<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 19, 1996
------------------
Sinter Metals, Inc.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 1-13366 25-1677695
- --------------- ------------ ---------------------
(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
50 Public Square, Suite 3200, Cleveland, Ohio 44113
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (216) 771-6700
--------------
N/A
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Change Since Last Report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On December 19, 1996, Sinter Metals, Inc. (the "Company") acquired
(the "Acquisitions") from MAAG Holding AG, a Swiss corporation ("MAAG") (i) the
remaining 70% of the Common Stock of Powder Metal Holding, Inc., a Delaware
corporation ("PMH") owned by MAAG, pursuant to the Powder Metal Stock Purchase
Agreement, dated as of October 7, 1996, by and between the Company and MAAG and
(ii) 98.2% of the outstanding shares of Krebsoge Sinterholding GmbH, a German
corporation ("Krebsoge"), pursuant to the Krebsoge Stock Purchase Agreement,
dated as of October 11, 1996, by and between the Company and MAAG. The Company
owned 30% of the Common Stock of PMH prior to December 19, 1996. On December
30, 1996, the Company purchased 1.8% of the outstanding shares of Krebsoge it
did not then already own from a senior executive officer of Krebsoge, for
approximately $1.3 million.
Prior to the acquisitions, the Company was party to a Shareholders
Agreement by and among PMH, PMI Powder Metal Holding (a predecessor corporation
to MAAG) and Consolidated Metal Holdings, Inc. (now known as Sinter Metals,
Inc.) dated as of November 18, 1993. Such agreement was terminated as of
December 19, 1996. The Company has no other relationships with MAAG.
The Company paid an aggregate of $215 million in the Acquisitions.
Such consideration was determined on the basis of arms' length negotiations by
the parties. In order to fund the acquisitions, refinance the Company's then
existing debt and pay related costs and expenses, the Company entered into a
$275 million credit facility with a syndicate of financial institutions with
NBD Bank as Administrative Agent and Collateral Agent and Salomon Brothers Inc
as Syndication Agent (the "New Credit Facility"). Under the New Credit
Facility, the lenders have provided the Company with (i) three senior secured
term loan facilities in the aggregate principal amount of $225 million,
allocated between (a) a Tranche A Term Loan Facility in an aggregate principal
amount of $30 million, (b) a Tranche B Term Loan Facility in the aggregate
principal amount of $115 million (together with the Tranche A Term Loan
Facility the "U.S. Term Facilities") and (c) a German term loan facility in the
aggregate principal amount of 124.5 million Deutschmarks ("DM") (approximately
$80 million), (ii) a senior secured revolving credit facility in an aggregate
amount equal to $30 million, of which up to $20 million will be available in
the form of standby letters of credit (the "U.S. Revolving Facility" and
together with the U.S. Term Facilities, the "U.S. Facilities") and (iii) a DM
denominated senior secured revolving credit facility in an aggregate amount of
DM 30 million (approximately $19.3 million), of which DM 10 million
(approximately $6.4 million) will be available in the form of standby letters
of credit (together with the German term loan facility, the "German
Facilities"). On the closing date of the Acquisitions, the Company borrowed
all of the funds available under the U.S. Term Facilities and the German term
loan facility and aproximately $3.4 million under the U.S. Revolving Facility.
Under the U.S. Facilities, the Company may elect to borrow at either
the LIBOR rate (for dollar deposits) or the Alternate Base Rate, which is the
highest of the Prime Rate, the Federal Funds Effective Rate plus 1/2 of 1% and
the Base CD Rate plus 1% (the "ABR"), while borrowings under the German
Facilities are at the DIBOR rate (the LIBOR rate for DM deposits), or a German
Prime Rate, in each case plus an additional spread (the "Interest Rate
Spread"). The Interest Rate Spread varies based upon the underlying interest
rate election, the facility
2
<PAGE> 3
under which funds were borrowed, and the Company's leverage ratio (the ratio of
indebtedness to EBITDA). In the absence of a default under the New Credit
Facility, the maximum Interest Rate Spreads for the various combinations of
interest rate elections and facilities are as follows: 1.00% for U.S. revolving
loans at the ABR; 2.00% for U.S. revolving loans at the LIBOR Rate; 1.50% for
Tranche A term loans at the ABR; 2.00% for Tranche B term loans at the ABR;
2.50% for Tranche A term loans at the LIBOR Rate; 3.00% for Tranche B term
loans at the LIBOR Rate; 1.00% for German loans at the German Prime Rate; 2.50%
for German term loans at the DIBOR Rate; and 2.00% for German revolving loans
at the DIBOR Rate. The Company's initial borrowings under the New Credit
Facility were made at the LIBOR Rate (in the case of the U.S. Facilities) and
DIBOR Rate (in the case of the German Facilities), supplemented in all cases by
the highest applicable Interest Rate Spreads.
The Company has filed a Registration Statement on Form S-1 relating to
a proposed offering of its Class A Common Stock with the Securities and Exchange
Commission on December 24, 1996. The Company intends to use the proceeds of such
offering to retire indebtedness under the U.S. Term Facilities.
PMH is the second largest producer of precision pressed powder metal
components in North America, based upon 1995 sales of approximately $106.5
million. Krebsoge, which offers pressed powder metal parts for use principally
in the European automotive, machine, power tool and home appliance industries,
is among the leading pressed powder metal parts manufacturers in Europe, and
the largest pressed powder metal parts producer in Germany. Krebsoge had 1995
net sales of approximately DM 224.8 million, or approximately $152.6 million.
The acquisitions add 12 additional production facilities to the
Company's existing seven facilities in North America and Europe. The Company
currently produces over 4,000 different pressed powder metal components.
The Company's press release issued December 19, 1996 is hereby
incorporated by reference and included as Exhibit 99.1 of this report on Form
8-K.
Item. 7 Financial Statements and Exhibits.
Financial Statements of Businesses Acquired
- -------------------------------------------
Krebsoge
--------
Included with this report on Form 8-K are audited financial statements
for the years ended December 31, 1995, 1994 and 1993 for Krebsoge, prepared on a
German GAAP basis as follows:
<TABLE>
<S> <C>
Report of Independent Auditors..................................... 4
Report of Independent Auditors..................................... 5
Consolidated Balance Sheets as of December 31, 1994 and 1995....... 6
Consolidated Statements of Income for the
years ended December 31, 1993, 1994 and 1995................... 7
Consolidated Statements of Cash Flows for the
years ended December 31, 1993, 1994 and 1995................... 8
Notes to Consolidated Financial Statements......................... 9
</TABLE>
The interim data required pursuant to Rule 3-06 of Regulation S-X for
the period ended September 30, 1996 is not available on a comparative basis to
the annual financial statements of Krebsoge. The accompanying condensed
statement of income and cash flow financial data for the periods ended
September 30, 1996 and 1995 and balance sheet data as of September 30, 1996,
are prepared on a Swiss GAAP basis, the basis used to report to its previous
parent. The interim presentation is not intended to be a presentation in
accordance with German GAAP, the accounting basis used by the Company for
annual financial reporting purposes. Net income and cumulative loss in excess
of equity on a Swiss GAAP basis do not differ from amounts determined on a
German GAAP basis, however, there are certain differences in the
classification and presentation of financial information.
The Company intends to file an amendment to this Form 8-K, which will
present the audited financial statements of Krebsoge for the year ended
December 31, 1996, prior to the 60 day extension period due date permitted by
Release Nos. 33-7355 and 34-37802 and Form 8-K. Such financial statements will
be presented consistent with the annual accounts filed herewith. The unaudited
interim financial data, presented in accordance with Swiss GAAP, is as follows:
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets as
of December 31, 1995 and September 30, 1996 (Unaudited)................ 32
Condensed Consolidated Statements of Income for the
period ended September 30, 1996 and 1995 (Unaudited)................... 33
Condensed Consolidated Statements of Cash Flows for the
periods ended September 30, 1996 and 1995 (Unaudited).................. 34
Notes to Interim Financial Information................................... 35
PMH
- ---
Independent Auditors' Report............................................. 38
Consolidated Balance Sheets as of December 31, 1995
and November 22, 1996.................................................. 39
Consolidated Statements of Income for the years
ended December 31, 1994 and 1995 and the period
January 1, 1996 through November 22, 1996.............................. 40
Consolidated Statements of Shareholders' Deficit
for the years ended December 31, 1994 and 1995 and
the period January 1, 1996 through November 22, 1996................... 41
Consolidated Statements of Cash Flows for the years
ended December 31, 1994 and 1995 and the
period January 1, 1996 through November 22, 1996....................... 42
Notes to Consolidated Financial Statements............................... 43
</TABLE>
PRO FORMA FINANCIAL INFORMATION (unaudited)
-------------------------------
Unaudited pro forma financial information is presented as follows:
<TABLE>
<S> <C>
Pro forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1995 and
nine months ended September 30, 1996............................... 58
Pro forma Condensed Consolidated Balance Sheet as
of September 30, 1996.............................................. 59
Notes to pro forma Condensed Consolidated Financial Statements....... 60
</TABLE>
3
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REPORT OF INDEPENDENT AUDITORS
To the Board of Management and
Shareholders of Krebsoge Sinterholding GmbH
We have audited the consolidated balance sheet of Krebsoge Sinterholding
GmbH as of December 31, 1995, and the related statements of income and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Germany, which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Krebsoge Sinterholding GmbH as of December 31, 1995, and the consolidated
results of its operations and cash flows for the year then ended in conformity
with generally accepted accounting principles in Germany.
Generally accepted accounting principles in Germany vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected the result of operations for the year ended December
31, 1995, and shareholders' equity as of December 31, 1995 to the extent
summarized in Note 26 to the consolidated financial statements.
The consolidated financial statements of Krebsoge Sinterholding GmbH for
the years ended December 31, 1994 and 1993 were audited by other independent
auditors whose report dated February 17, 1995 and December 12, 1996 expressed an
unqualified opinion on those statements.
Dusseldorf,
February 16, 1996, except Note 26, Reconciliation with US GAAP and Note 27,
Subsequent Event, as to which the date is December 12, 1996
Price Waterhouse GmbH
Wirtschaftsprufungsgesellschaft
Dr. H. Schmick
Wirtschaftsprufer
4
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
To the Board of Management and
Shareholders of Krebsoge Sinterholding GmbH
We have audited the consolidated balance sheets of Krebsoge Sinterholding
GmbH as of December 31, 1993 and 1994, and the related statements of income and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards in Germany, which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Krebsoge Sinterholding GmbH as of December 31, 1993 and 1994, and the
consolidated results of its operations and cash flows for the years then ended
in conformity with generally accepted accounting principles in Germany.
Generally accepted accounting principles in Germany vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected the result of operations for the year ended December
31, 1994, and shareholders' equity as of December 31, 1994 to the extent
summarized in Note 26 to the consolidated financial statements.
Dusseldorf,
February 17, 1995, except Note 26, Reconciliation with US GAAP and Note 27,
Subsequent Event, as to which the date is December 12, 1996
BDO GRUNEWALDER TREUHAND GMBH
Wirtschaftsprufungsgesellschaft
<TABLE>
<S> <C>
Dr. F. Nehles Dr. G. Kaulen
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
5
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(a)
KREBSOGE SINTERHOLDING GMBH
CONSOLIDATED BALANCE SHEETS
(in thousands of DM)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
NOTE 1994 1995
-------- --------
<S> <C> <C> <C>
ASSETS
Non-Current Assets
Intangible assets......................................... 2 1,711 1,706
Property, plant and equipment............................. 3 48,685 55,754
Financial assets.......................................... 4 1,122 485
-------- --------
Total noncurrent assets................................. 51,518 57,945
-------- --------
Current Assets
Inventories............................................... 5 20,572 31,371
Receivables and other assets.............................. 6 23,958 30,300
Cash...................................................... 4,184 3,038
-------- --------
Total current assets................................. 48,714 64,709
-------- --------
Prepaid expenses............................................. 7 714 652
Cumulative loss in excess of equity.......................... 8 66,274 54,905
-------- --------
Total assets and cumulative loss in excess
of equity.......................................... 167,220 178,211
-------- --------
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' Equity
Subscribed capital........................................ 30,000 33,700
Capital reserve........................................... 10,000 10,000
Cumulative translation adjustment......................... (216) (329)
Accumulated loss brought forward.......................... (106,058) (98,276)
Cumulative loss in excess of equity....................... 66,274 54,905
-------- --------
Total shareholders' equity........................... 8 -- --
-------- --------
Accruals
Accruals for pensions..................................... 9 6,798 15,124
Tax accruals.............................................. 10 1,666 2,949
Other accruals............................................ 11 5,254 10,508
-------- --------
Total accruals....................................... 13,718 28,581
-------- --------
Liabilities
Liabilities to banks...................................... 74,421 68,801
Payments received on account of orders.................... -- 567
Trade payables............................................ 6,999 9,739
Liabilities on bills accepted and drawn................... 2,016 2,070
Payable to affiliated enterprises......................... 55,500 53,672
Payable to associated enterprises......................... 813 634
Other liabilities......................................... 13,449 13,903
-------- --------
Total liabilities.................................... 12 153,198 149,386
-------- --------
Deferred income........................................... 13 304 244
-------- --------
Total shareholders' equity and liabilities........... 167,220 178,211
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
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KREBSOGE SINTERHOLDING GMBH
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of DM)
<TABLE>
<CAPTION>
YEAR ENDED AT DECEMBER 31,
----------------------------------
NOTE 1993 1994 1995
-------- -------- --------
<S> <C> <C> <C> <C>
Net sales........................................... 16 164,836 178,936 224,798
Increase (decrease) in inventories of finished
products
and work in progress.............................. (2,023) (733) 1,614
Other self-manufactured items capitalized........... 1,415 1,420 1,448
-------- -------- --------
Total output................................. 164,228 179,623 227,860
Other operating income.............................. 17 4,041 3,028 4,231
Cost of materials................................... 18 (46,428) (50,819) (67,738)
Personnel expenses.................................. 19 (78,384) (79,366) (105,448)
Depreciation and amortization....................... (13,897) (12,207) (12,092)
Other operating expenses............................ 20 (19,749) (21,272) (29,937)
Financial income (expense).......................... 21 (13,727) (10,127) (8,862)
-------- -------- --------
Result from ordinary business activities..... (3,916) 8,860 8,014
Extraordinary income (expense)...................... 22 (466) (1,850) 1,700
-------- -------- --------
(4,382) 7,010 9,714
Taxes on income..................................... 23 (17) (2,340) (1,627)
Other taxes......................................... (296) (254) (305)
-------- -------- --------
Consolidated net income (loss)............... (4,695) 4,416 7,782
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
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KREBSOGE SINTERHOLDING GMBH
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of DM)
<TABLE>
<CAPTION>
YEAR ENDED AT DECEMBER 31,
------------------------------------
1993 1994 1995
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... (4,695) 4,416 7,782
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization..................... 13,897 12,207 12,242
(Gain) loss on sale of fixed assets............... (1,302) (24) 20
(Gain) loss from waiver/reversal of waiver of
liability
to affiliated enterprise....................... (1,850) 1,850 --
(Increase) decrease in receivables and other
assets......................................... 325 (2,488) 4,310
(Increase) decrease in inventories................ 3,016 1,049 (2,385)
(Increase) decrease in prepaid expenses........... (64) 243 62
Less gain due to merger........................... -- -- (2,700)
Increase (decrease) in accruals for pensions...... 398 262 191
Increase (decrease) in total liabilities.......... (1,096) 1,834 (7,345)
Increase (decrease) in accruals................... (463) 1,859 2,889
Other............................................. (431) (33) 12
-------- --------- ---------
Total adjustments.............................. 12,430 16,759 7,296
-------- --------- ---------
Cash provided by operating activities.................... 7,735 21,175 15,078
-------- --------- ---------
Cash flows from investing activities:
Repayment of financial assets.......................... 414 301 967
Proceeds from sales of tangible and intangible
assets.............................................. 1,427 44 133
Capital expenditures................................... (6,638) (7,942) (12,092)
-------- --------- ---------
Cash used by investing activities........................ (4,797) (7,597) (10,992)
-------- --------- ---------
Cash flows from financing activities:
Acquisition of financial assets........................ -- -- (420)
Cash from merger....................................... -- -- 572
Net repayment of financial liabilities to banks........ (6,505) (8,567) (5,272)
Increase (decrease) in liabilities to affiliated
enterprises......................................... 5,000 (3,150) --
-------- --------- ---------
Cash used by financing activities........................ (1,505) (11,717) (5,120)
Effect of foreign exchange rate changes.................. (100) 199 (112)
-------- --------- ---------
Net increase (decrease) in cash.......................... 1,333 2,060 (1,146)
Cash at beginning of the year............................ 791 2,124 4,184
-------- --------- ---------
Cash at year-end......................................... 2,124 4,184 3,038
======== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
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KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
(1) SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Krebsoge Sinterholding GmbH ("KSH"
or "the Company") have been prepared in accordance with the German Commercial
Code ("HGB") which represents generally accepted accounting principles in
Germany ("German GAAP") using the significant accounting policies described
hereunder. German GAAP varies in certain significant respects from generally
accepted accounting principles in the United States ("US GAAP"). See Note 26 for
a discussion of the significant differences between German GAAP and US GAAP. The
accounting principles and valuation methods of the group have been consistently
applied.
Nature of Operations
The Company is engaged in designing, engineering and manufacturing
precision pressed powder metal components for use in the automotive, machine,
power tool and home appliance industries.
Organization
The Company is owned by MAAG Holding AG (87.24%), SGL Carbon AG (10.98%),
and Dr. Lothar Albano Muller (1.28%). SGL Carbon AG acquired its interest in the
Company by exchanging its 100% interest in Ringsdorff Sinter GmbH, Bonn, with
effect from April 1, 1995.
Consolidation Principles
The following subsidiary companies, in addition to KSH, have been included
in the group accounts applying the full consolidation method:
<TABLE>
<CAPTION>
PERCENTAGE
HOLDING
NAME AND LOCATION OF SUBSIDIARY (%)
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Sintermetallwerk Krebsoge GmbH, Radevormwald/Germany.............................. 100
Metallwerk Unterfranken GmbH, Bad Bruckenau/Germany............................... 100
Pressmetall Krebsoge GmbH, Radevormwald/Germany................................... 100
Sintermetallwerk Lubeck GmbH, Lubeck/Germany...................................... 100
Metallwerk Langensalza GmbH, Bad Langensalza/Germany.............................. 100
Krebsoge USA, Inc., Wilmington/USA................................................ 100
Newmet Krebsoge, Inc., Terryville/USA............................................. 100
</TABLE>
Results of operations for 1995 include the results of the former Ringsdorff
Sinter GmbH, Bonn, from the effective date, April 1, 1995 to December 31, 1995.
Ringsdorff Sinter GmbH was merged with KSH on April 1, 1995.
The 63% participation in Danyang Kaifuda Filters Co., Ltd., Jiangsu
Province/China, was not consolidated due to materiality considerations but
accounted for under the cost method.
The Company's 50% investment in PEAK Werkstoff GmbH, Velbert, is accounted
for as an associated enterprise according to the equity method.
The 26% participation in Sintered Metal Components (Pty.) Limited,
Bellville/South Africa, is accounted for according to the cost method due to
materiality considerations.
Capital consolidation for full consolidated subsidiaries has been performed
following the book value method under German GAAP. Under this method, the
purchase consideration for an acquisition is allocated
9
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KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
to the assets and liabilities acquired based on their book values. Any resulting
excess of the purchase consideration over the parent's interest in the book
value of net assets acquired is allocated to assets, liabilities or capitalized
as goodwill. In accordance with a transition rule of sec. 27 Implementation Law
for German Commercial Code ("EGHGB" in the case of Sintermetall Krebsoge GmbH
(SMK) and Pressmetall Krebsoge GmbH (PMK)) the excess of the acquisition costs
for shares over the book value of net assets was allocated exclusively to
goodwill rather than to any hidden reserves in net assets. Goodwill is amortized
over four years in accordance with sec. 309 No. 1 HGB in the case of SMK and
PMK, except for the American and all other subsidiaries, which is amortized over
its prospective 15 years useful life. See note 26 regarding German GAAP and U.S.
GAAP reconciliation.
Intra-group receivables and payables as well as revenues, income and
expense of transactions between consolidated entities have been eliminated.
Intangible Assets
Intangible assets consist mainly of purchased computer software and
goodwill. Purchased computer software is stated at cost and amortized over 3 to
5 years using the straight-line method. The treatment of goodwill is as
described above.
Property Plant and Equipment
Property plant and equipment is valued at acquisition or manufacturing
costs less accumulated depreciation. Taxable government grants have been
deducted from the purchase price of the assets, for which they were given.
Non-taxable government grants were taken to income in the year of the investment
for which they were received.
Depreciation is provided using the accelerated and straight-line method
generally over the following estimated useful lives: Buildings from 40 to 50
years, machinery from 2 to 20 years; furniture and equipment from 2 to 12 years.
Depreciation on additions during the first and second half of the year are
calculated using full or half-year rates, respectively.
Financial Assets
Financial assets are stated at lower of cost or market. Amortization is
provided as necessary for a permanent impairment of the value of assets.
Inventories
Raw materials and manufacturing supplies are stated at the lower of cost or
market, determined on a weighted average method. Work in progress and finished
products are valued at the lower of manufacturing cost or net realizable value,
and comprise direct material and labor and applicable manufacturing overheads
including depreciation charges.
Receivables and Other Assets
Accounts receivable are presented net of allowances for doubtful accounts.
Allowances include a provision for general risks inherent in trade receivables.
Generally, the Company does not require collateral on sales.
10
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KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Cash and Cash Equivalents
Cash equivalents represent short-term investments with a maturity of three
months or less when purchased.
Prepaid Expenses
Prepaid expenses consist mainly to loan premiums which are amortized over
the term of the loan.
Pension Obligations
Accruals and provisions for pensions are actuarially determined and based
on discounted amounts.
Liabilities and Other Accruals
Liabilities are presented at their repayment amounts. Other accruals,
including those for product warranty risks and losses on sales, are provided.
Revenue Recognition
Revenue is recognized when title passes or services are rendered, net of
discounts and rebates granted.
Research and Development
The Company engages in product development and incurs costs in this regard
which are expensed. These expenses totalled 4,367 for 1995, and 3,835 and 4,858
in 1994 and 1993.
Foreign Currency Translation
The balance sheets of the American subsidiary have been translated at year
end to Deutsche Mark using exchange rates at the balance sheet date except for
equity which has been translated using historical rates. The income statements
have been translated at the average exchange rates for the years. Translation
adjustments have been recorded as a separate component of equity.
Foreign Currency Transactions
Foreign currency receivables and payables are recorded at historical rates
unless using the exchange rate at the fiscal year-end would result in an
unrealized foreign currency exchange loss. This results in unrealized losses
being recognized currently and unrealized gains being recognized when realized.
Earnings Per Share
The Company is a limited liability company under German law. Earnings per
share is not calculated due to the fact that a limited liability company
expresses ownership as a percentage of the subscribed capital.
Total Cost Method of Presentation
The statements of income have been presented using the total cost (or type
of expenditure) method of presentation which is the most common German GAAP
method in use. In this format, production and all other expenses incurred during
the period are classified by type of expense. Sales for the period and the net
increase (decrease) in inventories of finished products and work in progress and
other work capitalized is classified as Total Output.
11
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KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(2) INTANGIBLE ASSETS
<TABLE>
<CAPTION>
INTELLECTUAL
PROPERTY AND
(SIMILAR
RIGHTS*) GOODWILL TOTAL
---------------- -------- --------
<S> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1994.................................. 3,848 111,117 114,965
Additions................................................... 493 -- 493
Reclassifications........................................... 3 -- 3
Disposals................................................... (40) -- (40)
Currency translation........................................ (11) -- (11)
------- -------- --------
Balance at December 31, 1994................................ 4,293 111,117 115,410
Additions due to merger..................................... 91 -- 91
Additions................................................... 375 -- 375
Reclassifications........................................... 1 -- 1
Disposals................................................... (664) -- (664)
Currency translation........................................ (8) -- (8)
------- -------- --------
Balance at December 31, 1995................................ 4,088 111,117 115,205
------- -------- --------
ACCUMULATED AMORTIZATION
at December 31, 1994........................................ (2,879) (110,820) (113,699)
------- -------- --------
at December 31, 1995........................................ (2,657) (110,842) (113,499)
------- -------- --------
AMORTIZATION FOR THE YEAR
ended December 31, 1993..................................... 387 23 410
=========== ======== ========
ended December 31, 1994..................................... 529 23 552
=========== ======== ========
ended December 31, 1995..................................... 385 23 408
=========== ======== ========
NET BOOK VALUE
at December 31, 1994........................................ 1,414 297 1,711
=========== ======== ========
at December 31, 1995........................................ 1,431 275 1,706
=========== ======== ========
</TABLE>
- ------------------
* Industrial and similar rights and assets and licences in such rights and
assets
12
<PAGE> 13
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Intellectual property and similar rights are comprised of the following:
<TABLE>
<CAPTION>
AT DECEMBER
31,
-------------
1994 1995
----- -----
<S> <C> <C>
Software............................................................. 740 850
Licences and intellectual property................................... 607 524
Other................................................................ 67 57
----- -----
1,414 1,431
===== =====
</TABLE>
Software relates to purchased software. Licences and intellectual property
consist of 41 (prior year 21) purchased patent rights and 483 (prior year 586)
purchased technical production know how.
The Goodwill results from the consolidation and refers to the following
entities:
<TABLE>
<CAPTION>
ACQUISITION ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
----------- ----------- --------
<S> <C> <C> <C>
Sintermetallwerk Krebsoge GmbH................. 108,792 108,792 --
Pressmetall Krebsoge GmbH...................... 1,982 1,982 --
Krebsoge USA, Inc.............................. 343 68 275
------- ------- ---
Total Goodwill at December 31, 1995....... 111,117 110,842 275
======= ======= ===
</TABLE>
13
<PAGE> 14
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(3) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
OTHER ADVANCE
TECHNICAL EQUIPMENT, PAYMENTS
EQUIPMENT FACTORY AND AND
LAND AND AND OFFICE CONSTRUCTION
BUILDINGS MACHINES EQUIPMENT IN PROGRESS TOTAL
--------- --------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1994.................. 45,399 125,291 45,209 813 216,712
Additions................................... 538 3,728 1,674 1,509 7,449
Reclassifications........................... 98 (87) 616 (630) (3)
Disposals................................... (17) (2,062) (1,851) (3) (3,933)
Currency translation........................ (295) (376) (43) -- (714)
--------- --------- ----------- ------------ --------
Balance at December 31, 1994................ 45,723 126,494 45,605 1,689 219,511
Additions due to merger..................... 0 14,556 2,204 4 16,764
Additions................................... 1,046 6,212 2,230 2,439 11,927
Reclassifications........................... 587 198 683 (1,469) (1)
Disposals................................... 0 (1,520) (1,928) (91) (3,539)
Currency translation........................ (198) (257) (28) -- (483)
Write-ups................................... 12 12 -- -- 24
--------- --------- ----------- ------------ --------
Balance at December 31, 1995................ 47,170 145,695 48,766 2,572 244,203
--------- --------- ----------- ------------ --------
ACCUMULATED DEPRECIATION
at December 31, 1994........................ (22,604) (110,035) (38,187) -- (170,826)
======= ======== ======== ========= ========
at December 31, 1995........................ (23,666) (123,331) (41,452) -- (188,449)
======= ======== ======== ========= ========
DEPRECIATION FOR THE YEAR
ended December 31, 1993..................... 1,660 8,023 3,804 -- 13,487
======= ======== ======== ========= ========
ended December 31, 1994..................... 1,085 6,965 3,605 -- 11,655
======= ======== ======== ========= ========
ended December 31, 1995..................... 1,110 7,032 3,542 -- 11,684
======= ======== ======== ========= ========
NET BOOK VALUE
at December 31, 1994........................ 23,119 16,459 7,418 1,689 48,685
======= ======== ======== ========= ========
at December 31, 1995........................ 23,504 22,364 7,314 2,572 55,754
======= ======== ======== ========= ========
</TABLE>
14
<PAGE> 15
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(4) FINANCIAL ASSETS
<TABLE>
<CAPTION>
INVESTMENTS IN
NON INVESTMENTS IN LOANS TO THE
CONSOLIDATED ASSOCIATED ASSOCIATED OTHER OTHER
GROUP-COMPANIES ENTERPRISES ENTERPRISES INVESTMENTS LOANS TOTAL
--------------- -------------- ------------ ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1994....... -- 650 1,250 11 14 1,925
Additions........................ -- -- -- -- -- --
Reclassifications................ -- -- -- -- -- --
Disposals........................ -- -- (300) -- (1) (301)
Currency translation............. -- -- -- -- -- --
--
--- ------ ------ ----- -----
Balance at December 31, 1994..... -- 650 950 11 13 1,624
Additions due to merger.......... -- -- -- -- 61 61
Additions........................ 420 -- -- -- -- 420
Reclassifications................ -- -- -- -- -- --
Disposals........................ -- -- (950) -- (18) (968)
Currency translation............. -- -- -- -- -- --
--
--- ------ ------ ----- -----
Balance at December 31, 1995..... 420 650 -- 11 56 1,137
--- ------ ------ -- ----- -----
ACCUMULATED AMORTIZATION
at December 31, 1994............. -- (500) -- -- (2) (502)
--
--- ------ ------ ----- -----
at December 31, 1995............. -- (650) -- -- (2) (652)
--
--- ------ ------ ----- -----
AMORTIZATION FOR THE YEAR
ended December 31, 1993.......... -- -- -- -- -- --
=== ====== ====== == ===== =====
ended December 31, 1994.......... -- -- -- -- -- --
=== ====== ====== == ===== =====
ended December 31, 1995.......... -- 150 -- -- -- 150
=== ====== ====== == ===== =====
NET BOOK VALUE
at December 31, 1994............. -- 150 950 11 11 1,122
=== ====== ====== == ===== =====
at December 31, 1995............. 420 -- -- 11 54 485
=== ====== ====== == ===== =====
</TABLE>
The investment in non-consolidated group companies relates to a 63%
participation in Danyang Kaifuda Filters Co., Ltd., Jiangsu Province/China,
according to a partnership agreement with Danyang Feida Industrial General
Corporation, Jiangsu Province/China. Total equity as of December 31, 1995
amounts to TDM 897, and the loss for the year amounts to TDM 38.
