN Chief Executive in 1988. On reaching normal retiring
age, became non-executive Chairman on 1st January
1997. Non-executive Chairman of Courtaulds plc and a
non-executive Director of the Bank of England.
C K Chow Age 46. Joined GKN in July 1996 as Chief Executive
CHIEF EXECUTIVE designate and became Chief Executive on 1st January
1997. Formerly a Director of The BOC Group plc and
Chief Executive of BOC Gases worldwide. A
non-executive Director of Standard Chartered plc.
Marcus Beresford Age 54. Joined GKN as an executive Director in 1992
MANAGING DIRECTOR and in the same year was appointed Managing Director
GKN INDUSTRIAL SERVICES GKN Industrial Services. A non-executive Director of
CAMAS plc and a member of the Advisory Committee on
Business and the Environment.
Trevor C Bonner, CBE Age 53. Joined GKN in 1968. Appointed a Director in
MANAGING DIRECTOR 1985, a Managing Director in 1987 and became Managing
GKN AUTOMOTIVE AND Director GKN Automotive and Agritechnical Products in
AGRITECHNICAL PRODUCTS 1994. A non-executive Director of Avon Rubber plc and
a Vice-President of the Society of Motor
Manufacturers and Traders.
David J Wright Age 56. Joined GKN in 1989. Appointed to the Board as
MANAGING DIRECTOR Managing Director GKN Aerospace and Special Vehicles
GKN AEROSPACE AND in 1995. Chairman of the Defence Manufacturers'
SPECIAL VEHICLES Association and a Director of The Society of British
Aerospace Companies Ltd. A non-executive Director of
Legal & General Recovery Investment Trust plc.
Brian D Insch Age 55. Joined GKN in 1963. Appointed a Director in
HUMAN RESOURCES DIRECTOR 1986 and became Human Resources Director in 1987.
David J Turner Age 52. Joined GKN in 1993 on appointment to the
FINANCE DIRECTOR Board as Finance Director. A non-executive Director
of Iron Trades Insurance Company Ltd.
Roy D Brown Age 50. Appointed a non-executive Director in January
NON-EXECUTIVE DIRECTOR 1996. A Director of Unilever plc and Unilever NV.
Sarah Hogg Age 50. Appointed a non-executive Director in
NON-EXECUTIVE DIRECTOR November 1996. Chairman of London Economics Ltd and a
non-executive Director of National Provident
Institution and The Energy Group plc.
Dr Klaus H Murmann Age 65. Appointed a non-executive Director in 1995.
NON-EXECUTIVE DIRECTOR Chairman and Chief Executive Officer of
Sauer-Sundstrand Group. Other appointments include
Vice-Chairman of Gothaer Versicherungsbank and a
non-executive Director of Bankgesellschaft Berlin AG,
Fried Krupp AG Hoesch-Krupp and Preussen Elektra AG.
Sir Bryan Nicholson Age 64. Appointed a non-executive Director in 1991.
NON-EXECUTIVE DIRECTOR Chairman of British United Provident Association
(BUPA). Other appointments include non-executive
Director of LucasVarity plc and Equitas Holdings Ltd.
Dr T John Parker Age 54. Appointed a non-executive Director in 1993.
NON-EXECUTIVE DIRECTOR Chairman of Babcock International Group plc and a
non-executive Director of BG plc.
COMPANY SECRETARY Age 48. A barrister, joined GKN in 1980 and appointed
Grey Denham Company Secretary in May 1996.
GKN REPORT & ACCOUNTS 1996 - 10 -
<PAGE> 12
ORGANISATIONAL STRUCTURE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CHAIRMAN
Sir David Lees
NON-EXECUTIVE
DIRECTORS
R D Brown
The Baroness Hogg
Dr K H Murmann
Sir Bryan Nicholson
Dr T J Parker
CHIEF EXECUTIVE
C K Chow
GKN Automotive Driveline Division
MANAGING DIRECTOR GKN Agritechnical Products Division
FINANCE DIRECTOR GKN AUTOMOTIVE AND GKN Sankey Division
D J Turner AGRITECHNICAL PRODUCTS GKN Powder Metallurgy Division
T C Bonner, CBE GKN Service Division
GKN Sheepbridge Stokes
MANAGING DIRECTOR GKN Westland Aerospace Division
HUMAN RESOURCES GKN AEROSPACE AND GKN Westland Helicopters Division
DIRECTOR SPECIAL VEHICLES GKN Westland Technologies Division
B D Insch D J Wright GKN Defence Division
Chep South Africa
COMPANY SECRETARY MANAGING DIRECTOR Meineke
G Denham GKN INDUSTRIAL SERVICES Chep in Europe
M Beresford Chep USA
Cleanaway
</TABLE>
- 11 - GKN REPORT & ACCOUNTS 1996
<PAGE> 13
THE BOARD AND ITS COMMITTEES
The Board of Directors is primarily responsible for
Group strategy and budgets, acquisition and
divestment policy, and the approval of major capital
expenditure and financing arrangements. It normally
meets monthly. Specific responsibilities have been
delegated to the following standing committees:
COMMITTEE MEMBERS COMMITTEES
EXECUTIVE COMMITTEE
The executive The Executive Committee meets monthly. It oversees
Directors under the the activities of the Group and approves major human
chairmanship of the resource policy issues including management
Chief Executive development and training.
CHAIRMAN'S COMMITTEE
The non-executive The Chairman's Committee normally meets before Board
Directors and the meetings and is a forum for the Chairman and the
Chief Executive under Chief Executive to brief the non-executive Directors.
the chairmanship of It also reviews proposals for major changes in Group
the Chairman structure and Board responsibilities, and reviews and
recommends new appointments of executive and
non-executive Directors for consideration by the
Board.
AUDIT COMMITTEE
The non-executive The Audit Committee meets at least twice a year and
Directors (except more frequently if required. It examines the process
Dr K H Murmann) of internal control and financial reporting and
under the reviews changes in Group accounting policies. It also
chairmanship of reviews the scope of the audit with the external
Dr T J Parker auditors and the results of the work of the internal
audit department.
REMUNERATION COMMITTEE
The non-executive The Remuneration Committee meets periodically as
Directors under the required. It determines the policy on executive
chairmanship of Directors' remuneration and is responsible for
Sir Bryan Nicholson approving the terms of service and setting the
remuneration of the executive Directors and the
Company Secretary. The Committee's report on
Directors' remuneration is given on pages 80 to 86.
Until 31st December 1996 Sir David Lees was chairman
of the Executive Committee and Sir Peter Cazalet was
chairman of the Audit and Remuneration Committees.
GKN REPORT & ACCOUNTS 1996 - 12 -
<PAGE> 14
REVIEW OF OPERATIONS
[LOGO]
- 13 -
<PAGE> 15
Segmental Analysis of Sales
1996 sales of continuing operations ((pound)3326 million)
including GKN's share of associated companies
By business
.................
<TABLE>
<CAPTION>
<S> <C> <C>
Automotive and
Agritechnical
Products [pound sterling]2002m (60%)
[PIE CHART]
Aerospace and
Special Vehicles [pound sterling] 961m (29%)
Industrial Services [pound sterling] 363m (11%)
</TABLE>
By region
of origin
.................
<TABLE>
<CAPTION>
<S> <C> <C>
Continental
Europe [pound sterling]1206m (36%)
Rest of the world [pound sterling] 162m (5%)
[PIE CHART]
United Kingdom [pound sterling]1440m (43%)
America [pound sterling] 518m (16%)
</TABLE>
GKN REPORT & ACCOUNTS 1996 - 14 -
<PAGE> 16
- --------------------------------------------------------------------------------
[FRAME]
Audi
- --------------------------------------------------------------------------------
[LOGO]
The GKN components which appear on this illuminated chassis frame of the Audi A8
Quattro include constant velocity driveshafts, propeller shaft, viscous
couplings, catalytic converter and chassis components.
- 15 - REVIEW OF OPERATIONS
<PAGE> 17
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
- --------------------------------------------------------------------------------
REVIEW OF OPERATIONS
GKN is one of the world's leading independent suppliers of automotive and
agritechnical components and systems. Driveline products and systems is the
primary activity and the Group is the world's largest producer of constant
velocity joints and driveshafts, with which most modern cars and many light
commercial vehicles are fitted. The driveline product range also includes
universal joints, propeller shafts and enhanced traction devices. Other
important automotive products are metal substrates for catalytic converters,
chassis assemblies and sub-assemblies, sintered metal components and engine
cylinder liners.
The global expansion of the Group's automotive activities continued vigorously
throughout 1996 and major developments took place in Poland, South Korea and
China. These developments, some of which are in the form of joint ventures,
reflect GKN's strategic commitment to establishing a leading presence in all the
emerging or developing markets. Such investments enable the Group to contribute
to, and to benefit from, the economic and industrial progress of these markets.
GKN is also the world's leading manufacturer of power take-off shafts and
produces a range of gearboxes, tractor attachment systems, wheels and cabs for
agricultural and other off-road uses.
- --------------------------------------------------------------------------------
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
Continuing operations -- 1996
<TABLE>
<CAPTION>
SALES BY BY
ORIGIN MARKET
[pound sterling]m [pound sterling]m
<S> <C> <C>
United Kingdom 366 329
Continental Europe 1096 1045
America 407 444
Rest of the world 133 184
-----------------------------
2002 2002
-----------------------------
</TABLE>
Sales*
[pound sterling]1851m [PIE CHART]
[pound sterling] 151m
Operating profit*
[pound sterling] 161m [PIE CHART]
[pound sterling] 27m
/ / Subsidiaries
/ / Share of associated
companies
*proportion of Group total
GKN REPORT & ACCOUNTS 1996 - 16 -
<PAGE> 18
[LOGO]
[PHOTO]
7
TGV
GKN Glaenzer Cardan in France supplies propeller shafts for use in the latest
TGV trains including the Thalys and Eurostar (above).
[PHOTO]
8
Trevor Bonner
MANAGING DIRECTOR
- 17 - REVIEW OF OPERATIONS
<PAGE> 19
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
Automotive and agritechnical products sales in 1996 rose to
[pound sterling] 2,002 million -- an increase of 2-5% over
1995.
Growth potential The core automotive driveline business continues to see
.............. significant development prospects. There is a clear strategy
in place to invest in developing markets, to take advantage of
outsourcing opportunities, to maintain technological
excellence, and to continue to improve operational
performance. In this context it is pleasing to report that
Lohr & Bromkamp is the first German company to receive the
Japanese Institute for Plant Maintenance award for excellence.
Substantial new business is expected for GKN Sankey's
Engineering Products division, arising from new customer
models and the anticipated medium-term growth in UK vehicle
output. The potential for sintered metal components and
catalytic converter substrates is considerable.
In agritechnical products, good growth prospects are being
generated by the ability to offer a GKN-sourced systems
solution, covering the entire driveline, which is widely
accepted by many major manufacturers. Strong efforts are being
made in developing countries such as India and in the low cost
segments of the market.
Car and light Worldwide production of cars and light commercial vehicles in
vehicle 1996 is estimated to have grown by some 3.7% to around 50
production million units. This increase was mainly outside the major
.............. traditional producing areas.
PRODUCTION OF CARS AND LIGHT COMMERCIAL VEHICLES
(not exceeding 6 tonnes gvw)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Source: DRI MILLION UNITS
1996 1995 1994 1993 1992
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United Kingdom 1.88 1.74 1.67 1.56 1.51
Western Europe 13.39 12.95 12.39 10.89 13.26
North America 13.85 14.01 14.21 12.81 11.43
Japan 9.82 9.61 9.98 10.64 11.85
Rest of the world 12.46 11.28 10.60 10.08 8.84
- --------------------------------------------------------------------
World 51.40 49.59 48.85 45.98 46.89
- --------------------------------------------------------------------
Double counting content 1.81 1.76 1.73 1.44 1.49
- --------------------------------------------------------------------
Net production 49.59 47.83 47.12 44.54 45.40
</TABLE>
Continental Continental European car demand recovered from the 1995
European slowdown and new car registrations rose by some 7% although
car markets production increased by only 2%. The increase in registrations
.............. was higher than expected and owed much to government and
vehicle manufacturers' incentive schemes.
GKN REPORT & ACCOUNTS 1996 - 18 -
<PAGE> 20
[PHOTO]
9
INVEL
[LOGO]
GKN Invel Transmissions has three constant velocity joint production plants in
India, two near Delhi, at Faridabad (above) and at Dharuhera, and one at
Chennie. Invel has the capacity to manufacture in excess of 400,000 vehicle sets
per year for customers including Maruti, Ford, Peugeot and Fiat.
- 19 - REVIEW OF OPERATIONS
<PAGE> 21
- -------------------------------------------------------------------------------
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
UK car market Car production in the UK grew by 10% to 1.7 million vehicles.
............. The increase was well ahead of the growth in UK sales which
broke through the two million barrier and finished the year 4%
up on 1995. Private registrations for the year were 0.9
million, an increase of 3.4%, while fleet and business
registrations were up 4.7% at 1.1 million. 62% of the UK
market was accounted for by imported vehicles, compared with
59% in 1995.
North American Production of cars and light trucks was marginally below the
market 1995 level while registrations rose by some 2.7%. Car and
............. light truck sales were 9.2 million and 7.1 million units
respectively.
World market Worldwide demand for constant velocity joints grew by some 4%
for CVJs in 1996. Constant velocity joints are now produced by GKN in
............. France, Germany, India, Italy, Poland, Slovenia, Spain, UK,
USA and by associated companies in Argentina, Australia,
Brazil, China, Colombia, Malaysia, Mexico, South Africa and
Taiwan. In South Korea, assembly will start in late 1997 and
component manufacture will follow one year later.
Europe Sales of constant velocity joints and driveshafts from GKN's
............. European operations were broadly at the same level as 1995.
The new GKN Componenti Firenze plant in Campi Bisenzio near
Florence was opened officially in July and reached planned
production levels in the last quarter of the year.
In June, the outstanding minority interests in the Spanish
driveline subsidiaries were acquired and new investments in
precision forming were made in Germany and Spain.
North America GKN Automotive Inc's sales of constant velocity joints and
............. driveshafts were at a similar level to the previous year,
reflecting the trend in car and light vehicle production. The
company's operational performance improved, and profitability
increased somewhat. Further significant progress is targeted
for 1997.
Outsourcing Building on the success of the outsourcing agreement reached
............. with Fiat in Italy in 1994, a similar agreement was reached
during the year to establish constant velocity joint and
driveshaft manufacturing in Poland. GKN Automotive Polska
acquired the driveshaft business of Fiat Auto Poland in August
and will build a new facility to supply Fiat and, it is hoped,
other vehicle manufacturers established in Poland.
Developing Further progress was made in both expanding and deepening the
markets Group's involvement in developing markets, in many cases
............. building on existing joint venture arrangements.
China is a rapidly developing centre for car production in
which it is GKN's strategy to build a significant presence.
GKN first invested in China in 1988, taking a 25% share in the
newly formed Shanghai GKN Drive Shaft Company. This holding
was increased to 40% during 1996.
GKN REPORT & ACCOUNTS 1996 - 20 -
<PAGE> 22
- --------------------------------------------------------------------------------
[PICTURE]
10
Sankey
- --------------------------------------------------------------------------------
[LOGO]
An engine member for a Nissan vehicle undergoing high-load
fatigue testing in the new engineering centre at
GKN Sankey Engineering Products in Telford, England.
A second Chinese joint venture was formed during the year.
Jilin GKN Norinco Drive Shaft Company, in which GKN holds 50%
of the equity, will supply the automotive industry in northern
China.
In South Korea, GKN now has a 49% holding in Hanwha GKN
Driveshafts. This joint venture with Hanwha Machinery Ltd will
manufacture and assemble constant velocity joints and
driveshafts. Assembly is scheduled to start in late 1997,
supplying initially the new Samsung car factory near Pusan.
In Slovenia, GKN has increased its holding in Unior-Atras
since the end of 1996 from 46.5% to 74%. The company is the
only manufacturer of constant velocity joints and driveshafts
in the country.
Research and Research and development is vital to maintain GKN's position
development at the forefront of the design, development and manufacture of
............. driveline products and systems. In 1996, some [pound
sterling] 61 million was invested by the product development
centres in Germany, the UK and the USA, the Viscodrive
engineering centre in Japan, and
- 21 - REVIEW OF OPERATIONS
<PAGE> 23
- --------------------------------------------------------------------------------
[PICTURE]
11
Emitec South Carolina
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PICTURE]
12
Emitec - Catalytic converters
- --------------------------------------------------------------------------------
[LOGO]
Emitec, a joint venture between GKN and Siemens formed in 1986, produced its ten
millionth catalytic converter substrate in 1996. In April 1997 it will
officially open its first factory in the USA in South Carolina (top).
GKN REPORT & ACCOUNTS 1996 - 22 -
<PAGE> 24
- --------------------------------------------------------------------------------
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
by the automotive driveline companies. The development
objectives are to predict and provide for future market needs
and analyse and solve engineering problems.
Priorities include weight and cost reduction combined with
improvements in comfort and performance, particularly with
respect to NVH (noise, vibration and harshness). These, and
additional requirements for increased durability, higher
efficiency and down-sizing, have been met with the GKN new
generation driveshafts launched in 1995. The continuing need
for further improvement in these areas is the driving force
behind major development programmes in new and improved
materials, more efficient lubrication, advanced analysis and
simulation methods, and more capable and effective
manufacturing processes. In many cases key suppliers are also
heavily involved in developments.
Further Viscodrive manufactures viscous couplings and differentials
progress for and is the world leader in this field. The technology is based
Viscodrive on utilising a viscous fluid which responds smoothly but
............. firmly to small differences in speed. The main market is Japan
where Viscodrive Japan supplies all the vehicle manufacturers.
New opportunities have been identified there and in North
America. Total Viscodrive sales worldwide, at constant
exchange rates, increased by 8% to [pound sterling] 67.4
million.
Emitec growth Emitec is a joint venture between GKN and Siemens of Germany.
continues The company produces metal substrates for catalytic
............. converters, which have significant advantages over the
traditional ceramic materials. They are being adopted
increasingly by vehicle manufacturers and this trend will
continue as environmental legislation and the manufacturers'
and public concern for the environment leads to demand for the
most efficient systems. The new production facility in South
Carolina, USA, will be fully operational by mid-1997 and is
the first major investment for Emitec outside Europe.
Commercial The market for medium and heavy commercial vehicles in Western
vehicle market Europe deteriorated in 1996. Output of commercial vehicles
............. over 6 tonnes gross vehicle weight was down by some 9.6% at
328,000 units. The resulting reduction in demand for universal
joints and propeller shafts was compounded by the loss of some
business to in-house production at Mercedes-Benz.
At the end of the year, GKN acquired an 80% shareholding in
Italcardano Universal Giunti, an Italian manufacturer of
propeller shafts, propeller shaft components and double
universal joints for the commercial, off-highway and military
vehicle markets.
Agritechnical The recovery in the European agritechnical markets in 1994 and
markets 1995 continued partially in 1996 and the combine harvester and
............. tractor market was up by 8%. By contrast, sales to driveshaft
driven agricultural implement markets in Europe fell by 6%.
- 23 - REVIEW OF OPERATIONS
<PAGE> 25
- --------------------------------------------------------------------------------
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
In North America, demand for agricultural tractors and
implements remained flat and is likely to continue near 1996
levels in the current year. The Freedom to Farm Act passed in
April 1996 will accelerate the long process of structural
change within the farming community towards fewer but bigger
farms.
Further improvements were made in manufacturing performance
throughout GKN Agritechnical Products Division. Production
segmentation was largely completed at Lohmar in Germany and
productivity increases were achieved at the North American
production and assembly sites at Rodney in Canada and Burr
Ridge in the USA. At the GKN Walterscheid Getriebe gearbox
factory at Kirschau the major reorganisation project, started
in 1995, continued to progress with improvements being
achieved in manufacturing, quality and logistics performance.
The ability to offer systems solutions is a major advantage in
this market.
Wheels' strong GKN Wheels turned in another strong performance. Total volumes
performance increased with over one million wheels shipped, reflecting
............. strong demand worldwide from the agricultural tractor and
construction equipment industries. Additional investment in
manufacturing capacity took place during the year to keep pace
with market demand.
Powder Worldwide demand for sintered metal components is growing
Metallurgy strongly and GKN Powder Metallurgy Division supplies a broad
growth spectrum of customers. These include vehicle manufacturers,
continues automotive component suppliers, power tool producers and the
............. makers of household appliances.
Progress in 1996 was constrained by lack of capacity. However,
further capacity at the Bruneck plant in South Tyrol, Italy,
will be operational in 1997. Although profits in Italy were
reduced by exchange rate movements, overall 1996 was another
good year for the division.