Investment in associated enterprises relate to the participations held by
Sintermetallwerk Krebsoge GmbH, Radevormwald, in the following companies:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-------------------- AT DECEMBER 31,
(LOSS) ---------------
EQUITY INCOME 1994 1995
------ ------- ---- ----
<S> <C> <C> <C> <C>
Sintered Metal Components (Pty.), Limited
Bellville/South Africa (26%)........... 2,385 570 -- --
PEAK Werkstoff GmbH, Velbert (50%)....... 300 (1,269) 150 --
---- ----
150 --
==== ====
</TABLE>
15
<PAGE> 16
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
The participation in PEAK Werkstoff GmbH was written off in full in the
amount of 150 in 1995 due to the permanent loss situation of the Company. Bank
loans of PEAK Werkstoff GmbH amount to 2,200 as of December 31, 1995.
Loans to the associated enterprises relate to a loan granted by
Sintermetallwerk Krebsoge GmbH to PEAK Werkstoff GmbH, Velbert. The loan was
repaid in full in 1995.
(5) INVENTORIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Raw materials.................................................. 5,968 8,051
Work in progress............................................... 9,347 13,441
Finished goods and merchandise................................. 5,257 9,879
------- -------
20,572 31,371
======= =======
</TABLE>
(6) RECEIVABLES AND OTHER ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Trade receivables.............................................. 22,498 28,626
Less allowance for doubtful accounts........................... (600) (893)
------- -------
Trade receivables, net......................................... 21,898 27,733
Receivables from affiliated enterprises........................ 119 97
Receivables from associated enterprises........................ 264 57
Receivables from shareholders.................................. -- 171
Other assets................................................... 1 ,677 2,242
------- -------
23,958 30,300
======= =======
</TABLE>
Receivables from affiliated enterprises are composed as follows and relate
to trade:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1994 1995
---- ----
<S> <C> <C>
MAAG France S.A., Courbevoie/France.................................. -- 97
MAAG Overseas International N.V., Curacao/Netherland Antilles........ 118 --
MAAG Holding AG, Zurich/Switzerland.................................. 1 --
---- ----
119 97
==== ====
</TABLE>
Receivables from associated enterprises relate to equity investments and
are composed as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1994 1995
---- ----
<S> <C> <C>
PEAK Werkstoff GmbH, Velbert......................................... 264 57
==== ====
</TABLE>
The receivables relate to trade in the amount of 57 (prior year 182). In
1994 the receivable contained an amount of 82 of interest relating to the loan
included in financial assets amounting to 950. This loan and related interest
was repaid in full in 1995.
16
<PAGE> 17
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Receivables from shareholders are composed as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1994 1995
---- ----
<S> <C> <C>
SGL Carbon AG, Wiesbaden............................................. -- 171
==== ====
</TABLE>
The receivables relate to trade tax for the former Ringsdorff Sinter GmbH,
Bonn, in the first quarter 1995, which is still the responsibility of the
seller.
Other Assets are composed as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1994 1995
----- -----
<S> <C> <C>
Receivables from fiscal authorities.................................. 289 837
Cash surrender value of life insurance contracts..................... 677 702
Prepayments.......................................................... -- 347
Overpayments......................................................... 364 148
Other................................................................ 347 208
----- -----
1,677 2,242
===== =====
</TABLE>
Life insurance contracts are provided to cover a portion of the pension
obligations for key employees.
(7) PREPAID EXPENSES
The loan origination costs included in prepaid expenses amounts to 523
(prior year 597). The remaining balance relates to other accrued items such as
insurance.
(8) SHAREHOLDERS' EQUITY/CUMULATIVE LOSS IN EXCESS OF EQUITY
<TABLE>
<CAPTION>
CUMULATIVE ACCUMULATED CUMULATIVE
SHARE CAPITAL REVENUE TRANSLATION LOSS BROUGHT LOSS IN EXCESS
CAPITAL RESERVES RESERVES ADJUSTMENT FORWARD OF EQUITY TOTAL
------- -------- -------- ---------- ------------ -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993......... 30,000 10,000 11 (182) (105,790) 65,961 --
Income of the year................. -- -- -- (4,695) 4,695 --
Currency translation............... -- -- -- 155 -- (155) --
------- -------- -------- ---------- ------------ ------- -----
BALANCE AT JANUARY 1, 1994......... 30,000 10,000 11 (27) (110,485) 70,501 --
Release of revenue reserves........ -- -- (11) -- 11 -- --
Income of the year................. -- -- -- -- 4,416 (4,416) --
Currency translation............... -- -- -- (189) -- 189 --
------- -------- -------- ---------- ------------ ------- -----
BALANCE AT DECEMBER 31, 1994....... 30,000 10,000 -- (216) (106,058) 66,274 --
Income of the year................. -- -- -- -- 7,782 (7,782) --
Currency translation............... -- -- -- (113) -- 113 --
Capital increase................... 3,700 -- -- -- -- (3,700) --
------- -------- -------- ---------- ------------ ------- -----
Balance of December 31, 1995....... 33,700 10,000 -- (329) (98,276) 54,905 --
====== ======= ======= ========= ========== =========== ====
</TABLE>
The cumulative loss in excess of equity is a result of the excess of the
purchase price over the net equity in the amount of 110,774 relating to the
purchase in 1986 of the investment of Sintermetallwerk Krebsoge GmbH and
Pressmetall Krebsoge GmbH which was treated as goodwill and amortized over four
years.
17
<PAGE> 18
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(9) ACCRUALS FOR PENSIONS
The Company operates a range of defined benefit pension plans for members
of the board of management, leading officers and employees which are based on
individually fixed DM amounts. The pension plans are unfunded and the
obligations from the plans are accrued for in the consolidated financial
statements. The accrual is determined based on the legal discount rate of 6%
using the entry age actuarial cost method. The plans are underaccrued by 525
(prior year 525) for German GAAP purposes.
(10) TAX ACCRUALS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Trade tax.......................................................... 1,026 2,223
Corporate income tax............................................... 602 658
Net assets tax..................................................... 36 68
Other taxes........................................................ 2 --
------ ------
Tax accruals....................................................... 1,666 2,949
====== ======
</TABLE>
(11) OTHER ACCRUALS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Vacation pay....................................................... 1,677 2,956
Severance and other salary payable................................. 50 1,578
Salary bonus....................................................... -- 1,407
Product warranties................................................. 967 1,177
Workman's compensation............................................. 438 722
Outstanding invoices............................................... 548 698
Estimated future losses on sales................................... 455 536
Deferred maintenance accrual....................................... 382 520
Audit fees......................................................... 263 287
Unemployment insurance............................................. -- 190
Commissions........................................................ 186 93
Interest........................................................... 101 167
Other.............................................................. 187 177
------ ------
5,254 10,508
====== ======
</TABLE>
Severance and other salary payable includes a charge for the period of
1,000 for a general manager of one of the groups companies.
18
<PAGE> 19
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(12) LIABILITIES
<TABLE>
<CAPTION>
OF WHICH DUE
--------------------------------------
WITHIN IN ONE TO AFTER
TOTAL ONE YEAR FIVE YEARS FIVE YEARS
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1994
Liabilities to banks.............................. 74,421 52,689 15,571 6,161
Trade payables.................................... 6,999 6,970 29 --
Liabilities on bills accepted and drawn........... 2,016 2,016 -- --
Payable to affiliated enterprises................. 55,500 55,500 -- --
Payable to associated enterprises................. 813 813 -- --
Other liabilities................................. 13,449 12,887 270 292
------- -------- ---------- ----------
TOTAL LIABILITIES.......................... 153,198 130,875 15,870 6,453
======= ======= ======== ========
AT DECEMBER 31, 1995
Liabilities to banks.............................. 68,801 49,778 13,976 5,047
Payments received on account of orders............ 567 567 -- --
Trade payables.................................... 9,739 9,719 20 --
Liabilities on bills accepted and drawn........... 2,070 2,070 -- --
Payable to affiliated enterprises................. 53,672 53,672 -- --
Payable to associated enterprises................. 634 634 -- --
Other liabilities................................. 13,903 13,345 272 286
------- -------- ---------- ----------
TOTAL LIABILITIES.......................... 149,386 129,785 14,268 5,333
======= ======= ======== ========
</TABLE>
Of total liabilities to banks (all DM denominated) 62,141(prior year
71,682) are secured by liens on land and buildings, investments in subsidiaries,
technical equipment and subordination of receivables from subsidiaries; 9,609 of
the total relates to current overdrafts. Average interest rate was 5.92% for the
year 1995. Loan fees were capitalized as prepaid expenses and are amortized over
the term of the loan. The Company has a line of credit amounting to 101,534.
Payable to affiliated enterprises are composed as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
MAAG Overseas International N.V., Curacao/Netherland Antilles,
loans............................................................ 53,613 53,613
MAAG France S.A., Courbevoie/France................................ 37 59
MAAG Holding AG, Zurich/Switzerland, loan.......................... 1,850 --
------ ------
55,500 53,672
====== ======
</TABLE>
The loans from MAAG Overseas International N.V. are cancellable by MAAG
and, if so, would then become payable upon demand at the earliest at December
31, 1996 with three months notice and are as follows:
<TABLE>
<S> <C>
LOAN 1...................................................................... 18,613
LOAN 2...................................................................... 15,000
LOAN 3...................................................................... 20,000
------
53,613
======
</TABLE>
19
<PAGE> 20
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Interest is LIBOR plus 0.25%, but at least 5%.
Payables to associated enterprises in the amount of 634 (prior year 813)
relate to the assumption of the loss of the equity subsidiary PEAK Werkstoff
GmbH, Velbert, in 1995.
Other liabilities consist of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Loans from former shareholders (inclusive of accrued interest)..... 5,358 4,847
Loan from a shareholder (inclusive of accrued interest)............ 1,274 1,274
Taxes.............................................................. 2,590 2,394
Social costs....................................................... 1,534 2,159
Wages.............................................................. 1,577 1,618
Loan from Albano-Muller Unterstutzungskasse e.V.................... 629 627
Commissions payable................................................ -- 336
Government grants at risk.......................................... 182 151
Other.............................................................. 305 497
------ ------
13,449 13,903
====== ======
</TABLE>
The loans from former shareholders relate to outstanding debt in respect to
MAAG Holding AG's purchase of the company in 1986. The loan from a shareholder
relates to the loan granted from Dr. Lothar Albano-Muller, chairman of the
Krebsoge Sinterholding GmbH's Board of Management. The interest rate applicable
to the loans from former shareholders and loan from a shareholder is LIBOR plus
0.25% (at least 5%). The loans are renewed automatically on quarterly basis.
The other liabilities contain a loan from the Albano-Muller
Unterstutzungskasse e.V. in the amount of 627 (prior year 629). The Company
transfers amounts to the staff benevolent fund to provide for pension and other
financial assistance liabilities. The transferred amounts are transferred back
to the Company. This loan is repaid back by direct payments made by the Company
to the employees whose rights to pension or other financial benefits are
provided by the fund. The interest rate is the German Federal Reserve Bank's
discount rate (2.5% at December 31, 1995) plus 1%.
(13) DEFERRED INCOME
Deferred income refers to a payment in the amount of 750 received in 1983
from the Wupperverband electrical utility as compensation for non-compliance of
a contract according to which the Wupperverband had to provide electric energy
to the Company for several years under market price. The amount is being
released over 25 years. Current year income effect is 30.
20
<PAGE> 21
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(14) COMMITMENTS
The Company also leases certain facilities and machinery and equipment
under operating leases. Rent and minimum operating lease commitments in excess
of one year are as follows after December 31, 1995:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1996........................................................ 3,154
1997........................................................ 2,191
1998........................................................ 1,964
1999........................................................ 1,690
2000........................................................ 1,514
------
10,513
======
</TABLE>
Rent expense was 1,610, 1,510, and 1,649, in 1993, 1994 and 1995.
(15) CONTINGENCIES
In the normal course of business the Company has guaranteed approximately
1,700 of loans.
Financial contingencies relate to the issuance and transfer of bills of
exchange in the amount of 367 (1993: 256).
(16) SEGMENT SALES
Geographic composition
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net sales:
Germany.............................................. 115,734 126,396 151,941
Other countries...................................... 51,213 56,309 74,660
------- ------- -------
166,947 182,705 226,601
Less discounts....................................... (2,111) (3,769) (1,803)
------- ------- -------
164,836 178,936 224,798
======= ======= =======
</TABLE>
Sales to one customer represented 17.6%, 13.9% and 11% of total net sales
in 1993, 1994, and 1995, respectively.
21
<PAGE> 22
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(17) OTHER OPERATING INCOME
Other operating income is comprised of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Income from release of provisions.......................... 226 158 1,783
Governments grants......................................... 1,139 1,220 920
Revenue from licenses...................................... 86 422 473
Cafeteria sales............................................ 179 127 152
Investment allowances...................................... 31 28 148
Reduction in allowances for doubtful accounts.............. 123 257 98
Exchange rate gain......................................... 222 71 55
Gain of disposal of fixed assets........................... 1,302 24 --
Credit notes............................................... -- 370 12
Release of untaxed special reserves........................ 405 -- --
Other...................................................... 328 351 590
----- ----- -----
4,041 3,028 4,231
===== ===== =====
</TABLE>
(18) COST OF MATERIALS
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Raw materials, consumables, supplies
and merchandise....................................... 41,383 44,536 55,319
Purchased services...................................... 5,045 6,283 12,419
------ ------ ------
46,428 50,819 67,738
====== ====== ======
</TABLE>
(19) PERSONNEL EXPENSES/EMPLOYMENT
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Wages and salaries..................................... 65,514 66,328 88,234
Social security and pension expense (of which for
pensions 1,042 (1994: 810)........................... 12,870 13,038 17,214
------ ------ -------
78,384 79,366 105,448
====== ====== =======
Employment (weighted average number of employees)
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Wage earners............................................... 815 787 1,007
Salaried employees......................................... 316 294 367
----- ----- -----
1,131 1,081 1,374
===== ===== =====
</TABLE>
22
<PAGE> 23
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(20) OTHER OPERATING EXPENSES
Other operating expenses are comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Maintenance............................................. 3,664 4,555 6,925
Commissions............................................. 2,227 2,908 3,275
Freight expenses........................................ 1,531 1,615 2,713
Professional fees....................................... 1,533 1,729 2,516
Rent and leasing........................................ 1,610 1,510 1,649
Insurance............................................... 988 1,105 1,174
External services....................................... -- -- 1,069
Waste removal........................................... 442 772 1,050
Office supplies, literature............................. 357 293 968
Travel expenses......................................... 589 829 850
Advertising............................................. 100 398 620
Telephone postage....................................... 499 561 558
Additional personnel costs.............................. 696 487 540
Exchange rate loss...................................... 227 250 257
Additions to accruals................................... 281 264 333
Additions to allowances for doubtful accounts........... 501 147 192
Other................................................... 4,504 3,849 5,248
------ ------ ------
19,749 21,272 29,937
====== ====== ======
</TABLE>
(21) FINANCIAL INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1993 1994 1995
------- ------- ------
<S> <C> <C> <C>
Income from long-term loans........................... 122 82 11
Other interest and similar income..................... 7 310 50
Assumption of loss from associated enterprises........ (1,259) (963) (634)
Write-down of investment due to impairment............ -- -- (150)
Interest and similar expenses......................... (12,597) (9,556) (8,139)
------- ------- ------
(13,727) (10,127) (8,862)
======= ======= ======
</TABLE>
Assumption of loss from associated enterprises relates to 50% net loss for
the year of the equity investment PEAK Werkstoff GmbH, Velbert.
The write-down of investment due to permanent impairment also relates to
the 50% equity investment in PEAK Werkstoff GmbH, Velbert.
23
<PAGE> 24
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(22) EXTRAORDINARY INCOME (EXPENSE)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Extraordinary income.................................... 1,850 -- 2,700
Extraordinary expense................................... (2,316) (1,850) (1,000)
------ ------ ------
(466) (1,850) 1,700
====== ====== ======
</TABLE>
As of April 4, 1995 Krebsoge Sinterholding GmbH (KSH) acquired the shares
of Ringsdorff Sinter GmbH, Bonn, effective April 1, 1995 from SGL Carbon AG in
exchange for issuance of 11% shares in KSH (nominal value 3,700). As of November
14, 1995 Ringsdorff Sinter GmbH was merged with KSH retroactively effective as
of April 1, 1995. The nominal value of the shares issued (3,700) under the book
value of assets and liabilities (6,400) was recorded as an extraordinary gain of
2,700 for German GAAP purposes. This gain is non-taxable.
The 1,850 extraordinary expense relates to a receivable from MAAG Holding
AG which was forgiven in 1993 and recognized as extraordinary income, upon
conditions that if the business improved to a certain point the Company would
have to pay the amount back. This happened in 1994 and the Company recognized
the expense. Both aspects of this transaction were non-taxable.
Extraordinary expenses in 1993 relate to social plans in connection with
the reduction of personnel.
(23) TAXES ON INCOME
The provision for income taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
Municipal trade tax on income............................... 2 1,934 1,813
Foreign income tax.......................................... 26 44 26
Solidarity tax.............................................. -- -- (8)
Corporate income tax........................................ (11) 362 (204)
---- ----- -----
17 2,340 1,627
==== ===== =====
</TABLE>
A reconciliation of income taxes determined using the statutory federal
German rate of 45% (50% in 1993) to actual income taxes provided is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Corporate rate at German federal statutory rate........ (2,340) 3,040 4,411
Municipal trade taxes, net of federal tax benefit...... 1 1,064 1,177
Non-taxable extraordinary gain......................... (925) -- (1,215)
Net operating loss utilization......................... -- (2,968)) (2,596)
Net operating loss carryforward........................ 2,961 452 --
Nondeductible extraordinary loss....................... -- 833 --
Nondeductible expenses................................. 40 (41) 36
Other.................................................. 280 (40) (186)
------ ------ -------
Provision for income taxes............................. 17 2,340 1,627
====== ====== =======
Effective rate......................................... -- 35% 18%
====== ====== =======
</TABLE>
24
<PAGE> 25
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
German Corporation tax law applies the imputation system to the income
taxation of a corporation and its shareholders. Upon distribution of retained
earnings in the form of a dividend, shareholders receive an income tax credit
for taxes previously paid by the corporation.
In general, corporate income is initially subject to a federal tax rate of
45% (50% in 1993). Upon distribution of retained earnings to shareholders, the
corporate tax rate is adjusted to 30% (36% in 1993) by receiving a refund from
the government for taxes previously paid on income in excess of these rates (the
distributed earnings rate).
In addition, corporate income is subject to a municipal tax on income
varying in rates from 15% to 20% depending on municipality. Municipal tax on
income is deductible for corporate income tax purposes.
Corporate income tax loss carry forwards used in 1995 of 5,038 of former
Ringsdorff Sinter GmbH are challenged by revenue agents with an unpredictable
outcome. There are additional tax loss carry forwards of 10,830 of the former
Ringsdorff Sinter GmbH which will be challenged as well. The net operating loss
carryovers have an indefinite carryover period.
(24) RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Interest expense on loans/amounts due parent............... 4,375 3,091 2,763
Management fees............................................ 1,075 1,270 1,601
Sales...................................................... -- -- 492
Purchases.................................................. -- -- 227
</TABLE>
Other related party transactions consist of the interest paid for the loans
from shareholders and former shareholders of 263 for 1995, and 361 in 1994.
Management fees are included in professional fees in Note 20 Other
Operating Expense. For further information on related party transactions refer
to Notes 6 and 12.
(25) INFORMATION ABOUT FINANCIAL INSTRUMENTS
The following information is presented in accordance with SFAS No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentration of Credit Risk", and SFAS No.
107, "Disclosures about Fair Value of Financial Instruments". These statements
require the disclosure of off-balance-sheet instruments and estimated fair
values for all financial instruments.
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business as a means of hedging its currency rate
exposure in regards to foreign currency trade receivables. Management does not
anticipate any material adverse affect on its financial position resulting from
its involvement in these instruments. The following is a summary of contract or
notional principal amounts outstanding at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
NOTIONAL PRINCIPAL
AMOUNT
-------------------
1994 1995
----- -----
<S> <C> <C>
Forward foreign exchange contracts............................. -- 2,879
===== =====
</TABLE>
These instruments are executed with creditworthy financial institutions,
and all foreign currency contracts are denominated in currencies of major
industrial countries.
25
<PAGE> 26
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
The fair value of forward exchange contracts was estimated based on
exchange rates at December 31, 1995. The estimated fair values of the Company's
financial instruments at December 31, 1995 follow:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
<S> <C> <C>
Forward foreign exchange contracts................................ 2,879 2,878
====== =====
</TABLE>
Gains and losses are recorded currently.
(26) RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY AS DETERMINED USING
U.S. GAAP
German GAAP varies in certain significant respects from generally accepted
accounting principles in the United States (U.S. GAAP). Application of U.S. GAAP
would have affected net income (loss) for the years ended December 31, 1994 and
1995 to the extent quantified below, as well as shareholders' equity (deficit)
at December 31, 1994 and 1995.
RECONCILIATION OF NET INCOME TO U.S. GAAP
The following is a reconciliation of the significant adjustments necessary
to reconcile net income (loss) in accordance with U.S. GAAP to the amounts
determined under German GAAP, for the years ended December 31, 1994 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Net income as reported in the consolidated profit and loss account under
German GAAP............................................................ 4,416 7,782
Amortization of step-up -- MAAG purchase of KSH.......................... (10,848) (10,848)
Amortization of step-up -- former Ringsdorff Sinter GmbH................. -- (220)
Elimination of extraordinary gains on purchase of Ringsdorff............. -- (2,700)
Pensions and similar obligations......................................... (32) (753)
Non-taxable investment allowances........................................ 307 190
Reserves not required for U.S. GAAP...................................... 399 370
Anniversary payments..................................................... 13 (204)
Depreciation............................................................. (82) (580)
Deferred taxes on U.S./German differences
Pensions and similar obligations....................................... 14 324
Reserves not required for U.S. GAAP.................................... (172) (159)
Anniversary payments................................................... (6) 88
Depreciation........................................................... 35 249
Net operating loss carryforwards....................................... (2,605) (275)
Amortization of step-up of buildings................................... 167 167
Extraordinary item..................................................... 1,016 --
------- -------
Net loss in accordance with U.S. GAAP.................................... (7,378) (6,569)
======= =======
</TABLE>
26
<PAGE> 27
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
INCOME STATEMENT PRESENTATION UNDER U.S. GAAP
Certain items in the type of expense profit and loss account would be
classified differently under U.S. GAAP. These items include reversals for
accrued expenses and allowances to doubtful accounts that would generally be
recorded as reductions to the original expense line items under U.S. GAAP rather
than as income.
The extraordinary expenses reported under German GAAP would be classified
as an expense charged to income from ordinary business activities under U.S.
GAAP.
The following is a presentation of certain income statement information in
accordance with U.S. GAAP.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Results from ordinary activities........................................... (3,487) (5,336)
Loss before income taxes................................................... (3,487) (5,336)
Income taxes............................................................... 3,891 1,233
------ ------
Net loss in accordance with U.S. GAAP...................................... (7,378) (6,569)
====== ======
</TABLE>
RECONCILIATION OF SHAREHOLDERS' DEFICIT TO U.S. GAAP
The following is a reconciliation of the significant adjustments necessary
to reconcile shareholders' equity (deficit) in accordance with U.S. GAAP to the
amounts determined under German GAAP, as of December 31, 1994 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Shareholders' equity (deficit) as reported in the consolidated balance
sheet under German GAAP................................................ -- --
Cumulative loss in excess of equity -- 1 January......................... (66,274) (54,905)
Amortization of step-up -- MAAG purchase of KSH.......................... 53,861 43,013
Amortization of step-up -- Ringsdorff.................................... -- 2,710
Elimination of extraordinary gain on purchase of Ringsdorff.............. -- (2,700)
Pensions and similar obligations......................................... (841) (1,594)
Non-taxable investment allowances........................................ (1,689) (1,499)
Reserves not required for U.S. GAAP...................................... 1,278 1,648
Anniversary payments..................................................... (893) (1,097)
Accumulated depreciation................................................. 25,727 25,147
Deferred taxes on U.S./German differences
Pensions and similar obligations....................................... 362 685
Reserves not required for U.S. GAAP.................................... (550) (709)
Anniversary payments................................................... 384 472
Depreciation........................................................... (11,063) (10,813)
Net operating loss carryforwards....................................... 1,879 1,604
Step-up of buildings................................................... (3,335) (3,167)
------- -------
Shareholders' deficit in accordance with U.S. GAAP....................... (1,154) (1,206)
======= =======
</TABLE>
27
<PAGE> 28
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
RECONCILIATION OF CHANGES IN SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Shareholders' equity (deficit), beginning of year........................ 6,413 (1,154)
Net loss in accordance with U.S. GAAP.................................... (7,378) (6,569)
Increase in share capital................................................ -- 3,700
Increase in capital attributable to the purchase of Ringsdorff Sinter
GmbH................................................................... -- 2,930
Difference from currency translation..................................... (188) (113)
------- -------
Shareholders' deficit.................................................... (1,154) (1,206)
======= =======
</TABLE>
BALANCE SHEET PRESENTATION UNDER U.S. GAAP
Under U.S. GAAP, all receivables due after one year and all liabilities
payable after one year are classified as non-current.
German GAAP does not require presentation of a classified balance sheet.
Summarized balance sheet information measured and classified in accordance with
U.S. GAAP is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. 4,184 3,038
Other current assets................................................... 45,244 62,323
------- -------
Total current assets........................................... 49,428 65,361
Noncurrent assets........................................................ 131,106 126,114
------- -------
Total assets................................................... 180,534 191,475
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... 22,685 26,913
Short-term debt and current portion of long-term debt.................. 108,190 102,872
Accruals............................................................... 6,920 13,457
------- -------
Total current liabilities...................................... 137,795 143,242
Noncurrent liabilities:
Long-term debt......................................................... 21,732 19,601
Other noncurrent liabilities........................................... 22,161 29,838
------- -------
Total long-term liabilities.................................... 43,893 49,439
Shareholders' deficit:
Shareholders' deficit.................................................. (1,154) (1,206)
------- -------
Total liabilities and shareholders' equity..................... 180,534 191,475
======= =======
</TABLE>
A brief explanation of the most significant differences follows.
28
<PAGE> 29
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(a) Cumulative loss in excess of equity
Under German GAAP, the cumulative loss in excess of net equity is reflected
as an asset. This is not permitted in U.S. GAAP, as this amount resides in
equity.
(b) Amortization of step-up -- MAAG purchase of KSH
The acquisition of 74% and 24% of KSH by MAAG Holding AG on September 22,
1986 and August 19, 1993, respectively, did not impact the financial statements
for German GAAP purposes. For U.S. GAAP purposes the purchase price paid by MAAG
has been allocated to the fair value of the assets and liabilities acquired. The
excess of the price paid by MAAG over the fair value of the assets and
liabilities acquired has been allocated to goodwill and is being amortized over
10 years.
(c) Amortization of step-up -- former Ringsdorff Sinter GmbH
Elimination of extraordinary gain on purchase of Ringsdorff
As of April 1, 1995 Krebsoge Sinterholding GmbH (KSH) acquired the shares
of Ringsdorff Sinter GmbH, Bonn from SGL Carbon AG in exchange for issuance of
11% of the outstanding shares in KSH with a nominal value 3,700. Under German
GAAP a nontaxable extraordinary gain of 2,700 was recorded for the excess of the
net equity of 6,400 of the acquired company over the nominal value of the
consideration given. U.S. GAAP requires the acquiring company to record an
acquisition on the basis of the fair value of the consideration given (8,950) or
the fair value of the acquired net assets whichever is more readily
determinable. The excess of the purchase price over net book value is allocated
to machinery and equipment and is amortized over ten years.
(d) Pensions and similar obligations
The pension obligations of KSH are provided for by a range of defined
benefit pensions plans. The amount of the accrual was calculated in accordance
with German GAAP and tax legislation, which does not take into account future
pay raises or inflation and uses the discount rate according to the legislation.
Under U.S. GAAP the accrual has been calculated by an actuary applying the
principles of SFAS 87.
For 1994 and 1995, the assumed discount rate and post-retirement pension
increases used in calculating the projected benefit obligation were 7.5% and
6.5%, respectively, and 2.5%.
The Company adopted SFAS 87, Employers Accounting for Pensions effective
December 31, 1992 because it was not feasible to apply the statement
retroactively to the year ended December 31, 1989, the applicable adoption date
specified in the standard. The portion of the transition obligation applicable
to periods prior to 1992 was not considered material.
(e) Non-taxable investment allowances
Under German GAAP tax free investment allowances are accounted for under
the flow-through method (taken to income) of which treatment is not consistent
under U.S. GAAP.
(f) Reserves not required for U.S. GAAP
(i) Deferred maintenance accrual
As required by German GAAP, the costs of maintenance performed within three
months following the year end have been accrued as liabilities at year end.
Under U.S. GAAP, the cost of maintenance is recognized in the periods incurred.
29
<PAGE> 30
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(ii) Estimated losses on future contracts
As required by German GAAP, the expected loss to be incurred on future
delivery contracts have been accrued as liabilities at year end. Such loss
considers all internal costs, including indirect selling and administrative.
Under U.S. GAAP, allocation of indirect costs for purposes of determining
inventoriable costs is not permitted.
(iii) Allowance for doubtful accounts
Under German GAAP, an allowance for doubtful accounts has been accrued in
the amount of 3% of outstanding receivables less VAT. Under U.S. GAAP an
allowance of 2% would be more appropriate as this more clearly approximates past
experience.
(iv) Warranty expense
Under German GAAP, an accrual for warranty expense has been provided in the
amount of 0.5% of sales. Under U.S. GAAP an accrual of 0.25% would be more
appropriate as this more closely approximates past experience.