Sankey Sales up by 8% and increased profits represented a further
Engineering good year for GKN Sankey Engineering Products, building on its
Products: position as a leading producer of automotive structural parts.
another Overall, service was improved further by the new engineering
good year centre at Telford which became fully operational during the
............. year, providing customers with an integrated design, prototype
and test facility in addition to manufacture and assembly of
parts.
Cylinder The steady growth in the cylinder liner business of GKN
liners' good Sheepbridge Stokes continued throughout 1996. The company is a
progress market leader in Europe, supplying cylinder liners for
............. automotive, marine and industrial engines. Major customers
include Ford, Rover, Cummins and Perkins.
GKN REPORT & ACCOUNTS 1996 - 24 -
<PAGE> 26
- --------------------------------------------------------------------------------
[PHOTO]
13
Powder Met.
- --------------------------------------------------------------------------------
[LOGO]
Quality is an important aspect of all GKN's work. The picture above shows the
teeth of an oil pump gear being checked against a master profile at GKN Bound
Brook Italy.
- 25 - REVIEW OF OPERATIONS
<PAGE> 27
Aerospace and Special Vehicles
- --------------------------------------------------------------------------------
REVIEW OF OPERATIONS
The GKN Aerospace and Special Vehicles portfolio is one of the UK's largest
defence businesses. It has four divisions: GKN Westland Helicopters and GKN
Defence operate internationally as prime contractors to government defence
organisations; and GKN Westland Aerospace and GKN Westland Technologies operate
as first tier suppliers.
GKN Defence is the UK's leading designer and manufacturer of light and medium
armoured vehicles for military, security and peacekeeping roles, and has built
over 60% of the British Army fleet of light armoured vehicles.
GKN Westland Helicopters is the UK's only helicopter design authority,
manufacturer and systems integrator. More than 1,000 Westland helicopters are in
service in 19 countries, achieving between them over six million flying hours.
GKN Westland Aerospace is a world leader in the design and manufacture of flight
critical structures and transmissions for civil and military aircraft.
GKN Westland Technologies designs, develops and manufactures high technology
life-support and environmental control systems and components for the aerospace,
defence, engineering and railway industries.
- --------------------------------------------------------------------------------
AEROSPACE AND SPECIAL VEHICLES
Continuing operations - 1996
<TABLE>
<CAPTION>
SALES BY BY
ORIGIN MARKET
<S> <C> <C>
[pound sterling]m [pound sterling]m
United Kingdom 938 408
Continental Europe 5 81
America 12 110
Rest of the world 6 362
----------------------------
961 961
----------------------------
</TABLE>
Sales*
[pound sterling]961m [PIE CHART]
/ / Subsidiaries
Operating profit*
[pound sterling]85m [PIE CHART]
*proportion of Group total
GKN REPORT & ACCOUNTS 1996 - 26 -
<PAGE> 28
[LOGO]
- --------------------------------------------------------------------------------
[PHOTO]
15
Piranha
- --------------------------------------------------------------------------------
GKN Defence won an order for the supply of 40 Piranha 8x8 wheeled armoured
vehicles to the State of Qatar.
-----------------------
[PHOTO]
14
-----------------------
David Wright
MANAGING DIRECTOR
- 27 - REVIEW OF OPERATIONS
<PAGE> 29
- --------------------------------------------------------------------------------
AEROSPACE AND SPECIAL VEHICLES
Record GKN Aerospace and Special Vehicles generated sales of
order book [pound sterling]961 million in 1996, an increase of 28%. At
............. the year-end, the order book was some [pound sterling]4.2
billion with deliveries scheduled through to the year 2003.
The split between military and civil products is
approximately 80:20.
Warriors to Deliveries of Desert Warriors to Kuwait, started in June 1995,
Kuwait were made through 1996 at the rate of ten per month and will
............. continue to completion of the contract in the second half of
1997. A team of some 60 GKN specialists is stationed in Kuwait
to support the Warrior training, and to commission and
maintain the vehicles. A four-year maintenance support
contract was secured in December 1996.
Piranhas The Sultanate of Oman ordered 80 Piranha 8x8 wheeled armoured
to Oman... vehicles in a range of variants in 1994. Deliveries were made
............. in 1995 and 1996 and will continue in 1997. These are backed
by a 25-year support contract.
...and Qatar The State of Qatar ordered 40 Piranha vehicles in November.
............. Deliveries will start in the second half of 1997.
Simbas to the Deliveries continued of the Simba armoured personnel carrier,
Philippines assembled at Subic Bay by Asian Armoured Vehicle Technologies
............. Corporation in which GKN Defence is a minority shareholder. By
the end of the year 146 had been delivered.
Multi-role In April, GKN Defence signed a Memorandum of Understanding
armoured with the German consortium of Krauss Maffei, Mak/Rheinmetall
vehicle and Wegmann. The team will tender for the development and
............. production of a new wheeled armoured vehicle for Germany, the
UK and France. In the UK, this is known as the multi-role
armoured vehicle (MRAV).
EH101... GKN Westland's newest helicopter is the EH101, developed in
............. partnership with Agusta of Italy. It is designed in a range of
variants to fulfil naval, utility and civil roles and
represents a major breakthrough in helicopter design.
...for the The first EH101 Merlin for the Royal Navy was delivered on
Royal Navy schedule in 1996 and will be followed by four more in 1997.
............. Over the following four years a further 39 will be delivered.
...for the RAF Development of the RAF's EH101 medium-lift support helicopter
............. variant is progressing well. Deliveries under this order for
22 EH101 Utility, with a sales value of some [pound sterling]
500 million, will start in 1999 and continue through to 2001.
GKN REPORT & ACCOUNTS 1996 - 28 -
<PAGE> 30
- --------------------------------------------------------------------------------
[PICTURE]
15
EH101-
- --------------------------------------------------------------------------------
[LOGO]
RN02, the first fully mission-equipped EH101 Merlin, on its maiden
flight from GKN Westland in January 1997. The aircraft
is one of 44 ordered for the Royal Navy.
- 29- REVIEW OF OPERATIONS
<PAGE> 31
- --------------------------------------------------------------------------------
[PICTURE]
16
Inlet duct
- --------------------------------------------------------------------------------
[LOGO]
GKN Westland Aerospace designs and manufactures advanced structures and
transmissions for civil and defence aircraft. A typical product is the
composite nacelle component shown above, the largest of its type.
GKN REPORT & ACCOUNTS 1996 - 30 -
<PAGE> 32
- --------------------------------------------------------------------------------
AEROSPACE AND SPECIAL VEHICLES
GKN Westland The contract to supply 67 GKN Westland Apache attack
Apache helicopters to the British Army was signed in March 1996. The
............. value of the contract is [pound sterling]2.2 billion. GKN
Westland, as prime contractor, and its US partner companies
McDonnell Douglas and Lockheed Martin are committed to an
industrial participation programme equal to the value of the
contract. 50% of this is to be on direct UK Apache work, and
to date in excess of [pound sterling]900 million of contracts
have been placed involving over 150 UK companies. Deliveries
to the British Army will start in 2000 and continue to 2003.
Lynx The first three Super Lynx were delivered to the Brazilian
............. navy in the second half of the year and a further six will be
completed during 1997. The same contract includes upgrading
five existing Lynx to Super Lynx standard, the first of which
has been delivered with the balance for completion during
1997.
In September, it was announced that the German government had
approved the purchase of seven Super Lynx in a contract valued
at some [pound sterling]100 million. These aircraft will
strengthen Germany's existing fleet of 17 MK88 Sea Lynx.
Production will start in 1997 with first deliveries two
years later.
Sea King Two MK3A search and rescue Sea Kings for the RAF were
............. delivered during 1996, completing a six aircraft contract
awarded in 1993. A further two search and rescue Sea Kings for
the Royal Norwegian Air Force were also handed over.
GKN Westland The year saw good progress on all fronts. In the largest area
Aerospace of activity, the design and manufacture of aircraft
............. structures, work was won on jet programmes including the
Boeing 747-400, the Boeing 737-600/700/800, the Bombardier
Global Express, the McDonnell Douglas MD90 and the Airbus
A340. Other highlights included a contract from British
Aerospace Airbus for the single-source supply of design
services, a design and manufacture contract from de Havilland
on the Dash 8-400 nacelle and confirmation of orders from the
US Department of Defense for the C130J for which GKN Westland
Aerospace is the sole source supplier of nacelles. In flexible
structures, contracts were won for the design and supply of
flotation systems for the Sikorsky S92 and S70 Black Hawk.
The second key business of GKN Westland Aerospace is the
design and supply of aircraft transmissions. The main
successes of the year were the award of a contract from BMW
Rolls Royce to design and supply the internal gearbox on the
BR715 engine, contracts from Hindustan Aeronautics on the
Advanced Light Helicopter transmission and a contract from GKN
Westland Helicopters for the Apache transmission.
- 31 - REVIEW OF OPERATIONS
<PAGE> 33
- --------------------------------------------------------------------------------
AEROSPACE AND SPECIAL VEHICLES
GKN Westland This division, a world leader in aircraft air conditioning and
Technologies oxygen systems, had a successful year and there was an 18%
............. increase in the order book. Normalair-Garrett's pioneering,
environmentally friendly air conditioning system for trains
was selected for Germany's new generation of high speed
passenger trains. In one of the largest development contracts
it has won, the company was chosen to supply environmental
controls and other systems for the Nimrod 2000, the new
maritime patrol aircraft for the RAF.
In addition to the business the division already has on the
Eurofighter, Normalair-Garrett secured a new contract during
the year for the supply of aircrew services. With production
go-ahead expected in 1997, the Eurofighter programme will
provide solid long-term business for the company.
GKN REPORT & ACCOUNTS 1996 - 32 -
<PAGE> 34
- --------------------------------------------------------------------------------
[PICTURE]
17
ICE train
- --------------------------------------------------------------------------------
GKN Westland Technologies has created a state-of-the-art air conditioning system
which will be fitted to the German railways' new generation of ICE 2.2 high
speed passenger trains. The system uses compressed air as a refrigerant
rather than ozone damaging chemicals such as CFCs.
- 33 - REVIEW OF OPERATIONS
<PAGE> 35
INDUSTRIAL SERVICES
- --------------------------------------------------------------------------------
REVIEW OF OPERATIONS
GKN's Industrial Services portfolio covers the Group's three
non-manufacturing businesses. These provide pallet and
container pooling, waste management and specialist automotive
services.
The Chep pallet and container pool in Southern Africa and the
Meineke exhaust franchise in the USA are wholly owned GKN
subsidiaries. Chep in Europe and America and the Cleanaway
waste management businesses are 50/50 joint ventures with
Brambles Industries of Australia.
CHEP
A management Chep provides a management service for the supply, rental and
service... control of the standard pallets and containers which underpin
............. the distribution of fast moving consumer goods. By the end of
1996, Chep operations had grown to control some 62 million
pallets in 16 countries, excluding Australia where the
business is wholly owned by Brambles. During the year, market
development started in South East Asia, and as part of the
Global Agreement with Brambles, 50% of the Chep businesses in
Malaysia and Singapore were acquired at the turn of the year.
...based on During 1996, Chep in Europe installed a new pan-European data
information network and established a new central data processing facility
technology designed to help provide a seamless service to its 150,000
............. approved delivery points.
- --------------------------------------------------------------------------------
INDUSTRIAL SERVICES
Continuing operations -- 1996
<TABLE>
<CAPTION>
SALES BY BY
ORIGIN MARKET
<S> <C> <C>
[pound sterling]m [pound sterling]m
United Kingdom 136 136
Overseas 227 227
------------------------------------------
363 363
Sales*
[pound sterling]50m
[PIE CHART]
[pound sterling]313m
/ / Subsidiaries
/ / Share of associated
companies
Operating profit*
[pound sterling]15m
[PIE CHART]
[pound sterling]63m
</TABLE>
*proportion of Group total
GKN REPORT & ACCOUNTS 1996 - 34 -
<PAGE> 36
-----------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
[PICTURE]
19
Plastic Food Pallets
- --------------------------------------------------------------------------------
Chep is expanding rapidly into new product areas. These RTP (returnable
transit packaging) trays are loaded with packaged goods and despatched
to major retailers. The trays are then collected by Chep, washed and
returned to the packaging company.
---------------------
[PHOTO OF MARCUS BERESFORD]
20
---------------------
Marcus Beresford
MANAGING DIRECTOR
- 35 - REVIEW OF OPERATIONS
<PAGE> 37
--------------------------------------------------------------
INDUSTRIAL SERVICES
...dependent Chep's success as a service business depends on its people. To
on people maintain its position at the leading edge of supply chain
............. management, the business continues to invest strongly in
education, development and training at all levels.
...bringing Pooling ensures that damaged wooden pallets are repaired,
environmental extending their working life and preventing disposal in
benefits landfill sites. Chep plastic pallets and containers at the end
............. of their life are re-ground and recycled. The development of
specialist containers for reusable secondary packaging, on
which trials are taking place in the UK, France and Spain,
will make a further important contribution to industrial
efficiency and to the environment.
Product The development of new products is ongoing. Recent innovations
development include a long-life plastic layer pad for glass container
............. distribution and a new plastic pallet which is undergoing
trials to meet the hygiene requirements of the food
ingredients sector. The use of transponders to track and
locate pallets is being investigated and Chep continues to
work on the development of low-maintenance plastic pallets
which will be able to replicate economically the load-carrying
capacity of wooden pallets.
Chep in Europe Chep in Europe again grew strongly, especially in France and
............. Spain, and the pallet pool reached 42 million pallets. In
December, Chep acquired a small French pallet pooling
business, Logistique Systeme Management (LSM), which will
assist the further penetration of the French market.
Development of the German market was boosted by Procter &
Gamble's decision in April to hire full-size pallets for all
its German operations. During 1996, the service was extended
into Austria and plans are in hand to expand into Scandinavia
in 1997.
Chep in For the fourth consecutive year, the American business grew
America strongly, confirming confidence in the region's prospects. The
............. pallet pool increased to 17.5 million pallets and, while
grocery dry goods remains the largest customer sector,
substantial advances were made in other markets, for example
produce and food service. Progress in Canada and Mexico was
steady and usage of Chep's NAFTA service increased as a number
of major US brands standardised on Chep. During the latter
part of the year the planned launch of a fresh produce
reusable crate pool was announced.
Chep in This wholly owned GKN subsidiary continued to make progress,
South Africa and bulk bins, used by the agricultural sector for the
............. harvesting of fruit and vegetables, showed excellent growth.
Chep expanded into Zimbabwe which, with the established
Namibian business and planned expansion into Botswana in 1997,
will provide a comprehensive Southern African service.
Automotive The European automotive container pool continued to grow. The
containers introduction of over 100,000 new large folding plastic
trading well containers progressed well at Ford. Small plastic container
............. movements for General Motors again exceeded 50,000 daily
GKN REPORT & ACCOUNTS 1996 - 36 -
<PAGE> 38
- --------------------------------------------------------------------------------
[PICTURE]
21
Coca Cola
- --------------------------------------------------------------------------------
[LOGO]
Chep's major market is fast moving consumer goods. Chep UK has provided a
management service for the supply, rental and control of pallets for Hall and
Woodhouse, the producers of the soft drink `Rio', since 1984.
- 37 - REVIEW OF OPERATIONS
<PAGE> 39
- --------------------------------------------------------------------------------
[PICTURE]
22
Recycling
- --------------------------------------------------------------------------------
[LOGO]
The Leto waste management business in Holland offers an industrial catalyst
recovery service which involves hydrolysis, phased separation and extraction of
high value precious metals. With a capacity of 250 tonnes per year, Leto
currently provides this service to a number of large chemical industries in
Europe.
GKN REPORT & ACCOUNTS 1996 - 38 -
<PAGE> 40
--------------------------------------------------------------
INDUSTRIAL SERVICES
deliveries in 14 European countries, and early in the year
Chep took on the management of all its standard large
containers in the same territories. The European service
attracted attention in North America where a trial is in
progress with a US automotive manufacturer.
CLEANAWAY
A year of Cleanaway increased its market penetration in the UK, extended
growth its range of services and made significant progress in its
............. European ambitions.
Cleanaway is a leading waste management company in the UK. The
market remained highly competitive, but overall profits showed
strong growth. The solid waste collection business continued
to grow, aided by a number of small acquisitions. Cleanaway's
UK facilities include landfill sites, transfer stations, a
high temperature incinerator, chemical treatment facilities, a
solvent recovery plant and waste management centres.
New contracts Two more municipal waste collection and recycling contracts
............. were won, and a five-year composting contract was negotiated
with Essex County Council. Demand for recovery and recycling
services increased, fuelled by growing environmental awareness
and the introduction of the landfill tax in October.
The River Transport of waste by river was converted to a fully
Thames containerised service, requiring extensive work both on the
............. company's fleet of barges and on shore.
Chemical waste The chemical waste business progressed well with the
............. introduction of specialised waste handling systems at the high
temperature incinerator providing the opportunity to offer new
services to customers.
Mainland The Leto operations in the Netherlands were enhanced by the
Europe acquisition of a 70% shareholding in Mirec of Eindhoven. Both
expansion Leto and Mirec performed well. These companies' services
............. include the treatment of paint wastes, recovering and
recycling catalysts and recycling electronic scrap. In
December, Cleanaway entered the German market with the
addition to its portfolio of Mabeg, acquired jointly by GKN
and Brambles. Based in northern Germany, Mabeg's activities
are focused on collection and recycling. It will provide a
sound base for further expansion and development in this
important market.
MEINEKE
Meineke Discount Muffler Shops is the second largest
specialist exhaust franchise in the USA with over 850 stores
throughout the country. The company performed well
notwithstanding the uncertainty and legal costs generated by
the ongoing class action litigation to which reference is made
in the Chairman's Statement (page 6) and the Accounts (page
72).
- 39 - REVIEW OF OPERATIONS
<PAGE> 41
PEOPLE AND THE COMMUNITY
--------------------------------------------------------------
The need for an effective and adaptable workforce is common to
all of GKN's businesses and the competition for skilled people
globally and at all levels is increasingly intense. The Group
seeks to attract the best candidates for each job and provide
opportunities for individual learning and development.
Having completed a period of consolidation and focus, GKN is
seeking growth. Additional skills will need to be deployed
over a wider span of businesses and over wider geographical
areas as the Group expands.
<TABLE>
<CAPTION>
--------------------------------------------------------------
Employees At end 1996 SUBSIDIARIES ASSOCIATED
............. COMPANIES
--------------------------------------------------------------
<S> <C> <C> <C>
United Kingdom 14,100 3,450
Continental Europe 12,300 2,300
The Americas 2,250 2,550
Rest of the world 1,350 3,200
--------------------------------------------------------------
Total 30,000 11,500
--------------------------------------------------------------
</TABLE>
Within subsidiaries, there were 1,100 fewer employees than at
the end of 1995, due mainly to the disposal of Parts Inc in
the USA. Numbers employed in ongoing businesses rose during
the year by 590.
The increase of 1,300 in numbers employed by associated
companies was largely accounted for by the acquisition of
Mabeg and growth elsewhere in Cleanaway and Chep.
Equal Throughout the world GKN supports the principle of equal
opportunities opportunity irrespective of sex, race, colour or creed, and
............. full and fair consideration is given to employment
applications from people with disabilities.
HEALTH AND SAFETY
Improvement The GKN Board receives an annual report on the performance of
targets Group companies as monitored against the corporate Health,
............. Safety and Environment Policy. The Group pays particular
attention to the achievement of continuous improvement across
all operations and has set improvement targets for each
business.
In 1996, GKN introduced half-year reporting on health and
safety, with key performance measures for each operation being
reviewed at executive Director level. Companies are also
required to benchmark performance against external
comparators. Internal review and audit systems at plant level
are supplemented by independent audit arrangements.
Safety awards In April, GKN Defence in Telford received a gold award from
............. the Royal Society for the Prevention of Accidents (RoSPA) in
recognition of its improved safety performance. GKN Hardy
Spicer's Birfield plant received a Safe Working award from the
Engineering Employers' Federation for a 25% reduction in
accidents over the previous year.
GKN REPORT & ACCOUNTS 1996 - 40 -
<PAGE> 42
[LOGO]
- --------------------------------------------------------------------------------
[PHOTO]
23
India
- --------------------------------------------------------------------------------
GKN places a high emphasis on training. At GKN Invel Transmissions in India each
employee receives training both on the job and in dedicated training facilities.
-------------------------
[PHOTO]
24
-------------------------
Brian Insch
HUMAN RESOURCES DIRECTOR
- 41 - REVIEW OF OPERATIONS
<PAGE> 43
--------------------------------------------------------------
PEOPLE AND THE COMMUNITY
ENVIRONMENT
GKN seeks to minimise the adverse environmental impact of its
activities, both in its operations and throughout the
life-cycle of its products.
Environmental Companies continued to demonstrate improvements in
audits environmental management systems. Seventeen companies in six
............. countries were audited by internal teams in 1996 and all
operational sites will have been audited by the end of 1997.
Examples of the Group's environmental activities are given
below:
Process In Italy, the new GKN Componenti Firenze plant near Florence
improvements has installed a sophisticated treatment plant for waste water.
............. Not only is the high quality treated water used for irrigating
the landscaped area surrounding the factory, but the company
has also significantly reduced its annual water bill.
GKN Bound Brook's plant at Bruneck in northern Italy has
introduced several programmes to reduce energy consumption.
Heat recovery from sintering furnaces has halved the
consumption of heating oil since 1990. Current projects
include a closed-loop water cooling unit which will reduce the
water required for cooling by 90%.
In the UK, GKN Westland Helicopters in Yeovil has joined a
consortium of local businesses headed by the Environment
Agency and local authorities to examine opportunities for
waste recycling and to exchange ideas on best practice for
waste elimination. Achievements so far include a 30% reduction
in chlorinated solvent emissions and a 10% saving in energy
cost.
In 1996, GKN Sankey in Telford introduced a `3R' programme --
reduce, re-use and recycle -- which has resulted in 2,000
cubic metres (equivalent to 20 double decker buses) of waste
packaging materials being recycled rather than disposed to
landfill.
Product GKN Technology in Wolverhampton is conducting life-cycle
development analysis on one of GKN's core products, the constant velocity
............. joint, to ensure that environmental impact is minimised at
every stage from initial concept, through production and use,
to recycling or disposal.
Environmental Perhaps the single most significant environmental breakthrough
breakthrough of the year was the adaptation by Normalair-Garrett of its air
............. conditioning systems for trains for which it won the
prestigious 1996 Environment Award for Engineers. The system
was originally developed for civil and military aircraft and
uses compressed air as a refrigerant rather than ozone
damaging chemicals such as CFCs. The first customer is
Deutsche Bahn, the national rail operator in Germany, which
has specified the system for its new generation of high speed
passenger trains.
EMPLOYEE TRAINING AND DEVELOPMENT
Investing GKN places a high priority on development of its workforce,
in people demonstrated by the fact that all principal UK businesses have
............. made formal commitments to achieving Investor in People status
and twelve are already accredited.
GKN REPORT & ACCOUNTS 1996 - 42 -
<PAGE> 44
- --------------------------------------------------------------------------------
[PHOTO]
43
Investors award
- --------------------------------------------------------------------------------
The Right Hon Gillian Shephard, Secretary of State for Education and Employment,
presents David Clarkson, General Manager of GKN Bound Brook's Lichfield plant,
with the Investor in People award achieved in August 1996.
Training GKN Automotive Driveline Division opened a new training centre
initiatives for its UK operations to provide off-the-job training for
............. first year apprentices using the modern apprenticeship
standard. The first intake started its training in September.
The UK operations' approach to implementation of the National
Vocational Qualification has been commended by the Engineering
Training Authority as a model of best practice.
Training activities may target immediate job needs, or
development of the individual for future opportunities, or
both. Richard Thornley, an engineer from GKN Westland
Helicopters, is in Japan on a scheme partly sponsored by the
European Commission; the programme comprises 12 months'
language and cultural awareness training and six months in
industry.
Teamworking Teamwork is encouraged across all GKN's operations.
............. Self-contained teams at GKN Westland in Yeovil are building
the new EH101 helicopter. Over 30,000 man hours of training
have been dedicated to this project, much of it focused on
preparing for the new manufacturing process.
- 43 - REVIEW OF OPERATIONS
<PAGE> 45
--------------------------------------------------------------
PEOPLE AND THE COMMUNITY
Staff at GKN's headquarters operations in Redditch and London
have undertaken an in-house course in `Quality Through
Teamwork'.
GKN European In March, the first meeting of the GKN European Forum was
Forum attended by 29 delegates. This is an information and
............. consultation body which meets the requirements of the European
Union Directive on works councils.
SAYE share The take up of share options under the Save As You Earn scheme
option scheme continued to rise; approximately 55% of eligible UK employees
............. now hold options over shares in GKN.
COMMUNITY INVOLVEMENT
Focus on The main emphasis of GKN's wider community involvement
education continues to be on education.
.............
In the UK, GKN continued its core support of both the
Technology Tree and Young Enterprise schemes for primary and
secondary schools respectively. The Group also contributed
towards the refurbishment of a travelling engineering
laboratory for Women in Science and Engineering (WISE).
GKN's assembly plant at Roxboro, North Carolina, supports the
education theme with three programmes: School-to-Work
transition, Adopt-a-School and a Teacher Intern scheme.
Activities range from GKN employees teaching team-building in
high schools to teachers working on company training
procedures during the summer break.
In France, GKN's main manufacturing plant at Arnage near Le
Mans takes in more than 100 trainees each year. Each trainee
has a mentor and spends between two weeks and three months
with the company.
Chep South Africa focuses on supporting the next generation
from disadvantaged communities. The company provides 20
bursaries annually for employees' children to attend secondary
or high school, and in 1996 provided nine tertiary
scholarships. A further four scholarships for non-employees
will be extended to six in 1997.
Company In 1996, donations for charitable purposes made by the Group
donations amounted to [pound sterling]437,000 of which [pound
............. sterling]353,000 was paid in the UK. In addition a further
[pound sterling]431,000 was contributed to community
activities in the UK and [pound sterling]139,000 overseas.
GKN REPORT & ACCOUNTS 1996 - 44 -
<PAGE> 46
FINANCIAL REVIEW
AND STATEMENTS
[LOGO]
- 45 -
<PAGE> 47
FINANCIAL CALENDAR
Preliminary announcement of results for 1996 6th March 1997
Annual General Meeting (Royal Lancaster Hotel, London) 15th May 1997
Second interim dividend on ordinary shares to be paid 16th May 1997
Half year results to be announced August 1997
Interim dividend on ordinary shares to be paid October 1997
Preliminary announcement of results for 1997 March 1998
Interest on GKN loan notes is payable on 30th June and 31st December.
Loan notes may be redeemed at par on any interest payment date before
31st December 1999 by giving not less than 30 days' notice in writing to the
Registrar (see inside back cover). Any outstanding loan notes will be redeemed
at par on 31st December 1999.
GKN REPORT & ACCOUNTS 1996 - 46 -
<PAGE> 48
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
PRESENTATION
OF RESULTS
.......... An exceptional provision of [pound sterling] 270 million has been
made in respect of litigation involving the US subsidiary, Meineke
Discount Muffler Shops Inc. In order to identify the effect of
this provision and to enable the results of normal trading to be
clearly seen, the format of the profit and loss account has been
changed from earlier years and contains a column showing the
impact of exceptional items.
Further, in order to show the results of associated companies on
the same basis as subsidiaries, the operating profit and net
interest of associates are now analysed separately on the face of
the profit and loss account. Comparative figures have been
re-stated accordingly.
EXCHANGE
RATES
.......... The Group is exposed to fluctuations in exchange rates on both
cross-border trading and the translation of the results of non-UK
companies into sterling in the consolidated accounts.
The risk on trading transactions is hedged by entering into
appropriate forward cover to ensure that commercial risk is
minimised. This applies to both our Automotive business and
Aerospace contracts. The former tends to be short term in nature
but for the latter, where significant elements of contract
exposure is in US dollars, cover is taken out for the entire
contract period.
The translation of the profit and loss account and cash flow
statement for overseas companies is at average exchange rates and
the year-on-year effect of changes is explained on a number of
occasions in this review. In 1996, movements in average rates have
not been material but the strengthening of sterling towards the
end of the year, if maintained, will have a significant impact on
1997 results.
The balance sheet is translated at year-end exchange rates but our
non-sterling investments are hedged in line with specific Board
approved levels so as to reduce the volatility in shareholders'
funds. As a matter of policy such assets are not completely hedged
and there are some currencies where hedging is either not possible
or only available at excessive cost. Thus there is inevitably some
exposure and the impact on shareholders' funds in 1996 was a
reduction of some [pound sterling] 38 million.
[PICTURE OF DAVID TURNER FINANCE DIRECTOR]
27
GKN REPORT & ACCOUNTS 1996
-47-
<PAGE> 49
- --------------------------------------------------------------------------------
CHANGES
IN THE
COMPOSITION
OF THE GROUP
.......... During the year the process of continuing to focus on core
businesses was augmented.
In June, the Group acquired the 34% shareholding not already owned
in its Spanish automotive operations. This has had the effect of
significantly reducing the profit attributable to minority
interests. In August, the newly established Polish subsidiary
acquired the driveshaft business of Fiat Auto Poland and, during
the course of the year, there was new investment in automotive
driveline joint ventures in South Korea and China. Although there
were start-up costs involved in all the new ventures they did not
materially affect the Group profit.
At the end of the year an 80% interest was acquired in the Italian
propeller shaft manufacturer, Italcardano Universal Giunti, and
Cleanaway entered the German market with the addition to its
portfolio of Mabeg, a German waste management company. Also in
December, Chep in Europe, in which the Group has a 50% stake,
acquired the French pallet pool business of LSM. As most of these
acquisitions were made in the latter part of the year there was no
profit or loss impact but all are included in the closing balance
sheet.
The sale of Parts Inc was completed in January 1996.
SALES
.......... Sales by continuing subsidiaries of [pound sterling] 2,862.6
million were [pound sterling] 259.8 million (10%) higher than
1995. After adjusting for changes in exchange rates, the
underlying improvement was somewhat higher at 11.3%. Most of the
increase arose in Aerospace and Special Vehicles where sales
improved by [pound sterling] 212 million (28.3%) to [pound
sterling] 961 million, reflecting a full years' production of
Kuwait Warrior and an increase in helicopter deliveries. At
constant exchange rates, Automotive and Agritechnical Products
improved by 4% to [pound sterling] 1,851 million in generally flat
markets for cars and agritechnical products and reduced demand for
commercial vehicles.
SALES BY CONTINUING SUBSIDIARIES
[BAR GRAPH]
1992-1994 restated to exclude Chep UK and include
Westland as subsidiary
Sales by associated companies of [pound sterling] 464.0 million
were [pound sterling] 52.9 million (12.9%) above 1995 but
excluding the impact of exchange rates the increase was 14.4%. The
major improvement was within Industrial Services where the total
increase at constant rates was 19.9%. All companies experienced
volume growth, particularly Chep USA as the development programme
continued to unfold.
GKN REPORT & ACCOUNTS 1996
-48-
<PAGE> 50
- --------------------------------------------------------------------------------
SALES BY CONTINUING ASSOCIATED COMPANIES
[BAR GRAPH]
1992-1994 restated to exclude Westland and include
Chep UK as 50% associate
OPERATING
PROFIT BEFORE
EXCEPTIONAL ITEMS
.......... Operating profit before exceptional items of continuing
subsidiaries of [pound sterling] 260.6 million was [pound
sterling] 23.8 million (10.1%) above 1995 which included an
[pound sterling] 8 million benefit in respect of a claim by GKN
Westland against the Canadian government for compensation on a
contract cancellation. After adjusting for this and an adverse
currency translation impact of [pound sterling] 4.2 million, the
increase was [pound sterling] 36 million or 16%.
At constant exchange rates, Automotive and Agritechnical Products
subsidiaries improved by [pound sterling] 11 million (7%) to
[pound sterling] 161 million as, in addition to the profit effect
of the sales increase, the operational performance in the USA and
at GKN Componenti Firenze continued to improve. In Aerospace and
Special Vehicles, profits increased by [pound sterling] 20 million
(31%), much in line with the sales growth, while in Industrial
Services the [pound sterling] 3 million reduction at constant
rates arose at Meineke through a combination of lower margins and
the costs of litigation. Redundancy and reorganisation costs were
[pound sterling] 8.6 million compared with [pound sterling] 4.9
million in 1995.
The Group share of associated company profits rose to [pound
sterling] 90.4 million from [pound sterling] 72.3 million in 1995,
an increase of 25%. After adjusting for the effect of exchange
rates, the increase was [pound sterling] 19.1 million or 26.8%,
virtually all of which arose in Industrial Services where profits
increased by [pound sterling] 19 million (43%) with gains in all
companies.
GROUP PROFIT AND NET INTEREST OF SUBSIDIARIES
[BAR GRAPH]
[ ] Profit before exceptional [ ] Interest [ ] Interest
items and taxation payable receivable
FINANCIAL REVIEW
-49-
<PAGE> 51
- --------------------------------------------------------------------------------
EXCEPTIONAL
ITEMS
.......... The major element of exceptional items is the [pound sterling]
270 million provision in respect of the Meineke litigation. This
comprises the amount of the judgement delivered on 6th March 1997
together with the legal costs of appeal and interest accruing
until the end of 1998. An appeal will be entered, the result of
which is unlikely to be known until late in 1998.
The other element of exceptional costs of [pound sterling] 0.3
million (1995 -- [pound sterling] 5.6 million) reflects net costs
relating to the divestment of Parts Inc in January 1996 and prior
year divestments.
INTEREST
.......... Interest receivable by subsidiaries was [pound sterling] 24.6
million compared with [pound sterling] 18.2 million in 1995 and
reflected an average cash balance of some [pound sterling] 459
million compared with [pound sterling] 334 million in the previous
year.
The Group share of interest payable by associated companies was
[pound sterling] 11.8 million compared with [pound sterling] 11.1
million a year earlier.
PROFIT
BEFORE TAX
.......... Profit before tax and exceptional items was [pound sterling]
363.1 million, an increase of [pound sterling] 35.1 million
(10.7%) over 1995. The post-exceptional figure of [pound sterling]
92.8 million compared with [pound sterling] 322.4 million last
year.
TAXATION
.......... The tax rate as a percentage of pre-exceptional profit before tax
fell to 33.8% from 34.8% a year earlier. This was largely due to a
further increase in the proportion of total profits earned in the
UK which allowed the absorption of [pound sterling] 21.0 million
of Advance Corporation Tax (ACT) written off in prior years. At
the end of 1996, ACT already written off and available for carry
forward for use against future corporation tax liabilities was
[pound sterling] 74.1 million.
The small tax charge on exceptional items arises primarily as the
result of capital gains tax on UK divestments. In view of the
uncertainties surrounding both the quantum and incidence of the
final Meineke judgement, no tax relief thereon has been assumed.
EARNINGS
AND DIVIDEND
.......... Earnings per share before exceptional items calculated on the
weighted average number of shares in issue during the year were
65.2p, an increase of 7.9p (13.8%) from 1995.
Including the second interim (in lieu of a final) dividend of
16.9p, the total dividend for the year of 26.5p represents a 2.5p
(10.4%) increase over 1995 and is covered 2.5 times by
pre-exceptional earnings.
EARNINGS AND DIVIDENDS PER SHARE
[BAR GRAPH]
[ ] Earnings per share before [ ] Dividend
exceptional items per share
GKN REPORT & ACCOUNTS 1996
-50-
<PAGE> 52
CASH FLOW
Cash flow from operations generated by subsidiaries was [pound sterling] 353
million (1995 --[pound sterling] 272 million) and was after a [pound sterling]
47 million reduction in the level of customer advances.
Cash spent on tangible fixed assets excluding hire stock was [pound sterling]
130 million compared with [pound sterling] 112 million in 1995. Total capital
expenditure, including accruals, was [pound sterling] 135 million or 155% of
depreciation and reflected major expansion and capacity replacement programmes
in the Group's driveline and other automotive operations and at GKN Westland for
systems development and tooling for the EH101 helicopter in advance of
production.
A total of [pound sterling] 96 million was spent on the acquisition of the
Spanish automotive minorities, Italcardano Universal Giunti, Mabeg and on
further investment in associates. GKN shares for subsequent allocation under the
newly introduced Long Term Incentive Plan were acquired at a cost of [pound
sterling] 8 million.
[pound sterling] 54 million was received from the sale of subsidiaries, [pound
sterling] 46 million of which related to Parts Inc with the balance deferred
consideration from prior year divestments.
Net cash inflow in the year was [pound sterling] 33 million (1995 - [pound
sterling] 151 million).
SUBSIDIARIES' CASHFLOW FROM
OPERATIONS AND OPERATING PROFIT
[BAR GRAPH]
[] Cashflow from operations [] Operating profit before
before advances exceptional item
TREASURY POLICY AND FUNDING
Appropriate policies are in place to ensure that the Group has sufficient
liquidity, is able to make investments or acquisitions without funding
constraint and can obtain funding at the lowest after-tax cost practicable.
These policies are designed to protect the Group from fluctuations in interest
rates and maintain the value of cash flows and net assets denominated in foreign
currencies.
At the end of the year there were net cash resources of [pound sterling] 528
million of which [pound sterling] 195 million related to cash received from
customers in advance of work carried out. The net figure is struck after a
number of borrowings, the largest of which are redeemable preference shares
issued under the Foreign Income Dividend legislation. These represent a useful
and most cost effective after-tax medium term source of finance for the Group.
FINANCIAL REVIEW
51
<PAGE> 53
The net cash position at the year-end is summarised below. Surplus cash is
invested with counterparties which have high quality credit rating.
<TABLE>
<CAPTION>
[pound sterling]m
<S> <C> <C>
Cash at bank and in hand:
customer advances 195
other 663
---
858
Borrowings (330)
----
Total net cash 528
</TABLE>
SHAREHOLDERS' EQUITY
There was a reduction in shareholders' equity to [pound sterling] 725 million at
the end of 1996 from [pound sterling] 926 million a year earlier with the major
factors being the pre-exceptional profit of the year offset by the creation of
the Meineke provision, the impact of goodwill on acquisitions and the adverse
effect of balance sheet currency translation.
EQUITY AND CASH
[BAR GRAPH]
[] Equity [] Borrowings [] Net cash
resources
GOING CONCERN
In view of the strength of the year-end balance sheet and in the light of future
funding requirements, the Directors are of the opinion that it is appropriate
for the financial statements to be prepared on a going concern basis. The
auditors have reported on this on page 76.
ACCOUNTING STANDARDS AND PRESENTATION
In October the Accounting Standards Board (ASB) published a revision to FRS 1 --
Cash Flow Statements and, as encouraged by the ASB, this has been adopted for
this year's accounts. The other new accounting requirements affecting the Group
in 1996 are FRS 8 -- Related Party Disclosures and UITF Abstract 13 --
Accounting for ESOP Trusts and reference is made to these, where appropriate, in
the financial statements.
GKN REPORT & ACCOUNTS 1996
52
<PAGE> 54
[GKN LOGO]
DIRECTORS' RESPONSIBILITY
FOR THE ACCOUNTS
At the end of each financial year the Directors are required by the Companies
Act 1985 to prepare accounts which give a true and fair view of the state of
affairs of the Company and of the Group and of the profit or loss of the Group
for that year. In preparing the accounts for the year ended 31st December 1996,
appropriate accounting policies, supported by reasonable and prudent judgements
and estimates, have been consistently used and UK applicable accounting
standards have been followed.
The Directors are responsible for ensuring that the Group keeps proper
accounting records which disclose with reasonable accuracy at any time the
financial position of the Group and which enable them to ensure that the
accounts comply with the Companies Act 1985. In addition, the Directors are
responsible for ensuring that an appropriate system of internal control is in
operation to provide them with reasonable assurance that the assets of the Group
are properly safeguarded and to ensure that reasonable steps are taken to
prevent or detect fraud and other irregularities.
On behalf of the Board
G DENHAM
Secretary 10th March 1997
REPORT OF THE AUDITORS
TO THE MEMBERS OF GKN PLC
We have audited the accounts on pages 54 to 74.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described above the Company's Directors are responsible for the preparation
of the accounts. It is our responsibility to form an independent opinion, based
on our audit, on those accounts and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
Directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the Company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
OPINION
In our opinion the accounts give a true and fair view of the state of affairs of
the Company and the Group at 31st December 1996 and of the result, total
recognised gains and losses and cash flows of the Group for the year then ended
and have been properly prepared in accordance with the Companies Act 1985.