(g) Anniversary payments
Under German GAAP, the Company expensed anniversary payments for long-term
service to the company as incurred. Under U.S. GAAP these costs are accrued
based on vesting.
(h) Deferred taxes
Under German GAAP, deferred tax assets are generally provided for temporary
differences using the partial liability method. Deferred taxes are not provided
for differences that are not expected to reverse in the foreseeable future, nor
are they recognized for the effects of NOLs.
Under U.S. GAAP, deferred taxes are provided for all temporary differences
between the financial reporting and tax bases of assets and liabilities that
will reverse during future taxable periods, including deferred tax assets
relating to NOLs. Deferred taxes are also provided for the income tax effects of
differences between U.S. GAAP and German GAAP. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
(i) Depreciation
Under German GAAP, accelerated methods of depreciation as well as straight
line depreciation are used. Estimates of the difference between accelerated
methods of depreciation were prepared by the company based on certain
assumptions of average useful lives. Assumed average useful lives were as
follows:
<TABLE>
<S> <C>
Land and buildings......................................... 40 years
Machinery and equipment.................................... 10 years
Office equipment........................................... 5 years
</TABLE>
(j) Special reserves for tax purposes
Under German GAAP, special reserves for tax purposes are recorded to defer
income in accordance with the German tax code. Under U.S. GAAP the special
reserves are not recorded and deferred tax is provided according to SFAS 109
"Accounting for Income Taxes."
30
<PAGE> 31
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
OTHER MATTERS
a) Unrealized exchange gains
Under German GAAP, unrealized exchange gains are not recognized. Under U.S.
GAAP, unrealized exchange gains were not of a material amount.
(27) SUBSEQUENT EVENT
On October 7, 1996, Sinter Metals Inc. (SMI) signed a definitive purchase
agreement with MAAG Holding AG to purchase the Company for U.S. $150 million
(exchange rate DM 1.50 = U.S. $1.00), less net indebtedness of roughly DM 120
million.
These financial statements are prepared using the historical cost basis,
and do not reflect any purchase accounting or other decisions taken or to be
taken by SMI in connection with the purchase of the Company.
(28) KREBSOGE SINTERHOLDING GMBH'S BOARD OF MANAGEMENT
Dr.-Ing. Lothar Albano-Muller, Schwelm (Chairman)
Dipl.- Wirtsch.-Ing. Eckhard Hirschfeld, Remscheid-Lennep (until December
31, 1995)
Total remuneration of the management was 797 (1994: 777).
31
<PAGE> 32
KREBSOGE SINTERHOLDING GMBH
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DM)
(UNAUDITED)
<TABLE>
<CAPTION>
At At
December 31, September 30,
1995 1996
------------ ----------
<S> <C> <C>
Assets
Non-Current Assets
Intangible assets 1,706 1,525
Property, plant and equipment 55,754 54,007
Financial assets 485 1,327
-------- --------
Total noncurrent assets 57,945 56,859
-------- --------
Current Assets
Inventories 31,371 29,261
Receivables and other assets 30,300 37,854
Cash 3,038 5,369
-------- --------
Total current assets 64,709 72,484
Prepaid expenses 652 652
Cumulative loss in excess of equity 54,905 49,452
-------- --------
Total assets and cumulative loss in excess of equity 178,211 179,447
======== ========
Shareholders' Equity and Liabilities
Shareholders' Equity
Subscribed capital 33,700 33,700
Capital reserve 10,000 10,000
Cumulative translation adjustment (329) (274)
Accumulated loss brought forward (98,276) (92,878)
Cumulative loss in excess of equity 54,905 49,452
-------- --------
Total shareholders' equity -- --
-------- --------
Accruals
Accruals for pensions 15,124 15,396
Tax accruals 2,949 3,735
Other accruals 10,508 14,163
-------- --------
Total accruals 28,581 33,294
Liabilities
Liabilities to banks 68,801 64,218
Payments received on account of orders 567 6
Trade payables 9,739 9,486
Liabilities on bills accepted and drawn 2,070 2,568
Payables to affiliated enterprises 53,672 53,630
Payable to associated enterprises 634 76
Other liabilities 13,903 15,929
-------- --------
Total liabilities 149,386 145,913
Deferred income 244 240
-------- --------
Total shareholders' equity and liabilities 178,211 179,447
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial information.
32
<PAGE> 33
KREBSOGE SINTERHOLDING GMBH
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DM)
(UNAUDITED)
<TABLE>
<CAPTION> Period Ended
September 30,
----------------
1995 1996
---- ----
<S> <C> <C>
Net sales 163,877 184,657
Cost of sales 129,575 148,329
-------- --------
Gross margin 34,302 36,328
Selling, general and administration 22,206 25,203
Amortization of intangible assets 19 19
-------- --------
Income from operations 12,077 11,106
Interest expense 6,195 5,439
Other expense/(income) (864) (876)
-------- --------
Income before taxes 6,746 6,543
Taxes 1,202 1,090
-------- --------
Net income 5,544 5,453
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial information.
33
<PAGE> 34
KREBSOGE SINTERHOLDING GMBH
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DM)
(UNAUDITED)
<TABLE>
<CAPTION>
Period Ended
September 30,
-------------
1995 1996
---- ----
<S> <C> <C>
Net cash provided by operating activities 11,607 14,079
------- -------
Cash flows from investing activities:
Repayment of financial assets 967 --
Capital expenditures (8,898) (7,196)
------- -------
Cash used by investing activities (7,931) (7,196)
Cash flows from financing activities:
Acquisition of financial assets (420) --
Cash from merger 572 --
Net repayment of financial liabilities to banks (5,826) (4,585)
Increase (decrease) in liabilities to affiliated enterprises -- (42)
------- -------
Cash used by financing activities (5,674) (4,627)
Effect of foreign exchange rate changes (84) 75
------- -------
Net increase (decrease) in cash (2,082) 2,331
Cash at beginning of period 4,184 3,038
------- -------
Cash at end of period 2,102 5,369
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial information.
34
<PAGE> 35
KREBSOGE SINTERHOLDING GMBH
NOTES TO INTERIM FINANCIAL INFORMATION
(IN THOUSANDS OF DM)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying interim financial data is unaudited; however, in the opinion of
the Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for the interim periods.
The accompanying condensed statement of income and cash flow financial data for
the periods ended September 30, 1996 and 1995 and balance sheet data as of
September 30, 1996, are prepared on a Swiss GAAP basis, the basis used to
report to its previous parent. The interim presentation is not intended to be
a presentation in accordance with German GAAP, the accounting basis used by the
Company for annual financial reporting purposes. Net income and cumulative
loss in excess of equity on a Swiss GAAP basis do not differ from amounts
determined on a German GAAP basis, however, there are certain differences in
the classification and presentation of financial information.
NOTE 2 - ACQUISITION:
As of April 4, 1995 Krebsoge Sinterholding GmbH (KSH) acquired the shares of
Ringsdorff Sinter GmbH, Bonn, effective April 1, 1995 from SGL Carbon AG in
exchange for issuance of 11% shares in KSH (nominal value 3,700). As of November
14, 1995 Ringsdorff Sinter GmbH was merged with KSH retroactively effective as
of April 1, 1995. The nominal value of the shares issued (3,700) under the book
value of assets and liabilities (6,400) was recorded as a gain of 2,700 for
Swiss GAAP purposes (release of bad will) and is included as a deduction to cost
of sales for the period ended September 30, 1995. This gain is non-taxable.
NOTE 3 - SUBSEQUENT EVENT:
On December 19, 1996, the Company was acquired by Sinter Metals Inc. (SMI) from
MAAG Holding AG.
The accompanying financial data is prepared using the historical cost basis, and
does not reflect any purchase accounting or other decisions taken or to be taken
by SMI in connection with the purchase of the Company.
35
<PAGE> 36
KREBSOGE SINTERHOLDING GMBH
NOTES TO INTERIM FINANCIAL INFORMATION
(IN THOUSANDS OF DM)
(UNAUDITED)
NOTE 4 - RECONCILIATION TO U.S. GAAP:
Swiss and German GAAP (Note 1) varies in certain significant respects from
generally accepted accounting principles in the United States (U.S. GAAP).
Application of U.S. GAAP would have affected shareholders' equity (deficit) at
September 30, 1996 and net income for the nine month periods ended September 30,
1996 and 1995 to the extent quantified below.
RECONCILIATION OF SHAREHOLDERS' EQUITY TO U.S. GAAP
The following is a reconciliation of the significant adjustments necessary to
reconcile shareholders' equity (deficit) in accordance with U.S. GAAP to the
amounts determined under Swiss GAAP, as of September 30, 1996.
<TABLE>
<CAPTION>
Period Ended
September 30,
1996
-------------
<S> <C>
Shareholders' equity (deficit) as reported in the
condensed consolidated balance sheet under Swiss GAAP
(see Note 1) --
Cumulative loss in excess of equity (49,452)
Amortization of step-up - MAAG purchase of KSH 38,291
Depreciation 25,147
Deferred taxes on deprecation (10,813)
Other (3,648)
-------
Shareholders' equity (deficit) in accordance with
U.S. GAAP (475)
=======
Period Ended
September 30,
1996
-------------
Shareholders' equity (deficit), beginning of period (1,206)
(U.S. GAAP)
Net income in accordance with U.S. GAAP 731
------
Shareholders' equity (deficit), end of period (U.S. GAAP) (475)
======
</TABLE>
36
<PAGE> 37
KREBSOGE SINTERHOLDING GMBH
NOTES TO INTERIM FINANCIAL INFORMATION
(IN THOUSANDS OF DM)
(UNAUDITED)
RECONCILIATION OF NET INCOME TO U.S. GAAP
The following is a reconciliation of the significant adjustments necessary to
reconcile net income in accordance with U.S. GAAP to the amounts determined
under Swiss GAAP for the nine month periods ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
Period Ended
September 30,
-------------
1995 1996
---- ----
<S> <C> <C>
Net income as reported in the consolidated profit
and loss account under Swiss GAAP 5,544 5,453
Amortization of step-up - MAAG purchase of KSH (8,136) (4,722)
Elimination of extraordinary gain on purchase of
Ringsdorff Sinter GmbH (2,700) -
------ ------
Net (loss) income in accordance with U.S. GAAP (5,292) 731
====== ======
</TABLE>
37
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Powder Metal Holding, Inc.:
We have audited the accompanying consolidated balance sheets of Powder Metal
Holding, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
November 22, 1996, and and the related consolidated statements of income,
shareholders' deficit and cash flows for the years ended December 31, 1994 and
1995 and for the period January 1, 1996 through November 22, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of November 22, 1996
and December 31, 1995, and the results of its operations and its cash flows for
the period January 1, 1996 through November 22, 1996, and the years ended
December 31, 1994 and 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 2, effective January 1, 1995, the Company changed its
method of recognizing actuarial gains and losses related to its postretirement
benefit plans.
DELOITTE & TOUCHE LLP
Detroit, Michigan
December 19, 1996
38
<PAGE> 39
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND NOVEMBER 22, 1996
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 22,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $ 918 $ 905
Receivables:
Trade (net of allowance for doubtful accounts of $796 and
$384, respectively).................................... 13,256 15,758
Related party receivable (Note 2)........................ 444
Other (Note 2)........................................... 1,272 901
Inventories (Notes 2 and 3)................................. 9,114 7,930
Prepaid and other (Note 2).................................. 1,339 1,899
------- -------
Total current assets................................ 25,899 27,837
PROPERTY, PLANT AND EQUIPMENT, NET (Notes 2 and 4)............ 29,683 31,086
OTHER ASSETS (Note 2)......................................... 482 21
ASSETS HELD FOR DISPOSITION (Note 8).......................... 212
------- -------
TOTAL ASSETS (Note 6)......................................... $ 56,276 $ 58,944
======= =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt (Note 6).................. $ 51,204 $ 51,592
Current portion of capital lease obligations (Note 7)....... 49 60
Accounts payable............................................ 9,479 11,139
Accrued liabilities (Note 5)................................ 4,890 5,274
------- -------
Total current liabilities........................... 65,622 68,065
LONG-TERM DEBT (Note 6)....................................... 2,600 2,600
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Note 11)......... 2,728 2,925
PENSIONS (Note 10)............................................ 1,433 1,128
LONG-TERM CAPITAL LEASE OBLIGATIONS (Note 7).................. 159 95
DEBT AND ACCRUED INTEREST FORGIVEN BY LENDER, NET (Note 2).... 12,816 10,462
------- -------
Total liabilities................................... 85,358 85,275
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' DEFICIT:
Class A common stock, par value $.01 per share; authorized
200,000 shares, issued and outstanding 10,000 shares
Class B common stock, par value $.01 per share; authorized
100,000 shares, issued and outstanding 6,334 shares
Additional paid-in capital.................................. 49,649 49,649
Accumulated deficit......................................... (79,607) (77,435)
Minimum pension liability adjustment (Note 10).............. (1,031) (461)
Accumulated translation adjustment.......................... 1,907 1,916
------- -------
Total shareholders' deficit......................... (29,082) (26,331)
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT................... $ 56,276 $ 58,944
======= =======
</TABLE>
See notes to consolidated financial statements.
39
<PAGE> 40
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994 AND 1995, AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
(In Thousands)
<TABLE>
<CAPTION>
JANUARY 1,
1996
DECEMBER 31, THROUGH
--------------------- NOVEMBER 22,
1994 1995 1996
-------- -------- ------------
<S> <C> <C> <C>
SALES (Notes 2 and 8).................................. $107,803 $106,473 $101,671
COST OF GOODS SOLD (Note 8)............................ (95,348) (92,263) (90,730)
--------- --------- ---------
GROSS MARGIN (Note 8).................................. 12,455 14,210 10,941
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note
8)................................................... (8,760) (7,677) (6,167)
RESTRUCTURING (Note 8)................................. 3,307 5,260
--------- --------- ---------
INCOME FROM OPERATIONS................................. 7,002 11,793 4,774
OTHER EXPENSES:
Interest (Note 6).................................... (1,602) (3,133) (2,314)
Other................................................ (6) (115) (250)
--------- --------- ---------
Total other expenses......................... (1,608) (3,248) (2,564)
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.................................... 5,394 8,545 2,210
INCOME TAX (EXPENSE) CREDIT (Note 12).................. 253 (38)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 2)........ 770
--------- --------- ---------
NET INCOME............................................. $ 5,394 $ 9,568 $ 2,172
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
40
<PAGE> 41
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
(In Thousands)
<TABLE>
<CAPTION>
UNREALIZED
ACCUMULATED
FOREIGN MINIMUM
CLASS A CLASS B ADDITIONAL CURRENCY PENSION
COMMON COMMON PAID-IN ACCUMULATED TRANSLATION LIABILITY
STOCK STOCK CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT TOTAL
------- ------- ---------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994............ -- -- $ 49,649 $ (94,569) None $ (170) $(45,090)
Net income........................ 5,394 5,394
Minimum pension liability
adjustment (Note 10)............ (119) (119)
---- ---- ------- --------- ------ -------- ---------
BALANCE, DECEMBER 31, 1994.......... -- -- 49,649 (89,175) None (289) (39,815)
Net income........................ 9,568 9,568
Reversal of recognition of
unrecognized accumulated foreign
currency translation adjustment
(Note 8)........................ 1,907 1,907
Minimum pension liability
adjustment (Note 10)............ (742) (742)
---- ---- ------- --------- ------ -------- ---------
BALANCE, DECEMBER 31, 1995.......... -- -- 49,649 (79,607) 1,907 (1,031) (29,082)
Net income........................ 2,172 2,172
Minimum pension liability
adjustment (Note 10)............ 570 570
Accumulated translation
adjustment...................... 9 9
---- ---- ------- --------- ------ -------- ---------
BALANCE, NOVEMBER 22, 1996.......... -- -- $ 49,649 $ (77,435) $ 1,916 $ (461) $(26,331)
==== ==== ======= ========= ====== ======== =========
</TABLE>
See notes to consolidated financial statements.
41
<PAGE> 42
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
(In Thousands)
<TABLE>
<CAPTION>
JANUARY 1,
1996
DECEMBER 31, THROUGH
----------------- NOVEMBER 22,
1994 1995 1996
------ ------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $5,394 $9,568 $2,172
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization......................... 5,622 5,622 5,812
Amortization of debt and accrued interest forgiven
(Note 2)............................................ (2,568) (2,568) (2,354)
Loss provision credit on restructuring (Note 8)....... (3,307) (5,260)
Loss (gain) on disposal of property, plant and
equipment........................................... (32) (169) (80)
Exchange (gain) loss on foreign currency transactions
(Note 2)............................................ 522 (107) (66)
Pension expense, net of cash contributions (Note
10)................................................. (298) (435) 268
Provision for postretirement benefits other than
pensions (Note 11).................................. 495 440 824
Cumulative effect of accounting change (Note 2)....... (770)
Changes in assets and liabilities that provided (used)
cash:
Receivables......................................... (1,625) (752) (2,093)
Inventories (Notes 2 and 3)......................... (2,431) (166) 1,232
Prepaid and other (Note 2).......................... (26) (99) (1,000)
Accounts payable.................................... 2,676 (2,264) 1,632
Accrued and other liabilities -- net................ 2,221 (224) (156)
Accrual for disposition of foreign operation (Note
8)............................................... (3,753) (1,133)
Other assets........................................ (468) 23 611
------- ------- -------
Net cash provided by operating activities........ 2,422 1,706 6,802
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................ (5,158) (3,195) (7,050)
Proceeds from disposal of property, plant and
equipment............................................. 92 528 80
------- ------- -------
Net cash used in investing activities............ (5,066) (2,667) (6,970)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) under line of credit (Note
6).................................................... 2,170 2,646 (1,721)
Proceeds from issuance of notes payable to related
party................................................. 2,000
Principal payments:
Long-term debt........................................ (1,000)
Capital lease obligations (Note 7).................... (71) (41) (40)
------- ------- -------
Net cash provided by financing activities........ 2,099 1,605 239
------- ------- -------
EFFECT OF CHANGE IN FOREIGN CURRENCY EXCHANGE RATES ON
CASH..................................................... (94) (83) (84)
------- ------- -------
NET INCREASE (DECREASE) IN CASH............................ (639) 561 (13)
CASH, BEGINNING OF PERIOD.................................. 996 357 918
------- ------- -------
CASH, END OF PERIOD........................................ $ 357 $ 918 $ 905
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
42
<PAGE> 43
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
1. BASIS OF PRESENTATION
Powder Metal Holding, Inc. ("PMH"), a Delaware corporation, was formed in
1989 as a wholly-owned subsidiary of MAAG Holding AG ("MAAG") based in Zurich,
Switzerland. In November 1993 the role of PMH within MAAG's North American
operations was modified and limited to that of a holding company whose sole
business purpose became the 100% ownership of the shares of ICM/Krebsoge, Inc.,
a Delaware corporation, and its 100% owned Canadian subsidiary, ICM/Krebsoge
Canada, Ltd. PMH conducts no other business and has no other assets than the
shares of ICM/Krebsoge. PMH and ICM/Krebsoge, Inc. collectively (the "Company")
maintain operating facilities in the U.S. and Canada for the manufacture of
metal parts for the automotive industry using powder metal technology.
In November, 1993 Sinter Metals, Inc. ("SMI") acquired a 30% equity
interest in PMH.
On October 7, 1996 MAAG and SMI entered into a Powder Metal Stock Purchase
Agreement (the "Agreement") whereby SMI would purchase in December 1996 all of
MAAG's shares in PMH and substantially all of the shares in MAAG's German powder
metal parts manufacturing subsidiary, Krebsoge Sinterholding GmbH. The purchase
price for MAAG's shares in PMH was set at $65 million, less all indebtedness and
subject to certain further limited adjustments upon closing (Note 14.).
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of PMH and its wholly owned entity, ICM/Krebsoge, Inc. All
material amounts and balances have been eliminated in consolidation.
Operations -- The Company manufactures metal parts, mainly for the
automotive industry, using powdered metal technology. The Company maintains U.S.
operating facilities in Ohio, Indiana, and corporate headquarters in Michigan.
The Company's Canadian subsidiary, ICM/Krebsoge Canada, Ltd., has operating
facilities in St. Thomas, Ontario. In 1993, a plan was adopted to dispose of
ICM/Krebsoge Canada, Ltd. However, in 1995, the Company's management reversed
their decision to dispose of ICM/Krebsoge Canada, Ltd. Refer to Note 8 regarding
these Canadian operations. At December 31, 1995 and November 22, 1996,
ICM/Krebsoge Canada, Ltd.'s assets were approximately $12.4 million and $11.3
million, respectively. Sales of ICM/Krebsoge Canada, Ltd. were approximately
$23.4 million, $19.4 million and $15.4 for the years ended December 31, 1994 and
1995, and the period January 1, 1996 through November 22, 1996, respectively.
The net loss of ICM/Krebsoge Canada, Ltd. was approximately $5.1 million, $1.5
million and $1.4 million for the years ended December 31, 1994 and 1995, and the
period January 1, 1996 through November 22, 1996.
43
<PAGE> 44
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
Major Customers -- Sales to the Company's four major customers for the
years ended December 31, 1994 and 1995, and the period January 1, 1996 through
November 22, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 1,
1996
DECEMBER 31, THROUGH
--------------------- NOVEMBER 22,
1994 1995 1996
-------- -------- ------------
<S> <C> <C> <C>
Chrysler Corporation............................ $ 24,303 $ 20,349 $ 20,575
Ford Motor Company.............................. 54,305 53,635 52,192
New Venture Gear................................ 12,153 13,484 13,247
General Motors Corporation...................... 7,670 11,782 9,995
Others.......................................... 9,372 7,223 5,662
-------- -------- --------
Total................................. $107,803 $106,473 $101,671
======== ======== ========
</TABLE>
Supplemental Cash Flows Disclosures -- Cash paid during the years ended
December 31, 1994 and 1995, and the period January 1, 1996 through November 22,
1996 was $2.9 million, $4.1 million and $4.5 million, respectively, for interest
(net of $227,000, $110,000 and $342,000, capitalized during the years ended
December 31, 1994 and 1995, and the period January 1, 1996 through November 22,
1996, respectively).
Concentrations of Credit Risk -- Financial instruments which subject the
Company to concentrations of credit risk consist principally of trade
receivables. Automobile manufacturers comprise a significant portion of the
Company's business customer base. The Company's four major automotive customers
accounted for approximately 90% of trade receivables at December 31, 1995 and
November 22, 1996. Although the Company's exposure to credit risk associated
with nonpayment by automotive manufacturers is affected by conditions or
occurrences within the automotive industry, trade receivables from the
automotive manufacturers were current at November 22, 1996.
Revenue Recognition -- The Company generally recognizes sales when products
are shipped to customers. An allowance for sales returns is accrued based on
historical experience.
Financial Instruments included in the consolidated balance sheets are
recorded at cost and such amounts approximate fair value.
Other Receivables -- Included in other receivables at December 31, 1995 and
November 22, 1996 is approximately $163,000 and $138,000, respectively, relating
to billed customer tooling costs.
Related Party Receivable -- Included in related party receivables is
$444,000 related to a receivable from MAAG for expenditures related to the
transfer of interest.
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Accounting Changes -- Effective January 1, 1995, the Company changed its
method of recognizing actuarial gains and losses related to its U.S. union and
nonunion postretirement plans from the defer and amortize method prescribed in
Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," to a method of
immediately recognizing the gains or losses at the measurement date if the
accumulated net gain or loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market-related value of plan assets.
The cumulative effect of this change as of January 1, 1995 was approximately
$1.2 million or approximately $.8 million after-
44
<PAGE> 45
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
tax (Note 12). On a pro forma basis, the Company's reported net income for 1994
would have been $6.027 million, if this accounting method had been elected in
1993 when the Company adopted SFAS No. 106.
Prepaid and Other Assets -- Included in prepaid and other assets at
December 31, 1995 and November 22, 1996 are unbilled tooling costs of $776,000
and $930,000, respectively, associated with the development of tooling to be
used in the manufacturing of new products.
Property, Plant and Equipment are stated at cost or, in the case of assets
under capital leases (Note 7), at the present value of future lease payments.
Depreciation is computed using the straight-line method over the useful lives of
the related assets, which range from 5 to 40 years. Amortization of leasehold
improvements and capital lease equipment is computed using the straight-line
method over the shorter of the lease term or the useful lives of the related
assets. Depreciation and amortization expense for the years ended December 31,
1994 and 1995 and the period January 1, 1996 through November 22, 1996 was
approximately $5.6 million, $5.6 million and $5.8 million, respectively.
Other Assets -- Included in the other assets balance at December 31, 1995
is a deposit of approximately $384,000 towards the purchase of machinery and
equipment which was delivered in 1996.
Foreign Currency Translation -- The accounts of the Company's Canadian
subsidiary are translated into U.S. dollars in the accompanying consolidated
financial statements. Exchange transaction losses/(gains) included in
consolidated operating results for the years ended December 31, 1994 and 1995
and the period ended November 22, 1996 were approximately $.5 million, $(.1)
million and $.1 million, respectively.
Debt and Accrued Interest Forgiven by Lender -- In 1993, the Company
amended and restated a loan agreement (the "Loan and Security Agreement") with
Heller Financial Inc. ("Heller"). As a result of the restated agreement, Heller
forgave unpaid principal and accrued interest of $17.9 million and converted
additional debt into the new Term Loans A and B and a revolving loan facility.
No gain was recognized for the $17.9 million, which was forgiven, as the total
gross future cash flows from the new Term Loans A and B exceeded the carrying
amount of the old loans. Accordingly, the $17.9 million is being recognized over
the seven year term of the restructured debt as a reduction of future interest
expense. Amortization of debt and interest forgiven by the lender for the years
ended December 31, 1994 and 1995 and the period January 1, 1996 through November
22, 1996 was approximately $2.6 million each period (Note 6).
Reclassifications -- Certain reclassifications have been made to the 1994
and 1995 consolidated financial statements to conform to the 1996 presentations.
Use of Estimates in the Preparation of the Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
45
<PAGE> 46
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
3. INVENTORIES
Inventories consist of the following at December 31, 1995 and November 22,
1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER NOVEMBER
31, 22,
1995 1996
----------- -----------
<S> <C> <C>
Raw materials............................................. $ 1,450 $ 1,020
Work-in-process........................................... 5,958 5,231
Finished goods............................................ 1,706 1,679
------- -------
Total inventory................................. $ 9,114 $ 7,930
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31,
1995 and November 22, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER NOVEMBER
31, 22,
1995 1996
----------- -----------
<S> <C> <C>
Land and land improvements.................................. $ 992 $ 873
Buildings and leasehold improvements........................ 10,252 10,446
Machinery and equipment (including capital lease equipment
of $309 in 1995 and 1996)................................. 48,823 53,482
Furniture and fixtures...................................... 3,775 3,853
Office equipment............................................ 296 297
Company vehicles............................................ 159 162
Construction-in-progress.................................... 1,898 5,968
------- -------
Total............................................. 66,195 75,081
Less accumulated depreciation and amortization.............. 36,512 43,995
------- -------
Property and equipment -- net............................... $29,683 $31,086
======= =======
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1995 and
November 22, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER NOVEMBER
31, 22,
1995 1996
----------- -----------
<S> <C> <C>
Salaries, wages, vacation, related benefits and taxes..... $ 2,269 $ 2,787
Other taxes, interest and bank charges.................... 997 1,011
Environmental............................................. 262 102
Bonuses (Note 9).......................................... 600 347
Other..................................................... 762 1,027
------- -------
Total accrued liabilities....................... $ 4,890 $ 5,274
======= =======
</TABLE>
46
<PAGE> 47
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
6. LONG-TERM DEBT
As discussed in Note 2, the Company entered into the Loan and Security
Agreement, as amended, with Heller in 1989. On November 19, 1993, the Company
amended the Loan and Security Agreement with Heller. Borrowings under the Loan
and Security Agreement are collateralized by substantially all assets of the
Company.
The Agreement between MAAG and SMI (Note 1) describes that on the date of
the transfer of interest, all Heller loans will be repaid (Note 14).
Descriptions and outstanding balances of each loan at December 31, 1995 and
November 22, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
HELLER
Term Loan A -- Payable in 21 quarterly installments, with final
payment due October 1, 2000. Interest is payable monthly at
prime, plus 1.5% per annum. The effective interest rates for
the year ended December 31, 1995 and the period January 1, 1996
through November 22, 1996 were approximately 1.0% (Note 2)..... $29,000 $26,875
Term Loan B -- Due October 1, 2000. Effective January 1, 1996,
interest is payable monthly at prime, plus 1.75% per annum. The
effective interest rates for the year ended December 31, 1995
and the period January 1, 1996 through November 22, 1996 were
approximately 1.0% (Note 2).................................... 12,177 12,286
Revolving Loan -- Heller may issue or guarantee letters of credit
or make advances to the Company up to approximately $17
million. Such outstanding letters of credit totaled
approximately $1.1 million at December 31, 1995 and November
22, 1996. Interest is equal to the base rate, as defined, plus
1.5% per annum. The effective interest rate for the year ended
December 31, 1995 and the period January 1, 1996 through
November 22, 1996 were approximately 8.4% and 9.1%,
respectively................................................... 10,027 10,431
OTHER NOTES PAYABLE
Industrial Revenue Bonds bearing interest at 6.72% per annum and
due in 2000, collateralized by a letter of credit drawn on
MAAG........................................................... 2,600 2,600
MAAG Subordinated Note with interest payable quarterly at prime,
plus 2% per annum; due on October 1, 2000. The effective rate
for the period January 1, 1996 through November 22, 1996 was
10%............................................................ 2,000
------- -------
Total.................................................. 53,804 54,192
Less current portion............................................. 51,204 51,592
------- -------
Long-term debt................................................... $ 2,600 $ 2,600
======= =======
</TABLE>
The Loan and Security Agreement requires the Company to maintain a minimum
earnings before interest debt amortization and taxes (EBIDAT, as defined) and a
minimum fixed charge coverage ratio as of various dates. The Loan and Security
Agreement restricts defined mergers and investments in any corporation, person
or entity, payments of dividends, transactions with affiliates, subordinated
indebtedness, additional liens on Company assets, the amount of capital
expenditures, aggregate restructuring charges and expenditures and
47
<PAGE> 48
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
various other transactions. Noncompliance with such restrictions or requirements
allow Heller to demand immediate payment of the debt. As of November 22, 1996,
the Company was in violation of the Loan and Security Agreement covenants. As a
result of this, the debt obligations with Heller have been classified as current
liabilities.