COOPERS & LYBRAND
Chartered Accountants and Registered Auditors
Birmingham 10th March 1997
GKN REPORT & ACCOUNTS 1996
53
<PAGE> 55
[GKN LOGO]
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31ST DECEMBER 1996
<TABLE>
<CAPTION>
BEFORE
EXCEPTIONAL EXCEPTIONAL 1996 1995
ITEMS ITEMS TOTAL TOTAL
Notes [pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C>
SALES
Subsidiaries:
continuing operations 2862.6 -- 2862.6 2602.8
discontinued operations 10.4 -- 10.4 290.8
----------------------------------------------------------------------
2 2873.0 -- 2873.0 2893.6
Share of associated companies:
continuing operations 2 464.0 -- 464.0 411.1
----------------------------------------------------------------------
3337.0 -- 3337.0 3304.7
----------------------------------------------------------------------
OPERATING PROFIT
Continuing operations:
subsidiaries 3 260.6 (270.0) (9.4) 236.8
share of associated companies 90.4 -- 90.4 72.3
----------------------------------------------------------------------
351.0 (270.0) 81.0 309.1
Discontinued operations:
subsidiaries 3 (0.7) -- (0.7) 11.8
----------------------------------------------------------------------
TOTAL OPERATING PROFIT 350.3 (270.0) 80.3 320.9
EXCEPTIONAL ITEMS
Profits less losses on sale or
closure of subsidiaries 4 -- (0.3) (0.3) (5.6)
----------------------------------------------------------------------
PROFIT BEFORE INTEREST AND TAXATION 350.3 (270.3) 80.0 315.3
Interest receivable/(payable):
subsidiaries 5 24.6 -- 24.6 18.2
share of associated companies 5 (11.8) -- (11.8) (11.1)
----------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 363.1 (270.3) 92.8 322.4
Taxation 6 (122.7) (0.4) (123.1) (120.4)
----------------------------------------------------------------------
(Loss)/profit on ordinary activities after taxation 240.4 (270.7) (30.3) 202.0
Minority interests -- equity (11.7) -- (11.7) (14.6)
----------------------------------------------------------------------
(LOSS)/EARNINGS OF THE YEAR 228.7 (270.7) (42.0) 187.4
=============================
DIVIDENDS 7 (93.4) (83.7)
------------------------------
TRANSFER (FROM)/TO RESERVES 23 (135.4) 103.7
==============================
(LOSS)/EARNINGS PER SHARE 8 (12.0)p 53.9p
==============================
PROFIT BEFORE TAX AND EXCEPTIONAL ITEMS [pound sterling]363.1m [pound sterling]328.0m
==============================
EARNINGS PER SHARE BEFORE EXCEPTIONAL ITEMS 8 65. 2p 57. 3p
==============================
</TABLE>
The Group's share of profit before tax of associated companies amounted to
[pound sterling] 78.6 million (1995 -- [pound sterling]61.2 million).
GKN REPORT & ACCOUNTS 1996
54
<PAGE> 56
[GKN LOGO]
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT 31ST DECEMBER 1996
1996 1995
Notes [pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 10 699.2 707.1
Investments 11 187.2 179.0
--------------------------------------
886.4 886.1
--------------------------------------
CURRENT ASSETS
Stocks 12 328.3 405.2
Debtors 13 429.0 454.0
Investment in liquid resources 14 -- 100.0
Cash at bank and in hand 15 858.1 605.2
--------------------------------------
1615.4 1564.4
--------------------------------------
CREDITORS: amounts falling due within one year
Short term borrowings 16 (21.6) (24.0)
Creditors 17 (835.0) (900.0)
Taxation payable 18 (69.2) (74.8)
Dividend payable (59.6) (53.2)
--------------------------------------
(985.4) (1052.0)
--------------------------------------
NET CURRENT ASSETS 630.0 512.4
--------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1516.4 1398.5
CREDITORS: amounts falling due beyond one year
Term loans 19 (267.9) (171.6)
Obligations under finance leases 20 (32.9) (38.4)
PROVISIONS FOR LIABILITIES AND CHARGES 21 (450.1) (190.7)
--------------------------------------
NET ASSETS 765.5 997.8
======================================
CAPITAL AND RESERVES
Called up share capital 22 352.6 349.0
Share premium account 23 279.5 273.8
Revaluation reserve 23 61.2 56.9
Other reserves 23 (248.7) (212.0)
Profit and loss account 23 280.6 458.5
--------------------------------------
372.6 577.2
--------------------------------------
EQUITY INTEREST 725.2 926.2
Minority interests - equity 40.3 71.6
765.5 997.8
======================================
</TABLE>
The accounts were approved by the Board of Directors on 10th March 1997 and were
signed by:
DAVID LEES
DAVID J TURNER
Directors
GKN REPORT & ACCOUNTS 1996
55
<PAGE> 57
[GKN LOGO]
STATEMENT OF TOTAL RECOGNISED
GAINS AND LOSSES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31ST DECEMBER 1996 1996 1995
Notes [Pound Sterling]m
<S> <C> <C> <C>
(LOSS)/EARNINGS OF THE YEAR (42.0) 187.4
Currency variations 1 (38.2) 5.8
Property revaluation 4.0 --
Other gains and losses (1.4) (0.3)
------------------
TOTAL RECOGNISED GAINS AND LOSSES OF THE YEAR (77.6) 192.9
==================
</TABLE>
(Loss)/earnings of the year on an historical cost basis are not materially
different from those reported above.
RECONCILIATION OF MOVEMENTS IN
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31ST DECEMBER 1996 1996 1995
[Pound Sterling]m
<S> <C> <C>
TOTAL RECOGNISED GAINS AND LOSSES OF THE YEAR (77.6) 192.9
Dividends (93.4) (83.7)
Issue of ordinary shares net of costs 18.5 10.0
Purchased goodwill written off (48.5) (18.8)
Goodwill on businesses sold or closed -- 26.0
------------------
TOTAL (DECREASE)/INCREASE (201.0) 126.4
Shareholders' equity at 1st January 1996 926.2 799.8
------------------
SHAREHOLDERS' EQUITY AT 31ST DECEMBER 1996 725.2 926.2
==================
</TABLE>
MOVEMENT IN NET FUNDS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31ST DECEMBER 1996 1996 1995
[Pound Sterling]m
<S> <C> <C>
Increase in cash 21.2 57.6
Increase in liquid resources and financing 11.4 93.1
------------------
CASH INFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING 32.6 150.7
Currency variations 26.5 (16.2)
Net proceeds of ordinary share issues 9.3 4.7
Subsidiaries acquired and sold (4.0) 9.2
Net movement on finance leases (0.4) (0.3)
------------------
TOTAL INCREASE 64.0 148.1
Net funds at 1st January 1996 464.3 316.2
------------------
NET FUNDS AT 31ST DECEMBER 1996 528.3 464.3
==================
</TABLE>
GKN REPORT & ACCOUNTS 1996
56
<PAGE> 58
[GKN LOGO]
CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31ST DECEMBER 1996 1996 1995
Notes [Pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES
Subsidiaries 353.4 271.8
Dividends received from associated companies 33.7 34.2
------- -------
A 387.1 306.0
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 56.8 40.5
Interest paid (29.3) (23.9)
Dividends paid to minority interests (8.6) (7.9)
------- -------
18.9 8.7
TAXATION
United Kingdom (46.7) (35.2)
Overseas (70.3) (76.1)
------- -------
(117.0) (111.3)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (132.9) (125.5)
Sale of tangible fixed assets 7.3 6.9
Investment loans to associated companies (4.3) (1.5)
Other financial investments (8.1) --
------- -------
(138.0) (120.1)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiaries B (71.9) (17.1)
Purchase of associated companies (23.7) (32.0)
Sale of subsidiaries B 53.8 89.6
Sale of associated companies 1.2 98.9
------- -------
(40.6) 139.4
EQUITY DIVIDENDS PAID (77.8) (72.0)
------- -------
CASH INFLOW BEFORE USE OF LIQUID RESOURCES
AND FINANCING 32.6 150.7
MANAGEMENT OF LIQUID RESOURCES
Sale/(purchase) of bank loan note investment 100.0 (100.0)
Increases in short term loans and deposits (279.0) (23.3)
Decreases in short term loans and deposits 70.5 42.0
------- -------
C (108.5) (81.3)
FINANCING
Net proceeds of ordinary share issues 9.3 4.7
Issue of FID redeemable preference shares 300.0 --
Redemption of FID redeemable preference shares (200.0) --
Proceeds of other term borrowings 0.5 0.3
Repayment of other term borrowings (5.8) (9.4)
Finance leases (6.9) (7.4)
------- -------
C 97.1 (11.8)
------- -------
INCREASE IN CASH C 21.2 57.6
======= =======
</TABLE>
The 1995 comparative figures have been restated to reflect the requirements of
FRS 1 (Revised 1996).
GKN REPORT & ACCOUNTS 1996
57
<PAGE> 59
[GKN LOGO]
NOTES ON THE CASH FLOW STATEMENT
<TABLE>
<CAPTION>
A NET CASH INFLOW FROM OPERATING ACTIVITIES 1996 1995
[pound sterling]m
<S> <C> <C>
Operating profit from continuing operations 81.0 309.1
Share of associated company operating profit ([pound sterling]90.4m, 1995 --
[pound sterling]72.3m) net of dividends received ([pound sterling]33.7m, 1995 --
[pound sterling]34.2m) (56.7) (38.1)
Depreciation 86.8 80.5
Profit on sale of tangible fixed assets (1.5) (0.4)
Decrease/(increase) in stocks 8.0 (64.6)
Decrease in debtors 1.4 2.3
Increase in creditors 39.1 65.6
Increase in provisions 281.4 11.4
Decrease in customer advances (46.7) (63.4)
--------------------------
Cash inflow from continuing operations 392.8 302.4
Cash (outflow)/inflow from discontinued operations (5.7) 3.6
--------------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES 387.1 306.0
==========================
</TABLE>
<TABLE>
<CAPTION>
B PURCHASE AND SALE OF SUBSIDIARIES ACQUISITIONS SALES
1996 1995 1996 1995
[pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C>
Fixed assets (12.2) (6.4) 3.0 57.3
Working capital and provisions (5.5) (1.8) 42.8 21.7
Taxation payable 1.0 0.1 -- (1.5)
Cash 1.7 (3.5) 0.5 3.6
Loans and finance leases 4.0 3.4 -- (12.6)
Minority interests (31.8) (6.5) -- --
------ ------ ------ ------
(42.8) (14.7) 46.3 68.5
Change from associated company status -- 2.0 -- --
Surplus on sales -- -- 2.8 6.4
Goodwill (28.4) (4.8) -- 26.0
------ ------ ------ ------
Total consideration (71.2) (17.5) 49.1 100.9
Deferred consideration 1.0 (3.1) 5.2 (7.7)
------ ------ ------ ------
Consideration (paid)/received (70.2) (20.6) 54.3 93.2
Less: cash (1.7) 3.5 (0.5) (3.6)
------ ------ ------ ------
NET CASH (OUTFLOW)/INFLOW (71.9) (17.1) 53.8 89.6
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN 1996
C ANALYSIS OF MOVEMENTS NET FUNDS AT END OF YEAR -----------------------------------------------
IN NET FUNDS LIQUID
1996 1995 CASH RESOURCES FINANCING
[pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C> <C>
Bank loan note investment -- 100.0 -- (100.0) --
Bank balances and cash 168.8 114.2 54.6 -- --
Short term loans and deposits 689.3 491.0 -- 198.3 --
Bank overdrafts (18.2) (17.6) (0.6) -- --
Other short term borrowings (3.4) (6.4) -- -- 3.0
Term loans (267.9) (171.6) -- -- (96.3)
Finance leases -- due in more
than one year (32.9) (38.4) -- -- 5.5
-- due within one year (7.4) (6.9) -- -- (0.5)
------- ------- ------- ------- -------
528.3 464.3 54.0 98.3 (88.3)
======= =======
Net proceeds of ordinary share issues -- -- (9.3)
Subsidiaries acquired and sold
(excluding cash) -- -- 4.0
Non-cash movements -- finance leased
capital expenditure -- -- 0.4
-- currency variations (32.8) 10.2 (3.9)
------- ------- -------
NET CASH INFLOW/(OUTFLOW) 21.2 108.5 (97.1)
======= ======= =======
</TABLE>
Cash consists of cash in hand and bank balances and overdrafts repayable on
demand as defined by FRS 1. Liquid resources consist of short term investments,
loans and deposits excluding cash.
58
<PAGE> 60
NOTES ON THE ACCOUNTS
1 BASIS OF CONSOLIDATION
ACCOUNTING POLICIES
These accounts are prepared under the historical cost convention, as
modified by the revaluation of land and buildings, and comply with UK
applicable accounting standards including FRS 1 (Revised 1996) "Cash
Flow Statements" and FRS 8 "Related Party Disclosures" which are
adopted for the first time.
The Group's accounting policies are shown in the notes on pages 59 to
72. Local legislation prevents certain overseas subsidiaries from
conforming with the accounting policies adopted by the Group. Where
appropriate, adjustments are made on consolidation so that the group
accounts are presented on a uniform basis.
In order to bring the presentation of the Group's share of the profit
before tax of associated companies into line with that of subsidiaries,
the operating profit and net interest payable of associated companies
has been shown separately in the profit and loss account. Comparative
figures have been reanalysed accordingly.
COMPOSITION OF THE GROUP ACCOUNTS
The group accounts consolidate the accounts for the year to 31st
December 1996 of the Company and its subsidiaries.
SUBSIDIARIES ACQUIRED AND SOLD
The results of subsidiaries acquired or sold during the year are
included in the consolidated profit and loss account from the date of
acquisition or to the date of disposal. In the case of acquisitions
during the year the acquisition method of accounting has been used.
DISCONTINUED OPERATIONS
Profits or losses are analysed as discontinued operations where
businesses are sold or closed by the date on which the accounts are
approved. Where businesses are treated as sold or closed in the current
year, the prior year's analyses are restated to reflect those
businesses as discontinued.
FOREIGN CURRENCIES
The results and cash flows of overseas subsidiaries and associated
companies are translated to sterling at average exchange rates. Where
practicable, transactions involving foreign currencies are protected by
forward contracts. Assets and liabilities in foreign currencies are
translated at the appropriate forward contract rate or, if not covered,
at the exchange rate ruling at the balance sheet date. Differences on
revenue transactions are dealt with through the profit and loss
account.
Where practicable, the Group's overseas equity investments are hedged
by borrowings in the currencies in which those assets are denominated.
Differences arising on translation of overseas net assets less exchange
differences on borrowings which finance those net assets are dealt with
through reserves. The accounts of operations in countries where
hyper-inflationary conditions have existed, are prepared using a stable
currency before translation into sterling. The exchange rates used for
the currencies most important to the Group's operations are:
<TABLE>
<S> <C> <C> <C>
[pound sterling]1 = DM [pound sterling]1 = FF [pound sterling]1 = US$
1996 average 2.36 8.02 1.57
1995 average 2.26 7.87 1.58
1996 year end 2.64 8.90 1.71
1995 year end 2.22 7.59 1.55
</TABLE>
GOODWILL
Goodwill arising on consolidation, which consists of the excess of the
purchase price over the fair value of the net assets of subsidiaries
and associated companies at the date of acquisition, is deducted from
reserves.
GKN REPORT & ACCOUNTS 1996
59
<PAGE> 61
NOTES ON THE ACCOUNTS
2 SALES
Sales shown in the profit and loss account exclude value added taxes
and, except in the case of long-term contracts, represent the invoiced
value of goods and services charged to external customers. On long-term
contracts, sales are based either on deliveries made or, in the case of
development and similar contracts, on the estimated sales value of work
done. The geographical markets supplied by subsidiaries and associated
companies are as follows:
<TABLE>
<CAPTION>
GEOGRAPHICAL MARKETS SUPPLIED
-----------------------------------------------------
UNITED CONTINENTAL REST OF
KINGDOM EUROPE AMERICA THE WORLD TOTAL
[pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C> <C>
SALES BY SUBSIDIARIES
By business
Automotive and
Agritechnical Products 319 1030 362 140 1851
Aerospace and Special Vehicles 408 81 110 362 961
Industrial Services 4 - 34 23 61
---- ---- ---- ---- ----
Total 1996 731 1111 506 525 2873
==== ==== ==== ==== ====
By region of origin
United Kingdom 692 145 107 360 1304
Continental Europe 39 966 33 38 1076
America - - 360 15 375
Rest of the world - - 6 112 118
---- ---- ---- ---- ----
Total 1996 731 1111 506 525 2873
==== ==== ==== ==== ====
Total 1995 742 1123 601 428 2894
==== ==== ==== ==== ====
SALES BY ASSOCIATED COMPANIES
Group share 1996 142 120 158 44 464
==== ==== ==== ==== ====
Group share 1995 133 100 125 53 411
==== ==== ==== ==== ====
</TABLE>
Analyses of sales, operating profit and net operating assets of
subsidiaries and associated companies by business and by region of
origin are shown on page 74.
In the ordinary course of business, sales and purchases of goods and
services take place between subsidiary and associated companies priced
on an `arms-length basis'. These transactions are not significant
except for amounts charged by GKN Westland Helicopters Ltd to EH
Industries Ltd (jointly owned by the Group and Agusta SpA) of
[pound sterling]91.3 million (1995 - [pound sterling]86.0 million)
and, conversely, charges made by EH Industries Ltd to GKN Westland
Helicopters Ltd of [pound sterling]31.9 million (1995 - [pound
sterling]13.6 million) under the terms of contracts in connection with
the manufacture and sale of EH101 helicopters. To avoid duplication,
the Group's share of EH Industries Ltd sales is excluded from
associated company sales. There are no other related party transactions
requiring disclosure under FRS 8 (Related Party Disclosures).
60
<PAGE> 62
NOTES ON THE ACCOUNTS
3 OPERATING PROFIT
<TABLE>
<CAPTION>
1996 1995
CONTINUING DISCONTINUED CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS OPERATIONS
[pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C>
Sales by subsidiaries 2862.6 10.4 2602.8 290.8
==================================================
Change in stocks of finished goods
and work in progress 34.8 -- 25.5 1.2
Raw materials and consumables (1048.7) (7.2) (931.7) (150.7)
Staff costs (note 9) (823.0) (1.5) (793.7) (69.7)
Redundancy and reorganisation costs (8.6) -- (4.6) (0.3)
Depreciation written off fixed assets
(including [pound sterling]7.8 million in
respect of assets under finance leases,
1995 -- [pound sterling]10.5 million) (86.8) (0.1) (80.5) (6.8)
Other external charges (939.7) (2.3) (581.0) (52.7)
----------------------------------------------------
(2872.0) (11.1) (2366.0) (279.0)
----------------------------------------------------
Operating (loss)/profit (9.4) (0.7) 236.8 11.8
====================================================
</TABLE>
Other external charges include a provision of [pound sterling]270.0
million (1995 -- nil) in respect of Meineke litigation (see note 27),
rental for hire of equipment [pound sterling]16.8 million (1995 --
[pound sterling]20.5 million) and rental for leased property [pound
sterling]13.3 million (1995 -- [pound sterling]15.7 million). Auditors'
remuneration was [pound sterling]1.7 million (1995 -- [pound
sterling]1.7 million) and non-audit fees payable to Coopers & Lybrand
in the United Kingdom amounted to [pound sterling]0.3 million (1995 --
[pound sterling]0.7 million).
The results of businesses acquired during the year are not significant
and are shown within continuing operations.
Depreciation is not provided on freehold land. In the case of buildings
and computers, depreciation is provided on valuation or original cost.
For all other categories of asset, depreciation is provided on the
written down value at the beginning of the financial year. Except in
special cases, depreciation is not charged on fixed assets capitalised
during the year and available for use but a full year's depreciation is
charged on fixed assets sold or scrapped during the year.
Depreciation is applied to specific classes of asset by reference to
their useful lives. The range of main rates of depreciation used is:
<TABLE>
<CAPTION>
STRAIGHT REDUCING
LINE BALANCE
% %
<S> <C> <C>
Freehold buildings 2 --
General plant, machinery, fixtures, fittings and equipment -- 10 to 35
Computers and major software 20 to 33 1/3 --
Commercial vehicles and cars -- 40 to 45
</TABLE>
Leasehold properties are amortised by equal annual instalments over the
period of the lease or 50 years whichever is the shorter.
Operating lease rentals are charged to the profit and loss account as
incurred over the lease term.
Costs of reorganisation and redundancy which are not part of a
fundamental restructuring are charged against operating profit in the
period when the announcement is made.
Revenue expenditure on research and development and the cost of
acquiring patents and know-how are written off as incurred. Research
and development costs totalled [pound sterling]226 million (1995 --
[pound sterling]192 million) after including [pound sterling]132
million of expenditure refunded by customers and other parties for
development work carried out on their behalf and capital expenditure of
[pound sterling]4 million.
GKN REPORT & ACCOUNTS 1996
61
<PAGE> 63
NOTES ON THE ACCOUNTS
4 EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
1996 1995
CONTINUING DISCONTINUED CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS OPERATIONS
[pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C>
Profits ([pound sterling]4.2 million)
less losses ([pound sterling] 4.5 million)
on sale or closure of subsidiaries:
Sale of Axles businesses -- 0.7 -- 8.4
Sale of Parts Inc -- (1.1) -- (12.4)
Other 0.6 (0.5) (1.7) 0.1
--------------------------------------------------
0.6 (0.9) (1.7) (3.9)
==================================================
</TABLE>
Exceptional items of subsidiaries include goodwill on businesses sold
or closed of [pound sterling] nil (1995 -- [pound sterling]26.0
million). Losses on sale or closure of subsidiary businesses include
closure costs of [pound sterling]3.2 million (1995 -- [pound
sterling]0.9 million).
Details of companies acquired and sold are given in the Review of
Operations on pages 13 to 39.
5 INTEREST RECEIVABLE/(PAYABLE)
<TABLE>
<CAPTION>
1996 1995
[pound sterling]m
<S> <C> <C>
Subsidiaries
Loans to associated companies 4.3 2.9
Short term investments, loans and deposits 51.3 38.1
---------------
55.6 41.0
Short term borrowings (5.7) (5.5)
(including bank interest[pound sterling]1.2 million,
1995 -- [pound sterling]0.3 million)
Loans repayable within five years (17.9) (9.3)
(including bank interest [pound sterling]0.7 million,
1995 -- [pound sterling]1.2 million)
Loans repayable after five years (4.4) (5.0)
Finance leases (3.0) (3.0)
---------------
24.6 18.2
===============
Share of associated companies
Interest receivable 1.5 1.4
Interest payable (13.3) (12.5)
---------------
(11.8) (11.1)
===============
</TABLE>
6 TAXATION
<TABLE>
<S> <C> <C>
United Kingdom corporation tax at 33% after crediting
double taxation relief[pound sterling]28.1 million
(1995 -- [pound sterling]17.7 million) 55.3 54.6
Overseas taxation 70.2 70.4
Advance corporation tax (21.0) (23.4)
Deferred taxation 4.7 2.9
---------------
109.2 104.5
Adjustment to taxation of earlier years (6.8) (2.9)
---------------
102.4 101.6
Associated companies 20.7 18.8
---------------
123.1 120.4
===============
</TABLE>
GKN REPORT & ACCOUNTS 1996
62
<PAGE> 64
NOTES ON THE ACCOUNTS
7 DIVIDENDS
<TABLE>
<CAPTION>
1996 1995
[pound sterling]m
<S> <C> <C>
Interim (paid 18th October 1996) 9.6p per
[pound sterling]1 share on 351.8 million shares 33.8 30.5
(1995 -- 8.75p per [pound sterling]1 share on
348.3 million shares)
Second interim (payable 16th May 1997) 16.9p per
[pound sterling]1 share on 352.6 million shares 59.6 --
Final 1995 -- 15.25p per [pound sterling]1 share on
349.0 million shares -- 53.2
------------------
93.4 83.7
==================
</TABLE>
8 EARNINGS PER SHARE
Earnings per share for 1996 are based on the loss of the year of [pound
sterling]42.0 million (1995 -- earnings [pound sterling]187.4 million)
and calculated on the weighted average number of 350.9 million shares
in issue and ranking for dividend (1995 -- 347.7 million). Earnings per
share before exceptional items, which the directors consider gives a
useful additional indication of underlying performance, are calculated
on the earnings of the year adjusted as follows:
<TABLE>
<CAPTION>
EARNINGS EARNINGS PER SHARE
1996 1995 1996 1995
[pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C>
(Loss)/earnings of the year (42.0) 187.4 (12.0) 53.9
Meineke litigation charges included
in operating profit 270.0 -- 77.0 --
Profits less losses on sale or closure
of subsidiaries 0.3 5.6 0.1 1.6
Taxation attributable to exceptional items 0.4 6.2 0.1 1.8
----------------------------------------
Earnings before exceptional items 228.7 199.2 65.2 57.3
========================================
</TABLE>
9 STAFF COSTS AND DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
1996 1995
[pound sterling]m
<S> <C> <C>
Wages and salaries 673.9 712.4
Social security costs 102.4 104.3
Other pension costs 48.2 46.7
-----------------
824.5 863.4
=================
The average numbers employed during the year were:
United Kingdom 14,010 15,824
Continental Europe 11,845 12,038
America 2,350 4,164
Rest of the world 1,310 835
-----------------
29,515 32,861
=================
</TABLE>
An analysis of the number of employees at 31st December 1996 is shown
on page 40. The disclosures required by the Companies Act 1985 and the
London Stock Exchange in respect of directors' remuneration and their
share interests are contained in the Remuneration Committee Report on
pages 80 to 86.
GKN REPORT & ACCOUNTS 1996
63
<PAGE> 65
NOTES ON THE ACCOUNTS
<TABLE>
<CAPTION>
10 TANGIBLE ASSETS OTHER CAPITAL
LAND AND TANGIBLE WORK IN
BUILDINGS FIXED ASSETS PROGRESS TOTAL
[pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C>
COST OR VALUATION
At 1st January 1996 338.2 1157.9 21.4 1517.5
Currency variations (27.4) (111.9) (3.8) (143.1)
Subsidiaries acquired and sold 1.5 (0.4) 2.5 3.6
Capital expenditure 8.3 73.7 53.1 135.1
Transfers 1.0 22.9 (23.9) --
Disposals (0.7) (30.1) -- (30.8)
Property revaluation (25.2) -- -- (25.2)
-----------------------------------------------------------
At 31st December 1996 295.7 1112.1 49.3 1457.1
-----------------------------------------------------------
ACCUMULATED DEPRECIATION
At 1st January 1996 38.2 772.2 -- 810.4
Currency variations (3.6) (76.0) -- (79.6)
Subsidiaries acquired and sold (2.9) (2.7) -- (5.6)
Disposals (0.6) (24.4) -- (25.0)
Charge for the year 10.3 76.6 -- 86.9
Property revaluation (29.2) -- -- (29.2)
-----------------------------------------------------------
At 31st December 1996 12.2 745.7 -- 757.9
-----------------------------------------------------------
NET BOOK VALUE 283.5 366.4 49.3 699.2
===== ===== ==== =====
Owned assets 276.8 338.3 49.3 664.4
Assets under finance leases 6.7 28.1 -- 34.8
-----------------------------------------------------------
283.5 366.4 49.3 699.2
===========================================================
</TABLE>
<TABLE>
<CAPTION>
COST OR ACCUMULATED
VALUATION DEPRECIATION NET BOOK VALUE
--------- ------------ ------------------------
1996 1995
[pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C>
Analysis of land and buildings:
Freehold land 73.9 -- 73.9 67.8
Freehold buildings 202.7 (7.0) 195.7 215.6
Long leases 4.0 -- 4.0 3.8
Short leases (expiring on or
before 31st December 2046) 15.1 (5.2) 9.9 12.8
-----------------------------------------------------------
295.7 (12.2) 283.5 300.0
===========================================================
</TABLE>
<TABLE>
<CAPTION>
Cost or valuation of land and buildings at 31st December 1996 includes: [pound sterling]m
<S> <C>
1996 valuation 227.4
Earlier years' valuations 8.1
At cost or fair value on acquisition 60.2
-----
295.7
=====
</TABLE>
Major freehold and long leasehold properties in the UK, USA, Germany
and France were valued at 31st December 1996 by DTZ Debenham Thorpe and
King Sturge & Co, chartered surveyors. Properties were valued, in
accordance with the Appraisal and Valuation Manual of the Royal
Institution of Chartered Surveyors, on the basis of open market value
and existing use value except for specialised properties which were
valued on a depreciated replacement cost basis.
The surplus arising on revaluation of [pound sterling]4.0 million has
been transferred to revaluation reserve. The original cost of land and
buildings at 31st December 1996 was [pound sterling]278.3 million; the
notional net book value on that basis would have been [pound
sterling]216.0 million.
Capital work in progress is expenditure on fixed assets in the course
of construction. Transfers are made to other fixed asset categories
when assets are available for use.
Where fixed assets are financed by leasing agreements which give rights
approximating to ownership, the assets are treated as if they have been
purchased and the capital element of the leasing commitments is shown
as obligations under finance leases. The rentals payable are
apportioned between interest, which is charged to the profit and loss
account, and capital which reduces the outstanding obligation.
GKN REPORT & ACCOUNTS 1996 64
<PAGE> 66
NOTES ON THE ACCOUNTS
11 INVESTMENTS
<TABLE>
<CAPTION>
1996 1995
[pound sterling]m
<S> <C> <C>
Associated companies 162.5 163.9
Other investments at cost 0.2 0.2
Interest in own shares 5.4 --
Loans to associated companies 19.1 14.9
---------------------
187.2 179.0
=====================
The movement in the book value of investments is as follows:
At 1st January 1996 179.0 252.7
Profit retained by associated companies 9.9 3.7
Currency variations (14.4) 2.7
Additions 16.7 18.6
Disposals (1.3) (97.6)
Other movements (2.7) (1.1)
---------------------
At 31st December 1996 187.2 179.0
=====================
</TABLE>
Associated companies, although not subsidiaries, are those in which the
Group has a long term interest and is able to exercise significant
influence through its representation on the board of directors.
Associated companies except for Chep USA are stated at the Group's
share of net tangible assets. The launch costs of Chep USA were
capitalised up to a total of US$85 million. These costs are being
amortised over ten years from September 1993. The Group's share of
unamortised costs at 31st December 1996 amounted to [pound
sterling]16.6 million (1995 -- [pound sterling]21.0 million). The
Group's 50% investment in Chep USA is held by a subsidiary which is
liable, with its partner, for the obligations of Chep USA.
The principal associated companies with the country of incorporation
and operation and Group percentage ownership at 31st December 1996, are
shown below.
<TABLE>
<CAPTION>
TOTAL ISSUED SHARES CAPITAL
EQUITY
MILLION HOLDING
%
<S> <C> <C> <C>
ATH-Albarus Transmissoes Homocineticas Ltda Brazil R$20.3 49.0
Chep Europ BV Netherlands Fl19.7 50.0
Chep UK Ltd England [pound sterling]7.9 50.0
Chep USA (partnership capital) USA US$155.8 50.0
Cleanaway Holdings Ltd England [pound sterling]17.6 50.0
EH Industries Ltd England [pound sterling]0.5 50.0
Emitec Gesellschaft fur Emissionstechnologie mbH Germany DM20.0 49.1
Mabeg Holding GmbH Germany DM4.1 50.0
Mahindra Sintered Products Ltd India Rs22.6 49.0
Shanghai GKN Drive Shaft Company Ltd China [Yen]160.3 39.3
Transejes Transmisiones Homocineticas
de Colombia SA Colombia Ps13127.4 49.0
Transmisiones Homocineticas Argentinas SA Argentina -- 49.0
Unidrive Pty Ltd Australia A$5.0 30.0
Velcon S.A. de C.V. Mexico N$0.7 39.0
</TABLE>
The Group also owns 50% of the total issued loan capital of Cleanaway
Holdings Ltd of [pound sterling]9.3 million.
Interest in own shares represents the cost, less amounts written off,
of 0.7 million shares acquired by the GKN Employee Benefit Trust in the
open market in connection with the GKN long-term incentive plans. At
31st December 1996 the shares, on which dividend and voting rights have
been waived, had a market value of [pound sterling]7.3 million.
65 GKN REPORT & ACCOUNTS 1996
<PAGE> 67
NOTES ON THE ACCOUNTS
<TABLE>
<CAPTION>
12 STOCKS 1996 1995
[pound sterling]m
<S> <C> <C>
Raw materials and consumables 106.0 116.5
Work in progress 82.3 92.2
Long-term work in progress 66.1 55.6
Finished goods and goods for resale 73.9 140.9
-------------------
328.3 405.2
====================
</TABLE>
Stocks, other than long-term work in progress, are valued at the lower
of cost and estimated net realisable value, due allowance being made
for obsolete or slow moving items. Cost includes the relevant
proportion of works overheads assuming normal levels of activity.
Long-term work in progress consists of net costs, after deducting
foreseeable losses, of [pound sterling]266.5 million (1995 -- [pound
sterling]287.6 million) less payments on account of [pound
sterling]200.4 million (1995 -- [pound sterling]232.0 million).
Payments received from customers are deducted from stock and work in
progress to the extent of the cost of the work carried out and any
excess is shown as customer advances. Profit on long-term contracts is
taken when sales are recognised based on estimated overall
profitability. On aerospace contracts where volumes are not
contractually fixed, net non-recurring initial costs consisting of
design, development and tooling, are amortised on a straight line basis
over five years from the date on which they are incurred subject to the
programme remaining in existence.
The replacement cost of stocks is not materially different from the
historical cost value.
<TABLE>
<CAPTION>
13 DEBTORS 1996 1995
[pound sterling]m
<S> <C> <C>
Due within one year:
Trade debtors 306.4 348.4
Amounts recoverable on contracts 8.1 8.4
Amounts owed by associated companies 29.4 16.9
Other debtors 17.6 26.3
Prepayments and accrued income 17.3 18.3
--------------------
378.8 418.3
Due in more than one year:
Advance corporation tax recoverable 15.9 --
Other debtors 34.3 35.7
--------------------
429.0 454.0
====================
14 INVESTMENT IN LIQUID RESOURCES
Bank loan notes maturing within one year
(unlisted) -- 100.0
====================
15 CASH AT BANK AND IN HAND
Bank balances and cash 168.8 114.2
Short term loans and deposits 689.3 491.0
--------------------
858.1 605.2
====================
</TABLE>
As the result of the adoption of FRS 1 (Revised 1996), bank balances
and cash now includes bank deposits repayable on demand which were
previously included within short term loans and deposits.
GKN REPORT & ACCOUNTS 1996 66
<PAGE> 68
NOTES ON THE ACCOUNTS
<TABLE>
<CAPTION>
16 SHORT TERM BORROWINGS 1996 1995
[pound sterling]m [pound sterling]m
<S> <C> <C>
Bank overdrafts 18.2 17.6
Short term loans 3.4 6.4
------------------------------
21.6 24.0
==============================
17 CREDITORS
Trade creditors 335.6 338.2
Bills payable 17.5 17.0
Customer advances 194.6 241.3
Amounts owed to associated companies 5.1 3.8
Indirect and payroll taxes 28.6 34.3
Obligations under finance leases (note 20) 7.4 6.9
Other creditors 134.2 145.7
Accruals 112.0 112.8
------------------------------
835.0 900.0
==============================
18 TAXATION PAYABLE
United Kingdom taxation:
advance corporation tax 18.7 16.6
other 28.3 30.1
Overseas taxation 22.2 28.1
------------------------------
69.2 74.8
==============================
19 TERM LOANS
Repayable in:
one to two years 15.3 2.9
two to three years 201.9 14.2
three to four years 16.3 101.7
four to five years 0.6 19.0
after five years 33.8 33.8
------------------------------
267.9 171.6
==============================
</TABLE>
<TABLE>
<CAPTION>
FIXED VARIABLE 1996 FIXED VARIABLE 1995
RATE RATE TOTAL RATE RATE TOTAL
[POUND [POUND [POUND [POUND [POUND [POUND
STERLING]M STERLING]M STERLING]M STERLING]M STERLING]M STERLING]M
<S> <C> <C> <C> <C> <C> <C>
Sterling 6.5 242.5 249.0 6.7 143.6 150.3
Deutsche marks -- 15.2 15.2 0.5 18.0 18.5
US dollars 0.6 -- 0.6 0.8 -- 0.8
Other currencies 1.6 1.5 3.1 1.4 0.6 2.0
------------------------------------------------------------------------------
8.7 259.2 267.9 9.4 162.2 171.6
==============================================================================
</TABLE>
Loans repayable within twelve months have been classified as short term
borrowings. In accordance with FRS 4, term loans include redeemable
preference shares issued by subsidiaries of [pound sterling]213.0
million (1995 -- [pound sterling]113.5 million) including [pound
sterling]200 million (1995 -- [pound sterling]100 million) issued
under the Foreign Income Dividend (FID) legislation.
The weighted average interest rate at 31st December 1996 on fixed rate
loans was 11.2% (1995 -- 10.1%) and on variable rate loans 6.4%
(1995 -- 6.1%).
Secured term loans of [pound sterling]33.5 million (1995 -- [pound
sterling]32.5 million) include [pound sterling]30 million debenture
stocks of Westland Group plc which are secured by a floating charge on
the undertaking and assets of that company and certain of its
subsidiaries and guaranteed by GKN plc.
67 GKN REPORT & ACCOUNTS 1996
<PAGE> 69
NOTES ON THE ACCOUNTS
20 OBLIGATIONS UNDER FINANCE LEASES
The capital element of the future minimum lease payments to which the
Group is committed under finance leases is as follows:
<TABLE>
<CAPTION>
1996 1995
[pound [pound
sterling]m sterling]m
<S> <C> <C>
within one year 7.4 6.9
one to two years 7.8 7.2
two to five years 20.2 21.7
after five years 4.9 9.5
---------------------
40.3 45.3
Obligations payable within one year (7.4) (6.9)
---------------------
Obligations payable after one year 32.9 38.4
=====================
21 PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation 7.0 2.6
Meineke litigation (see note 27) 270.0 --
Post-retirement and other provisions 173.1 188.1
---------------------
450.1 190.7
=====================
</TABLE>
<TABLE>
<CAPTION>
POST-
RETIREMENT
DEFERRED MEINEKE AND OTHER
TAXATION LITIGATION PROVISIONS
[pound [pound [pound
sterling]m sterling]m sterling]m
<S> <C> <C> <C>
At 1st January 1996 2.6 -- 188.1
Charge for the year 4.7 270.0 21.6
Currency variations (0.7) -- (26.7)
Subsidiaries acquired and sold 0.4 -- 1.3
Paid during the year -- -- (11.2)
----------------------------------
At 31st December 1996 7.0 270.0 173.1
==================================
</TABLE>
Provision is made for deferred taxation to the extent that there is a
reasonable probability that such tax will become payable in the
foreseeable future. For United Kingdom subsidiaries the provision is
calculated at 33% less losses available for set-off against profits and
advance corporation tax recoverable.
The potential full deferred taxation liability arising on fixed asset
and other timing differences was [pound sterling]57.1 million (1995 --
[pound sterling]70.0 million). No provision is made for any additional
taxation which might arise on remittance of retained profits of
overseas subsidiaries and associated companies except where
distributions of such profits are planned. The 1996 credit to profits
for deferred taxation on a full liability basis would have been [pound
sterling]6.8 million (1995 -- charge [pound sterling]15.9 million).
The tax value of losses available for set-off against future profits
amounted to [pound sterling]7.0 million (1995 -- [pound sterling]2.9
million). In addition, advance corporation tax carried forward amounted
to [pound sterling]74.1 million (1995 -- [pound sterling]99.9
million).
Post-retirement and other provisions include provisions relating to
pension benefits of [pound sterling]152.2 million (1995 -- [pound
sterling]165.4 million) and provisions for other post-retirement
benefits of [pound sterling]16.5 million (1995 -- [pound sterling]17.3
million).
GKN REPORT & ACCOUNTS 1996 68
<PAGE> 70
NOTES ON THE ACCOUNTS
<TABLE>
<CAPTION>
22 SHARE CAPITAL 1996 1995
[POUND [POUND
STERLING]M STERLING]M
<S> <C> <C>
Ordinary shares of [pound sterling]1 each
Authorised 450.0 450.0
====================
Allotted, called up and fully paid
At 1st January 1996 349.0 346.7
Scrip issues in lieu of dividends 1.0 0.8
Employee share option schemes 2.6 1.5
--------------------
At 31st December 1996 352.6 349.0
====================
</TABLE>
The options held by Group employees over GKN plc shares as follows:
<TABLE>
<CAPTION>
UK AND OVERSEAS
SAYE SCHEME EXECUTIVE SCHEMES
<S> <C> <C>
At 1st January 1996 8,011,305 4,545,659
Granted 1,912,495 52,186
Exercised (886,648) (1,770,696)
Lapsed (681,793) (78,200)
------------------------------
At 31st December 1996 8,355,359 2,748,949
==============================
Option price per share 206p - 820p 211p - 968p
Exercisable at dates extending to 2004 2006
</TABLE>
The options granted in 1996 under the GKN SAYE scheme are at 820p per
share exercisable between 1999 and 2004. Under the GKN executive
schemes options were granted over 52,186 shares at 968p per share
exercisable between 2001 and 2006.
The consideration received on the exercise of options in 1996 was
[pound sterling]9,443,950.