In addition to the principal payments required above, the Company is
required to make additional principal payments to Heller from the sale proceeds
of any property or equity interest in the Company, and insurance proceeds from
property loss or damage.
The Company is also required to make additional principal payments based on
a percentage of excess cash flow, as defined in the Loan and Security Agreement.
In 1996, MAAG issued to PMH a subordinated note with a face value of $2
million. Interest expense related to this note was $115,000 for the period
January 1, 1996 to November 22, 1996. This note will also be repaid as a result
of the transfer of interest. Refer to Note 14.
The following summarizes the future annual maturities of the Company's debt
obligations at November 22, 1996 (in thousands):
<TABLE>
<S> <C>
1997....................... $51,592
2000....................... 2,600
-------
Total...................... $54,192
=======
</TABLE>
7. CAPITAL AND OPERATING LEASE OBLIGATIONS
Equipment under capital leases, which expire in 1999, had a net book value
of approximately $211,000 and $168,000 at December 31, 1995 and November 22,
1996, respectively. The amortization expense relating to such assets for the
years ended December 31, 1994 and 1995 and the period January 1, 1996 through
November 22, 1996 is approximately $32,000, $40,000 and $44,000, respectively.
The Company leases other equipment and office facilities under
noncancelable operating leases which are in effect through 2000. Rent expense
for the years ended December 31, 1994 and 1995 and the period January 1, 1996
through November 22, 1996 is approximately $501,000, $696,000 and $505,000,
respectively.
Future minimum lease payments as of November 22, 1996 under noncancelable
capital and operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year Ending December 31:
1997............................................................ $ 95 $ 1,147
1998............................................................ 68 927
1999............................................................ 35 851
2000............................................................ 814
---- ------
Total minimum lease payments............................ 198 3,739
Less amount representing interest............................... (43)
---- ------
Present value of minimum lease payments........................... $ 155 $ 3,739
==== ======
</TABLE>
During 1995, the Company entered into an agreement for the sale and
leaseback of machinery and equipment. Under this agreement, the Company sold
machinery and equipment with a net book value of
48
<PAGE> 49
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
approximately $314,000 and leased the same machinery and equipment back, after
rebuild, under an operating lease. The historical cost and the accumulated
depreciation of the machinery and equipment of approximately $534,000 and
$220,000, respectively, have been removed from the appropriate balance sheet
accounts. Simultaneously, the Company entered into a lease agreement for new
machinery and equipment. The lease has also been classified as an operating
lease in accordance with SFAS No. 13, "Accounting for Leases." Payments under
the five-year lease agreements are approximately $1.5 million for the first year
and $.8 million annually thereafter, which commenced in October 1996.
8. DISPOSITION OF FOREIGN OPERATION
In 1993, the Company's management announced a decision to dispose of
ICM/Krebsoge Canada, Ltd. operations in order to curtail the large operating
losses stemming from that facility. Management's plan called for production of
certain products to be relocated to the Company's U.S. operating facilities.
A provision for plant disposal costs totaling approximately $20.1 million
was recorded in the consolidated statement of income for the year ended December
31, 1993. The provision included noncash and cash charges as follows (in
millions):
<TABLE>
<S> <C>
Noncash charges:
Estimated losses from the disposal of part of a line of business.......... $ 1.5
Writedown of property, plant and equipment to net realizable value........ 4.7
Inventory writedown....................................................... 0.3
Recognized foreign currency translation credit adjustment................. (1.9)
-----
Total noncash charges....................................................... $ 4.6
=====
Cash charges:
Equipment relocation...................................................... $ 2.9
Employee separation....................................................... 2.7
Estimated losses from disposal of a part of a line of business............ 2.4
Transition team........................................................... 2.0
Pension funding obligation................................................ 1.4
Other..................................................................... 4.1
-----
Total cash charges.......................................................... $15.5
=====
</TABLE>
In 1993, cash restructuring expenditures of approximately $3.4 million were
charged against the accrual for disposition of foreign operation leaving a
remaining accrual balance at December 31, 1993 of approximately $13.6 million.
In 1994, cash restructuring expenditures of approximately $6.0 million and
noncash restructuring costs of approximately $1.7 million were charged against
the accrual for disposition of foreign operation leaving a remaining accrual
balance at December 31, 1994 of approximately $5.9 million. In addition, the
Company recognized an additional noncash restructuring charge in 1994 of
approximately $.5 million related to the writedown of machinery and equipment to
its net realizable value. In 1995, cash restructuring expenditures of
approximately $1.1 million and noncash restructuring costs of approximately $.8
million were charged against the accrual for disposition of foreign operation
leaving a remaining balance of $4.0 million at December 31, 1995.
On December 31, 1995, the Company's management reversed their decision to
dispose of ICM/Krebsoge Canada, Ltd. due to unforeseen additional costs,
difficulties related to equipment logistics, a high risk of a supply
interruption to significant customers and capacity constraints that would result
from transferring several
49
<PAGE> 50
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
of the remaining product lines at St. Thomas to the Company's U.S. facilities as
originally planned. As a result of this decision, the Company has reversed the
remaining accrual of $4.0 million for the disposition of foreign operation with
a corresponding credit to restructuring provision as follows (in millions):
<TABLE>
<S> <C>
Equipment relocation................................................... $(1.0)
Employee separation.................................................... (1.1)
Pension funding obligation............................................. (1.0)
Other.................................................................. (0.9)
-----
Total.................................................................. $(4.0)
=====
</TABLE>
At December 31, 1995, the Company also reversed $3.2 million of the $4.7
million noncash charge included in 1993 restructuring provision for the
writedown of property, plant and equipment to net realizable value and the $1.9
million noncash credit included in the 1993 restructuring provision related to
the unrecognized foreign currency accumulated translation adjustment. As a
result of these reversals, property, plant and equipment -- net, and the
accumulated translation adjustment component of shareholders' equity have
increased approximately $3.2 million and $1.9 million, respectively. The noncash
charge and noncash credit previously recorded in 1993 were reversed as the
Company now intends to retain these assets and is not substantially liquidating
or disposing of its investment in ICM/Krebsoge Canada, Ltd. Management believes
the carrying value of these assets is recoverable from their use in the
Company's operations.
As a result of the reversals described in the two preceding paragraphs, the
Company recorded a net credit to the restructuring provision of approximately
$5.3 million for the year ended December 31, 1995.
Further, certain amounts in the Company's December 31, 1994 consolidated
statement of income have been reclassified to reflect management's decision to
retain ICM/Krebsoge Canada, Ltd., as follows -- $4.4 million of the $4.6 million
previously classified as assets held for disposition at December 31, 1994 has
been reclassified to property, plant and equipment -- net. The Company still
plans to dispose of the remaining balance of assets held for disposition.
9. RELATED PARTY TRANSACTIONS
PMH had recorded a bonus accrual of $600,000 as of December 31, 1995,
payable to International Consulting Management, Ltd., a corporation owned in
part by a director of the Company (Notes 5 and 13). PMH has a $444,000
receivable from MAAG at November 22, 1996 for expenditures incurred by PMH
related to the transfer of interest for which MAAG has agreed to reimburse PMH
(Note 2).
PMH has a note payable to MAAG of $2 million at November 22, 1996 (Note 6).
10. PENSIONS
The Company has four defined benefit pension plans covering substantially
all of its employees in the U.S. and Canada. The benefits are based on years of
service and the highest consecutive five-year average earnings prior to
retirement. The Company's policy is to fund the pension costs in accordance with
applicable regulatory guidelines.
The projected unit credit method is used to determine the funding
requirements of the plans. The tables below reconcile the funded status of the
Company's U.S. and Canadian defined benefit pension plans for
50
<PAGE> 51
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
which SFAS No. 87, "Employers' Accounting for Pensions," has been adopted with
amounts recognized in the consolidated balance sheets at December 31, 1995 and
November 22, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------
CANADIAN PLANS U.S. PLANS
------------------------- ---------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits......................... $ 748 $ 2,346 $ 3,729 $ 1,929
Nonvested benefits...................... 2 207 96
----------- ----------- ----------- -----------
Accumulated benefit obligations........... $ 748 $ 2,348 $ 3,936 $ 2,025
========= ========= ========= =========
Projected benefit obligations for services
provided to date........................ $ 840 $ 2,348 $ 5,639 $ 2,025
Plan assets at fair value................. 688 1,546 3,995 1,815
----------- ----------- ----------- -----------
Excess of projected benefit obligations
over plan assets........................ 152 802 1,644 210
Unrecognized prior service cost........... (190)
Unrecognized net loss..................... (169) (522) (1,375) (340)
Adjustment for unfunded pension
liability............................... 169 712 340
----------- ----------- ----------- -----------
Accrued pension cost recognized in
consolidated balance sheet.............. $ 152 $ 802 $ 269 $ 210
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 22, 1996
------------------------------
CANADIAN PLANS U.S. PLANS
-------------- -----------
ACCUMULATED ACCUMULATED
BENEFITS BENEFITS
EXCEED EXCEED
ASSETS ASSETS
-------------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits......................................... $2,881 $ 5,971
Nonvested benefits...................................... 2 376
------ ------
Accumulated benefit obligations........................... $2,883 $ 6,347
====== ======
Projected benefit obligations for services provided to
date.................................................... $2,971 $ 7,858
Plan assets at fair value................................. 2,042 7,655
------ ------
Excess of projected benefit obligations over plan
assets.................................................. 929 203
Unrecognized prior service cost........................... (177)
Unrecognized net loss..................................... (462) (4)
Adjustment for unfunded pension liability................. 639
------ ------
Accrued pension cost recognized in consolidated balance
sheet................................................... $ 929 $ 199
====== ======
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligations for the U.S. plans was 6.8% and 7.5% at December
31, 1995 and November 22, 1996, respectively. The discount rate used in
determining the actuarial present value of the projected benefit obligations for
the Canadian plans
51
<PAGE> 52
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
was 7.5% and 6.8% at December 31, 1995 and November 22, 1996. The rate of
increase in future compensation levels for applicable U.S. and Canadian
employees was 4% at December 31, 1995 and November 22, 1996. The expected
long-term rate of return on plan assets used in determining pension expense for
the U.S. and Canadian plans was 7.5% and 8.25% in 1995 and the period January 1,
1996 through November 22, 1996, respectively. The assumptions for the Canadian
plans were developed on a basis consistent with that for U.S. plans adjusted to
reflect prevailing economic conditions and interest rate environments.
The net periodic pension cost and total pension expense for the years ended
December 31, 1994 and 1995 and for the period January 1, 1996 through November
22, 1996 of U.S. plans and Canadian plans include the following components (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 NOVEMBER 22, 1996
------------------ -------------------- -------------------
CANADIAN U.S. CANADIAN U.S. CANADIAN U.S.
PLANS PLANS PLANS PLANS PLANS PLANS
-------- ----- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Service cost......................... $223 $ 838 $ 169 $ 868 $ 174 $1,074
Interest cost on projected benefit
obligation......................... 203 298 232 387 200 466
Return on assets -- actual........... (68) 45 (122) (1,006) (201) (488)
Net amortization and deferral........ 36 (256) 40 667 323 82
---- ----- ----- ------- ---- ------
Net periodic pension cost............ $394 $ 925 $ 319 $ 916 $ 496 $1,134
==== ===== ===== ======= ==== ======
</TABLE>
Plan assets consist principally of investments in bonds and debentures,
common stocks and cash. The Company also has a defined contribution 401(k) plan,
covering substantially all of its U.S. employees. No Company contributions were
made to the 401(k) plan in 1994, 1995 and the period January 1, 1996 through
November 22, 1996.
11. OTHER POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company maintains union and non-union benefit plans that provide
postretirement medical and life insurance to U.S. retirees and eligible
dependents. These benefits are funded as incurred from the general assets of the
Company. SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," requires that the cost of such benefits be recognized in the
financial statements during the period employees provide service to the Company.
The medical and life insurance costs for active employees during active service
are not covered by SFAS No. 106 and are charged directly to expense on a
pay-as-you-go basis. The Company's Canadian subsidiary also maintains a
postretirement plan, however, the postretirement cost of the Canadian plan is
not significant to the Company.
The components of non-pension postretirement benefit cost of the Company
for 1994, 1995 and the period January 1, 1996 through November 22, 1996 are set
forth below (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Benefits earned during the year/period........................ $384 $303 $377
Interest accrued on benefits attributed to prior year......... 137 137 170
Net amortization of actuarial (gain)/loss..................... (26) 277
---- ---- ----
Total non-pension postretirement benefit cost................. $495 $440 $824
==== ==== ====
</TABLE>
52
<PAGE> 53
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
As of January 1, 1995, the Company changed its method of recognizing
actuarial gains or losses from the defer and amortize method described in SFAS
No. 106 to the immediate recognition of such gains or losses, if the accumulated
net gain or loss exceeds 10% of the greater of the accumulated benefit
obligation or market-related value of plan assets (Note 2).
No retiree benefit payments were made during the years ended December 31,
1994 and 1995 and the period January 1, 1996 through November 22, 1996.
The table below displays the components of the Company's U.S.
postretirement benefit obligation as recognized in the consolidated balance
sheets at December 31, 1995 and November 22, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 22,
1995 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Current retirees......................................... $ 201 $ 288
Fully eligible active plan participants.................. 170 156
Other active plan participants........................... 2,357 2,472
------ ------
APBO....................................................... 2,728 2,916
Unrecognized net gain...................................... (9)
------ ------
U.S. obligation recognized in consolidated balance
sheets................................................... $2,728 $2,925
====== ======
</TABLE>
The following table summarizes the principal assumptions used in
determining the actuarial value of the APBO:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
---- ----
<S> <C> <C>
Weighted average discount rate........................................ 6.8 7.8%
Weighted average health care trend rate............................... 6.0 * 5.0
Ultimate sustained weighted average health care cost trend rate in
1997................................................................ 5.0 5.0
</TABLE>
- ---------------
* Rate decreases on a linear basis through 1997, to the ultimate weighted
average trend rate of 5.0%.
The following increase would result from a one percentage point increase in
the weighted average health care trend rates:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
APBO......................................................... $288,945 $453,438
Service and interest costs of postretirement expense......... 90,703 134,786
</TABLE>
12. UNITED STATES, FOREIGN AND OTHER INCOME TAXES -- DEFERRED AND PAYABLE
Deferred income tax assets and liabilities reflect the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and the bases of such assets and liabilities as measured by tax laws
and rates applicable to periods in which differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to
53
<PAGE> 54
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
be realized. Temporary differences and carryforwards which give rise to the
deferred tax asset at December 31, 1995 and November 22, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current deferred tax assets:
Pension and other employee benefits........................ $ 711 $ 602
Postretirement benefits other than pensions................ 752 1,036
Special provision for plant closing and other
restructuring........................................... 304
Other non-deductible reserves.............................. 523 580
-------- --------
Total current deferred tax asset................... 2,290 2,218
Noncurrent deferred tax assets (liabilities):
Net operating loss carryforwards........................... 15,206 16,847
Capital lease obligations.................................. (92) (94)
Depreciation............................................... (3,747) (2,811)
Minimum pension liability.................................. 361 164
Accumulated translation adjustment......................... (648) (654)
Alternative minimum tax credit carryforward................ 139 178
Other...................................................... 69
-------- --------
Total net noncurrent deferred tax asset............ 11,219 13,699
-------- --------
Total net deferred tax asset................................. 13,509 15,917
Less valuation allowance..................................... (13,509) (15,917)
-------- --------
Net deferred tax asset....................................... None None
======== ========
</TABLE>
The Company had U.S. federal net operating loss carryforwards for tax
purposes of approximately $31.8 million and $30.9 million at December 31, 1995
and November 22, 1996, respectively. These net operating loss carryforwards
expire on various dates between the years 2004 and 2007. The Company also had
approximately $12.3 million and $17.9 million of loss carryforwards for tax
purposes for ICM/Krebsoge Canada, Ltd. at December 31, 1995 and November 22,
1996, respectively. These loss carryforwards expire on various dates between the
years 2000 and 2001.
For the year ended December 31, 1995 and the period January 1, 1996 through
November 22, 1996, the Company paid income taxes of $220,750 and $38,000,
respectively. No income taxes were paid in 1994.
54
<PAGE> 55
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Domestic:
Current..................................................... $ 1,308 $ (253) $ 518
Deferred.................................................... 1,615 991 247
Benefit of operating loss carryforwards..................... (1,308) (480)
Adjustment in valuation allowance........................... (1,615) (991) (247)
------- ------- -------
Total domestic...................................... None (253) 38
Foreign:
Current..................................................... 1,483
Deferred.................................................... (1,959) 3,024 (2,858)
Benefit of operating loss carryforwards..................... (1,483)
Adjustment in valuation allowance........................... 1,959 (3,024) 2,858
------- ------- -------
Total foreign....................................... None None None
------- ------- -------
Income tax (credit)........................................... None $ (253) $ 38
------- ------- -------
</TABLE>
The domestic and foreign components of income (loss) before income tax
expense are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
U.S........................................................... $ 6,724 $ 4,081 $ 3,619
Foreign....................................................... (1,330) 5,487 (1,409)
------- ------- -------
Income before income taxes.................................... $ 5,394 $ 9,568 $ 2,210
======= ======= =======
</TABLE>
The consolidated income tax benefit (exclusive of the tax effect related to
the cumulative effect of accounting changes) was different than the amount
computed using the U.S. statutory income tax rate for the reasons set forth in
the following table (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Expected tax at U.S. statutory income tax rate................ $ 1,834 $ 3,253 $ 751
Net effect of Canadian losses at rates other than 34%......... (20) 82 (21)
Amortization of debt and accrued interest forgiven by
lender...................................................... (873) (873) (800)
Alternative minimum tax....................................... 143 38
Nondeductible restructuring credit............................ 3,216
Change in valuation allowance................................. 344 (4,015) 2,611
Change in valuation allowance for tax effected components of
shareholders' deficit....................................... (287) (203)
Benefits of net operating loss carryforwards.................. (1,308) (1,483) (480)
Other items................................................... 23 (289) (1,858)
------- ------- -------
Income tax (credit)........................................... None $ (253) $ 38
======= ======= =======
</TABLE>
55
<PAGE> 56
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996
13. COMMITMENTS AND CONTINGENCIES
Self-Insurance Program -- The Company is self-insured for health care
claims for active employees. The Company maintains excess insurance coverage for
claims exceeding $150,000 per individual. The Company accrues for incurred but
not reported claims based on the history of such claims. The Company paid claims
of $1.9 million, $2.6 million and $2.7 million for the years ended December 31,
1994 and 1995 and the period January 1, 1996 through November 22, 1996,
respectively.
Employment Agreements -- On October 1, 1996 ICM/Krebsoge, Inc. entered into
a Supplemental Executive Retirement Program ("SERP") and a two year
Non-Disclosure, Non-Solicitation Non-Competition and Severance Agreement (the
"Employment Agreements") with seven key employees. The Employment Agreements
provide that in the event of termination of employment within the contract term
for reasons other than cause or disability, then the salary and benefits for the
remainder of the contract term shall be paid.
Consulting Agreement -- On January 1, 1994, ICM/Krebsoge, Inc. entered into
a consulting agreement with International Consulting Management, Ltd., a
Delaware corporation. International Consulting Management, Ltd. is owned in part
by a director of the Company. The consulting agreement retained the services of
the director to act as President of ICM/Krebsoge, Inc. through December 31,
1996. In consideration of such services, ICM/Krebsoge, Inc. paid International
Consulting Management, Ltd. a monthly consulting fee of $30,000, plus expenses.
At December 31, 1995, the Company had recorded an accrued liability of
$600,000, related to an anticipated bonus (Notes 5 and 9). During 1996, it was
agreed among the involved parties that such bonus would not be paid and the
liability was reversed.
Claims, Legal Actions and Environmental Matters -- The Company is subject
to potential liability under various claims and legal actions which are pending
or may be asserted against them. Groundwater and soil contamination has been
identified at the St. Thomas, Ontario facility, although there have been no
environmental asserted claims against the Company. The sources of contamination
have not been positively identified and may be related to either past facility
operations or off-site origins. The ultimate liability of the Company under
these claim actions was not determinable at November 22, 1996.
14. SUBSEQUENT EVENT
On December 19, 1996, SMI acquired 70% of the shares of PMH for $65 million
less the principal amount of the indebtedness of PMH plus all accrued but unpaid
interest. As a result of the transaction, PMH became a wholly-owned entity of
SMI.
All obligations to Heller were repaid in connection with this transfer of
interest. This included Term Loan A, $26.9 million; Term Loan B, $12.3 million;
and the Revolving Loan, $10.0 million. In addition, the MAAG subordinated note
including principal and interest of $2.1 million was repaid.
56
<PAGE> 57
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Unaudited
Pro Forma Financial Information") is based on the historical financial
statements of Sinter, PMH and Krebsoge and has been prepared to illustrate the
effects of the Acquisitions, the New Credit Facility and adjustments to the
Krebsoge financial information to conform the presentation to US GAAP.
The unaudited pro forma condensed consolidated statements of operations
for the year ended December 31, 1995 and for the nine months ended September
30, 1996 give effect to each of these transactions as if such transactions had
been completed as of January 1, 1995. The unaudited pro forma condensed
consolidated balance sheet as of September 30, 1996 gives effect to each of
these transactions as if such transactions had been completed on September 30,
1996.
The Krebsoge financial information is prepared in accordance with
German GAAP, and with respect to the year ended December 31, 1995, has been
derived from the audited financial statements included herein and the
information presented for the period ended September 30, 1996 has been derived
from the unaudited financial information included herein. German GAAP differs
from U.S. GAAP in certain significant respects. Had the year ended December 31,
1995 financial information been recorded in accordance with U.S. GAAP, the net
loss would have been $(4,873) compared to $5,418 presented herein.
The Acquisitions will be accounted for using the purchase method
of accounting. The total purchase cost of the Acquisitions will be allocated to
the tangible and intangible assets acquired and liabilities assumed based upon
their respective fair values. The allocation of the aggregated purchase price
reflected in the Unaudited Pro Forma Financial Information is preliminary. The
final allocation of the purchase price will be contingent upon the receipt of
the final appraisals of certain acquired assets and final determination of
assumed liabilities.
57
<PAGE> 58
(b)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
HISTORICAL(1) PRO FORMA
--------------------------------- ----------------------------
SINTER KREBSOGE PMH ADJUSTMENTS CONSOLIDATED
------- -------- -------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales........................... $94,310 $152,622 $106,473 -- $353,405
Cost of sales....................... 73,245 119,386 92,263 $ 850(2) 285,744
------- -------- -------- ------- --------
Gross margin...................... 21,065 33,236 14,210 (850) 67,661
Selling, general and administrative
expense........................... 7,698 21,582 2,417(3) (3,000)(4) 28,697
Amortization of intangible assets... 332 18 -- 2,984(5) 3,334
------- -------- -------- ------- --------
Income from operations............ 13,035 11,636 11,793 (834) 35,630
Interest expense.................... 287 6,118 3,133 8,280(6) 17,818
Other expense/(income).............. 111 (1,032) 115 -- (806)
------- -------- -------- ------- --------
Income before income tax
expense........................ 12,637 6,550 8,545 (9,114) 18,618
Income tax expense/(credit)......... 4,750 1,132 (253) 822(7) 6,451
------- -------- -------- ------- --------
Net income before cumulative effect
of accounting change.............. $ 7,887 $ 5,418 $ 8,798 $(9,936) $ 12,167
======== ======== ======== ======== ========
Weighted average common shares
outstanding....................... 7,500 7,500
Net income per share................ $ 1.05 $ 1.62
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-----------------------------------------------------------------
HISTORICAL(1) PRO FORMA
-------------------------------- ----------------------------
SINTER KREBSOGE PMH ADJUSTMENTS CONSOLIDATED
------- -------- ------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales........................... $83,068 $121,338 $82,604 -- $287,010
Cost of sales....................... 64,205 97,467 74,838 $ (206)(2) 236,304
------- -------- -------- ------- --------
Gross margin...................... 18,863 23,871 7,766 206 50,706
Selling, general and administrative
expense........................... 7,322 16,561 5,326 (2,250)(4) 26,959
Amortization of intangible assets... 300 12 -- 2,238(5) 2,550
------- -------- -------- ------- --------
Income from operations............ 11,241 7,298 2,440 218 21,197
Interest expense.................... 288 3,574 2,162 4,904(6) 10,928
Other expense/(income).............. (60) (576) 264 -- (372)
------- -------- -------- ------- --------
Income before income tax
expense........................ 11,013 4,300 14 (4,686) 10,641
Income tax expense (benefit)........ 4,025 716 31 (1,290)(7) 3,482
------- -------- -------- ------- --------
Net income/(loss)................... $ 6,988 $ 3,584 $ (17) $(3,396) $ 7,159
======= ======== ======== ======= ========
Weighted average common shares
outstanding....................... 7,549 7,549
Net income per share................ $ .93 $ .95
</TABLE>
58
<PAGE> 59
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-----------------------------------------------------------------
HISTORICAL (1) PRO FORMA
-------------------------------- ----------------------------
SINTER KREBSOGE PMH ADJUSTMENTS CONSOLIDATED
------- -------- ------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and equivalents.............. $ 1,752 $ 3,520 $ 373 $ -- $ 5,645
Accounts receivable, net.......... 14,611 24,821 16,457 -- 55,889
Inventories....................... 13,751 19,186 7,062 -- 39,999
Other current assets.............. 775 578 2,169 -- 3,522
------- -------- -------- --------- --------
Total current assets......... 30,889 48,105 26,061 -- 105,055
Property, plant & equipment,
net............................ 35,043 35,412 30,280 33,556(8) 134,291
Intangible assets, net............ 18,325 1,002 -- 119,697(9) 139,024
Other assets...................... 5,856 870 186 5,500(10) 12,412
------- -------- -------- --------- --------
Total assets................. $90,113 $ 85,389 $56,527 $ 158,753 $390,782
======= ======== ======= ========= ========
Liabilities and Stockholder's Equity
Accounts and notes payable........ $10,209 $ 7,908 $59,631 $ (50,201)(11) $ 27,547
Other current liabilities......... 9,315 11,743 7,392 4,500(12) 32,950
------- -------- -------- --------- --------
Total current liabilities.... 19,524 19,651 67,023 (45,701) 60,497
Long-term debt.................... 9,316 42,108 2,600 179,251(11) 233,275
Revolving debt.................... 6,505 -- -- (6,505)(11) --
Related party debt................ -- 35,215 2,084 (37,299)(11) --
Other liabilities................. 810 20,690 13,912 (2,710)(13) 32,702
Deferred income taxes............. 5,379 -- -- 10,350(8) 15,729
------- -------- -------- --------- --------
Total liabilities............ 41,534 117,664 85,619 97,386 342,203
Preferred stock................... -- -- -- -- --
Common stock...................... 7 22,097 -- (22,097)(14) 7
Additional paid-in capital........ 27,925 6,557 49,649 (56,206)(14) 27,925
Other equity...................... 373 (180) 881 (701)(14) 373
Retained earnings................. 20,274 (60,749) (79,622) 140,371(14) 20,274
------- -------- -------- --------- --------
Total liabilities and stockholders'
equity............................ $90,113 $ 85,389 $56,527 $ 158,753 $390,782
======= ======== ======= ========= ========
</TABLE>
59
<PAGE> 60
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(1) Reflects the historical financial statements of the companies. Krebsoge's
balance sheet has been converted to United States dollars using the
September 30, 1996 exchange rate, and the statements of operations were
converted using average exchange rates for the period presented.
(2) Represents the adjustment to cost of sales resulting from:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Increased depreciation as a result of the
step-up in value of property, plant and
equipment.................................. $ 1,225 $ 919
Elimination of operating lease expense as a
result of property acquisition............. (375) (1,125)
------ ------
$ 850 $ (206)
====== ======
</TABLE>
(3) During 1995, PMH recorded $5,200 in income by reversing a restructuring
reserve that had been established in a prior year. This non-recurring
benefit has not been adjusted.
(4) Represents the adjustment to selling, general and administrative expense for
synergies that will be realized on an annual basis by the elimination of
duplicative headquarters facilities and functions ($2,000) and reduced raw
material costs ($1,000).
(5) Represents amortization of the goodwill generated by the Acquisitions,
summarized as follows:
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
Goodwill recognized...................................................... $119,697
========
Amortization for the year ended December 31, 1995........................ $ 2,984
========
Amortization for the nine months ended September 30, 1996................ $ 2,238
========
</TABLE>
Consistent with the historical accounting policies of Sinter, goodwill is
amortized over 40 years.
(6) Represents net adjustment to reflect (i) interest expense on $224,080 of pro
forma borrowings to complete the Acquisitions, (ii) amortization of the New
Credit Facility costs over the eight year life of the facility, and (iii)
elimination of historical interest expense on debt to be retired with the
net proceeds of the New Credit Facility. The interest on the pro forma
borrowings was calculated using the rates in effect on December 20, 1996,
as adjusted for the reduced interest rate based upon a reset leverage
ratio, as defined in the New Credit Facility.
(7) Represents the estimated tax effect of the adjustments, including the
reversal of the utilization of operating loss carryforwards of PMH that will
be limited as a result of the Acquisitions.
(8) Increase in property, plant and equipment, net is attributable to the
application of purchase accounting to the acquired companies resulting in
the step-up of the property to fair value. The step-up was determined based
on recent appraisals of the property and the corresponding increase in
depreciation is reflected in the pro forma condensed consolidated statements
of operations for the year ended December 31, 1995
60
<PAGE> 61
and nine months ended September 30, 1996. Deferred taxes on the step-up have
been recorded based on the anticipated tax rates in effect.
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
Historical net book value................................................ $ 65,692
Fair value at acquisition date........................................... 99,248
--------
Recorded step-up....................................................... $ 33,556
========
Deferred tax liability recorded.......................................... $ 10,350
========
</TABLE>
(9) Represents the premium paid after the application of purchase accounting to
identified tangible and intangible assets.
<TABLE>
<S> <C>
Cash purchase price...................................................... $211,800
Other direct costs of acquisition........................................ 12,141
Historical deficit of acquired entities.................................. 61,366
Repayment of historical indebtedness..................................... (132,054)
Value of property step-up................................................ (33,556)
--------
Recorded goodwill........................................................ $119,697
========
</TABLE>
(10) Represents costs incurred in connection with obtaining the New Credit
Facility to finance the Acquisitions. These costs are being amortized over
eight years in accordance with the term of the New Credit Facility. See
Note (6) above.
(11) Represents the effect of the pro forma borrowings under the New Credit
Facility to finance the Acquisitions and refinance existing debt of
Sinter.
(12) Represents the accrual of estimated severance and shut down costs of the
acquired companies in connection with the Acquisitions.
(13) Represents the recording of the fair value of certain long term liabilities
assumed as a result of the Acquisitions. These adjustments include
approximately $4,000 to reflect the pension liability in accordance with
Statement of Financial Accounting Standards No. 87 -- Employers' Accounting
for Pensions, and approximately $3,000 related to the present value of a
capital lease obligation.
(14) Reflects the elimination of the historical equity of Krebsoge and PMH as a
result of the Acquisitions.
61
<PAGE> 62
(c) Exhibits.
2.1. Powder Metal Stock Purchase Agreement dated
as of October 7, 1996 by and between Sinter
Metals, Inc. and MAAG Holding AG*
2.2. Krebsoge Stock Purchase Agreement dated as of
October 11, 1996 by and between Sinter
Metals, Inc. and MAAG Holding AG*
99.1. Press release dated December 19, 1996, issued
by Sinter Metals, Inc.
*The Stock Purchase Agreements submitted herewith contain a list briefly
identifying the contents of all omitted schedules. Sinter Metals, Inc. will
furnish supplementally a copy of any omitted schedule to the Commission upon
request.
62
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SINTER METALS, INC.
Date: January 3, 1997 By: /s/ Michael T. Kestner
---------------------------
Michael T. Kestner
Vice President, Chief
Financial Officer and
Secretary
63
<PAGE> 64
INDEX TO EXHIBITS
Exhibit Description of Exhibit
- ------- ----------------------
2.1 Powder Metal Stock Purchase Agreement dated as of October 7,
1996 by and between MAAG Holding AG and Sinter Metals, Inc.
2.2 Krebsoge Stock Purchase Agreement dated as of October 11, 1996
by and between MAAG Holding AG and Sinter Metals, Inc.
99.1 Press release dated December 19, 1996 regarding the Company's
acquisition of Krebsoge Sinterholding GmbH and Powder Metal
Holding, Inc.
<PAGE> 1
EXHIBIT 2.1
-----------
POWDER METAL STOCK PURCHASE AGREEMENT
by and between
MAAG HOLDING AG
as Seller
and
SINTER METALS, INC.
as Buyer
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I DEFINITIONS ....................................................... -1-
ARTICLE II PURCHASE AND SALE OF SHARES ...................................... -7-
2.1 Purchase and Sale ........................................... -7-
2.2 Consideration ............................................... -7-
2.3 Final Statement of Working Capital; Purchase
Price Adjustment ........................................... -8-
2.4 Indemnity Escrow Account .................................... -9-
ARTICLE III REPRESENTATIONS AND WARRANTIES
CONCERNING SELLER ...................................................-10-
3.1 Organization and Good Standing ..............................-10-
3.2 Authority of Seller .........................................-10-
3.3 No Conflict or Breach .......................................-11-
3.4 Consents and Approvals ......................................-11-
3.5 Share Ownership .............................................-11-
3.6 Financial Advisors ..........................................-12-
ARTICLE IV REPRESENTATIONS AND WARRANTIES CONCERNING
THE COMPANY AND SUBSIDIARIES ........................................-12-
4.1 Organization and Good Standing ..............................-12-
4.2 Capitalization ..............................................-12-
4.3 Subsidiaries ................................................-13-
4.4 No Conflict or Breach .......................................-13-
4.5 Consents and Approvals ......................................-14-
4.6 Financial Statements ........................................-14-
4.7 Title to Assets .............................................-14-
4.8 Real Property ...............................................-15-
4.9 Contracts ...................................................-16-
4.10 Intellectual Property .......................................-16-
4.11 Litigation ..................................................-17-
4.12 Taxes .......................................................-17-
4.13 Environmental Protection ....................................-17-
4.14 Labor and Employment Matters ................................-18-
4.15 Employee Benefit Plans ......................................-19-
4.16 Absence of Certain Changes ..................................-20-
4.17 Insurance ...................................................-21-
4.18 Capital Projects ............................................-21-
4.19 Condition of Properties and Equipment .......................-21-
4.20 No Undisclosed Liabilities ..................................-21-
4.21 Entirety of Business ........................................-22-
4.22 Compliance with Laws ........................................-22-
4.23 Completeness of Warranties ..................................-22-
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
4.24 Inventory ...................................................-22-
4.25 Receivables .................................................-22-
4.26 Customers and Suppliers .....................................-23-
4.27 Indebtedness ................................................-23-
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER ...........................-23-
5.1 Organization and Good Standing ..............................-23-
5.2 Authority ...................................................-23-
5.3 No Conflict or Breach .......................................-24-
5.4 Consents and Approvals ......................................-24-
5.5 Share Ownership .............................................-24-
5.6 Financial Advisors ..........................................-24-
5.7 Financing ...................................................-25-
5.8 Investment ..................................................-25-
ARTICLE VI COVENANTS OF SELLER ..............................................-25-
6.1 Conduct of Business .........................................-25-
6.2 Access and Information ......................................-27-
6.3 No Solicitation .............................................-28-
6.4 Confidentiality .............................................-28-
6.5 Repayment of Indebtedness ...................................-28-
6.6 Other Actions ...............................................-29-
6.7 Working Capital .............................................-29-
6.8 Director Resignations .......................................-29-
6.9 Intellectual Property .......................................-29-
6.10 Other Assistance ............................................-29-
6.11 Consents ....................................................-29-
6.12 Employment Claims ...........................................-29-
ARTICLE VII COVENANTS OF BUYER ..............................................-29-
7.1 Confidentiality .............................................-29-
7.2 Disclosure to Seller ........................................-30-
ARTICLE VIII MUTUAL COVENANTS ...............................................-30-
8.1 HSR Filings .................................................-30-
8.2 Casualty or Loss ............................................-30-
8.3 Further Actions .............................................-31-
ARTICLE IX CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS ......................-31-
9.1 Representations and Warranties ..............................-32-
9.2 Compliance with Covenants ...................................-32-
9.3 Absence of Litigation .......................................-32-
9.4 HSR Act .....................................................-32-
9.5 Required Consents ...........................................-32-
9.6 No Injunction, etc ..........................................-32-
9.7 Legal Opinion ...............................................-32-
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
9.8 Financing ...................................................-32-
9.9 Krebsoge Transactions .......................................-32-
9.10 Indemnity Escrow Agreement ..................................-33-
9.11 Release or Termination of Liens .............................-33-
9.12 Payment of Indebtedness .....................................-33-
9.13 U.S. Real Property Holding Company ..........................-33-
9.14 Contingent Payment Agreement ................................-33-
ARTICLE X CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS ......................-33-
10.1 Representations and Warranties ..............................-34-
10.2 Compliance with Covenants ...................................-34-
10.3 Absence of Litigation .......................................-34-
10.4 HSR Act .....................................................-34-
10.5 No Injunction, etc ..........................................-34-
10.6 Legal Opinion ...............................................-34-
10.7 Irrevocable Letter of Credit Replacement ....................-34-
ARTICLE XI CLOSING ..........................................................-34-
11.1 Closing .....................................................-34-
11.2 Deliveries by Seller ........................................-35-
11.3 Deliveries by Buyer .........................................-35-
ARTICLE XII INDEMNIFICATION .................................................-36-
12.1 Indemnification by Seller ...................................-36-
12.2 Indemnification by Buyer ....................................-37-
12.3 Notice of Claim .............................................-37-
12.4 Defense .....................................................-37-
12.5 Time for Claims .............................................-38-
12.6 Limitation ..................................................-38-
12.7 Characterization ............................................-39-
12.8 Indemnity Amounts ...........................................-39-
ARTICLE XIII TAX MATTERS ....................................................-39-
13.1 Straddle Periods ............................................-39-
13.2 Carrybacks ..................................................-40-
ARTICLE XIV TERMINATION .....................................................-40-
14.1 Termination .................................................-40-
14.2 Effect on Obligations .......................................-41-
ARTICLE XV EMPLOYEES ........................................................-41-
ARTICLE XVI MISCELLANEOUS ...................................................-41-
16.1 Access After the Closing Date ...............................-41-
16.2 Payment of Expenses .........................................-42-
16.3 Publicity ...................................................-42-
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
16.4 Commercially Reasonable Efforts .............................-42-
16.5 Notices .....................................................-42-
16.6 Governing Law ...............................................-43-
16.7 Counterparts ................................................-44-
16.8 Assignment ..................................................-44-
16.9 Third Party Beneficiaries ...................................-44-
16.10 Headings; References ........................................-44-
16.11 Amendments; Waiver ..........................................-44-
16.12 Knowledge ...................................................-44-
16.13 Severability ................................................-45-
16.14 Entire Agreement ............................................-45-
16.15 Arbitration; Submission to Jurisdiction .....................-45-
16.16 Overall Adjustment/Indemnification Limitation ...............-46-
</TABLE>
-iv-
<PAGE> 6
POWDER METAL AGREEMENT
SCHEDULES AND EXHIBITS
Schedule 2.3 - Methodology and Principles; Minimum Working Capital Amount
Schedule 3.4 - Consent and Approvals of Seller
Schedule 3.5 - Share Ownership of Seller
Schedule 4.5 - Required Consents
Schedule 4.7 - Tangible Personal Property
Schedule 4.8(a) - Owned Real Property
Schedule 4.8(b) - Leased Real Property
Schedule 4.9 - Material Contracts
Schedule 4.10 - Intellectual Property
Schedule 4.11 - Litigation
Schedule 4.12 - Taxes
Schedule 4.13 - Environmental Protection
Schedule 4.14 - Labor and Employment Matters
Schedule 4.15 - Employee Benefit Plans
Schedule 4.16 - Changes in Operations
Schedule 4.18 - Capital Projects
Schedule 4.19 - Properties and Equipment
Schedule 4.20 - Undisclosed Liabilities
Schedule 4.22 - Compliance with Laws
Schedule 4.23 - Materials Provided to the Buyer
Schedule 4.26 - Customers & Suppliers
Schedule 4.27 - Indebtedness
Schedule 5.3 - Conflicts and Breaches
Schedule 5.4 - Consents and Approvals of Buyer
Schedule 5.5 - Share Ownership of Buyer
Schedule 5.7 - Financing
Schedule 6.1 - Conduct of Buyer
Schedule 6.9 - Use of Intellectual Property
Schedule 6.12 - Employment Claims
Schedule 9.11 - Release or Termination of Liens
-v-
<PAGE> 7
POWDER METAL STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (together with all Schedules and Exhibits
hereto, this "Agreement"), dated as of October 7, 1996, is entered into by and
between MAAG HOLDING AG, a Swiss corporation (which, together with its
successors and assigns, is herein referred to as the "Seller"), and SINTER
METALS, INC., a Delaware corporation (which, together with its successors and
assigns, is herein referred to as the "Buyer").
RECITALS:
WHEREAS, the Seller is the owner, beneficially and of record, of 5,100
shares of the Class A common stock, par value $.01 per share (the "Seller's
Class A Common Stock"), and 6,434 shares of the Class B common stock, par value
$.01 per share (the "Seller's Class B Common Stock") of Powder Metal Holding,
Inc., a Delaware corporation (the "Company"), which is the parent corporation of
ICM/Krebsoge, Inc., a Delaware corporation ("ICM/K"), which is in turn the
parent corporation of ICM/Krebsoge Canada, Ltd., an Ontario corporation ("ICM/K
Canada");
WHEREAS, the Seller desires to sell, and the Buyer desires to buy, all of
the shares of the Seller's Class A Common Stock and the Seller's Class B Common
Stock (collectively, the "Shares") on the terms and conditions set forth in this
Agreement;
WHEREAS, simultaneously with the purchase of the Shares hereunder, the
Buyer shall purchase shares in Krebsoge Sinterholding GMBH, a German limited
liability company ("Krebsoge"), pursuant to the Krebsoge Agreement (as defined
herein), which shall be executed and which shall close simultaneously with this
Agreement; and
WHEREAS, in connection with or relative to this Agreement, the Seller and
the Buyer have executed, delivered and performed certain Seller Ancillary
Documents and Buyer Ancillary Documents including, without limitation, the Side
Agreement, dated as of September 26,1996.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"AFFILIATE" - Has the meaning ascribed to such term in Rule 12b-2
promulgated under the Exchange Act by the SEC, as in effect on the date hereof.
"ANNUALIZED EBITDA" - (x) the quotient of (i) Net Income, PLUS (ii) all
amounts deducted in calculating Net Income in respect of (a) income and
franchise taxes,
<PAGE> 8
(b) depreciation and amortization, (c) interest on Indebtedness (including
payments in the nature of interest on capitalized obligations and interest
income as a consequence of the forgiveness of indebtedness by Heller Financial,
Inc. in 1993), (d) any expenses in determining Net Income for such period in
respect of post-retirement benefits in accordance with FASB 106 and in respect
of any foreign currency translation adjustments in accordance with FASB 52, and
(e) miscellaneous expenses which shall not exceed $100,000 in the aggregate,
EXCLUDING, HOWEVER, any non-recurring income or charges of whatever nature, all
non-recurring expenses or reductions in reserves, for the period beginning on
January 1, 1996 and ending on the last day of the month immediately preceding
the month in which the Closing occurs divided by the number of months in such
period multiplied by (y) 12.
"BALANCE SHEET DATE" - July 31,1996.
"BUSINESS DAY" - Any day other than a Saturday, Sunday or a day on which
banks in New York City are authorized or obligated by law or executive order to
close.
"BUYER ANCILLARY DOCUMENT" - Each other document or agreement executed or
to be executed by the Buyer in connection with or relating to this Agreement.
"BUYER'S COUNSEL" - Jones, Day, Reavis & Pogue or such other counsel as is
designated by the Buyer.
"CERCLA" - The Comprehensive Environmental Response, Compensation and
Liability Act, as amended.
"CLOSING" - Defined in Section 11.1.
"CLOSING DATE" - Defined in Section 11.1.
"CLOSING WORKING CAPITAL AMOUNT" - (i) the total Current Assets less (ii)
the total Current Liabilities, each as reflected on the Closing Working Capital
Statement.
"CLOSING WORKING CAPITAL STATEMENT" - The statement of net working capital
of the Company and the Subsidiaries as of the day immediately preceding the
Closing Date.
"CODE" - The Internal Revenue Code of 1986, as amended.
"COMPANY" - Powder Metal Holding, Inc., a Delaware corporation, together
with its successors and assigns.
"CURRENT ASSETS" - The sum of cash, inventory, accounts receivable and
prepaid expenses of the Company and the Subsidiaries.
"CURRENT LIABILITIES" - The sum of accounts payable and accrued liabilities
of the Company and the Subsidiaries, EXCLUDING, HOWEVER, any principal,
interest, fees, penalties
-2-
<PAGE> 9
or other costs associated with any Indebtedness (other than capital lease
obligations) and the current portion of capital lease obligations.
"DOLLAR" OR "$" - U.S. dollars.
"EBITDA SHORTFALL AMOUNT" - (x) the amount, if any, by which Annualized
EBITDA is less than $12 million, multiplied by (y) 5.0.
"EFFECTIVE TIME" - Defined in Section 11.1.
"ENVIRONMENTAL LAWS" - Any and all federal, state, provincial, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment, as now or may at
any time hereafter be in effect.
"ESCROW AGENT" - Defined in Section 2.4.
"EXCHANGE ACT"- The Securities Exchange Act of 1934, as amended from time
to time, and the rules and regulations of the SEC promulgated from time to time
thereunder.
"ERISA" - The Employee Retirement Income Security Act of 1974, as amended.
"FINAL STATEMENT OF WORKING CAPITAL" - The statement of net working capital
of the Company and the Subsidiaries as of the close of business on the day
immediately prior to the Closing Date to be delivered pursuant to Section 2.3.
"FINAL WORKING CAPITAL AMOUNT" - (i) the total Current Assets set forth on
the Closing Statement of Working Capital, less (ii) the total Current
Liabilities set forth on the Closing Statement of Working Capital, determined in
accordance with the methodology and accounting principles set forth on Schedule
2.3.
"FINANCIAL STATEMENTS" - Defined in Section 4.6.
"FINANCING" - Defined in Section 5.7.
"GAAP" - Generally accepted accounting principles as in effect in the
United States from time to time.
"GOVERNMENTAL AUTHORITY" - Any nation or government, any state, province or
other political subdivision thereof, and any entity or person exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
-3-
<PAGE> 10
"HAZARDOUS MATERIALS" - Any hazardous or toxic substances, materials,
pollutants or wastes, defined or regulated as such in or under any Environmental
Law or that could reasonably result in liability under any Environmental Law,
including crude oil petroleum and any fraction thereof.
"HSR ACT" - The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.
"INDEBTEDNESS" - As to any Person, at any time, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of property or
services (whether from public or private sources) (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), (b) any other indebtedness of such Person
which is evidenced by a note, bond, debenture or similar instrument, (c) all
obligations of such Person under capitalized leases, (d) all obligations of such
Person in respect of acceptances issued or created for the account of such
Person, (e) all liabilities secured by any lien or other encumbrance of any kind
(other than any lien or other encumbrance of any kind in respect of operating
leases) on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof and (f) all
guarantees of any Indebtedness or obligations referred to in clauses (a) through
(e) above.
"INDEMNIFIED PARTY" - Defined in Section 12.3.
"INDEMNITY AMOUNTS" - Defined in Section 2.4.
"INDEMNITY ESCROW ACCOUNT" - Defined in Section 2.4.
"INDEMNITY ESCROW AGREEMENT" - Defined in Section 2.4.
"INDEMNITY FUND" - Defined in Section 2.4.
"INDEMNITY FUND DATE" - Defined in Section 2.4.
"INDEMNITY LETTER OF CREDIT" - Defined in Section 2.4.
"INDEMNITY OBLIGOR" - Defined in Section 12.3.
"INTELLECTUAL PROPERTY" - All of the following which is owned by, issued to
or licensed to either the Company or any Subsidiary which is used by them, and
all rights associated therewith (including, without limitation, royalties and
the right to sue for infringements): inventions (whether or not patentable and
whether or not reduced to practice), trade names and corporate names together
with all goodwill associated therewith, and all translations, adaptations,
derivations and combinations of the foregoing; copyrights and copyrightable
works; trade secrets and confidential information (including, without
limitation, formulae, know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals,
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technical data, and customer and supplier lists and related information);
computer software (including, without limitation, data and related
documentation); other proprietary rights; and all copies and tangible
embodiments of the foregoing (in whatever form or medium), in each case
including the items claimed by employees of the Company or the Subsidiaries.
"KREBSOGE AGREEMENT" - Defined in Section 9.9.
"LEASED REAL PROPERTY" - The land, buildings and structures leased by the
Company or any Subsidiary, as lessee, and listed in Schedule 4.8(b), including
any additions thereto or substitutions therefor.
"LOAN AGREEMENTS" - Defined in Section 9.12.
"LOSS" - Defined in Section 12.1.
"MATERIAL ADVERSE EFFECT" - A material adverse effect on or material
adverse change in the business, operations, property, results of operations or
financial condition of the Seller or the Company and the Subsidiaries, taken as
a whole, or the Buyer, as the case may be, or on the ability of the Seller, the
Company and the Subsidiaries or the Buyer, as the case may be, to consummate the
transactions contemplated hereby.
"MATERIAL CONTRACTS" - All contracts, commitments, agreements (including
agreements for the borrowing of money or the extension of credit), leases,
licenses, guarantees, understandings and obligations, whether written or oral,
to which the Company or any Subsidiary are party or by which any of them are
bound except for (a) contracts with automotive manufacturers which may be
canceled by the Company or any Subsidiary without penalty on not more than sixty
days' notice, copies of which have been provided to the Buyer; (b) employment
contracts and miscellaneous service contracts terminable on not more than sixty
days' notice without penalty, copies of which have been provided to the Buyer;
(c) purchase orders with suppliers involving payment by the Company or the
Subsidiaries of amounts less than $50,000 in the aggregate; (d) equipment
maintenance agreements involving payment by the Subsidiaries of amounts less
than $50,000 per year in the aggregate; and (e) other contracts not involving
other aggregate liabilities under all such contracts exceeding $50,000 in any
twelve month period.
"MINIMUM WORKING CAPITAL AMOUNT"- $9,215,000, as determined on Schedule
2.3.
"NET INCOME" - The net income (or loss) of the Company and the Subsidiaries
determined in accordance with GAAP, excluding any income (or loss) arising from
extraordinary items, as defined by GAAP.
"OFFICER'S CERTIFICATE" - Defined in Section 12.8.
"OWNED REAL PROPERTY" - The land, building and structures owned by the
Company or any Subsidiary, including any additions thereto or substitutions
therefor.
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"PERSON" - An individual, partnership, corporation, business trust, joint
stock company, limited liability company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"PLANS" - (a) Employee benefit plans as defined in Section 3(3) of ERISA,
whether or not funded and whether or not terminated; (b) employment agreements;
and (c) personnel policies or fringe benefit plans, policies, programs and
arrangements, whether or not subject to ERISA, whether or not funded, and
whether or not terminated, including, without limitation, stock bonus, deferred
compensation, pension, severance, bonus, vacation, travel, incentive and health,
disability and welfare, in each case of or relating to the Company or any
Subsidiary.
"PURCHASE PRICE" - Defined in Section 2.2.
"REAL PROPERTY LEASES" - Defined in subsection 4.8(b).
"REPRESENTATIVES" - Defined in Section 7.1.
"REQUIRED CONSENTS" - Defined in Section 4.5.
"REQUIREMENTS OF LAW" - As to any Person, the Certificate of Incorporation
and By-laws or other organizational or governing documents of such Person, and
any federal, state, local, municipal, foreign, international, multinational or
other administrative order, constitution, law (statutory or otherwise), treaty,
rule, regulation, ordinance or determination of any arbitrator or court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"SEC" - The Securities and Exchange Commission.
"SELLER" - MAAG Holding AG, a Swiss corporation, together with its
successors and assigns.
"SELLER ANCILLARY DOCUMENT" - Each other document or agreement executed or
to be executed by the Seller, the Company or the Subsidiaries, as the case may
be, in connection with or relating to this Agreement.
"SELLER'S COUNSEL" - Cadwalader, Wickersham & Taft, or such other counsel
as is designated by Seller.
"SHARES" - Seller's Class A Common Stock and Seller's Class B Common Stock,
which constitute all of the issued and outstanding shares of Class A Common
Stock and Class B Common Stock of the Company other than the Buyer's Class A
Common Stock.
"SUBORDINATED NOTE" - Defined in Section 9.12.
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"SUBSIDIARIES" - Defined in Section 4.1.
"SUBSIDIARY SHARES" - Defined in Section 4.3.
"SURVIVAL DATE" - Defined in Section 12.5.
"TAX OR TAXES" - Any and all taxes, fees, levies, duties, tariffs, imposts,
and other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by
any government or taxing authority, including, without limitation: taxes or
other charges on or with respect to income, franchises, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, or gains taxes; license, registration and
documentation fees; and customs duties, tariffs, and similar charges.
"TAX RETURN OR TAX RETURNS" - Any report, return declaration or other
information, or any amendment thereof, required to be filed or supplied in
connection with any Tax.
"THIRD PARTY CLAIM" - Defined in Section 12.3.
"WARN" - Defined in Section 4.14(e).
"WORKING CAPITAL ADJUSTMENT AMOUNT" - The amount, if any, by which the
Minimum Working Capital Amount exceeds the Closing Working Capital Amount.
ARTICLE II PURCHASE AND SALE OF SHARES
2.1 PURCHASE AND SALE. The Seller hereby agrees to sell to the Buyer, and
the Buyer hereby agrees to buy from the Seller, at the Closing, all, and not
less than all, of the Shares, free and clear of all claims, liens, security
interests, charges, community property interests, equitable interests, options,
pledges, rights of first refusal or restrictions or encumbrances of any kind,
including any restrictions on use, transfer, voting, receipt of income or other
attribute of ownership, other than those created by the Buyer.
2.2 CONSIDERATION. The purchase price (the "Purchase Price") to be paid for
the Shares shall be (a) $65,000,000 (the "Aggregate Consideration"), minus (i)
the sum of (x) the principal amount of all Indebtedness of the Company and the
Subsidiaries (whether assumed by Buyer or paid by or on behalf of Seller), (y)
subject to Section 16.16, the EBITDA Shortfall Amount, if any, and (z) subject
to Section 16.16, the Working Capital Adjustment Amount, if any, multiplied by
(b) a fraction, the numerator of which shall be equal to the aggregate number of
Shares sold to the Buyer on the Closing Date and the denominator of which shall
be the aggregate number of all shares of Class A Common Stock and Class B Common
Stock on a fully-diluted basis. The Purchase Price shall be paid to Seller by
wire transfer of immediately available funds at the Closing. The Purchase Price
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shall be subject to adjustment after the Closing as set forth in Section 2.3
subject to Section 16.16.
2.3 FINAL STATEMENT OF WORKING CAPITAL; PURCHASE PRICE ADJUSTMENT. (a)
Within ninety days after the Closing Date, the Buyer shall deliver to the Seller
the Final Statement of Working Capital, prepared as described herein, and
reviewed by Arthur Andersen & Co. The Final Statement of Working Capital shall,
except as otherwise specifically provided in Schedule 2.3, be prepared in
conformity with the accounting principles utilized in determining the Minimum
Working Capital Amount and the Closing Working Capital Amount. The Seller and
its designated independent accounting firm, Deloitte & Touche, shall have the
right to be present to observe the taking of any physical inventory in
conjunction with the preparation of the Final Statement of Working Capital and
may review and examine the procedures, books, records and work papers used in
the preparation of the Final Statement of Working Capital.
(b) Unless the Seller, within sixty days after receipt of the Final
Statement of Working Capital, notifies the Buyer that it objects to the
computation of the Final Working Capital Amount specifying the basis for such
objection and its alternative computation of the Final Working Capital Amount,
the Final Working Capital Amount shall be binding upon the parties. The
computation of the Final Working Capital Amount shall not be disputed as to
accounting principles so long as the principles and procedures used to compute
Final Working Capital Amount are consistent with those described in Schedule
2.3. If the Buyer and the Seller are unable to agree upon the Final Working
Capital Amount within thirty days after any such notification has been given by
the Seller or within a mutually agreed to extended time period, the controversy
shall be referred to Ernst & Young for a final determination thereof which shall
make such determination based on the presentations of the Buyer and the Seller
and only with respect to the differences so submitted. Such determination shall
be binding upon the parties, absent manifest error, but shall not be for an
amount which is outside of the range of the Buyer's and Seller's disagreement.
The parties shall share equally the fees and expenses of Ernst & Young.
(c) (i) If the Closing Working Capital Amount and the Final Working Capital
Amount each exceed $9,215,000, then no adjustment shall be made to the Purchase
Price pursuant to this Section 2.3(c); (ii) if the Closing Working Capital
Amount and the Final Working Capital Amount are each less than $9,215,000, then
(x) if the Closing Working Capital Amount exceeds the Final Working Capital
Amount, then the Seller shall pay to the Buyer an amount equal to such excess,
or (y) if the Final Working Capital Amount exceeds the Closing Working Capital
Amount, then the Buyer shall pay to the Seller an amount equal to such excess;
(iii) if the Closing Working Capital Amount exceeds $9,215,000 and the Final
Working Capital Amount is less than $9,215,000, then the Seller shall pay to the
Buyer the amount by which $9,215,000 exceeds the Final Working Capital Amount;
and (iv) if $9,215,000 exceeds the Closing Working Capital Amount and the Final
Working Capital Amount exceeds $9,215,000, then the Buyer shall pay to the
Seller the amount by which $9,215,000 exceeds the Closing Working Capital
Amount. The Seller's obligation to pay to the Buyer any amounts pursuant to this
Section 2.3(c) shall not be
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subject to the limitations provided in Section 12.6 but shall be subject to the
limitation provided in Section 16.16.
(d) Any Purchase Price adjustment required under Section 2.3(c) shall be
delivered in accordance with the instructions of the appropriate recipient,
together with interest thereon for each day from and including the Closing Date
to, but excluding, the date of payment, at a rate per annum equal to the prime
rate of interest of Citibank, N.A. in effect on the Closing Date calculated over
a 365-day year, (i) within sixty-five (65) days after delivery of the Final
Statement of Working Capital; or (ii) if the Seller shall have objected to the
Final Statement of Working Capital, within five Business Days following final
determination of the disputed items pursuant to Section 2.3(b).
2.4 INDEMNITY ESCROW ACCOUNT. (a) At the Closing, the Buyer shall deposit
$2,000,000 (which may be in the form of an irrevocable, direct pay letter of
credit or similar bank guarantee (the "Indemnity Letter of Credit"), in either
case in form reasonably acceptable to the Buyer from a financial institution
reasonably acceptable to the Buyer issued to the Escrow Agent on behalf of the
Seller) into an escrow account with an escrow agent mutually acceptable to the
Buyer and the Seller (the "Indemnity Escrow Account"). Such amount or instrument
shall be held in and paid out of the Indemnity Escrow Account in accordance with
the terms hereof and the terms of an Indemnity Escrow Agreement to be entered
into among the Buyer, the Seller and the escrow agent (the "Escrow Agent"), in
form and substance mutually agreeable among such parties (the "Indemnity Escrow
Agreement").