<TABLE>
<CAPTION>
23 RESERVES SHARE PROFIT
PREMIUM REVALUATION OTHER AND LOSS
ACCOUNT RESERVE RESERVES ACCOUNT TOTAL
[POUND [POUND [POUND [POUND [POUND
GROUP STERLING]M STERLING]M STERLING]M STERLING]M STERLING]M
<S> <C> <C> <C> <C> <C>
At 1st January 1996 273.8 56.9 (212.0) 458.5 577.2
Transfer (to)/from profit and loss account -- -- -- (135.4) (135.4)
Currency variations:
overseas net assets -- (3.3) 10.2 (79.5) (72.6)
foreign currency borrowings -- -- -- 34.4 34.4
Net premium on share issues 5.7 -- -- 9.2 14.9
Subsidiaries and associated companies
acquired and sold -- -- (48.5) -- (48.5)
Property revaluation -- 4.0 -- -- 4.0
Transfers between reserves -- 3.6 1.6 (5.2) --
Other movements -- -- -- (1.4) (1.4)
---------------------------------------------------------------------
At 31st December 1996 279.5 61.2 (248.7) 280.6 372.6
=====================================================================
Parent company and subsidiaries 279.5 61.2 230.5 247.6 818.8
Associated companies -- -- 12.5 33.0 45.5
Goodwill arising on consolidation -- -- (491.7) -- (491.7)
---------------------------------------------------------------------
279.5 61.2 (248.7) 280.6 372.6
=====================================================================
PARENT COMPANY
At 1st January 1996 273.8 -- 203.4 95.9 573.1
Transfer from profit and loss account -- -- -- 140.9 140.9
Net premium on share issues 5.7 -- -- 9.2 14.9
---------------------------------------------------------------------
At 31st December 1996 279.5 -- 203.4 246.0 728.9
=====================================================================
</TABLE>
69 GKN REPORT & ACCOUNTS 1996
<PAGE> 71
NOTES ON THE ACCOUNTS
24 ACQUISITIONS
The acquisitions made by the Group during the year were as
follows:
<TABLE>
<CAPTION>
ADDITIONAL GROUP
DIRECT SHAREHOLDING AT
DATE SHAREHOLDING 31ST DECEMBER 1996
% %
<S> <C> <C> <C>
SUBSIDIARIES
Italcardano Universal Giunti SpA (Italy) December 80 80*
GKN Automotive Polska Sp. z o.o. (Poland) August 100 100
GKN Ayra Durex, SA (Spain) June 34 99.4
GKN Transmisiones Espana, SA (Spain) June 34 100
ASSOCIATED COMPANIES
Mabeg Holding GmbH (Germany) December 50 50
Chep (Malaysia) Sdn Bhd (Malaysia) December 50 50
Chep (Singapore) Pte Ltd (Singapore) December 50 50
Shanghai GKN Drive Shaft Company Ltd (China) November 15 40*
Jilin GKN Norinco Drive Shaft Company Ltd (China) August 50 50
Hanwha GKN Driveshafts Ltd (South Korea) July 49 49
</TABLE>
*held through GKN Automotive AG in which the Group has a 98.2%
interest.
The total consideration payable for subsidiary acquisitions was
[pound sterling]71.2 million and the book and fair value of net
assets acquired, which are analysed in note B to the cash flow
statement, was [pound sterling]42.8 million. Goodwill on
subsidiary acquisitions totalled [pound sterling]28.4 million.
The consideration payable for associated company investments of
[pound sterling]23.7 million compares with the fair value of net
assets acquired of [pound sterling]3.6 million giving rise to
goodwill of [pound sterling]20.1 million. The fair value of net
assets was calculated after applying a reduction to book values
of [pound sterling]2.1 million to align the accounting policies
of companies acquired with those of the Group.
25 POST-RETIREMENT BENEFITS
The Group's pension arrangements comprise various defined benefit
and defined contribution schemes throughout the world.
In the UK, pension arrangements are made through externally
funded defined benefit schemes. Independent actuarial valuations
of all schemes have been carried out using the projected unit
method. The Westland staff scheme was valued as at April 1994;
all other schemes were valued as at April 1996.
The main assumptions were that the long term yield on scheme
assets was 8.5% -- 9% and that this would exceed the annual rate
of increases in pensionable salaries by 1.75% -- 2.5%, in UK
equity dividends by 4.25% -- 4.5% and in pensions by 4.5% --
4.75%. The aggregate market value of the assets at the valuation
dates was [pound sterling]1,439 million and the aggregate funding
level on an on-going basis was 102%. For those schemes not in
surplus, the aggregate current funding level deficiency was
[pound sterling]33 million. Company contributions in the year
totalled [pound sterling]27.2 million (1995 -- [pound
sterling]38.0 million) compared with the regular cost in
accordance with the application of SSAP 24 of [pound
sterling]24.6 million (1995 -- [pound sterling]23.7 million). The
total charge to operating profit was [pound sterling]26.2 million
(1995 -- [pound sterling]24.9 million). A cumulative prepayment
of [pound sterling]31.5 million is included in other debtors
(1995 -- [pound sterling]30.5 million).
GKN REPORT & ACCOUNTS 1996 -70-
<PAGE> 72
NOTES ON THE ACCOUNTS
note 25 continued
As stated in note 21, in certain overseas companies funds are
retained within the business to provide for retirement
obligations. The annual charge to provide for these obligations,
which is determined in accordance with actuarial advice or local
statutory requirements, amounted to [pound sterling]19.8 million
(1995 -- [pound sterling]19.2 million).
The Group operates a number of retirement plans which provide
certain employees with post-retirement healthcare benefits. The
liability for providing these benefits is recognised on an
actuarial basis and included in post-retirement and other
provisions disclosed in note 21. The principal actuarial
assumptions for the main plan as at December 1994, the date of
the last review, were that the discount rate would be 9% per
annum and that medical costs would initially increase by 9% per
annum falling to 6% over 10 years.
26 COMMITMENTS AND CONTINGENT LIABILITIES
CAPITAL EXPENDITURE
Contracts placed against capital expenditure sanctioned at 31st
December 1996 so far as not provided for in these accounts
amounted to [pound sterling]56.6 million (1995 -- [pound
sterling]31.9 million).
CONTINGENT LIABILITIES
At 31st December 1996 the Group had contingent liabilities in
respect of bank and other guarantees amounting to [pound
sterling]0.3 million (1995 -- [pound sterling]0.7 million). In
the case of certain companies engaged in long-term contracts,
performance bonds and customer financing obligations have also
been entered into in the normal course of business.
OPERATING LEASES
The minimum payments which the Group is committed to make in 1997
under operating leases are as follows:
<TABLE>
<CAPTION>
1996 1995
LAND AND LAND AND
BUILDINGS EQUIPMENT BUILDINGS EQUIPMENT
Leases which expire: [pound sterling]M [pound sterling]M [pound sterling]m [pound sterling]m
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
within one year 1.2 3.1 2.0 3.0
two to five years 4.8 7.1 6.0 11.1
after five years 6.4 0.4 10.8 0.4
--------------------------------------------------------------------------
12.4 10.6 18.8 14.5
==========================================================================
</TABLE>
-71- GKN REPORT & ACCOUNTS 1996
<PAGE> 73
NOTES ON THE ACCOUNTS
27 POST BALANCE SHEET EVENT
On 6th March 1997 the US District Court, Charlotte, North
Carolina issued judgement in the class action brought by certain
of its franchisees against Meineke Discount Muffler Shops Inc
(`Meineke') together with its subsidiary New Horizons Inc, its
immediate parent company GKN Parts Industries Corporation and GKN
plc alleging breach of contract and fiduciary duty in relation to
an advertising fund operated by Meineke. The value of the
judgement was US$591 million plus interest of US$10 million
accruing since the jury verdict issued on 18th December 1996.
This will be reduced by not less than 34% being the value of
releases of their claims given by certain members of the
plaintiff class, the validity of which has been confirmed by the
court.
As part of the post judgement procedures further submissions will
be made on legal issues which are expected to be resolved by the
end of April 1997. At that point the way will be clear to take
the case to the US Court of Appeals. Given that GKN is advised
that it has very strong substantive and procedural grounds for
doing so, it will appeal as soon as possible. It is expected that
the appeal will take about 18 months to resolve.
Notwithstanding the intention to appeal, in the interests of
prudence, a provision of [pound sterling]270 million, based on
the judgement less the effect of the releases, has been made as
an exceptional charge within operating profit in the 1996
accounts. This figure includes interest and legal costs likely to
accrue pending the outcome of the appeal but, at this stage, no
tax relief has been assumed.
Having made this provision, the Directors are of the opinion that
the outcome of the case will not have a material adverse impact
on the Group.
GKN REPORT & ACCOUNTS 1996 -72-
<PAGE> 74
- --------------------------------------------------------------------------------
[LOGO]
BALANCE SHEET OF GKN PLC
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT 31ST DECEMBER 1996 1996 1995
Notes [POUND STERLING]M [POUND STERLING]M [pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Investments in subsidiaries at cost
or valuation less amounts written off* 375.4 868.1
--------------------------------------------------------------------------
CURRENT ASSETS
Amounts owed by subsidiaries 766.2 304.2
Debtors -- advance corporation tax recoverable 14.9 -
Debtors -- other - 0.1
Cash at bank and in hand 6.4 1.7
-------------------------------------------------------------------------
787.5 306.0
-------------------------------------------------------------------------
CREDITORS: amounts falling due within one year
Bank loans and overdrafts (0.8) (3.3)
Amounts owed to subsidiaries - (177.2)
Creditors and accruals (1.4) (1.4)
Taxation -- advance corporation tax (18.9) (15.9)
Dividend payable (59.6) (53.2)
-------------------------------------------------------------------------
(80.7) (251.0)
-------------------------------------------------------------------------
NET CURRENT ASSETS 706.8 55.0
-------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1082.2 923.1
CREDITORS: amounts falling due beyond one year
Term loans -- unsecured loan stock 1999 (0.7) (1.0)
-------------------------------------------------------------------------
NET ASSETS 1081.5 922.1
=========================================================================
CAPITAL AND RESERVES
Called up share capital 22 352.6 349.0
Share premium account 23 279.5 273.8
Other reserves 23 203.4 203.4
Profit and loss account 23 246.0 95.9
-------------------------------------------------------------------------
EQUITY INTEREST 1081.5 922.1
=========================================================================
</TABLE>
*The decrease in investments in subsidiaries in 1996 represents the transfer of
the Group shareholding in Westland Group plc to GKN (United Kingdom) plc.
The balance sheet was approved by the Board of Directors on 10th March 1997 and
was signed by:
DAVID LEES
DAVID J TURNER
Directors
As permitted by the Companies Act 1985 a separate profit and loss account for
the parent company has not been presented.
Information on the principal divisions, subsidiaries and associated companies is
shown on pages 90 and 91.
-73- GKN REPORT & ACCOUNTS 1996
<PAGE> 75
- --------------------------------------------------------------------------------
[LOGO]
SEGMENTAL ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPERATING NET OPERATING
SALES PROFIT ASSETS
1996 1995 1996 1995 1996 1995
[pound sterling]m [pound sterling]m [pound sterling]m
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SUBSIDIARIES AND ASSOCIATED COMPANIES
BY BUSINESS
Automotive and Agritechnical Products 2002 1953 188 181 750 743
Aerospace and Special Vehicles 961 749 85 65 (42) (46)
Industrial Services 363 312 78 63 293 260
---------------------------------------------------------------
Continuing operations 3326 3014 351 309 1001 957
Exceptional litigation provision -- -- (270) -- -- --
Discontinued operations 11 291 (1) 12 -- 45
---------------------------------------------------------------
Group total 3337 3305 80 321 1001 1002
===============================================================
Subsidiaries 2873 2894 (10) 249 613 673
Associated companies 464 411 90 72 388 329
---------------------------------------------------------------
Group total 3337 3305 80 321 1001 1002
===============================================================
BY REGION OF ORIGIN
United Kingdom 1440 1201 130 100 197 150
Continental Europe 1206 1177 153 146 523 521
America 518 467 45 40 206 220
Rest of the world 162 169 23 23 75 66
---------------------------------------------------------------
Continuing operations 3326 3014 351 309 1001 957
===============================================================
ASSOCIATED COMPANIES
BY BUSINESS
Automotive and Agritechnical Products 151 148 27 28 110 85
Industrial Services 313 263 63 44 278 244
---------------------------------------------------------------
Continuing operations 464 411 90 72 388 329
===============================================================
BY REGION OF ORIGIN
United Kingdom 136 125 30 24 113 101
Overseas 328 286 60 48 275 228
---------------------------------------------------------------
Continuing operations 464 411 90 72 388 329
===============================================================
</TABLE>
Notes:
(1) The analyses of operating profit by business and region of
origin include an allocation of costs incurred in the United
Kingdom.
(2) Intra-group sales between businesses and regions are not
significant.
(3) Net operating assets represent tangible fixed assets, stocks and
debtors (excluding ACT recoverable) less creditors (excluding
leases), taxation and dividends payable. Net operating assets of
associated companies comprise the Group's share and exclude net
borrowings and net non-operating liabilities amounting to [pound
sterling]225.2 million (1995 -- [pound sterling]165.1 million).
GKN REPORT & ACCOUNTS 1996 74
<PAGE> 76
- --------------------------------------------------------------------------------
[LOGO]
GROUP FIVE YEAR FINANCIAL RECORD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
[pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C> <C>
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Subsidiaries 2873 2894 2470 2022 1994
Share of associated companies 464 411 620 617 532
-----------------------------------------------------------
SALES 3337 3305 3090 2639 2526
===========================================================
Subsidiaries 260 249 183 107 126
Share of associated companies 90 72 55 36 32
-----------------------------------------------------------
OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS 350 321 238 143 158
Interest receivable/(payable):
subsidiaries 25 18 (9) (25) (23)
associated companies (12) (11) (7) (9) (8)
-----------------------------------------------------------
PROFIT BEFORE EXCEPTIONAL ITEMS AND TAXATION 363 328 222 109 127
Exceptional profits/(losses):
subsidiaries* (270) (6) (25) (1) (4)
associated companies -- -- 3 (10) (1)
-----------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 93 322 200 98 122
Taxation (123) (120) (87) (4) (57)
Minority interests (12) (15) (21) (18) (17)
-----------------------------------------------------------
(LOSS)/EARNINGS OF THE YEAR (42) 187 92 39 48
Dividends (93) (83) (74) (52) (50)
-----------------------------------------------------------
Transfer (from)/to reserves (135) 104 18 (13) (2)
===========================================================
(LOSS)/EARNINGS PER SHARE (12.0)p 53.9p 28.3p 14.3p 18.1p
EARNINGS PER SHARE BEFORE EXCEPTIONAL ITEMS 65.2p 57.3p 37.4p 18.2p 20.1p
DIVIDEND PER SHARE 26.5p 24.0p 21.5p 20.5p 20.5p
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
[pound sterling]m [pound sterling]m
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS
Tangible fixed assets 699 707 692 676 698
Stocks 328 405 348 265 307
Debtors less creditors (excluding leases) (414) (439) (434) (227) (98)
-----------------------------------------------------------
NET OPERATING ASSETS 613 673 606 714 907
Net funds/(borrowings) 528 464 316 (16) (163)
Fixed asset investments 187 179 253 321 305
Taxation and dividend payable (113) (128) (126) (59) (76)
Provisions for liabilities and charges* (450) (190) (174) (149) (148)
-----------------------------------------------------------
NET ASSETS EMPLOYED 765 998 875 811 825
===========================================================
Equity interest 725 926 800 654 665
Minority interests 40 72 75 157 160
-----------------------------------------------------------
765 998 875 811 825
============================================================
</TABLE>
*Includes a provision in 1996 of [pound sterling]270.0 million in respect of
Meineke litigation.
75 GKN REPORT & ACCOUNTS 1996
<PAGE> 77
- --------------------------------------------------------------------------------
[LOGO]
REPORT BY THE AUDITORS TO GKN PLC
ON CORPORATE GOVERNANCE MATTERS
- --------------------------------------------------------------------------------
In addition to our audit of the accounts, we have reviewed the Directors'
statements on pages 78 and 52 concerning the Company's compliance with the
paragraphs of the Cadbury Code of Best Practice specified for our review by the
London Stock Exchange and their adoption of the going concern basis in preparing
the accounts. The objective of our review is to draw attention to non-compliance
with Listing Rules 12.43(j) and 12.43(v).
BASIS OF OPINION
We carried out our review in accordance with guidance issued by the Auditing
Practices Board. That guidance does not require us to perform the additional
work necessary to, and we do not, express any opinion on the effectiveness of
either the Group's system of internal financial control or its corporate
governance procedures. The Directors asked us to carry out additional work,
beyond our normal audit work, on their statement on going concern to enable us
to issue the opinion below.
OPINION
With respect to the Directors' statements on internal financial control on page
79 (other than their opinion on effectiveness which is outside the scope of our
report) and going concern on page 52, in our opinion the Directors have provided
the disclosures required by the Listing Rules referred to above and such
statements are not inconsistent with the information of which we are aware from
our audit work on the accounts. In addition, it is our opinion that the
Directors' statement on going concern has been made with due care.
Based on enquiry of certain Directors and officers of the Company, and
examination of relevant documents, in our opinion the Directors' statement on
page 78 appropriately reflects the Company's compliance with the other aspects
of the Code specified for our review by Listing Rule 12.43(j).
COOPERS & LYBRAND
Chartered Accountants
Birmingham 10th March 1997
GKN REPORT & ACCOUNTS 1996 76
<PAGE> 78
- --------------------------------------------------------------------------------
[LOGO]
DIRECTORS' REPORT
- --------------------------------------------------------------------------------
BUSINESS The principal businesses of the Group are described in the Review
REVIEW of Operations on pages 13 to 39. A review of the development of
those businesses in 1996 in both operational and financial terms is
given on pages 13 to 39 and in the Financial Review on pages 47 to
52. Events affecting the Group since 31st December 1996 are referred
to in the Chairman's Statement on pages 4 to 7 and in the Review of
Operations and Financial Review. Likely future developments in the
Group's businesses are referred to in the Chairman's Statement.
AGM The notice of the annual general meeting, to be held on 15th May
1997, is on pages 87 and 88.
DIVIDEND The Directors have declared a second interim dividend, in lieu of a
final dividend, of 16.9p per [pound sterling]1 ordinary share for
the year ended 31st December 1996 payable on 16th May 1997 to
shareholders on the register at the close of business on 21st March
1997. This, together with the interim dividend of 9.6p paid in
October 1996, brings the total dividend for the year to 26.5p (1995
-- 24.0p) per share.
SCRIP The Directors intend to offer a scrip dividend alternative for the
DIVIDEND second interim dividend for the year ended 31st December 1996.
Details of the proposed arrangements will be posted to shareholders
on 11th April 1997.
SHARE During 1996, the issued ordinary share capital of the Company was
CAPITAL increased by the issue of 977,502 shares in lieu of cash dividends
and 2,657,344 shares on the exercise of options under save as you
earn and executive share option schemes. The issued ordinary share
capital at the end of the year was 352,632,724 shares of [pound
sterling]1 each.
ALLOTMENT The Directors consider it advisable that they continue to have the
OF SHARES power for a maximum period of fifteen months:
(a) to make appropriate arrangements for the allotment of equity
securities in respect of fractional entitlements arising on the
issue of such securities pro rata to existing shareholders, and to
deal suitably with allotments in cases where it is impracticable or
impossible to make pro rata allotment to holders of shares with
registered addresses outside the UK; and
(b) to make allotments of equity securities for cash otherwise than
to existing shareholders in proportion to their existing holdings up
to a maximum aggregate nominal value not exceeding [pound
sterling]17,631,636, being 5% of the issued share capital of the
Company at 31st December 1996 and approximately the same percentage
at 10th March 1997;
and for this purpose a resolution will be proposed at the annual
general meeting as set out in item 8 of the notice of meeting.
Notwithstanding the power sought in (b) above, it is not the
Directors' intention, without prior consultation with the Investment
Protection Committees, to exceed the limits set down in the
pre-emption guidelines issued by the London Stock Exchange. These
currently limit the aggregate nominal value of non pre-emptive share
issues for cash to 7.5% of the issued share capital in any
three-year rolling period.
77 GKN REPORT & ACCOUNTS 1996
<PAGE> 79
PURCHASE OF At the annual general meeting in May 1996 the Company was
OWN SHARES authorized, in accordance with the articles of association and
within institutional shareholder guidelines, to purchase its own
shares. No such purchases have been made. The authority expires
at the conclusion of the forthcoming annual general meeting and
the Directors consider it advisable that it be renewed for a
further year. Accordingly, the resolution set out in item 9 of
the notice of meeting will be proposed at the annual general
meeting. It seeks authority to make market purchases of up to
35,263,272 GKN ordinary shares (being 10% of the issued share
capital at 31st December 1996) and specifies the maximum and
minimum prices for the shares. The Directors have no present
intention to exercise such authority and would do so only after
taking account of the overall financial position of the Company,
and in circumstances where so doing would not only be in the best
interests of shareholders but would also result in an increase in
earnings per share.
DIRECTORS The constitution of the Board, including biographical notes on
the Directors, is shown on page 10, and of the Board Committees
on page 12.
Sir David Lees, Chairman, Mr B D Insch, Human Resources Director,
and Sir Bryan Nicholson, non-executive Director, retire from the
Board by rotation at the annual general meeting and, being
eligible, offer themselves for re-election (items 2, 3 and 4
respectively of the notice of meeting).