(b) Pursuant to the terms hereof and of the Indemnity Escrow Agreement,
funds held in the Indemnity Escrow Account or drawn under the Indemnity Letter
of Credit shall be applied by the Escrow Agent to make cash payments to the
Buyer equal to the Indemnity Amounts. The "Indemnity Amounts" shall be those
amounts deemed to be due to the Buyer as indemnification pursuant to the
provisions of Section 12.1 hereof and, at the option of the Buyer, amounts in
respect of Employment Claims pursuant to Section 6.12. The Escrow Agent shall
promptly pay the Indemnity Amounts out of the Indemnity Escrow Account to the
Buyer in accordance with Section 12.1 hereof and the Indemnity Escrow Agreement.
The aggregate Indemnity Amounts payable pursuant to Section 12.1 hereof may
exceed the amount of cash deposited by the Buyer on behalf of the Seller in the
Indemnity Escrow Account or the face amount of the Indemnity Letter of Credit
deposited therein, as the case may be.
(c) If the Seller deposited cash in the Indemnity Escrow Account at the
Closing, the Escrow Agent shall pay promptly to the Seller in immediately
available funds (i) on the sixth-month anniversary of the Closing Date, one-half
of the aggregate amount remaining in the Indemnity Escrow Account on such date
and not subject to any claim for Indemnity Amounts, and (ii) on the Survival
Date, the aggregate amount remaining in the Indemnity Escrow Account on such
date and not subject to any claim for Indemnity Amounts. If the Seller deposited
the Indemnity Letter of Credit in the Indemnity Escrow Account at the Closing,
the face amount of the Indemnity Letter of Credit shall be reduced in a
corresponding manner pursuant to the terms of the Indemnity Escrow Agreement.
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(d) In the event claims to Indemnity Amounts shall have been made on or
prior to the Survival Date pursuant to Section 12.1, and such claims shall not
be resolved or paid as of such date, an amount (the "Indemnity Fund") equal to
such unresolved or unpaid claims (or an Indemnity Letter of Credit with a face
value equal to such amount) shall be held by the Escrow Agent in escrow, and
funds therefrom not distributed, until following the date of resolution or
payment to the Buyer of such claims, together with interest thereon (the
"Indemnity Fund Date"). Promptly after the Indemnity Fund Date, the Escrow Agent
shall pay promptly to the Seller in immediately available funds the aggregate
amount remaining in the Indemnity Fund or return the Indemnity Letter of Credit.
(e) The Escrow Agent shall retain in the Indemnity Escrow Account all
income earned, if any, by the Indemnity Escrow Account pursuant to the Indemnity
Escrow Agreement.
(f) The Escrow Agent shall pay out of the Indemnity Escrow Account all fees
and expenses associated with the Indemnity Escrow Account, as provided in the
Indemnity Escrow Agreement, including, without limitation, its own reasonable
fees and expenses.
ARTICLE III REPRESENTATIONS AND WARRANTIES
CONCERNING SELLER
The Seller represents and warrants to the Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING. The Seller is a stock corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has all requisite power and authority to own,
operate and lease its properties and assets and to conduct its business as
presently conducted. The Seller is duly licensed or qualified as a foreign
corporation for the transaction of business and is in good standing under the
laws of each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, or is subject to no
Material Adverse Effect by reason of the failure to be so licensed or qualified
in any such jurisdiction. True, complete and correct copies of the Seller's
constituent documents, as amended to date, have been furnished to the Buyer. No
bankruptcy or conciliation proceedings have been initiated in respect to the
Seller.
3.2 AUTHORITY OF SELLER. The Seller has all requisite power and authority
to execute and deliver this Agreement and any Seller Ancillary Document, and to
perform the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and any Seller Ancillary Document
have been duly and validly authorized by all necessary corporate and shareholder
action on the part of the Seller and no further such action is required on the
part of the Seller or its shareholders. This Agreement has been, and each of the
Seller Ancillary Documents will be, on or prior to the Closing Date, duly
executed and delivered by the Seller and each constitutes or will constitute a
valid and binding obligation of the Seller, enforceable in accordance with its
respective terms, except
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that enforceability hereof or thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
3.3 NO CONFLICT OR BREACH. The execution, delivery and performance of
this Agreement and each of the Seller Ancillary Documents do not and will not:
(a) conflict with or constitute a violation of the Articles of
Association of the Seller;
(b) assuming compliance with the requirements of the HSR Act, conflict
with or constitute a violation of any law, statute, judgment, order, decree
or regulation of any legislative body, court, administrative agency,
Governmental Authority or arbitrator applicable to or relating to the
Seller or its properties or assets; or
(c) conflict with, violate or result in a breach of, or constitute a
default (or an event which, with notice or lapse of time or both would
constitute a default) under, or result in the termination of or accelerate
the performance required by, or result in a right of termination or
acceleration under, any mortgage, note, indenture, deed of trust, lease,
loan agreement or other agreement or instrument applicable to the Seller or
its properties or assets, except for conflicts, violations, breaches or
defaults which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
3.4 CONSENTS AND APPROVALS. Except as set forth on Schedule 3.4, no
(a) consent, approval, authorization, registration or filing with any federal,
state or local judicial or Governmental Authority or administrative agency,
other than as required under the HSR Act or (b) consent, approval, authorization
of or notice to any other third party, is required in connection with the valid
execution, delivery and performance by the Seller of this Agreement or any of
the Seller Ancillary Documents or the consummation by the Seller of the
transactions contemplated herein or therein.
3.5 SHARE OWNERSHIP. The Seller is the owner, beneficially and of
record, of the Shares. At the Closing, the Seller will deliver or cause to be
delivered to the Buyer full right, title and interest in and to the Shares, free
and clear of all claims, liens, security interests, charges, community property
interests, equitable interests, options, pledges, rights of first refusal or
encumbrances of any kind, including any restrictions on use, transfer, voting,
receipt of income or other attribute of ownership. Except as set forth on
Schedule 3.5, the Seller is not a party to any option, warrant, right, contract,
call, put, right to subscribe, conversion right or other agreement, commitment
or right of any kind providing for the issuance, disposition, acquisition or
voting of any of the capital stock of the Company, including the Shares (other
than as set forth in this Agreement) or gives rise to any right in connection
with the issuance, disposition, acquisition or voting of any of the Shares or
other equity or similar interest in the Company.
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3.6 FINANCIAL ADVISORS. Except for Europeans Investors Corporate
Finance, Inc. and Botts & Company Limited, for whose fees the Seller shall be
solely responsible, the Seller has not retained any finder, broker, agent or
other intermediary to act for it or on its behalf in connection with the
negotiation or consummation of this Agreement, and no party has made any claim
for any brokerage commission, finder's fee or similar payment due from the
Seller. None of the Company or any Subsidiary nor any of their respective
officers, directors, employees or agents has employed any broker, finder or
investment banker or incurred any liability for any brokerage fees, commissions,
finders' fees or investment banking fees in connection with the transactions
contemplated hereby.
ARTICLE IV REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY AND SUBSIDIARIES
The Seller represents and warrants to the Buyer as follows:
4.1 ORGANIZATION AND GOOD STANDING. The Company and ICM/Krebsoge are
each corporations duly organized, validly existing and in good standing under
the laws of the State of Delaware and ICM/K Canada is a corporation duly
organized, validly existing and in good standing under the laws of the province
of Ontario. ICM/Krebsoge and ICM/K Canada are sometimes referred to herein
collectively as "Subsidiaries" and individually as a "Subsidiary." The Company
and each Subsidiary is duly qualified to do business as a foreign corporation
and is in good standing in respect of each jurisdiction where the failure to do
so would have a Material Adverse Effect. The Company and each Subsidiary have
all requisite corporate power and authority and governmental authorizations to
own, operate and lease its properties and assets and to carry on its respective
business as presently conducted. The Company and each Subsidiary have all
corporate power and authority to consummate the transactions contemplated by
this Agreement and any Seller Ancillary Document. Complete and correct copies of
the Company and each of the Subsidiaries' constituent documents and governing
instruments, each as amended to date, have been furnished to the Buyer.
4.2 CAPITALIZATION. The authorized capital stock of the Company
consists of: (i) 200,000 shares of Class A Common Stock, par value $.01 per
share, (ii) 100,000 shares of Class B Common Stock, par value $.01 per share,
and (iii) 50,000 shares of 8% Cumulative Preferred Stock, par value $.01 per
share. There are 10,000 shares of Class A Common Stock and 6,434 shares of Class
B Common Stock currently issued and outstanding and all of such shares have been
validly issued and are fully paid and nonassessable. Except as set forth on
Schedule 3.5, there are no outstanding or authorized options, warrants, rights,
contracts, calls, puts, rights to subscribe, conversion rights or other
agreements, commitments or rights of any kind to which the Company or the Seller
is a party or which are binding upon the Company providing for the issuance,
disposition, acquisition or voting of any of its stated capital or other equity
or similar interest of the Company (other than this Agreement), or giving rise
to any rights in connection with the issuance, disposition, acquisition or
voting of any of the Shares. Except as set forth on Schedule 3.5, there are no
voting trusts, proxies or any other agreements or understandings with respect to
the
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voting of any capital stock of the Company or any Subsidiary. Except as set
forth on Schedule 3.5, neither the Company nor any subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any of its stated capital.
4.3 SUBSIDIARIES. (a) The Subsidiaries are the only entities in which
the Company owns, directly or indirectly, any capital stock or other equity
interest. The authorized capital stock of ICM/K consists of 2,000 shares of
common stock, par value $1.00 per share, and all 2,000 of such shares are issued
and outstanding. The authorized capital stock of ICM/K Canada consists of an
unlimited number of common shares without par value and 100 of such shares are
issued and outstanding. (The issued and outstanding shares of ICM/K and ICM/K
Canada are referred to herein, collectively, as the "Subsidiary Shares").
(b) The Company is the owner, beneficially and of record, of all of
the Subsidiary Shares, free and clear of all liens, security interests, charges,
community property interests, equitable interests, options, pledges, rights of
first refusal or restrictions or encumbrances of any kind, including any
restrictions on use, transfer, voting, receipt of income or other attribute of
ownership (other than liens that will be released at Closing and liens related
to Indebtedness assumed by the Buyer). All of the Subsidiary Shares have been
validly issued and are fully paid and nonassessable. There are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights or other agreements, commitments or rights of any
kind to which any Subsidiary, the Seller or the Company is a party or which are
binding upon any Subsidiary providing for the issuance, disposition or
acquisition or voting of any of its capital stock, or giving rise to any right
in connection with the issuance, disposition, acquisition or voting of any of
the Subsidiary Shares. There are no voting trusts, proxies or any other
agreements or understandings with respect to the voting of the capital stock of
any Subsidiary. No Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any of its capital
stock.
4.4 NO CONFLICT OR BREACH. Except as set forth on Schedule 4.4, the
execution, delivery and performance of this Agreement or the Seller Ancillary
Documents by the Seller or the performance of this Agreement or any Seller
Ancillary Document by the Company or any Subsidiary does not and will not:
(a) conflict with or constitute a violation of the Certificate of
Incorporation or By-laws or other constituent document or governing
instrument of the Company or any Subsidiary;
(b) assuming compliance with the requirements of the HSR Act, conflict
with or constitute a violation of any Requirement of Law applicable to or
relating to the Company or any Subsidiary in any manner that would have a
Material Adverse Effect; or
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(c) conflict with, constitute a default under, result in a breach or
acceleration of or, give to others any interest or rights under or require
notice to or the consent of any third party under any contract, agreement,
commitment, mortgage, note, license or other instrument or obligation
applicable to the Company or any Subsidiary or their respective properties
or assets, or any subsidy or incentive provided to the Company or any
Subsidiary by any federal, state, provincial or local judicial or
Governmental Authority or administrative agency.
4.5 CONSENTS AND APPROVALS. Schedule 4.5 describes each of the
following which is required on the part of the Company or the Subsidiaries in
connection with the execution and delivery by the Seller of this Agreement or
any Seller Ancillary Document or the consummation by it or the Company or any
Subsidiary of the transactions contemplated herein or therein: (a) each consent,
approval, authorization, registration, permit, notice or filing with any
federal, state or local judicial or Governmental Authority or administrative
agency, other than as required under the HSR Act and (b) each consent,
approval, authorization of or notice to any other third party, except with
respect to clause (a) or (b) above, such consents, approvals, authorizations and
notices the failure of which to obtain or give would not have a Material Adverse
Effect. The consents described on Schedule 4.5 together with the consents
described on Schedule 3.4 shall be referred to herein, collectively, as the
"Required Consents."
4.6 FINANCIAL STATEMENTS. The Buyer has received copies of (a) the
audited consolidated financial statements of the Company and its Subsidiaries
for the fiscal years ended December 31, 1994 and December 31,1995 and (b)
unaudited interim consolidated financial statements of the Company and its
Subsidiaries for the period ended on the Balance Sheet Date. The financial
statements referred to in the previous sentence are sometimes referred to as the
"Financial Statements." The Financial Statements have been prepared in
accordance with GAAP consistently applied, from books and records which are
maintained in accordance with the controls and procedures of the Company and its
Subsidiaries with the exceptions that such interim statements do not contain the
disclosures required by GAAP in notes accompanying financial statements, and are
subject to normal year-end adjustments (the effect of which will not
individually or in the aggregate, be materially adverse). Except as noted
therein, the Financial Statements fairly present the financial condition and
results of operation of the Company and its Subsidiaries, taken as a whole, as
of the dates and for the periods indicated.
4.7 TITLE TO ASSETS. The Company and each Subsidiary has good and
marketable title to all of its Owned Real Property. Set forth on Schedule 4.8(a)
is a list of all Owned Real Property having a value in excess of $50,000. The
Company has good title to all tangible personal property owned by the Company
and each Subsidiary and used in or necessary to the operation of the business of
the Company and each Subsidiary (collectively, the "Tangible Personal
Property"). Set forth on Schedule 4.7 is a list of all Tangible Personal
Property owned by the Company or a Subsidiary having a value in excess of
$50,000. All such Owned Real Property and Tangible Personal Property are owned
by the Company free and clear of any liens, charges, equitable interests,
options, rights of first
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refusal, encumbrances, claims, security interests, mortgages or pledges of any
nature, other than:
(a) liens arising as a consequence of any Indebtedness which liens are
identified on Schedule 4.7;
(b) easements that could not be reasonably expected to materially
adversely affect the full use and enjoyment of the Owned Real Property or
the purposes for which it is currently used and/or materially detract from
its value;
(c) imperfections of title and encumbrances, if any, which, in the
aggregate, are not material to the Company or any Subsidiary, do not
materially detract from the marketability or value of the properties
subject thereto, and could not be reasonably expected to materially impair
the operations of the owner thereof; and
(d) liens for taxes not yet due and payable.
4.8 REAL PROPERTY.
(a) OWNED. Schedule 4.8(a) contains a description of all Owned Real
Property having a value in excess of $50,000. True, correct and complete
copies of (i) deeds, insurance policies and surveys related to the Owned
Real Property and (ii) all documents evidencing any liens, charges,
equitable interests, options, rights of first refusal, encumbrances,
claims, security interests, mortgages or pledges of any nature upon the
Owned Real Property shall have been delivered to the Buyer prior to the
Closing. None of the liens, charges, equitable interests, options, rights
of first refusal, encumbrances, claims, security interests, mortgages or
pledges of any nature upon the Owned Real Property secure obligations other
than those of the Company or a Subsidiary. There are no liens, charges,
equitable interests, options, rights of first refusal, encumbrances,
claims, security interests, mortgages or pledges of any nature upon the
Owned Real Property which are not registered in the applicable land
register. None of the Seller or the Company or any Subsidiary has received
any notice of any appropriation, condemnation or like proceeding, or of any
violation of any applicable zoning law, regulation or other law, order,
regulation or requirement relating to or affecting any Owned Real Property.
To the best knowledge of the Seller, there are no material physical,
structural or mechanical defects in any improvements on any of the Owned
Real Property.
(b) LEASED. Schedule 4.8(b) contains a description of all Real
Property Leases to which the Company or any Subsidiary is a party (the
"Real Property Leases"). Each of the Real Property Leases is valid, binding
and enforceable in accordance with its terms (except that enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith and
fair dealing) and is in full force and effect and there have been no
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breaches or defaults thereunder. None of the Seller or the Company or any
Subsidiary have received any notice of any appropriation, condemnation or
like proceeding, or of any violation of any applicable zoning law,
regulation or other law, order, regulation or requirement relating to or
affecting any Leased Real Property. To the best knowledge of the Seller,
there are no material physical, structural or mechanical defects in any
material improvements on any of Leased Real Property. Except as disclosed
on Schedule 4.8(b), none of the sale of the Shares the execution, delivery
or performance of this Agreement or any Seller Ancillary Document or the
consummation of the transactions contemplated herein or therein will, with
respect to any such Real Property Lease, (i) permit the landlord to
accelerate the rent or cause any material lease terms to be renegotiated,
(ii) constitute a material default thereunder, or (iii) require notice on
the consent of the landlord or any third party, except for the Required
Consents.
4.9 CONTRACTS. Schedule 4.9 lists all Material Contracts. Each of the
Material Contracts is valid, binding and enforceable against the Company or the
Subsidiary party thereto in accordance with its terms (except that
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing) and is in full force and effect and there have been no breaches or
defaults thereunder. Except as disclosed on Schedule 4.9, none of the sale of
the Shares, the execution, delivery or performance of this Agreement or any
Seller Ancillary Document or the consummation of the transactions contemplated
herein or therein will, with respect to any Material Contract, (i) constitute a
default thereunder, (ii) require notice to or the consent of any person or
party, except for the Required Consents, or (iii) affect the continuation,
validity and effectiveness thereof or the terms thereof, except for such
defaults, consents and effects as do not and will not in the aggregate have a
Material Adverse Effect.
4.10 INTELLECTUAL PROPERTY. The Intellectual Property comprises all of
the intellectual property rights necessary for the operation of the business of
the Company and each Subsidiary as currently conducted or as currently proposed
to be conducted. Schedule 4.10 sets forth a complete and correct list of all:
(i) patented or registered Intellectual Property or for which applications or
other applications for such registrations are pending; and (ii) all licenses or
similar agreements or arrangements for the Intellectual Property to which the
Company or any Subsidiary is a party, either as licensee or licensor (including
any intracompany licensing arrangements). Except as set forth in Schedule 4.10:
(i) either the Company or a Subsidiary owns and possesses all right, title and
interest in and to, or has a valid and enforceable license to use, the
Intellectual Property necessary for the operation of its business as currently
conducted or as currently proposed to be conducted free and clear of all liens,
licenses, security interests, encumbrances and other restrictions; (ii) no claim
by any third party contesting the validity, enforceability, use or ownership of
any of the Intellectual Property has been made, is currently outstanding or to
the best knowledge of Seller, is threatened; (iii) neither the Company nor any
Subsidiary has received any notices of any infringement or misappropriation by,
or conflict with, any third party with respect to the Intellectual Property
(including, without limitation, any demand or request
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that the Company or any Subsidiary license any rights from a third party); and
(iv) to the best knowledge of the Seller, neither the Company nor any Subsidiary
has infringed, misappropriated or otherwise conflicted with any intellectual
property rights or other rights of any third parties.
4.11 LITIGATION. Except as set forth in Schedule 4.11, there are no
claims, actions, suits, inquiries, hearings or investigations pending or, to the
best knowledge of Seller, threatened or contemplated against the Company or any
Subsidiary, or which seek to restrain or enjoin the consummation of the
transactions contemplated by this Agreement or any of the Seller Ancillary
Documents.
4.12 TAXES.
(a) The Company and each Subsidiary has paid and discharged, or has
reserved on the Financial Statements or its books and records, all Taxes
required to be paid and currently due as of the Closing Date in respect of
the business and operations of the Company and the Subsidiaries, and the
Company and each Subsidiary has filed all Tax Returns required in
connection therewith to be filed. Neither the Company nor any Subsidiary
has executed or filed with the Internal Revenue Service or any other taxing
authority, domestic or foreign, any extension or agreement extending the
period for the assessment or collection of any Taxes, except for permitted
statutory extensions. Neither the Company nor any Subsidiary is a party to
any pending action or proceeding and neither the Company nor any Subsidiary
has received written notice of any audit or review of any Tax Return or
report of the Company or any Subsidiary which would result in the
imposition of any Tax upon the Company or any Subsidiary. No election under
Section 341(f) of the Code is in effect with respect to any of the assets
of the Company or any Subsidiary. The Seller is a "foreign person" within
the meaning of Section 1445 of the Code.
(b) Schedule 4.12 sets forth the taxable years of Company and each
Subsidiary as to which the respective statutes of limitations with respect
to Taxes have not expired.
4.13 ENVIRONMENTAL PROTECTION.
(a) Except as set forth on Schedule 4.13, neither of the Company nor
any Subsidiary has received any notice of violation, alleged violation,
noncompliance, liability or potential liability regarding environmental
matters or compliance with Environmental Laws. To the Seller's knowledge,
neither the Company nor any Subsidiary is subject to any ongoing
investigation relating to or arising out of any environmental matter.
(b) Except as set forth on Schedule 4.13, to the knowledge of the
Seller, neither the Company nor any Subsidiary has transported or arranged
for the transport of any Hazardous Materials (i) to any site or location
listed or proposed to be listed on the National Priorities List as of
September 1, 1996 or any other
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similar state list; or (ii) to a location which could reasonably be
expected to give rise to liability under Environmental Laws.
(c) Except as set forth on Schedule 4.13, there is no condition
relative to the Company or any Subsidiary or their respective operations or
owned or used properties, including, but not limited to, any contractual
relationships, that could reasonably be expected to result in any material
violation of, or liability under, applicable Environmental Laws or
Environmental Permits (as defined below) or, to the knowledge of the
Seller, could interfere with continued material compliance with applicable
Environmental Laws in the future.
(d) Each of the Company and the Subsidiaries has obtained, or has
filed, all required applications for, all permits, licenses, registrations,
consents and other authorizations required under any Environmental Law
through the date hereof with respect to the operation of the Company and
the Subsidiaries ("Environmental Permits"), except where the failure to
have such permits or to file such applications does not have a Material
Adverse Effect, and all such Environmental Permits are, and have
continuously been, in full force and effect.
(e) Except as set forth on Schedule 4.13, to the knowledge of the
Seller, no above or below ground storage tanks have ever been used for the
storage of Hazardous Materials on or at (i) the Owned Real Property; (ii)
the Leased Real Property; or (iii) any previously owned or leased real
property of the Company or any Subsidiary or former Subsidiary.
(f) Except as set forth on Schedule 4.13, to the knowledge of the
Seller, there has never been a release (as defined in CERCLA) of Hazardous
Materials at, on, under, or from any of the Owned Real Property or Leased
Real Property, or any previously owned or leased real property of the
Company or any Subsidiary.
4.14 LABOR AND EMPLOYMENT MATTERS. With respect to employment matters:
(a) After the execution of this Agreement, the amendment or
termination by the Company or any Subsidiary of any existing employment
agreement with any of their respective officers, directors or employees
will require the express written approval of the Buyer except in the
ordinary course of business consistent with past practice.
(b) Except as disclosed on Schedule 4.14, no employees of the Company
or any Subsidiary are currently represented by a union or other labor
organization or covered by any collective bargaining agreement.
(c) There is no labor strike, dispute, slowdown, stoppage or similar
labor difficulty pending or, to the best of the Seller's knowledge,
threatened against or affecting the Company or any Subsidiary.
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(d) There is no unfair labor practice charge or other complaint
pending or, to the best knowledge of the Seller, threatened against or
otherwise affecting the Company or any Subsidiary.
(e) The Company and Subsidiaries are in compliance with their
obligations pursuant to Worker Adjustment and Retraining Notification Act
of 1988, as amended ("WARN") and all other notification and bargaining
obligations arising under any collective bargaining agreement, statute or
otherwise, respecting their employees.
4.15 EMPLOYEE BENEFIT PLANS. Schedule 4.15 contains a description of
all Plans contributed to, maintained or sponsored by the Company or any
Subsidiary to which any of them are obligated to contribute, or with respect to
which any of them has any liability or potential liability.
(a) Except as disclosed in Schedule 4.15, neither the Company nor any
Subsidiaries contributes to, has any obligation to contribute to or
otherwise has any liability or potential liability with respect to (i) any
Multiemployer Plan (as such term is defined in Section 3(37) of ERISA),
(ii) any Plan of the type described in Sections 4063 and 4064 of ERISA or
in Section 413(c) of the Code, or (and regulations promulgated thereunder),
(iii) any plan which provides health, life insurance, accident or other
"welfare-type" benefits to current or future retirees or current or former
employees, their spouses or dependents, other than in accordance with
Section 4980B of the Code or applicable state continuation coverage law. No
"accumulated funding deficiency" (as such term is used in Section 412 or
4971 of the Code) has occurred with respect to any Plan. No termination has
occurred that remains unsatisfied with respect to any Plan which is not a
Multiemployer Plan but is subject to Title IV of ERISA. With respect to any
Multiemployer Plan to which the Company or any Subsidiary contributes or is
obligated to contribute, neither the Company nor any Subsidiary has had a
complete or partial withdrawal from any such Multiemployer Plan, and
neither the Company nor any Subsidiary would become subject to any
liability under ERISA which would have a Material Adverse Effect if the
Company or any Subsidiary were to withdraw completely from all
Multiemployer Plans as of the valuation date most closely preceding the
date hereof.
(b) Each Plan has been maintained, operated, and administered in
compliance with its terms and any related documents or agreements and in
compliance with all applicable laws, including the Code and ERISA. Each
Plan intended to qualify under Section 401(a) of the Code is so qualified
and each trust maintained in connection with each such plan is tax exempt
under Section 501(a) of the Code, and the Internal Revenue Service has
issued favorable determination letters with respect to each such Plan and
related trust and has not taken any action to revoke such letter.
(c) The Seller has previously delivered to the Buyer true, complete
and correct copies of each of the Plans, including all amendments thereto,
and any other
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documents, forms or other instruments relating thereto reasonably requested
by Buyer's counsel.
(d) Except for routine claims for benefits, there is no pending or
threatened assessment, complaint, proceeding, audit or investigation of any
kind in any court or government agency with respect to any Plan, nor is
there any basis for one.
(e) With respect to any insurance policy providing funding for
benefits under any Plan, (i) there is no liability of the Company or any
Subsidiary in the nature of a retroactive or retrospective rate adjustment,
loss sharing arrangement, or other actual or contingent liability, nor
would there be any such liability if such insurance policy were terminated
on the date hereof, and (ii) no insurance company issuing such policy is in
receivership, conservatorship, liquidation, or similar proceeding and, to
the best of the Seller's knowledge, no such proceedings with respect to any
insurer are imminent.
(f) The Company and the Subsidiaries have reserved all rights
necessary to amend or terminate each of the Plans without the consent of
any other Person, except (i) to the extent such rights are limited by any
applicable collective bargaining agreement or law, and (ii) with respect to
claims under any such Plan that are accrued but unpaid as of the date of
such amendment or termination. Neither the Company nor any Subsidiary has
agreed or committed to make any amendments to any of the Plans.
(g) Except as disclosed in Schedule 4.15, neither the Company nor any
Subsidiary maintains any plans or programs or is a party to any agreement
that could result in the payment of severance pay or similar compensation
prior to the Closing, at the time of the Closing or during the one-year
period commencing on the Closing Date. Except as contemplated by Section
6.12, aggregate payments under any such plan, program, or arrangement
during the one-year period commencing on the Closing Date shall not exceed
$100,000 in the aggregate.
4.16 ABSENCE OF CERTAIN CHANGES. Except as described in Schedule 4.16,
since the Balance Sheet Date, the operations of the Company and the Subsidiaries
have been conducted only in the ordinary course and in a manner consistent with
past practice, and the Company and the Subsidiaries have not:
(a) suffered any uninsured damage, destruction, theft or loss to any
asset of the Company or any Subsidiary of a value in excess of $50,000 in
the aggregate;
(b) sold, transferred, distributed or otherwise disposed of any assets
used in the operation of business of the Company or any Subsidiary, or
returned to any customers or otherwise disposed of, any tooling owned by
such customer and in the possession of the Company or any Subsidiary,
except for (i) assets consumed or disposed of in the ordinary course of
business; (ii) assets disposed of in connection
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with the acquisition of replacement property of equivalent kind and value;
or (iii) assets that were returned in the ordinary course of business or
that are no longer used or useful in the business or operations of the
Company or the Subsidiaries;
(c) made, authorized, entered into, or permitted to go into effect any
general wage or salary increase for its employees, other than in the
ordinary course of business consistent with past practice;
(d) amended or terminated, or authorized the amendment or termination
of, any Material Contract or Real Property Lease, other than in the
ordinary course of business consistent with past practice;
(e) incurred any material obligation or liability except normal trade
or business obligations incurred in the ordinary course of business
consistent with past practice and except for expenses relating to
transactions contemplated hereby not to exceed $200,000;
(f) experienced or learned of any change or event which could
reasonably be expected to have a Material Adverse Effect; or
(g) agreed or committed, whether in writing or otherwise, to take any
described in this Section.
4.17 INSURANCE. The insurable properties owned or leased by the
Company or any Subsidiary are, and until the Closing Date will be, adequately
insured by financially sound and reputable insurers at levels of coverage
reasonable and customary in the powder metal industry. All such policies are in
full force and effect and will continue to be in full force and effect upon the
consummation of the transactions contemplated herein and by the Seller Ancillary
Documents. Buyer has been provided with true, correct and complete copies of all
insurance policies relating to or affecting the Owned Real Property, Real
Property Leases or any Material Contract.
4.18 CAPITAL PROJECTS. Schedule 4.18 sets forth each unfinished
capital project with a total cost in excess of $50,000 relating to the business
of each of the Company and the Subsidiaries, the Company's reasonable estimate
of the capital expenditures that will be required subsequent to the Closing Date
to complete such projects and the expected date of completion of such projects.
4.19 CONDITION OF PROPERTIES AND EQUIPMENT. Except for equipment not
currently used in the operation of the business of the Company or Subsidiaries
and except for equipment set forth in Schedule 4.19, the assets and equipment of
each of the Company and the Subsidiaries required for the normal operation of
their respective businesses are in good condition, normal wear and tear
excepted.
4.20 NO UNDISCLOSED LIABILITIES. Each of the Company and the
Subsidiaries has no liabilities or obligations of any nature (absolute, accrued,
contingent or otherwise)
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that are not fully reflected or reserved against in the Financial Statements,
except for liabilities that may have arisen in the ordinary and usual course of
business and consistent with past practice or which are disclosed on Schedule
4.20.
4.21 ENTIRETY OF BUSINESS. The Company and Subsidiaries and the Owned
Real Property, Tangible Personal Property, Leased Real Property and Intellectual
Property constitute all of the companies, businesses, rights, assets and
arrangements necessary to conduct the business of each of the Company and
Subsidiaries as presently conducted, and there are no other companies,
businesses, assets, rights or arrangements necessary to conduct the business of
the Company and the Subsidiaries as presently conducted.
4.22 COMPLIANCE WITH LAWS. Except as set forth in Schedule 4.22, each
of the Company and the Subsidiaries (a) is in material compliance with all laws,
regulations, reporting and licensing requirements and orders applicable to its
business or employees conducting its business, the breach or violation of which
could reasonably be expected to have a Material Adverse Effect; and (b) has
received no notification or communication from any Governmental Authority (i)
asserting that the Company or any Subsidiary is not in compliance with any of
the statutes, treaties, regulations or ordinances that such Governmental
Authority enforces, which noncompliance could reasonably be expected to have a
Material Adverse Effect or (ii) threatening to revoke any license, franchise,
permit or authorization of any Governmental Authority which would have a
Material Adverse Effect.
4.23 COMPLETENESS OF WARRANTIES. To the Seller's best knowledge, the
representations made by the Seller on behalf of itself or the Company or the
Subsidiaries in this Agreement (including the Schedules and Exhibits hereto) and
other materials provided to the Buyer by the Seller or the Company as set forth
on Schedule 4.23 do not contain any untrue statement of a material fact or omit
any material fact necessary to make the statements herein or therein, in light
of the circumstances under which they were made, not misleading.
4.24 INVENTORY. All of the finished goods inventory of the Company and
the Subsidiaries will at the Closing consist of goods useable or saleable in the
ordinary course of the business of the Company and the Subsidiaries except for
such amount of inventory that can be reasonably expected to be written off in
the ordinary course of their business determined by reference to past practice.
The Company and the Subsidiaries currently have and on the Closing Date will
have, inventory and work-in-progress in an amount which is not in excess of the
amount that can reasonably be expected to be sold in the ordinary course of
their business determined by reference to past practice except for such amount
of inventory that can be reasonably expected to be written off in the ordinary
course of their business determined by reference to past practice.
4.25 RECEIVABLES. All receivables of the Company and the Subsidiaries
which are reflected on the balance sheet of the Company on July 31, 1996 and
which are reflected on the books of the Company and the Subsidiaries as of the
Closing Date represent actual, bona fide obligations owing to the Company or the
Subsidiaries in the
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ordinary course of business and are carried at their net realizable value. At
the Closing, such receivables will be free and clear of any liens, charges,
equitable interests, options, rights of first refusal, encumbrances, claims,
security interests, mortgages or pledges of any nature. No reserve allowance in
excess of the recorded reserve is required to be established in accordance with
GAAP with respect to such receivables which are reflected on the balance sheet
of the Company on July 31, 1996 and as of the Closing Date, and no allowance
will be required to be established in accordance with GAAP with respect to such
receivables which will be reflected on the books of the Company and the
Subsidiaries as of the Closing Date. None of such receivables are, or on the
Closing Date will be, past due for a period of more than 90 days.
4.26 CUSTOMERS AND SUPPLIERS. Schedule 4.26 contains a complete and
correct list of (a) the 10 largest customers of and the 10 largest suppliers to
the Company and the Subsidiaries in the aggregate, and any sole-source suppliers
of significant goods or services to the Company and the Subsidiaries with
respect to which alternative sources of supply are not readily available on
comparable terms and conditions, in each case, during the 8-month period ended
August 31, 1996, setting forth the sales by or to the Company and the
Subsidiaries for each such customer or supplier during such period. The Company
has not received written or oral notice that any such customer or supplier will
or may substantially reduce the extent of such relationship, at any time prior
to or after the Closing Date. Neither the Seller nor the Company or any
Subsidiary has received written or oral notice of (a) any other existing or
contemplated material modification or change in the business relationship of the
Company and the Subsidiaries with such customers or suppliers, or (b) any
existing condition or state of facts or circumstances, in either case which has
materially adversely affected, or will materially adversely affect, any such
business relationship with any such customer or supplier.
4.27 INDEBTEDNESS. Schedule 4.27 contains a complete and correct
description of all Indebtedness, including name of creditor, amount outstanding
on the Balance Sheet Date and amortization and repayment schedule.
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to the Seller as follows:
5.1 ORGANIZATION AND GOOD STANDING. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
5.2 AUTHORITY. The Buyer has all requisite power and authority to
execute and deliver this Agreement and to perform the transactions contemplated
hereby. The execution, delivery and performance of this Agreement have been duly
and validly authorized by all necessary corporate and shareholder action on the
part of the Buyer. This Agreement has been duly executed and delivered by the
Buyer and constitutes a valid and binding obligation of the Buyer, enforceable
against the Buyer in accordance with its terms, except that enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent
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conveyance, reorganization, moratorium or other similar laws affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing or other applicable law or other similar laws affecting creditors'
rights generally and by principles of equity regarding the availability of
remedies.
5.3 NO CONFLICT OR BREACH. Except as provided on Schedule 5.3, the
execution, delivery and performance of this Agreement does not and will not:
(a) conflict with or constitute a violation of the Certificate of
Incorporation or Bylaws or other governing instrument of the Buyer;
(b) assuming compliance with the requirements of the HSR Act, conflict
with or constitute a violation of any Requirement of Law applicable to or
relating to Buyer in any manner that would have a Material Adverse Effect;
or
(c) conflict with, constitute a default under, result in a breach or
acceleration of or require notice to or the consent of any third party
under any contract, agreement, commitment, mortgage, note, license or other
instrument or obligation to which Buyer is party or by which it is bound,
in any manner that would have a Material Adverse Effect.
5.4 CONSENTS AND APPROVALS. Except as set forth on Schedule 5.4, no
(a) consent, approval, authorization, permit, notice, registration or filing
with any federal, state or local judicial or Governmental Authority or
administrative agency, other than as required under the HSR Act, or (b) each
consent, approval, authorization of or notice to any other third party, is
required in connection with the valid execution and delivery by Buyer of this
Agreement or any Buyer Ancillary Document or the consummation by Buyer of the
transactions contemplated herein or therein except, in either case, such
consents, approvals, authorizations and notices as the failure to obtain or give
would not have a Material Adverse Effect.
5.5 SHARE OWNERSHIP. The Buyer will have at the Closing good title to
all of the Buyer's Class A Common Stock, free and clear of all liens, security
interests, charges, community property interests, equitable interests, options,
pledges, rights of first refusal or restrictions or encumbrances of any kind,
including any restrictions on use, transfer, voting, receipt of income or other
attribute of ownership. Except as set forth on Schedule 5.5, the Buyer is not a
party to any option, warrant, right, contract, call, put or other agreement or
commitment providing for the disposition or acquisition of any of the capital
stock of the Company, including the Buyer's Class A Common Stock (other than as
set forth in this Agreement).
5.6 FINANCIAL ADVISORS. Except for Salomon Brothers Inc, for whose
fees the Buyer shall be solely responsible, the Buyer has not retained any
finder, broker, agent or other intermediary to act for it or on its behalf, has
acted for or on behalf of Buyer in
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connection with the negotiation or consummation of this Agreement, and no party
has made any claim for any brokerage commission, finder's fee or similar
payment due from Buyer.
5.7 FINANCING. Buyer has secured binding commitments for all financing
(the "Financing") that will be required for it to consummate the purchase of the
Shares, which are set forth on Schedule 5.7 hereto.
5.8 INVESTMENT. Buyer is purchasing the Shares for investment and is
not acquiring the Shares with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act of 1933, as
amended.
ARTICLE VI COVENANTS OF SELLER
Seller covenants and agrees with Buyer as follows:
6.1 CONDUCT OF BUSINESS. From the date hereof to the Closing Date,
except as provided by this Agreement or as Buyer shall otherwise consent in
writing, Seller shall cause the Company and each Subsidiary to:
(a) continue to carry on its business, maintain its facilities and
equipment, maintain its supply of programming, advertising and technical
materials and supplies and keep its books of account, records and files in
substantially the same manner as heretofore carried on and maintained;
(b) maintain in full force and effect through the Closing Date
property damage, liability and other insurance with respect to the assets
of the Company or the Subsidiaries at levels of coverage reasonable and
customary and consistent with past practice.
(c) refrain from selling or otherwise transferring or disposing of
assets having an aggregate value in excess of $50,000, except for (i)
assets consumed or disposed of in the ordinary course of business, (ii)
assets which are no longer used or, in Seller's reasonable judgment, useful
in the business or operations of the Company or the Subsidiaries or (iii)
in connection with the acquisition of replacement property of equivalent
kind or value;
(d) not make any distribution of assets of the Company or any
Subsidiary or declare, pay or set aside for payment any dividend (of any
kind or nature) or distribution with respect to the Shares, except for
allocations or payment of corporate expense and interest expense consistent
with past practice and the Company's obligations to its lenders;
(e) not alter the terms of any existing Material Contract except where
such alteration would not have a Material Adverse Effect, nor enter into
any new
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agreement which, if entered into, would be a Material Contract except for
those set forth on Schedule 6.1(e) and those which will have been provided
to Buyer for its comments at least 5 business days prior to their
execution;
(f) refrain from issuing, selling, delivering, or agreeing to issue,
sell or deliver, any capital stock, warrants, options or similar rights or
other corporate securities of the Company or any Subsidiary and granting or
issuing, or agreeing to grant or issue, any options, warrants, incentive
awards or similar rights calling for the issuance of such securities or
entering into any registration rights agreements;
(g) refrain from repurchasing, redeeming and making a distribution
with respect to, any shares of capital stock of the Company or any
Subsidiary, except as otherwise provided in this Agreement;
(h) refrain from effecting any recapitalization of capital stock of
the Company or any Subsidiary and making any amendment, whether by merger,
consolidation or otherwise, to the Certificate of Incorporation, By-laws or
other governing instrument of the Company or any Subsidiary;
(i) refrain from (i) merging or consolidating with or into any other
corporation or entity, (ii) conveying, selling, leasing or otherwise
disposing of in any transaction or related series of transactions all or
substantially all of the property, business or assets of the Company and
the Subsidiaries (including, without limitation, the capital stock or
assets of the Company and the Subsidiaries), and (iii) acquiring by
purchase the business, assets or stock of any business;
(j) use reasonable efforts to preserve intact the business
organization of the Company and each Subsidiary and to keep available the
services of their present officers and key employees, and use reasonable
efforts to preserve the goodwill of those having business relationships
with the Company and each Subsidiary;
(k) refrain from (i) granting any increase in the compensation of
officers or employees currently receiving total compensation in excess of
$35,000, (including any such increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment), except as set forth on
Schedule 6.1(k) and except for reasonable increases in the ordinary course
of business and consistent with past practice, not to exceed, individually
or in the aggregate, 5% of the current base compensation level, (ii) except
with respect to the endorsement of negotiable instruments in the ordinary
course of its business and intercompany debt that is canceled in accordance
with Section 6.5, incurring, assuming or guaranteeing any Indebtedness for
borrowed money or revising or amending the terms of any existing
Indebtedness for borrowed money other than money borrowed under the
Company's revolving credit facility with Heller Financial, Inc.; (iii)
assuming or incurring any lien charges, equitable interests, mortgages or
pledges of any nature in respect to the property of the Company or any
Subsidiary, other than those made in the ordinary course of business; (iv)
factoring, selling, transferring or otherwise disposing of any account
receivable other than
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factors, sales, transfers or dispositions of account receivables in the
ordinary course of business; or (v) entering into any agreement that is
material to the Company and its Subsidiaries taken as a whole, except in
the ordinary course of business;
(l) refrain from taking any action that would have the effect of
deferring any Tax liability of the Company or any Subsidiary from any
taxable period ending at or before the Closing Date in a manner that is
inconsistent with past practice;
(m) refrain from reviewing, extending or otherwise amending any of the
agreements listed on Schedule 4.15 except as required by law;
(n) refrain from making any capital expenditure other than regularly
scheduled payments made pursuant to those capital projects set forth on
Schedule 4.19; and
(o) refrain from agreeing, whether in writing or otherwise, to do any
of the foregoing;
in each case, except where failure to do any of the foregoing would not have a
Material Adverse Effect and PROVIDED that nothing contained in this Section
shall require Seller, the Company or any Subsidiary to incur any extraordinary
cost or make any extraordinary payment.
6.2 ACCESS AND INFORMATION.
(a) During the period commencing on the date hereof and ending on the
Closing Date, Seller shall permit Buyer and its counsel, accountants,
advisors, providers of financing, and other representatives reasonable
access during normal business hours to all the properties, assets,
employees, books, records, agreements and other documents of the Company
and the Subsidiaries; PROVIDED that, Buyer will obtain the approval of Hans
Peter Wursch or any representative of Botts & Co. or European Investors
Corporate Finance, Inc. prior to each visit to any Company or Subsidiary
premises, whose approval shall not be withheld. Seller shall furnish to
Buyer and its representatives all information concerning the Company and
the Subsidiaries as Buyer may reasonably request; PROVIDED that such
information is prepared by the management of the Company or Subsidiaries,
as the case may be, in the ordinary course of business. Any investigation
by Buyer pursuant to this Section shall be conducted in such manner as not
to interfere unreasonably with the normal operation of the Subsidiaries.
Buyer and its representatives shall be accompanied on any visits to the
premises of the Subsidiaries by representatives of Seller.
(b) The Seller shall, within 15 Business Days after the execution of
this Agreement, provide to Buyer a list of all contracts, commitments,
agreements (including agreements for the borrowing of money or the
extension of credit), leases, licenses, guarantees, understandings and
obligations, whether written or oral, to
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which the Company or either of the Subsidiaries are party and which involve
a payment by or to the Company or a Subsidiary exceeding $50,000 in any
twelve-month period.
6.3 NO SOLICITATION. Neither Seller, the Company, the Subsidiaries nor
any representatives (including, without limitation, attorneys, investment
bankers and accountants) of Seller, the Company or the Subsidiaries will
directly or indirectly, through any partner, officer, director, agent or
otherwise (a) solicit, initiate or encourage the submission of inquiries,
proposals or offers from any Person relating to any acquisition or purchase of
assets or capital stock of the Company or any Subsidiary or any other
transaction that would result in the transfer of control of the Company or any
Subsidiary or an investment by any Person in the Company or any Subsidiary
(each, an "Acquisition Proposal") or (b) participate in any discussions or
negotiations regarding an Acquisition Proposal or any of the foregoing or
furnish to any Person any information concerning the Company or any Subsidiary
or any of the foregoing, except to the extent required by law, or (c) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other Person to do or seek any of the foregoing.
6.4 CONFIDENTIALITY. Following the Closing, Seller agrees to retain in
confidence, and to require its directors, officers, employees, consultants,
professional representatives and agents (collectively, "Seller Representatives")
to retain in confidence all information concerning the Company and the
Subsidiaries and further agrees that, following the Closing, it will not use for
its own benefit and will not use or disclose to any third party, or permit the
use or disclosure to any third party of, any such information, except that
Seller may disclose the information to those of the Seller Representatives who
need the information for the proper performance of their assigned duties with
respect to the consummation of the transactions contemplated hereby and the
preparation of appropriate Tax Returns. In making such information available to
its Representatives, Seller shall take any and all precautions necessary to
ensure that the Seller Representatives use the information only as permitted
hereby. Notwithstanding the foregoing, such information may be disclosed (a) if
it is required by court order or decree or applicable law or in connection with
the preparation of Tax Returns, (b) if it is ascertainable or obtained from
public or published information, or (c) if it is received from a third party not
known to the recipient to be under an obligation to keep such information
confidential. If Seller shall be required to make disclosure of any such
information by operation of law (other than in connection with the preparation
of Tax Returns), Seller shall give Buyer prior notice of the making of such
disclosure and shall use all reasonable efforts to afford Buyer an opportunity
to contest the making of such disclosure.
6.5 REPAYMENT OF INDEBTEDNESS. At the Closing, the Buyer shall
determine which Indebtedness of the Company and the Subsidiaries shall be paid
at the Closing (which Indebtedness shall include the Indebtedness referred to in
the first sentence of Section 9.12 and the Company's Indebtedness to Heller
Financial, Inc.) and the Buyer shall, as directed by and on behalf of the
Seller, cause such Indebtedness (including all accrued but unpaid interest
thereon) to be paid out of the Aggregate Consideration at the Closing.
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6.6 OTHER ACTIONS. The Seller shall not, and shall not permit the
Company or any of its Subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of the Seller or the Company and the Subsidiaries set forth in this
Agreement that are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect, or (iii) any of the conditions set forth in Section 9.1 not
being satisfied.
6.7 WORKING CAPITAL. The Company and each of its Subsidiaries will not
(i) delay payment of any accounts payable beyond normal and customary terms,
(ii) fail to maintain adequate inventory or replenish inventory consistent with
past practice, or (iii) accelerate payment of any accounts receivable other than
in the ordinary course.
6.8 DIRECTOR RESIGNATIONS. The Seller shall, after consultation with
the Buyer and with its express approval, cause all members of the Company's or
any Subsidiary's Board of Directors, or any other governing body, if any, to
resign effective as of the Closing.
6.9 INTELLECTUAL PROPERTY. Except for the licenses set forth in
Schedule 6.9, after the Closing the Seller shall refrain from using, and shall
ensure that its Affiliates will not use, directly or indirectly, any
Intellectual Property.
6.10 OTHER ASSISTANCE. To the extent requested by Buyer, Seller shall
reasonably cooperate with and assist Buyer in the preparation of a registration
statement or similar offering document relating to a proposed issuance of
securities of the Buyer. In connection therewith, Seller shall make available to
Buyer and its representatives and agents the officers and employees of the
Company and the Subsidiaries at reasonable times and locations. All reasonable
out-of-pocket expenses incurred by Seller, the Company or the Subsidiaries in
connection with such cooperation and assistance shall be promptly paid by Buyer.
6.11 CONSENTS. Prior to the Closing Date, the Seller shall use its
best efforts to obtain or cause to be obtained all Required Consents, including,
without limitation, paying reasonable consideration necessary to obtain such
consent.
6.12 EMPLOYMENT CLAIMS. Subject to Section 16.16, the Seller shall be
responsible for the first $475,000 to be paid in respect of amounts owed upon
termination, if any, arising under the employment agreements listed on Schedule
6.12 ("Employment Claims"). The Buyer shall be responsible for any amounts in
excess thereof.
ARTICLE VII COVENANTS OF BUYER
Buyer covenants and agree with Seller as follows:
7.1 CONFIDENTIALITY. In consideration of the confidential nature of
certain of the information which will be provided to Buyer by Seller, the
Company and the Subsidiaries prior to the Closing, Buyer agrees to retain in
confidence, prior to the Closing,
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and to require its directors, officers, employees, consultants, professional
representatives and agents (collectively, its "Representatives") to retain in
confidence all information transmitted or disclosed to it by Seller, the Company
and the Subsidiaries, and further agrees that, prior to the Closing, it will not
use for its own benefit and will not use or disclose to any third party, or
permit the use or disclosure to any third party of, any information so obtained
or revealed, except that Buyer may disclose the information (i) to those of its
Representatives who need the information for the proper performance of their
assigned duties with respect to the consummation of the transactions
contemplated hereby, (ii) to the parties from which Buyer seeks financing and
their representatives, and (iii) in a registration statement or similar offering
document relating to the proposed issuance of securities by the Buyer. In making
such information available to its Representatives, Buyer shall take any and all
precautions necessary to ensure that its Representatives use the information
only as permitted hereby. Notwithstanding anything to the contrary in the
foregoing provisions, such information may be disclosed (a) where it is
necessary to any regulatory authorities or governmental agencies, (b) if it is
required by court order or decree or applicable law, (c) if it is ascertainable
or obtained from public or published information, or (d) if it is received from
a third party not known to the recipient to be under an obligation to keep such
information confidential. If Buyer shall be required to make disclosure of any
such information by operation of law, Buyer shall give Seller prior notice of
the making of such disclosure and shall use all reasonable efforts to afford
Seller an opportunity to contest the making of such disclosure. In the event
that the Closing shall not occur, Buyer shall immediately deliver, or cause to
be delivered, to Seller (without retaining any copies thereof) any and all
documents, statements or other written information obtained from Seller, the
Company or any Subsidiary that contain confidential information of Seller.
7.2 DISCLOSURE TO SELLER. The Buyer will notify the Seller if the
Buyer knows or learns of the existence of any facts which cause any of the
representations and warranties contained in Articles III or IV to be or become
untrue, PROVIDED, HOWEVER, that such disclosure shall not affect any of the
Buyer's rights or remedies pursuant to this Agreement.
ARTICLE VIII MUTUAL COVENANTS
8.1 HSR FILINGS. Buyer and Seller shall, as promptly as practicable
following the execution of this Agreement, and in cooperation with each other,
file with the Department of Justice and the Federal Trade Commission the
premerger notification forms and any other documents required under the HSR Act,
and each shall use its reasonable efforts to obtain earliest termination of all
waiting periods under the HSR Act. Buyer shall be responsible for and shall pay
all fees assessed in connection with the filing of such forms and documents.
8.2 CASUALTY OR LOSS. The risk of any loss, damage or impairment,
confiscation or condemnation of any of the assets of the Subsidiaries from any
cause whatsoever shall be borne by Seller at all times prior to the completion
of the Closing. In the event of any loss, damage or impairment, confiscation or
condemnation of any such
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assets prior to the completion of the Closing, Seller shall have the option, but
shall not be required, to expend such funds and take such other actions as are
necessary to repair, replace or restore such assets to their prior condition. If
Seller has commenced but not completed the restoration or replacement of such
assets before the Closing Date, the Closing Date shall be postponed during such
period not to extend beyond the date specified in subsection 14.1(f) to permit
completion of the repair or replacement of the damage or loss. If such assets
have not been restored or replaced by such date, Buyer may then take the action
specified in subsection 14.1(c). Alternatively, Buyer may, at its option,
proceed to Closing as of such date and complete the restoration and replacement
of such damaged assets after the Closing Date, in which event Seller shall
assign to Buyer the right to receive all insurance proceeds payable in
connection with such damage to or destruction of the assets.
8.3 FURTHER ACTIONS.
(a) Seller and Buyer will notify each other immediately of any
litigation, arbitration or administrative proceeding pending or to
its/their knowledge, threatened against either of them, the Company or any
Subsidiary which challenges the transactions contemplated in this
Agreement.
(b) Subject to the terms and conditions of this Agreement, Seller and
Buyer each agree to use commercially reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the
transactions contemplated in this Agreement and to satisfy the conditions
hereto.
(c) The Seller and the Buyer agree (i) to furnish upon request to each
other such further information, (ii) to execute and deliver to each other
such other documents, and (iii) to do such other acts and things, all as
the other party may reasonably request for the purpose of carrying out the
intent of this Agreement, the Seller Ancillary Documents, the Buyer
Ancillary Documents and the documents referred to herein and therein.
(d) Prior to the Closing or prior to the termination of this Agreement
pursuant to Section 14(e), the Seller and Buyer will notify each other
immediately orally and in writing if the satisfaction of any condition to
the Closing is or becomes impossible.
ARTICLE IX CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligation of the Buyer to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of the following
conditions on or before the Closing Date, unless specifically waived in writing
by the Buyer on or prior to the Closing Date (such waiver shall not constitute a
waiver of Buyer's rights pursuant to Section 12.1 hereof):
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9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller contained in this Agreement (other than in Section 4.19) (i) shall
have been true and correct in all respects on the date of this Agreement and
(ii) shall be true and correct in all material respects (except that those
representations which expressly contain a materiality qualifier shall each be
true and correct in all respects, giving effect to such qualifier) on the
Closing Date as though made on and as of the Closing Date. Buyer shall have
received a certificate executed by an officer Seller dated as of the Closing
Date, certifying the satisfaction of the conditions in this Section 9.1.
9.2 COMPLIANCE WITH COVENANTS. Seller shall have duly performed and
complied in all material respects with all covenants, agreements and obligations
required by this Agreement to be performed or complied with by it on or prior to
the Closing. Buyer shall have received a certificate executed by an officer of
Seller dated as of the Closing Date, certifying the satisfaction of the
conditions in this Section 9.2.
9.3 ABSENCE OF LITIGATION. No action or proceeding shall be pending by
or before any court or other Governmental Authority of competent jurisdiction
seeking to (a) restrain, prohibit or invalidate the transactions contemplated by
this Agreement in whole or material part or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with any of the
transactions contemplated by this Agreement or the Seller Ancillary Documents or
the Buyer Ancillary Documents, or (b) impose material limitations on the Buyer's
freedom of action with respect to the Company and its Subsidiaries or any
material portion thereof or all or a material portion of the assets or
businesses of the Buyer.
9.4 HSR ACT. All applicable waiting periods under the HSR Act shall
have expired or been terminated.
9.5 REQUIRED CONSENTS. All Required Consents shall have been obtained
by Seller, the Company or the Subsidiaries, as the case may be, except where
failure to have such consent would not have a Material Adverse Effect.
9.6 NO INJUNCTION. etc. No preliminary or permanent injunction or
other order, decision or decree issued by any court or Governmental Authority of
competent jurisdiction nor any Requirement of Law which restrains, enjoins or
otherwise prohibits the transactions contemplated hereby shall be in effect.
9.7 LEGAL OPINION. Buyer shall have received from Seller's Counsel an
opinion, dated the Closing Date, in form and substance reasonably satisfactory
to Buyer and Buyer's Counsel.
9.8 FINANCING. The Buyer shall have received proceeds of the
Financing.
9.9 KREBSOGE TRANSACTIONS. The transactions contemplated by the
Krebsoge Stock Purchase Agreement, dated the date hereof, between the Buyer and
the Seller relating
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to the sale of Krebsoge and its subsidiaries (the "Krebsoge Agreement") shall
have occurred simultaneously with the Closing.
9.10 INDEMNITY ESCROW AGREEMENT. The Indemnity Escrow Agreement shall
have been executed by the parties and the amounts required thereunder shall have
been funded or instruments deposited as provided in Section 2.4.
9.11 RELEASE OR TERMINATION OF LIENS. Other than any liens created by
the Buyer or liens relating to Indebtedness which the Buyer has agreed to
assume, all liens, security interests, charges, community property interests,
equitable interests, options, pledges, rights of first refusal or restriction or
encumbrance of any kind, including any restrictions on use, transfer, voting,
receipt of income or other attribute of ownership, on any of (i) the Shares, or
(ii) except as set forth on Schedule 9.11, the assets or properties of the
Seller, the Company or the Subsidiaries shall have been terminated, and the
Buyer shall have received written evidence of such releases.
9.12 PAYMENT OF INDEBTEDNESS. The Seller shall pay in full (or shall
direct the Buyer to pay in full on behalf of the Seller from the Aggregate
Consideration) the unpaid principal amount owing by ICM/K to MAAG America
Holding Inc. under the Subordinated Note dated April 30,1996, issued by ICM/K in
the original principal amount of $2,000,000 together with any and all accrued
but unpaid interest thereon computed through the day preceding the Closing Date.
To the extent Buyer has not agreed to assume, the Seller shall pay in full (or
shall direct the Buyer to pay in full on behalf of the Seller from the Aggregate
Consideration) (i) the unpaid principal amount owing to the Company's lenders,
together with any and all accrued but unpaid interest thereon computed through
the day preceding the Closing Date (such loan agreements, the "Loan Agreements")
and (ii) all other Indebtedness of the Company and the Subsidiaries outstanding
as of the Closing Date, together with any accrued but unpaid interest thereon
through the Closing Date.
9.13 U.S. REAL PROPERTY HOLDING COMPANY. The Seller shall certify to
Buyer that neither the Company nor any of the Subsidiaries is a United States
Real Property Holding Company as such term is defined under the Code.
9.14 CONTINGENT PAYMENT AGREEMENT. The Contingent Payment Agreement
dated November 19, 1993 between the Company and Heller Financial, Inc. shall
have been terminated and neither the Company nor any Subsidiary shall have any
liability arising under or with respect to such agreement.
ARTICLE X CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
The obligation of Seller to consummate the transactions contemplated
by this Agreement is subject to the satisfaction of each of the following
conditions on or before the Closing Date, unless specifically waived in writing
by Seller prior to the Closing (such waiver shall not constitute a waiver of
Seller's rights pursuant to Section 12.2 hereof):
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10.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in this Agreement (i) shall have been true and
correct on the date of this Agreement and (ii) shall be true and correct in all
material respects (except that those representations which expressly contain a
materially qualifier shall each be true and correct in all respects, giving
effect to such qualifier) on the Closing Date as though made on and as of the
Closing Date. Seller shall have received a certificate executed by an officer of
Buyer dated as of the Closing Date, certifying the satisfaction of the
conditions in this Section 10.1.
10.2 COMPLIANCE WITH COVENANTS. Buyer shall have duly performed and
complied with in all material respects all covenants, agreements and obligations
required by this Agreement to be performed or complied with by it on or before
the Closing Date. Seller shall have received a certificate executed by an
officer of Buyer dated as of the Closing Date, certifying the satisfaction of
the conditions in this Section 10.2.
10.3 ABSENCE OF LITIGATION. No action or proceeding against Buyer
shall be pending by or before any court or other Governmental Authority of
competent jurisdiction seeking to restrain, prohibit or invalidate the
transactions contemplated by this Agreement.
10.4 HSR ACT. All applicable waiting periods under the HSR Act shall
have expired or been terminated.