Mr C K Chow was appointed to the Board as Chief Executive
designate on 1st July 1996. He succeeded Sir David Lees as Chief
Executive on 1st January 1997. The Baroness Hogg joined the Board
as a non-executive Director on 4th November 1996. In accordance
with the articles of association, Mr Chow and The Baroness Hogg
retire from the Board at the annual general meeting and, being
eligible, offer themselves for re-election (items 5 and 6
respectively of the notice of meeting).
Details of the executive Directors' service agreements are given
on page 86. Sir David Lees, Sir Bryan Nicholson and The Baroness
Hogg do not have service agreements.
Sir Peter Cazalet retired from the Board as non-executive Deputy
Chairman on 31st December 1996. The Directors wish to record
their appreciation of the substantial contribution that Sir Peter
made to GKN during his eight years as Deputy Chairman.
The Directors record their great pleasure at the award of the
Officer's Cross of the Order of Merit of the Federal Republic of
Germany to Sir David Lees, and at the award of the CBE to Mr T C
Bonner in the 1996 Queen's Birthday Honours.
The death in July 1996 of Sir David Nicolson, a non-executive
Director from 1984 to 1989, is sadly recorded.
Directors' interests in the shares of the Company are shown on
pages 84 to 86.
LIFE Lord Brookes, who was Chairman of the Company from 1965 until
PRESIDENT 1974, is Life President.
HONOURS Mr R I Case, GKN Westland Helicopters, was awarded the Cavalier
dell'Ordine al Merito della Repubblica Italiana by the President
of the Republic of Italy. Mr R J Gladwell, GKN Westland Inc, was
awarded the OBE in the 1997 New Year Honours.
CORPORATE GKN has complied throughout 1996, and remains in compliance, with
GOVERNANCE the Code of Best Practice published by the Cadbury Committee on
the Financial Aspects of Corporate Governance. The Directors'
statement that the Company is a going concern appears in the
Financial Review on page 52. The auditors' report on the
Company's compliance with the Code is on page 76.
GKN REPORT & ACCOUNTS 1996 78
<PAGE> 80
Internal GKN's statement of Aims and Values includes a commitment to
financial manage the Group with integrity. As part of this commitment, the
control Directors acknowledge overall responsibility for and place a high
........... degree of importance on the Group's system of internal financial
control. The Board has reviewed the Group's system of internal
financial control during the period covered by this report and
believes that it is effective. Any system, however, can only
provide reasonable and not absolute assurance against material
misstatement or loss.
The Group has clear lines of delegated management authority and
accountability.
The Board considers the Group's strategic plan annually and,
within the framework of the plan, approves an annual budget and
medium term projections. Statements of actual operational
performance compared with budget are reviewed monthly and
forecasts for the current year are updated regularly.
There are clearly defined levels of authority for the approval of
capital expenditure, major contracts, acquisitions, investments
and divestments, with an established framework for their
appraisal and review.
The Board has approved operating policies and controls for the
Group's treasury activities and receives regular reports thereon.
The Group has a programme for identifying material business risks
against which its internal financial control system is reviewed.
In addition its insurance and risk management programmes are
reviewed annually by the Board.
The Group has an internal audit department whose head reports to
the Chief Executive of the Company. It has an annually agreed
programme which is approved by the Audit Committee. The Audit
Committee receives regular reports on the progress and results of
the work of the internal audit department. The Committee also has
independent access to the external auditors.
PAYMENTS TO Operating businesses are responsible for agreeing the terms and
SUPPLIERS conditions under which business transactions with their suppliers
are conducted when they enter into binding purchase contracts. It
is Group policy to abide by the payment terms agreed with
suppliers, provided that the supplier has performed its
obligations under the contract. Given the nature and diversity of
the Group's purchasing arrangements, it is not Group policy to
follow any code or standard in relation to payment practice.
OTHER In addition to the donations made for charitable purposes (see
INFORMATION page 44), donations of [pound sterling]25,200 were made to the
Conservative Party in 1996.
At 10th March 1997 the Company had been notified that Scottish
Widows Fund and Life Assurance Society held a 4.4% interest in
the issued voting capital of the Company.
The Company is not, and has not been, a close company within the
meaning of the Income and Corporation Taxes Act 1988.
AUDITORS A resolution to re-appoint Coopers & Lybrand as Auditors of the
Company and to authorize the Directors to fix their remuneration
will be proposed at the annual general meeting (item 7 of the
notice of meeting).
On behalf of the Board
G DENHAM
Secretary 10th March 1997
79 DIRECTORS REPORT
<PAGE> 81
-----------------------------------------------------------------
[GKN LOGO]
REMUNERATION COMMITTEE REPORT ON
DIRECTORS' REMUNERATION
-----------------------------------------------------------------
The remuneration of the executive Directors is set by the
Remuneration Committee of the Board which consists solely of the
non-executive Directors of the Company whose biographical details
are given on page 10. Sir Peter Cazalet, who retired from the
Board as Deputy Chairman on 31st December 1996, chaired the
Committee throughout 1996. He has been succeeded by Sir Bryan
Nicholson.
The Committee determines the detailed terms of service of the
executive Directors, including basic salary, incentives and
benefits, and the terms upon which their service is terminated.
It receives advice from a leading independent firm of
compensation and benefit consultants.
The Committee supports the principles of the Code of Best
Practice published by the Study Group on Directors' Remuneration
chaired by Sir Richard Greenbury. The Listing Rules of the London
Stock Exchange have applied these principles to listed companies.
With regard to the relevant best practice provisions annexed to
the Listing Rules, the Committee confirms that GKN complies with
the provisions in relation to remuneration committees and that it
has given full consideration to the provisions in framing the
remuneration policy for executive Directors.
GENERAL GKN's remuneration policy for executive Directors is designed to
POLICY attract, retain and motivate executives of the high calibre
required to ensure that the Group is managed successfully to the
benefit of shareholders. To achieve this the Company must provide
an internationally competitive package of incentives and rewards
linked to performance. In setting remuneration levels the
Remuneration Committee takes into consideration the remuneration
practices found in other international companies of similar size
and scope. The Remuneration Committee also ensures that the
remuneration arrangements for executive Directors are compatible
with those for employees throughout the GKN Group.
EXECUTIVE The remuneration of the executive Directors comprises basic
DIRECTORS' salary, annual performance-related bonus and benefits in kind,
REMUNERATION together with longer-term rewards including pension benefits and
long-term incentives. These are discussed in more detail in the
following paragraphs. Should the maximum level of performance
under GKN's incentive schemes be achieved, the remuneration
policy provides for an executive Director to receive
approximately one-half of total earnings through basic salary
with the remainder by way of performance-related awards (the
latter payable broadly one-third under the annual bonus scheme
and two-thirds through long-term incentive arrangements).
Basic salary This is based on a number of factors including market rates
........... together with the individual Director's experience,
responsibilities and performance. Individual salaries of
Directors are reviewed annually by the Remuneration Committee and
adjusted in accordance with the principles set out above.
GKN REPORT & ACCOUNTS 1996 80
<PAGE> 82
Performance- The Remuneration Committee considers that properly designed and
related bonus controlled annual bonus schemes are effective and relevant to
............ GKN's future success. Bonus payments to executive Directors are
dependent upon achievement of defined financial targets relating
to the performance of the Group over the year and, from 1997,
will also include an element contingent on the achievement of
personal targets related to growth. The targets are set by the
Remuneration Committee at the beginning of the year. The
Committee has absolute discretion to alter the targets to reflect
changed circumstances such as material changes in accounting
standards or changes in the structure of the Group. Bonus
payments are based upon a percentage of year-end basic salary and
do not form part of pensionable earnings under any of the
Directors' pension arrangements currently in place.
In 1996 the annual bonus scheme had two elements. The first was
related to the achievement of cash targets as at the end of June,
September and December and a maximum of 10% of salary was payable
on achievement of all three cash targets. The second element was
based on the level of profit before tax and exceptional items
achieved relative to that set in the 1996 Group budget.
Achievement of the 1996 Group budget would have yielded a bonus
of 15% of salary, rising on a sliding scale to a maximum of 35%
if profit before tax and exceptional items reached a
predetermined level. The total amount payable under both elements
is capped at 35% of salary.
The table below shows the bonus, as a percentage of salary,
payable to the Directors. The bonus is divided between the profit
and cash target related elements.
<TABLE>
<CAPTION>
1996 1995
% %
<S> <C> <C>
Bonus payable (% of salary)
- profit related 24.0 32.0
- cash target related 10.0 10.0
-----------------
Total payable before operation of cap 34.0 42.0
-----------------
Total payable (capped at 35%) 34.0 35.0
-----------------
</TABLE>
Benefits These comprise principally car benefits and membership of the
in kind Group's healthcare insurance scheme. The level of benefits
........... provided to executive Directors is consistent with that provided
by other major companies. These benefits do not form part of
pensionable earnings under GKN's executive pension scheme.
NON-EXECUTIVE The remuneration received by each of the non-executive Directors
DIRECTORS' is determined by the Board of Directors as a whole. The fees paid
REMUNERATION to each non-executive Director are set at a level which will
attract individuals with the necessary experience and ability to
make a substantial contribution to the Company's affairs. For
1996 this was [pound sterling] 20,000 per annum. The remuneration
of Sir Peter Cazalet in respect of his additional
responsibilities for acting as non-executive Deputy Chairman was
set on a similar basis.
The non-executive Directors do not participate in the Group's
annual bonus scheme, pension schemes or long-term incentive
arrangements nor do they receive benefits in kind. Their
appointment letter envisages their serving as Directors for an
initial fixed period of five years with the possibility of one
extension for up to a further three years.
81 REMUNERATION COMMITTEE REPORT
<PAGE> 83
-----------------------------------------------------------------
TOTAL The remuneration of the Directors for 1996, excluding pension
REMUNERATION benefits and long-term incentives, was as follows:
<TABLE>
<CAPTION>
SALARY/ BONUS BENEFITS TOTAL TOTAL
FEES 1996 1995
[pound sterling] [pound sterling] [pound sterling] [pound sterling] [pound sterling]
000 000 000 000 000
<S> <C> <C> <C> <C> <C>
Executive Directors
Sir David Lees 350 119 15 484 520
C K Chow(a) 215 150(b) 209(c) 574(d) --
M Beresford 197 70 13 280(d) 273
T C Bonner 270 95 15 380 361
D J Wright(e) 197 70 12 279(d) 215
B D Insch 172 59 9 240 231
D J Turner 231 81 8 320(d) 306
A W Jones(f) -- -- -- -- 64
Non-executive Directors
Sir Peter Cazalet 60(g) -- -- 60 60
R D Brown(h) 20 -- -- 20 --
The Baroness Hogg(i) 3 -- -- 3 --
Dr K H Murmann(j) 20 -- -- 20 13
Sir Bryan Nicholson 20 -- -- 20 20
Dr T J Parker 20 -- -- 20 20
H J Davies(k) -- -- -- -- 15
-------------------------------------------------------------------------------
1,775 644 281 2,700 2,098
-------------------------------------------------------------------------------
</TABLE>
NOTES (a) From 1st July 1996.
(b) Represents the bonus for 1996 agreed with Mr Chow upon his
accepting the position of Chief Executive designate.
(c) Includes a one-off payment of [pound sterling]200,000 made to
Mr Chow upon his accepting the position of Chief Executive
designate to augment his existing pension arrangements.
(d) Payments of supplementary allowances to certain executive
Directors in 1996, to assist them in securing retirement benefits
comparable to those that would have been available to them under
the Group's executive pension scheme had it not been for the
earnings cap, are included in the money purchase contributions
and allowances paid in lieu of pension disclosed below under
`Pensions'. The allowances paid to Mr Beresford -- [pound
sterling]15,000 (1995 -- [pound sterling]14,000), Mr Chow --
[pound sterling]75,000 (1995 -- nil), Mr Turner -- [pound
sterling]24,000 (1995 -- [pound sterling]24,000) and Mr Wright --
[pound sterling]13,000 (1995 -- [pound sterling]8,000) have
therefore been excluded from the total remuneration shown in the
table above. However, these allowances are part of the Directors'
total emoluments for the purpose of disclosure under the
Companies Act 1985.
(e) From 1st April 1995.
(f) To 31st March 1995.
(g) Includes [pound sterling]40,000 remuneration received in
respect of additional responsibilities for acting as Deputy
Chairman.
(h) From 1st January 1996.
(i) From 4th November 1996.
(j) From 1st May 1995.
(k) To 31st August 1995.
GKN REPORT & ACCOUNTS 1996 82
<PAGE> 84
-----------------------------------------------------------------
Mr A Daly ceased to be a Director on 31st December 1994. He
remained an employee of the Company, however, on secondment to
the CBI as Chairman of the National Manufacturing Council until
he reached his normal retirement date on 31st December 1996.
Throughout 1996 he continued to be a member of the Group's
executive pension scheme and received a salary of [pound
sterling]225,000.
PENSIONS Executive Directors are eligible to join the GKN Group Executive
and Senior Staff Pension Scheme (the `Executive Scheme'). Sir
David Lees, Mr T C Bonner, Mr D J Wright and Mr B D Insch are
members of the Executive Scheme with the benefit for Mr Wright
being restricted by the earnings cap introduced by the Finance
Act 1989. Sir David Lees retired on pension at the end of 1996.
In accordance with the rules in force when these Directors joined
the Executive Scheme, no member contributions are required. Mr C
K Chow, Mr M Beresford and Mr D J Turner are subject to the
restrictions of the Finance Act 1989 and are members of the
Executive Scheme for death in service benefits only. In their
case, and for part of the benefit for Mr Wright, retirement
provision is secured by the Company by a combination of amounts
paid to individual `money-purchase' schemes and supplementary
allowances paid to each Director in order to assist them in
securing overall benefits comparable to those that would have
been available under the Executive Scheme had it not been for the
operation of the earnings cap.
The Executive Scheme provides Directors with a pension of up to
two-thirds of basic annual salary on retirement at age 60 after
20 or more years' service and proportionately less for shorter
service or for retirement before pension age. On early retirement
with company agreement within 5 years of pension age the current
discretionary practice in the case of all members, and subject to
the consent of the Remuneration Committee in the case of
Directors, is to pay a pension equal to the proportion of the
prospective pension accrued for service completed. The Executive
Scheme provides for a surviving spouse's pension of two-thirds of
the member's pension and for increases in pensions and deferred
pensions equal to price inflation up to 5% per annum. Any
additional pension increases are at the discretion of the Board.
No allowance is made for discretionary benefits when calculating
individual transfer values available to members who leave the
Executive Scheme.
The table below (left) shows, for those Directors whose pension
arrangements are either wholly or partly covered by the Executive
Scheme, the increase during the year in the accrued pension to
which each Director would have been entitled on leaving service,
over and above any general increase in the previous year's
accrued pension to compensate for inflation to which early
leavers were entitled. For those Directors for whom benefit
payments are made into money purchase schemes, the table below
(right) shows the amount paid as contributions and allowances to
help secure benefits comparable to those that would have been
available under the Executive Scheme.
<TABLE>
<CAPTION>
INCREASE IN
ANNUAL PENSION
1996 1995
[pound sterling]0000 [pound sterling]000
<S> <C> <C>
Sir David Lees 10 20
T C Bonner 10 13
D J Wright 3 2
B D Insch 5 5
</TABLE>
<TABLE>
<CAPTION>
MONEY PURCHASE CONTRIBUTIONS
AND ALLOWANCES IN LIEU
OF PENSION
1996 1995
[pound sterling]000 [pound sterling]000
<S> <C> <C>
C K Chow 90 -
M Beresford 75 70
D J Wright 44 32
D J Turner 106 101
</TABLE>
For the purpose of disclosure under the Companies Act 1985,
pension contributions made on behalf of the executive Directors
in 1996 amounted to [pound sterling]539,000 (1995 -- [pound
sterling]507,000) including [pound sterling]142,000 (1995 --
[pound sterling]138,000) in respect of the Chairman. Pension
payments in connection with former Directors amounted to [pound
sterling]4,000 (1995 -- [pound sterling]4,000).
83 REMUNERATION COMMITTEE REPORT
<PAGE> 85
-----------------------------------------------------------------
LONG-TERM The Remuneration Committee considers that long-term incentives
INCENTIVE which closely link executive rewards to the return to
ARRANGEMENTS shareholders on their investment are an important component in
the overall executive remuneration arrangements. In 1996,
following shareholders' approval, long-term incentive plans were
introduced in the UK and in other countries to replace the
existing executive share option schemes. Senior executives in the
UK, including the executive Directors, participate in The GKN
Long Term Incentive Plan (`the Plan').
In summary, under the Plan each executive Director may be awarded
annually a conditional right to acquire a number of shares equal
in value to a maximum of 75% of his annual basic salary and
calculated by reference to the average of the daily closing
prices of GKN shares during the preceding year. The number of
these shares that he will ultimately receive will depend on the
Group's performance during the following three years. This will
be measured by comparing the Total Shareholder Return (growth in
share value assuming reinvestment of gross dividends) from GKN
shares with the return from shares in the other companies
constituting the FTSE 100 Index at the start of the measurement
period. If GKN ranks 25th or above in this comparator group the
executive Director will receive all of the shares conditionally
awarded to him. If the ranking is below 65th he will receive no
shares. For intermediate positions, he will receive a
proportionate number of shares which will reduce (from 100%) by
two percentage points with each position below 25th. Irrespective
of GKN's Total Shareholder Return, before any shares become
eligible for release the Remuneration Committee must be satisfied
that this is justified by the underlying financial performance of
the Group over the measurement period. The appropriate number of
shares, which will be determined after three years, will not be
released to the Director for at least a further two years other
than in the specific circumstances set out in the rules of the
Plan.
The following awards of conditional rights to shares were made to
the executive Directors under the Plan during 1996 (the
measurement period for which commenced on 1st January 1996) and
were held by them at 31st December 1996:
<TABLE>
<CAPTION>
NO. OF SHARES
<S> <C>
C K Chow 46,600
M Beresford 20,600
T C Bonner 28,200
D J Wright 20,600
B D Insch 18,200
D J Turner 24,400
</TABLE>
Share options Executive share option schemes: The only grants made under these
........... schemes during 1996 were to Mr D J Wright and Mr D J Turner in
respect of entitlements agreed with each of them at the time they
joined the GKN Board. Following the introduction of the long-term
incentive plans, no further grants will be made under these
schemes. The schemes provided for annual grants of options to
senior executives, including executive Directors, throughout the
Group of up to a maximum of four times an individual's
emoluments. Executives received their grants over a two to four
year period after becoming eligible, and further grants were only
made to reflect promotion and/or salary progression. Options are
normally exerciseable between the third and tenth anniversary of
the date of grant (between the fifth and tenth anniversary for
options granted in 1995 and 1996). The exercise price was fixed
at the market price of GKN's shares at the time the option was
granted. The outstanding options held by Directors are
exerciseable by the year 2006 at prices between 383.4p and 968p
per share.
Save as you earn (SAYE) schemes: Outstanding options held by
Directors under these schemes, which are open to all UK employees
with six months' service or more, are exerciseable by the year
2002 at prices between 260.5p and 820p per share. Participants
save a regular monthly sum of up to [pound sterling]250 for three
or five years and can use these savings and any bonus payable
GKN REPORT & ACCOUNTS 1996 84
<PAGE> 86
under the scheme to exercise the options. As permitted by the Finance Act 1989
the exercise price is normally set at 20% below the market price before the
start of the savings period.
Options over GKN plc shares held by executive Directors under the executive and
SAYE share option schemes at 31st December 1995 and 31st December 1996 were as
follows:
<TABLE>
<CAPTION>
1995 GRANTED EXERCISED 1996 WEIGHTED
------------------ ----------------- AVERAGE
EXECUTIVE SAYE EXECUTIVE SAYE PRICE (a)
<S> <C> <C> <C> <C> <C> <C> <C>
Sir David Lees 238,491 -- -- 157,858 -- 80,633 421.5p
C K Chow -- -- -- -- -- -- --
M Beresford 137,114 -- -- 51,247 -- 85,867 592.1p
T C Bonner 219,658 -- -- 152,668 -- 66,990 588.2p
D J Wright 110,717 18,483 2,103 51,251 -- 80,052 656.8p
B D Insch 136,149 -- 925 82,003 -- 55,071 576.1p
D J Turner 98,422 33,703 -- -- -- 132,125 694.2p
</TABLE>
(a) Weighted average exercise price per share of options held at 31st December
1996. The closing mid-market price of GKN shares on the London Stock Exchange on
31st December 1996 was 1001p and the price range during the year was 780p to
1172.5p.
Options were granted during the year under the UK Executive Share Option Scheme
at an exercise price of 968p per share and under the SAYE share option scheme at
820p per share. No options lapsed during the year.
Options exercised under the executive and SAYE share option schemes during 1996
were as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE ON SHARES
NO. OF DATE OF PRICE DATE OF RETAINED
SHARES GRANT PER SHARE EXERCISE (a) ON EXERCISE
<S> <C> <C> <C> <C> <C>
Sir David Lees 103,532 17.8.88 315.1p 910p 25,000
54,326 6.4.92 331.7p 910p
M Beresford 51,247 7.4.93 444.9p 971p 10,000
T C Bonner 33,764 24.8.87 372.7p 979p
53,303 17.8.88 315.1p 979p 12,500
32,801 4.4.90 383.4p 979p
32,800 6.4.92 331.7p 979p
D J Wright 51,251 6.4.92 331.7p 910p 32,786
B D Insch 46,128 17.8.88 315.1p 910p
12,300 4.4.90 383.4p 910p 5,000
23,575 6.4.92 331.7p 910p
</TABLE>
(a) The closing mid-market price per share on day of exercise.
SHARE INTERESTS
The beneficial interests of the Directors, including family interests, in the
shares of GKN plc at the relevant dates were as follows:
<TABLE>
<CAPTION>
GKN ORDINARY SHARES GKN ORDINARY SHARES
1996 1995 1996 1995
<S> <C> <C> <C> <C> <C>
Sir David Lees 73,912 47,053 Sir Peter Cazalet 2,505 2,505
C K Chow 2,000 -- R D Brown 1,009 --
M Beresford 11,363 1,239 The Baroness Hogg -- --
T C Bonner 31,772 25,633 Dr K H Murmann 5,032 --
D J Wright 24,488 9,131 Sir Bryan Nicholson 2,169 2,116
B D Insch 25,975 25,721 Dr T J Parker 1,324 1,291
D J Turner 1,000 1,000
</TABLE>
REMUNERATION COMMITTEE REPORT
85
<PAGE> 87
The executive Directors (other than Sir David Lees), as potential beneficiaries,
are deemed to have an interest in the ordinary shares of GKN plc held by the
discretionary trust established to facilitate the operation of The GKN Long Term
Incentive Plan. At 31st December 1996 the trust held 728,150 shares (1995 --
nil).
There were no changes in the Directors' interests in shares or options between
31st December 1996 and 10th March 1997.
The Company's Register of Directors' Interests, which contains full details of
the Directors' shareholdings and options to subscribe for shares in GKN plc, is
available for inspection by shareholders upon request.
SERVICE AGREEMENTS
From 1st October 1996 the period of notice required to be given by the Company
to terminate the service agreements of the executive Directors (other than Mr C
K Chow) has been two years. Mr Chow's service agreement is initially for a
period of three years but may be terminated upon two years' notice to expire at
any time on or after 30th June 1999. All the agreements terminate in any event
at the end of the year in which the Director attains the age of 60. The
non-executive Directors do not have service agreements with the Company.
The Remuneration Committee has given careful consideration to the Greenbury Code
which suggests that notice periods should not generally exceed one year. Notice
periods need to reflect market practice not only for executives at Board level
but also for those executives immediately below. GKN has a large number of
senior executives below Board level whose service agreements entitle them to one
or more years' notice of termination.
Having reduced the period of notice in the executive Directors' service
agreements from three years to two, the Committee considers that a further
reduction to one year at this time would not be in the interests of
shareholders. The issue will continue to be kept under review as practice
develops.
EXTERNAL APPOINTMENTS
The Remuneration Committee recognises the benefit which GKN can obtain if
executive Directors of GKN serve as non-executive Directors of other companies.
Subject to review in each case, the Remuneration Committee's general policy is
that each executive Director may accept one non-executive directorship with
another company from which the Director may retain the fees.
SIR BRYAN NICHOLSON
Chairman of the Remuneration Committee 10th March 1997
GKN REPORT & ACCOUNTS 1996
86
<PAGE> 88
- --------------------------------------------------------------------------------
[LOGO]
NOTICE OF MEETING
- --------------------------------------------------------------------------------
Notice is hereby given that the annual general meeting of GKN plc will be held
in the Westbourne Suite, Lower Ground Floor of the Royal Lancaster Hotel,
Lancaster Terrace, London W2 on Thursday the 15th day of May 1997 at 11.30 a.m.
for the purpose of dealing with the following business of which item 9 is
special business:
1 To approve and adopt the report of the Directors and the audited statement
of accounts for the year ended 31st December 1996.
2 To re-elect as a Director Sir David Lees.
3 To re-elect as a Director Mr B D Insch.
4 To re-elect as a Director Sir Bryan Nicholson.
5 To re-elect as a Director Mr C K Chow.
6 To re-elect as a Director The Baroness Hogg.
7 To re-appoint Coopers & Lybrand as Auditors and to authorise the Directors
to fix their remuneration.
8 To consider and, if thought fit, pass the following resolution as a Special
Resolution:
That, in substitution for any existing authority conferred upon them, where
the Directors of the Company are generally and unconditionally authorised
for the purposes of Section 80 of the Companies Act 1985 (the `Act') to
allot relevant securities (within the meaning of Section 80(2) of the Act)
they be and are hereby authorised to allot equity securities (within the
meaning of Section 94 of the Act) as if Section 89(1) of the Act did not
apply to any such allotment provided that this authority shall be limited
to:
(i) the allotment of equity securities where such securities have been or are
to be offered (whether by way of rights issue, open offer or otherwise) to
holders of equity securities in proportion (as nearly as practicable) to
the respective numbers of equity securities held by them but subject to
such exclusions or other arrangements as the Directors of the Company may
consider appropriate, necessary or expedient to deal with legal, practical
or regulatory problems in respect of overseas shareholders, fractional
entitlements or otherwise; and
(ii) the allotment (otherwise than pursuant to sub-paragraph (i) of this
Resolution) of equity securities having an aggregate nominal value of up to
[pound sterling]17,631,636;
and shall expire fifteen months from the date of the passing of this
Resolution (unless previously renewed, varied or revoked by the Company in
general meeting) save that the Directors of the Company may before such
expiry make any offer, agreement or other arrangement which would or might
require equity securities to be allotted after such expiry and the
Directors of the Company may allot equity securities pursuant to any such
offer, agreement or other arrangement as if the authority conferred hereby
had not expired.
GKN REPORT & ACCOUNTS 1996
87
<PAGE> 89
9 To consider and, if thought fit, pass the following resolution as a
Special Resolution:
That, subject to and in accordance with the provisions of Article 6(b) of
the Company's Articles of Association and the Companies Act 1985 (the
`Act'), the Company is hereby generally and unconditionally authorised to
make market purchases (within the meaning of Section 163(3) of the Act) of
ordinary shares of [pound sterling]1 each in the capital of the Company
(`ordinary shares') provided that:
(i) the maximum aggregate number of ordinary shares hereby authorised to be
purchased is 35,263,272;
(ii) the maximum price which may be paid for an ordinary share purchased
pursuant to this authority is an amount equal to 105% of the average of
the middle market quotations of the Company's ordinary shares as derived
from the London Stock Exchange Daily Official List for the five business
days immediately preceding the day on which that share is purchased and
the minimum price which may be paid is [pound sterling]1 per ordinary
share (in each case exclusive of expenses and advance corporation tax (if
any) payable by the Company); and
(iii) the authority hereby conferred shall (unless renewed prior to such date)
expire at the conclusion of the next annual general meeting of the Company
or on 15th May 1998, whichever is earlier, provided that the Company may
make a purchase of any ordinary shares after the expiry of this authority
if the contract for purchase was entered into before such expiry.
By order of the Board
G DENHAM
Secretary 27th March 1997
Notes
An explanation of the business of the meeting is given in the Directors'
Report on pages 77 to 79.
A shareholder entitled to attend and vote at the meeting may appoint one
or more proxies to attend and, on a poll, to vote in his place. A proxy
need not be a shareholder. Shareholders will receive with this annual
report a form of proxy containing notes on completion and use. To be
effective the form of proxy must reach the Company's Registrar not less
than 48 hours before the time of the meeting.
Registered Office: PO Box 55, Ipsley House, Ipsley Church Lane, Redditch,
Worcestershire B98 0TL
Registered in England No. 66549
GKN REPORT & ACCOUNTS 1996
88
<PAGE> 90
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SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
SHAREHOLDERS
Analysis of holdings of ordinary shares at 31st December 1996
<TABLE>
<CAPTION>
SHAREHOLDERS SHARES
HOLDINGS NUMBER % NUMBER (000) %
<S> <C> <C> <C> <C>
1-500 20,830 47.7 5,473 1.6
501-1,000 11,437 26.2 8,305 2.4
1,001-5,000 9,802 22.4 18,310 5.2
5,001-50,000 1,066 2.4 16,958 4.8
50,001-100,000 163 0.4 11,690 3.3
100,001-500,000 269 0.7 62,129 17.6
500,001-1,000,000 66 0.1 46,850 13.3
Above 1,000,000 67 0.1 182,918 51.8
-------------------------------------------
43,700 100.0 352,633 100.0
===========================================
</TABLE>
LOW COST SHARE DEALING SERVICE
A service designed to enable investors to buy and sell GKN shares, by
post, at competitive dealing rates is provided by Cazenove & Co. Dealing
forms containing detailed terms and conditions can be obtained from GKN's
Group Headquarters (see inside back cover).
PROSHARE NOMINEE CODE
GKN supports the principles of the ProShare Nominee Code which is designed
to reassure investors about the safety of their shares held in nominee
accounts and to enable such investors to receive company information if
they so wish. ProShare can be contacted at Library Chambers, 13-14
Basinghall Street, London EC2V 5BQ (telephone 0171 600 0984).
SHARE PRICE INFORMATION
The latest GKN share price is available on the Financial Times Cityline
Service: telephone 0891 432696 (calls charged at 50p per minute).
Taxation: For capital gains tax purposes the market values of GKN shares
at 6th April 1965 and 31st March 1982, adjusted to take account of
subsequent rights and capitalisation issues, are 232.35p and 209.74p
respectively.
UNSOLICITED MAIL
GKN is obliged by law to make its share register publicly available and as
a consequence some shareholders may have received unsolicited mail. If you
wish to limit the amount of such mail you should write to the Mailing
Preference Service, FREEPOST 22, London W1E 7EZ.
GKN REPORT & ACCOUNTS 1996
89
<PAGE> 91
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PRINCIPAL DIVISIONS, SUBSIDIARIES
AND ASSOCIATED COMPANIES
At 31st December 1996 the principal divisions, subsidiaries and
associated companies were as follows:
-----------------------------------------------------------------
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
<TABLE>
<S> <C>
Automotive Driveline Division GKN Automotive Ltd
GKN Automotive International GmbH Germany
GKN Automotive AG (98.2%) Germany
Constant velocity products GKN Hardy Spicer Ltd
GKN Automotive Umformtechnik GmbH Germany
Lohr & Bromkamp GmbH (94.5%) Germany*
GKN Gelenkwellenwerk Kiel GmbH Germany*
GKN Gelenkwellenwerk Mosel GmbH Germany*
GKN Walterscheid Presswerk GmbH Germany*
GKN Glaenzer Spicer SA France*
GKN Ayra Durex, SA Spain+
GKN Indugasa, SA Spain
GKN Transmisiones Espana, SA Spain
GKN Forjas de Precision de Legazpia, SA Spain+
GKN Birfickl SpA Italy*
GKN Componenti Firenze SpA Italy*
GKN Automotive Polska Sp. z o.o. Poland
GKN Automotive, Inc USA
GKN Invel Transmissions Ltd (51%) India*
Propeller shafts GKN Driveshafts Ltd
GKN Gelenkwellenbau GmbH Germany*
GKN Glaenzer Cardan SA France*
GKN Ayra Cardan, SA Spain+
GKN Nordiska Kardan AB Sweden*
Italcardano Universal Giunti SpA (80%) Italy*
Viscous control units GKN Viscodrive GmbH Germany*
Viscodrive Japan KK (51%) Japan*
Associated companies ATH-Albarus Transmissoes Homocineticas Ltda (49%) Brazil
Asian Driveshaft Sendirian Berhad (42.1%) Malaysia*
Hanwha GKN Driveshafts Ltd (49%) South Korea
Jilin GKN Norinco Drive Shaft Company Ltd (50%) China
Shanghai GKN Drive Shaft Company Ltd (40%) China*
Taiway Ltd (20%) Taiwan
Transejes Transmisiones Homocineticas de Colombia SA (49%) Colombia
Transmisiones Homocineticas Argentinas SA (49%) Argentina
Unidrive Pty Ltd (30%) Australia
Unior-Atras d.o.o. (46.5%) Slovenia*
Univel Transmissions (Pty) Ltd (40%) South Africa
Velcon S.A. de C.V. (39%) Mexico
Emitec Gesellschaft fur Emissionstechnologie mbH (50%) Germany*
Emitec Inc (50%) USA*
Hindustan Hardy Spicer Ltd (26%) India*
Other companies GKN Technology Ltd and product and
process development centres in Germany and USA
GKN Japan Ltd Japan
Export and representation companies in UK and Brazil
Service Division Companies in UK, Continental Europe and USA
Agritechnical Products GKN Walterscheid GmbH Germany*
Division GKN Walterscheid Getriebe GmbH Germany*
Walterscheid Rohrverbindungstechnik GmbH Germany*
GKN Walterscheid France SARL France*
GKN Walterscheid, Inc USA*
GKN Walterscheid Canada Inc Canada*
Matsui-Walterscheid Ltd (40%) Japan*
Sankey Division Engineering Products
Industrial Products
GKN Wheels
GKN Wheels Nagbol A/S Denmark
</TABLE>
GKN REPORT & ACCOUNTS 1996
90
<PAGE> 92
<TABLE>
<S> <C>
Cylinder Liners GKN Sheepbridge Stokes Ltd
Powder Metallurgy GKN Bound Brook Ltd
Division GKN Bound Brook SpA Italy
Mahindra Sintered Products Ltd (49%) India
AEROSPACE AND SPECIAL VEHICLES
Westland Helicopters GKN Westland Helicopters Ltd
Division GKN Westland Industrial Products Ltd
GKN Westland do Brasil Comercio E Representacoes Ltda Brazil
EH Industries Ltd (50%)
Aerosystems International Ltd (50%)
Westland Aerospace GKN Westland Aerospace Ltd
Division GKN Westland Design Services Ltd
GKN Westland Engineering Ltd
FPT Industries Ltd
Marex Technology Ltd
Westland System Assessment Ltd
Westland Technologies GKN Westland Technologies Ltd
Division Hermetic Aircraft International Corp USA
Normalair-Garrett Ltd (52%)
Normalair-Garrett Pty Ltd (52%) Australia
Normalair-Garrett Manufacturing Pty Ltd (52%) Australia
Westland-SITEC GmbH Germany
Defence Division GKN Defence Ltd
Glover Webb Ltd
Asian Armoured Vehicle Technologies Corporation (20%) Philippines
Other companies GKN Westland Ltd
GKN Westland, Inc USA
INDUSTRIAL SERVICES
GKN-Brambles Joint Ventures Chep UK Ltd (50%)
Chep Europ BV (50%) Netherlands and operations in Austria,
Belgium, France, Germany, Spain, Portugal and Italy
Chep USA (50%) USA
Chep Canada Inc (50%) Canada
Chep Mexico S.A. de C.V. (50%) Mexico
Chep (Malaysia) Sdn Bhd (50%) Malaysia
Chep (Singapore) Pte Ltd (50%) Singapore
Cleanaway Holdings Ltd (50%)
Leto Holding BV (50%) Netherlands
Mabeg Holding GmbH (50%) Germany
Chep South Africa GKN Chep SA (Pty) Ltd South Africa and operations in Namibia and Zimbabwe
Meineke Meineke Discount Muffler Shops, Inc USA
CORPORATE GKN (United Kingdom) plc
GKN Industries Ltd
Ipsley Insurance Ltd Isle of Man
</TABLE>
- --------------------------------------------------------------------------------
The issued share capitals of the 118 companies
which at 31st December 1996 comprised the GKN
Group are held indirectly by GKN plc through
intermediate holding companies which are
registered or incorporated in England,
Netherlands, USA and Germany. Certain
intermediate holding companies do not prepare
consolidated accounts.
The percentage of the share capital held by GKN
is indicated where companies are not wholly
owned. All of the Group's shares in those
companies suffixed `*' are owned, directly or
indirectly, by GKN Automotive AG in which the
Group's shareholding is 98.2%. Certain of the
Group's Spanish subsidiaries, suffixed `+', are
partially owned by GKN Automotive AG giving an
effective Group ownership of 99.4% in each of
those companies.
The country of incorporation or registration
and the principal country in which each company
operates is England unless otherwise shown.
Intra-group sales are priced on an
`arms-length' basis.
Of the Group subsidiary sales of [pound
sterling]2,873 million, 66% related to
subsidiaries whose accounts are audited by
Coopers & Lybrand, auditors of the parent
company.
GKN REPORT & ACCOUNTS 1996
91
<PAGE> 93
SUBJECT INDEX
Accounting policies 59
Acquisitions 20, 21, 23, 36, 39, 48, 70
Aerospace 26, 31
Agritechnical products 18, 23-24
Annual general meeting 87-88
Associated companies 48-49, 65, 90-91
Auditors
- -- remuneration 61, 79
- -- Report on corporate governance 76
- -- Report on financial statements 53
Automotive driveline 16, 18-21, 23
Balance sheets 55, 73
Board and its Committees 12
Capital expenditure 51, 71
Cash flow 51, 57-58
Chairman's statement 4-7
Chep 34-37, 39
Cleanaway 39
Commitments and
contingent liabilities 71
Community involvement 44
Corporate governance 78-79
Corporate profile 2
Creditors 67
Debtors 66
Directors 8-10
- -- biographies 10
- -- changes to the Board 7, 78
- -- interests 84-86
- -- remuneration 80-86
- -- Report 77-79
- -- responsibility for the accounts 53
- -- service agreements 86
Dividend 6, 50, 63, 77
- -- scrip alternative 77
Earnings per share 50, 63
Employees 6, 40, 63
Engineering products 24
Environment 42
Exceptional items 47, 50, 62
Exchange rates 47
Financial
- -- calendar 46
- -- five year record 75
- -- highlights 2
- -- Review 47-52
Foreign currencies 59
Going concern 52
Health and safety 40
Helicopters 26, 28, 31
Interest receivable/payable 50, 62
Internal financial control 79
Investments 65
Loan notes 46
Long-term incentive plans 84
Markets
- -- agritechnical 23-24
- -- car and light vehicle 18, 20
- -- commercial vehicle 23
Meineke 6, 39, 47, 50, 72
Operating profit 49, 61
Organisational structure 11
People and the community 40-44
Pensions and other post-retirement
benefits 70-71, 83
Post balance sheet event 72
Powder metallurgy 24
Principal divisions, subsidiaries and associated companies 90-91
Profit and loss account 54
Provisions for liabilities and charges 68
Recognised gains and losses 56
Remuneration Committee Report 80-86
Reserves 69
Review of operations 13-39
- -- Automotive and
agritechnical products 16-25
- -- Aerospace and special vehicles 26-33
- -- Industrial services 34-39
Sales 14, 48-49, 60
Segmental analysis 14, 74
Shareholder analysis 89
Shareholders' equity 52, 56
Share option schemes 44, 69, 84-85
Shares
- -- allotment 77
- -- dealing service 89
- -- issued capital 69, 77
- -- price information 89
- -- purchase by the Company 78
Special vehicles 26-28
Stocks 66
Subsidiary companies 90-91
Tangible assets 64
Taxation 50, 62, 67
Term loans 67
Training and development 42-44
Treasury policy and funding 51
GKN REPORT & ACCOUNTS 1996
92
<PAGE> 94
The flags appearing on the cover of this annual report represent some of the
many countries around the world in which GKN has an operational presence. The
countries are (from top left to right):
United Kingdom
Argentina
Australia
Austria
Belgium
Brazil
Canada
Chile
China (People's Republic of)
Colombia
Denmark
Finland
France
Germany
India
Ireland
Italy
Japan
Kuwait
Malaysia
Mexico
Namibia
Netherlands
Norway
Oman
Philippines
Poland
Portugal
Slovenia
South Africa
South Korea
Spain
Sweden
Switzerland
Thailand
United States of America
GKN plc
GROUP HEADQUARTERS
PO Box 55
Redditch
Worcestershire B98 0TL
Telephone 01527 517715
Fax 01527 517700
LONDON OFFICE
7 Cleveland Row
London
SW1A 1DB
Telephone 0171 930 2424
Fax 0171 930 3255
REGISTRAR
LLOYDS BANK REGISTRARS
The Causeway
Worthing
West Sussex BN99 6DA
Telephone 01903 502541
Fax 01903 833012
The woodpulps used to make the paper and cover board for this annual report are
all sourced from managed forests and bleached using processes which are either
elemental or totally chlorine free.
<PAGE> 95
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