10.5 NO INJUNCTION, etc. No preliminary or permanent injunction or
other order, decision or decree issued by any court or Governmental Authority of
competent jurisdiction or any Requirement of Law which restrains, enjoins or
otherwise prohibits the transactions contemplated hereby shall be in effect.
10.6 LEGAL OPINION. Seller shall have received from Buyer's Counsel an
opinion, dated the Closing Date, in form and substance reasonably satisfactory
to Seller and Seller's Counsel.
10.7 IRREVOCABLE LETTER OF CREDIT REPLACEMENT. The Buyer shall replace
or cause to be replaced the Irrevocable Letter of Credit issued by Union Bank of
Switzerland in the amount of $2,712,191.77 as security for the Economic
Development Revenue Bonds Series 1985 issued by the City of Salem, Indiana as of
October 16, 1985, maturing October 1, 2000. The Buyer shall provide evidence of
such replacement of the Letter of Credit (the "Substitute Irrevocable Letter of
Credit") to the Seller.
ARTICLE XI CLOSING
11.1 CLOSING. The closing of the sale of the Shares (the "Closing")
shall take place at the offices of Cadwalader, Wickersham & Taft in New York,
New York or such other place as agreed to by Seller and Buyer at 6:00 a.m. local
time, on the later to occur of (i) December 10, 1996 or (ii) fifth business day
after the date on which the conditions contained in Sections 9.4 and 10.4 are
met; PROVIDED HOWEVER, as follows: (a) if
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one or more conditions to this Agreement is not satisfied by such date, the
party benefiting from such condition may elect, in its sole discretion, one or
more postponements of the Closing for the purpose of enabling such condition to
be satisfied; and (b) upon agreement of the parties hereto, the Closing may be
postponed to a future date, PROVIDED that, notwithstanding the provisions of the
preceding subparagraphs (a) and (b), in no event may the Closing be postponed
beyond January 31, 1997. The date of the Closing is referred to as the "Closing
Date." The Closing when completed shall be deemed to have occurred at 12:01
a.m., local time, on the Closing Date (the "Effective Time").
11.2 DELIVERIES BY SELLER. At the Closing, Seller shall deliver or
cause to be delivered to Buyer the following:
(a) A certificate of an officer of Seller confirming the satisfaction
of the conditions set forth in Sections 9.1 and 9.2.
(b) A copy of all corporate resolutions authorizing the execution,
delivery and performance of this Agreement and the Seller Ancillary
Documents, and the consummation of the transactions contemplated herein or
therein.
(c) The legal opinion referred to in Section 9.7, the Indemnity Escrow
Agreement and the lien releases and terminations referred to in Section
9.11.
(d) A certificate certifying as to the matters referred to in Section
9.13.
(e) Satisfactory evidence in Buyer's reasonable judgment, that all
Indebtedness (other than the principal amount of Indebtedness Buyer has
agreed to assume) has been repaid or discharged.
(f) Such other documents, certificates and information as Buyer may
reasonably request.
11.3 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver or cause
to be delivered to Seller the following:
(a) A certificate of an officer of Buyer confirming the satisfaction
of the conditions set forth in Sections 10.1 and 10.2.
(b) A copy of all corporate resolutions authorizing the execution,
delivery and performance of this Agreement and the Buyer Ancillary
Documents, and the consummation of the transactions contemplated herein or
therein.
(c) The legal opinion referred to in Section 10.6 and the Indemnity
Agreement.
(d) The Purchase Price, paid by a wire transfer of immediately
available funds in accordance with Section 2.2.
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(e) Replace or cause to be replaced the Irrevocable Letter of Credit
referred to in Section 10.7 and provide evidence of the Substitute Letter
of Credit to the Seller, the original of which shall be delivered to INB
National Bank, as Trustee,
(f) Such other documents, certificates and information as Seller may
reasonably request.
ARTICLE XII INDEMNIFICATION
12.1 INDEMNIFICATION BY SELLER. Subject to the provisions of Sections
2.4, 12.5 and 12.6, the Seller shall indemnify, defend and hold harmless Buyer
and its officers, directors, employees, agents and Affiliates from, against and
with respect to any and all loss, damage, claim, obligation, liability, cost and
expense (including, without limitation, reasonable attorneys' fees and costs and
expenses incurred in investigating, preparing, defending against or prosecuting
any litigation, claim, proceeding or demand), of any kind or character (a
"Loss") arising out of or in connection with any of the following:
(a) any breach of any of the representations or warranties of Seller
contained in this Agreement (other than those contained in Sections 4.18
and 4.24 or the first three sentences of Section 4.25);
(b) any failure by Seller to perform or observe, or to have performed
or observed any covenant or agreement to be performed or observed by it
pursuant to this Agreement;
(c) any failure by Seller to comply with the continuation coverage
requirements applicable to group health plans pursuant to Sections 601 et
seq. of ERISA and Section 4980B of the Code;
(d) all liability for Taxes in excess of $10,000, or payable by or
with respect to, the Company and the Subsidiary for any period ending on or
before the end of the day on the Closing Date and that portion of a
Straddle Period up to and including the Closing Date ("Pre-Closing Tax
Period");
(e) any liability of the Company or Subsidiary for the unpaid Taxes of
any Person (other than such Company or Subsidiary) under Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor, by contract, or otherwise;
(f) any debt or liability of any Company or Subsidiary to the extent
not disclosed on the balance sheet included in the Financial Statements, on
any Schedule hereto, or not otherwise expressly assumed by Buyer hereunder;
or
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(g) any matter set forth on Schedules 4.5, 4.10, 4.11, 4.13, 4.16(e),
4.20 and 4.22 to the extent Losses relating thereto exceed, in the
aggregate together with Losses arising in connection with any matter set
forth on Schedules 4.5, 4.10(b), 4.11, 4.13, 4.16(e), 4.20 and 4.22 of the
Krebsoege Agreement, $1,500,000.
12.2 INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend and hold
harmless each of the Seller, the Company and the Subsidiaries and their
respective officers, directors, employees, agents and Affiliates from, against
and with respect to any Loss arising out of or in connection with any of the
following:
(a) any breach of any of the representations and warranties of Buyer
contained in this Agreement;
(b) any failure by Buyer to perform or observe, or to have performed
or observed any covenant or agreement to be performed or observed by it
pursuant to this Agreement;
(c) Buyer's operation of the Subsidiaries on and after the Effective
Time; or
(d) all liability for Taxes of any Company or Subsidiary for any
taxable period ending after the Closing Date (except to the extent such
taxable period is a Straddle Period in which case Buyer's indemnity will
cover only that portion of such Taxes that are not attributable to the
Pre-Closing Tax Period).
12.3 NOTICE OF CLAIM. If any third party shall notify any party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against the other party (the
"Indemnity Obligor") under this Article XII, then the Indemnified Party shall,
within 30 days following receipt of such Third Party Claim, promptly notify the
Indemnity Obligor in writing of any claim for recovery, specifying in reasonable
detail the nature of the Loss and the amount of the liability estimated to arise
therefrom. If the Indemnified Party does not so notify the Indemnity Obligor
within 30 days of its discovery of a claim for recovery, such claim shall be
barred only to the extent that the Indemnity Obligor is prejudiced by such
failure to notify. The Indemnified Party shall provide to the Indemnity Obligor
as promptly as practicable thereafter all information and documentation
reasonably requested by the Indemnity Obligor to verify the claim asserted.
12.4 DEFENSE. If the facts relating to a Loss arise out of the claim
of any third party, or if there is any claim against a third party available by
virtue of the circumstances of the Loss, the Indemnity Obligor may, by giving
written notice to the Indemnified Party within 15 days following its receipt of
the notice of such claim, elect to assume the defense or the prosecution
thereof, including the employment of counsel or accountants at its cost and
expense; PROVIDED, HOWEVER, that during the interim the Indemnified Party shall
use its commercially reasonable efforts to take all action (not including
settlement) reasonably necessary to protect against further damage or loss with
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respect to the Loss. The Indemnified Party shall have the right to employ
counsel separate from counsel employed by the Indemnity Obligor in any such
action and to participate therein, but the fees and expenses of such counsel
shall be at the Indemnified Party's own expense, unless (i) the employment
thereof has been specifically authorized by the Indemnity Obligor, (ii) such
Indemnified Party will have been advised by counsel reasonably satisfactory to
the Indemnity Obligor that there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnity
Obligor and in the reasonable judgment of such counsel it is advisable for such
Indemnified Party to employ separate counsel, or (iii) the Indemnity Obligor has
failed to assume the defense of such action and employ counsel reasonably
satisfactory to the Indemnified Party. Whether or not the Indemnity Obligor
chooses so to defend or prosecute such claim, all the parties hereto shall
cooperate in the defense or prosecution thereof and shall furnish such records,
information and testimony and shall attend such conferences, discovery
proceedings and trials as may be reasonably requested in connection therewith.
The Indemnity Obligor shall not be liable for any settlement of any such claim
effected without its prior written consent. In the event of payment by the
Indemnity Obligor to the Indemnified Party in connection with any Loss arising
out of a third party claim, the Indemnity Obligor shall be subrogated to and
shall stand in the place of the Indemnified Party as to any events or
circumstances in respect of which the Indemnified Party may have any right or
claim against such third party relating to such Indemnified Matter. The
Indemnified Party shall cooperate with the Indemnity Obligor in prosecuting any
subrogated claim. The Indemnity Obligor will take no action in connection with
any claim that would adversely affect the Indemnified Party without the consent
of the Indemnified Party.
12.5 TIME FOR CLAIMS. Any claim asserted with respect to Sections
12.1(a) or (b) (other than with respect of Section 6.4) or 12.2(a) or (b) (other
than with respect of Section 7.1) must be submitted to the Indemnity Obligor in
writing, or invoked in official proceedings, by April 15, 1998 (the "Survival
Date"), other than claims with respect to (i) Sections 4.12 and 4.15, which may
be submitted until sixty (60) days following the expiration of the longest
applicable statute of limitations, (ii) Section 4.13, which may be submitted
until the third anniversary of the Closing Date, and (iii) Sections 3.5 and 4.3
(solely with respect to the ownership of the Subsidiary Shares), which may be
submitted at any time without limitation.
12.6 LIMITATION. Notwithstanding the provisions of Section 12.1 but
subject to the limitation provided in Section 16.16, the Seller shall not have
any indemnification obligation under this Agreement
(a) in excess of $2,000,000 and unless and until the aggregate amount
of the Losses of the Indemnified Party exceeds $250,000 in the aggregate
whereupon such Indemnity Obligor shall be responsible for the aggregate
amount of Losses dollar for dollar from the first claim; or
(b) with respect to an indemnification obligation resulting from a
breach of the representation and warranty contained in the last sentence of
Section 4.25, in excess of the amount of such receivable giving rise to
such breach, net of any
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<PAGE> 45
recorded reserve set forth on the books of the Company and the Subsidiaries
at the time of the Closing with respect to such receivable. Buyer agrees to
assign to Seller any such receivable for which the Buyer has received an
indemnification payment pursuant to this Article XII.
12.7 CHARACTERIZATION. Any payments pursuant to this Article XII shall
be treated by the parties as adjustments to the Purchase Price for tax purposes,
unless otherwise required by law.
12.8 INDEMNITY AMOUNTS. If the Buyer shall incur any Losses (whether
pursuant to a Third Party Claim or otherwise) or determine that it is likely to
incur any Losses and shall consider that it is entitled to be indemnified
against such Losses, the Buyer shall deliver a certificate signed by an officer
thereof (an "Officer's Certificate"), to the Seller which Officer's Certificate
shall (i) state that the Buyer has incurred Losses, or anticipates that it will
incur Losses for which the Buyer is entitled to indemnification pursuant to
Section 12.1 and (ii) specify in reasonable detail each individual Loss included
in the amount so stated, the date such Loss was incurred, the basis for any
anticipated Loss and the nature of the misrepresentation or breach of warranty
or agreement to which each such Loss is related and the computation of the
amount to which the Buyer claims to be entitled hereunder. In the event that the
Seller shall object to the indemnification of the Buyer in respect of any Loss
specified in an Officer's Certificate, the Seller shall, within 30 days of
receiving such Officer's Certificate, deliver to the Buyer a written notice to
such effect and the Seller and the Buyer shall, within the 30-day period
beginning on the date of receipt by the Buyer of such written objection, attempt
in good faith to agree upon the rights of the respective parties with respect to
each of such claims to which the Seller shall have so objected. If the Buyer and
the Seller shall succeed in reaching agreement on their respective rights with
respect to any of such claims, the Buyer and the Seller shall promptly prepare
and sign a memorandum setting forth such agreement. If no agreement is reached,
the Buyer may commence a cause of action in any court having competent
jurisdiction with respect to the Indemnity Escrow Account. The amounts set forth
in (A) claims specified in any Officer's Certificate to which the Seller shall
not object in writing within 30 days after its receipt of such Officer's
Certificate, (B) claims covered by a memorandum of agreement of the nature
described in this Section 12.8 and (C) claims the validity and amount of which
shall have been determined by a final judgment are hereinafter referred to,
collectively, as the "Indemnity Amounts."
ARTICLE XIII TAX MATTERS
13.1 STRADDLE PERIODS. In the case of any taxable period that includes
(but does not end on) the Closing Date (a "Straddle Period"):
(a) real, personal and intangible property Taxes ("Property Taxes") of
the Company and the Subsidiaries for the Pre-Closing Tax period shall
include the amount of such property Taxes for the entire Straddle Period
multiplied by a fraction, the numerator of which is the number of days
during the Straddle Period
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<PAGE> 46
that are in the Pre-Closing Tax Period and the denominator of which is the
number of days in the Straddle Period; and
(b) the Taxes of the Company and the Subsidiaries (other than Property
Taxes) attributable to the Pre-Closing Tax Period shall be computed as if
such taxable period ended at the end of the day on the Closing Date and the
amount of Taxes attributable to such period shall be based upon a closing
of the books of the applicable Company and Subsidiary at the end of the day
on the Closing Date.
13.2 CARRYBACKS. Buyer shall not be entitled to carryback any losses,
credits or other Tax benefit items of the Company or the Subsidiaries that
arises in a taxable period (or portion thereof) ending after the Closing Date to
a Pre-Closing Tax Period of Company, Seller, the Company or the Subsidiaries.
ARTICLE XIV TERMINATION
14.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing:
(a) by the mutual written consent of Seller and Buyer;
(b) by Seller (if Seller is not then in breach of any term of this
Agreement), if Buyer shall (i) fail to perform in any material respect its
agreements continued contained herein to be performed on or prior to the
Closing Date, or (ii) materially breach any of its representations or
warranties contained herein, which failure or breach is not cured within
ten days after Seller has notified Buyer of its intent to terminate this
Agreement pursuant to this subparagraph;
(c) by Buyer (if Buyer is not then in breach of any term of this
Agreement), if Seller shall (i) fail to perform in any material respect its
agreements contained herein required to be performed on or prior to the
Closing Date, or (ii) materially breach any of its representations or
warranties contained herein, which failure or breach is not cured within
ten days after Buyer has notified Seller of its intent to terminate this
Agreement pursuant to this subparagraph;
(d) by either Seller or Buyer, if there shall be any nonappealable
final order, writ, injunction or decree of any court or governmental or
regulatory agency binding on Seller or Buyer which prohibits or restrains
Seller or Buyer from consummating the transactions contemplated hereby
(other than temporary injunctions);
(e) by Buyer, if any of the conditions in Article IX has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply
with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date;
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<PAGE> 47
or (ii) by Seller, if any of the conditions in Article X has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Seller to comply
with its obligations under this Agreement) and Seller has not waived such
condition on or before the Closing Date; or
(f) by either the Seller or the Buyer, if the Closing has not occurred
by January 31, 1997, for any reason other than delay or nonperformance of
the party seeking such termination.
14.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
this Article shall terminate all obligations of the parties hereunder, except
for the obligations under Sections 16.3 (with respect to expenses), 16.4 (with
respect to publicity) and 7.1 (with respect to confidentiality); PROVIDED,
HOWEVER, that termination pursuant to subparagraphs (b) or (c) of Section 14.1
shall not relieve the defaulting or breaching party from any liability to the
other party hereto.
ARTICLE XV EMPLOYEES
It is the Buyer's present intention to cause the Company and the Subsidiaries to
continue to provide, immediately following the Closing, compensation levels and
employee benefit programs the same as or reasonably comparable to the
compensation levels and employee benefit programs provided by the Company and
the Subsidiaries prior to the Closing, and to continue to credit service under
the employee benefit programs of the Company and the Subsidiaries following the
Closing in a manner consistent with the manner in which service has been
credited under such programs prior to the closing. Notwithstanding the
foregoing, however, the parties recognize that the Company and the Subsidiaries
may, subject to the requirements of any applicable collective bargaining
agreement, change the compensation levels or benefit programs provided by the
Company and the Subsidiaries following the Closing in ways that either the
Company or any Subsidiary determines to be necessary or appropriate for the
operation of its business.
ARTICLE XVI MISCELLANEOUS
16.1 ACCESS AFTER THE CLOSING DATE. After the Closing Date, the Buyer
shall provide the Seller with reasonable access during normal business hours to
copies of all of the books and records of the Company and the Subsidiaries
whenever requested by the Seller, and the Buyer shall retain such books and
records for the later of the end of the normal document retention period of the
Buyer; PROVIDED that the Buyer shall retain all required Tax books and records
until 60 days following the expiration of the applicable statute of limitations.
At the request and expense of the Seller, the Buyer shall deliver copies of any
such books and records to the Seller. At the Seller's out of pocket expense, the
Buyer shall use reasonable efforts to cause any of the employees of the Company
or any Subsidiary or the Buyer who were previously employed by the Company or
any Subsidiary to meet with the Seller and its representatives and agents
(including counsel and
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<PAGE> 48
accountants) at such times and places as the Seller may reasonably request in
order to provide the Seller with information concerning the operation of the
Company and the Subsidiaries and the conduct of their business by the Company or
such Subsidiary prior to the Closing Date.
16.2 PAYMENT OF EXPENSES.
(a) Except as provided in Sections 8.1 and 8.2, all costs of
transferring the Shares to Buyer in accordance with this Agreement,
including recordation, notarial, registration, stamp, transfer and
documentary taxes and fees, and any federal, state or local excise, sales
or use taxes, and any filings or grant fees imposed by any governmental
authority, shall be paid one-half by Seller and one-half by Buyer.
(b) All costs, including recordation, notarial, registration, stamp,
transfer and documentary taxes and fees, and any federal, state or local
excise, sales or use taxes, and any filings or grant fees imposed by any
governmental authority caused by, or arising from, any liquidation, merger,
sale or transfer by or of the Company or any Subsidiary or assets of the
Company or any Subsidiary which occurs after the Closing shall be paid by
Buyer.
(c) Except as otherwise expressly provided in this Agreement, each of
the parties shall bear its own expenses, including the fees of any
attorneys and accountants engaged by such party, in connection with this
Agreement, the Seller Ancillary Documents and the Buyer Ancillary Documents
and the consummation of the transactions contemplated herein or therein.
16.3 PUBLICITY. Seller and Buyer agree that they will not make any
press releases or other announcements prior to the Closing with respect to the
transactions contemplated hereby, except as required by applicable law, without
the prior approval of all other parties. The Seller acknowledges that the Buyer
is required to make certain public disclosures and filings pursuant to the
Exchange Act with respect to the transactions contemplated hereby.
16.4 COMMERCIALLY REASONABLE EFFORTS. Each party hereto agrees to use
commercially reasonable efforts to effect the Closing set forth in this
Agreement and otherwise to consummate the transactions contemplated by this
Agreement. Specifically, but without limiting the generality of the foregoing,
each of Buyer and Seller shall use commercially reasonable efforts to make or
obtain all consents, approvals, authorizations, registrations and filings with
all federal, state, provincial or local judicial or governmental authorities or
administrative agencies as are required in connection with the consummation of
the transactions contemplated by this Agreement.
16.5 NOTICES. All notices, demands and other communications made
hereunder shall be in writing and shall be given either by personal delivery, by
nationally recognized overnight courier (with charges prepaid) or by telecopy
(with telephone confirmation), and shall be deemed to have been given or made
when personally delivered,
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<PAGE> 49
the day following the date deposited with such overnight courier service or when
transmitted to telecopy machine and confirmed by telephone, addressed to the
respective parties at the following addresses (or such other address for a party
as shall be specified by like notice):
If to Seller:
Maag Holding AG
Hardstrasse 219
Zurich, Switzerland CH-8023
Attn: Samuel Gartmann
Telephone: 011-41-1-278-7215
Telecopy: 011-41-1-271-9204
With a copy (which shall not constitute notice) to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attn: Jonathan M. Wainwright, Esq.
Telephone: (212) 504-6122
Telecopy: (212) 504-6666
If to Buyer:
Sinter Metals, Inc.
Terminal Tower, Suite 3200
50 Public Square
Cleveland, Ohio 44113
Attn: Joseph W. Carreras
Telephone: (216) 771-6700
Telecopy: (216) 344-7631
With a copy (which shall not constitute notice) to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, OH 44114
Attn: Christopher M. Kelly, Esq.
Telephone: (216) 586-3939
Telecopy: (216) 579-0212
16.6 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to conflict
of laws principles.
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16.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.8 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Neither this Agreement nor any of the rights, interest or obligations
hereunder shall be assigned by either of the parties hereto without the prior
written consent of the other party hereto, and any purported assignment without
such consent shall be void; PROVIDED HOWEVER that (a) the Buyer may, without the
consent of the Seller, (i) grant a security interest in its rights under this
Agreement to a lender as security for Buyer's obligations to such lender and
(ii) assign its rights hereunder to one or more wholly-owned subsidiaries of the
Buyer, but no such grant of security interest or assignment shall release the
Buyer from its obligations hereunder, and (b) the Seller may, without the
consent of the Buyer, assign its rights hereunder to one or more wholly-owned
subsidiaries of the Seller, but no such assignment shall release the Seller from
its obligations hereunder, including, without limitation, its obligations under
Section 12.1, for which it shall be jointly and severally liable with any such
assignee.
16.9 THIRD PARTY BENEFICIARIES. None of the provisions of this
Agreement or any document contemplated hereby is intended to grant any right or
benefit to any person or entity which is not a party to this Agreement.
16.10 HEADINGS; REFERENCES. The article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of this
Agreement and shall not in any way affect the meaning or interpretation of this
Agreement. When a reference is made in this Agreement to a clause, Section,
Subsection or Article, such reference shall be to such clause, Section,
Subsection or Article of this Agreement unless otherwise indicated.
16.11 AMENDMENTS; WAIVER. Any waiver, amendment, modification or
supplement of or to any term or condition of this Agreement shall be effective
only if in writing and signed by both parties hereto, and the parties hereto
waive the right to amend the provisions of this Section orally. No waiver by any
party of any of the provisions hereof shall be effective unless explicitly set
forth in writing and executed by the party so waiving. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any other or subsequent breach. No failure on the part
of either party hereto to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof. The remedies herein are cumulative
and not exclusive of any remedies provided by law.
16.12 KNOWLEDGE. Whenever used herein with respect to the Seller, the
Company and its Subsidiaries, the term "knowledge" or "best knowledge" shall
mean the actual knowledge of Jack D. Rutherford, Arthur Canfield, Bill Brown,
Thomas Pietrocini, Michael Huber and Steven Ferree. Notwithstanding any notice
provided pursuant to Section 7.2, the Seller acknowledges and agrees that the
Buyer's right to rely on the representations
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<PAGE> 51
and warranties of the Seller with respect to itself and the Company and its
Subsidiaries shall not be affected in any way by any investigation conducted by
the Buyer.
16.13 SEVERABILITY. In the event that any provision in this Agreement
shall be determined to be invalid, illegal or unenforceable in any respect, the
remaining provisions of this Agreement shall not be in any way impaired, and the
illegal, invalid or unenforceable provision shall be fully severed from this
Agreement and there shall be automatically added in lieu thereof a provision as
similar in terms and intent to such severed provision as may be legal, valid and
enforceable.
16.14 ENTIRE AGREEMENT. This Agreement and the Schedules and Exhibits
hereto constitute the entire contract between the parties hereto pertaining to
the subject matter hereof, and supersede all prior agreements and understandings
between the parties with respect to such subject matter (except with respect to
that certain Confidentiality Agreement by and between Buyer and Seller which
shall not be superseded hereby in the event of a termination of this Agreement
for any reason before Closing).
16.15 ARBITRATION; SUBMISSION TO JURISDICTION.
(a) Any dispute relating to this Agreement or the Seller Ancillary
Documents or the Buyer Ancillary Documents or the performance by the
parties of their respective obligations hereunder, which is not resolved
after the parties' attempt at amicable negotiations, shall be finally
settled by arbitration. If such a dispute arises, either party may initiate
arbitration proceedings by filing a demand for arbitration with the other
party and the New York, New York office of the American Arbitration
Association (the "AAA"). In making the selection of the arbitrators, each
party will select one arbitrator and the two arbitrators selected will
mutually agree upon the third arbitrator in accordance with the Commercial
Rules of Arbitration of the AAA. If the two selected arbitrators are unable
to agree on the third arbitrator, then the third arbitrator will be
selected in accordance with the Commercial Rules of Arbitration of the AAA.
All arbitration proceedings shall be conducted in accordance with the
Commercial Rules of Arbitration of the AAA before three arbitrators
selected in accordance with the Commercial Rules of Arbitration of the AAA.
All arbitration proceedings shall be held in New York, New York. The
arbitrator's award resulting from such arbitration may be confirmed and
entered as a final judgment in any court of competent jurisdiction and
enforced accordingly.
(b) The enforcement of any arbitration award or any legal action or
proceeding relating in any way to any other matter concerning any
arbitration proceeding pursuant to Section 16.15(a) above may be brought
and enforced in the federal courts of the United States for the Southern
District of New York, and (i) the Seller accepts for itself, the Company
and the Subsidiaries and in respect of its property, and (ii) the Buyer
accepts for itself and in respect of its property, each generally,
irrevocably and unconditionally, the jurisdiction of each such court in
respect of any such action or proceeding; PROVIDED THAT if for whatever
reason the federal courts of the United States for the Southern District of
New York will not
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<PAGE> 52
or cannot hear such action or proceeding, it may be brought and enforced in
the courts of the State of New York in The City of New York, Borough of
Manhattan. The Seller and the Buyer each agree that a judgment, after
exhaustion of all available appeals, in any such action or proceeding shall
be conclusive and binding upon, and may be enforced in any other
jurisdiction, by a suit upon such judgment, a certified copy of which shall
be conclusive evidence of the judgment. The Seller and the Buyer each
irrevocably designate, appoint and empower CT Corporation System, with
offices at 1633 Broadway, New York, New York 10019, as its designee,
appointee and agent to receive service of any and all legal process,
summons, notices and documents which may be served in any such action or
proceeding and agree that the failure of any such agent to give any advice
of service of process to it shall not impair or affect the validity of such
service or of any such judgment based thereon. If for any reason such
designee, appointee and agent shall cease to be available to act as such,
the Seller and the Buyer each agree to designate a new designee, appointee
and agent in New York City on the terms and for the purposes of this
provision reasonably satisfactory to the other party. The Seller and the
Buyer each further irrevocably consent to the service of process out of any
of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid,
to such party, at its address set forth in Section 16.5, such service to
become effective 30 days after such mailing. Nothing herein shall affect
the right of the Seller or the Buyer to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed
against the Seller or the Buyer in any other jurisdiction.
(c) The Seller and the Buyer each hereby irrevocably waive any
objection which it may now or hereafter have to the laying of venue of any
of the aforesaid actions or proceedings arising out of or in connection the
enforcement of any arbitrator's award or any other matter relating to any
arbitration proceeding pursuant to Section 16.15(a) above brought in the
courts referred to in clause (b) above, and hereby further irrevocably
waive and agree not to plead or claim in any such court that any such
action or proceeding brought in any such court has been brought in an
inconvenient or improper forum.
16.16 OVERALL ADJUSTMENT/INDEMNIFICATION LIMITATION. Notwithstanding
anything in this Agreement to the contrary, in no event shall the aggregate sum
of (i) the EBITDA Shortfall Amount, if any, (ii) the Working Capital Adjustment
Amount, if any, plus or minus the amount of any change thereto pursuant to
Section 2.3(c), (iii) any Employment Claim(s) actually paid by Seller, if any,
and (iv) any Losses actually paid by Seller to Buyer pursuant to Section 12.1,
if any, exceed $3,700,000.
[Remainder of page left blank intentionally]
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<PAGE> 53
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed by its duly authorized officer as of the date first above
written.
MAAG HOLDING AG
By:
----------------------------------
Name:
Title:
SINTER METALS, INC.
By:
----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 2.2
-----------
KREBSOGE STOCK PURCHASE AGREEMENT
by and between
MAAG HOLDING AG
as Seller
and
SINTER METALS, INC.
as Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS............................................................. -1-
ARTICLE II PURCHASE AND SALE OF SHARES AND OTHER SHARES............................ -7-
2.1 Sale, Purchase, Transfer, Assignment and
Acceptance (schuldrechtliches und dingliches
Rechtsgeschaft)................................................................ -7-
2.2 Profits........................................................................ -7-
2.3 Consideration.................................................................. -7-
2.4 Indemnity Escrow Account....................................................... -7-
ARTICLE III REPRESENTATIONS AND WARRANTIES
CONCERNING SELLER....................................................... -9-
3.1 Organization and Good Standing................................................. -9-
3.2 Authority of Seller............................................................ -9-
3.3 No Conflict or Breach.......................................................... -9-
3.4 Consents and Approvals......................................................... -10-
3.5 Share Ownership................................................................ -10-
3.6 Financial Advisors............................................................. -11-
ARTICLE IV REPRESENTATIONS AND WARRANTIES CONCERNING THE
COMPANY AND SUBSIDIARIES................................................ -11-
4.1 Organization and Good Standing................................................. -11-
4.2 Capitalization................................................................. -11-
4.3 Subsidiaries................................................................... -12-
4.4 No Conflict or Breach.......................................................... -13-
4.5 Consents and Approvals......................................................... -14-
4.6 Financial Statements........................................................... -14-
4.7 Title to Assets................................................................ -15-
4.8 Real Property.................................................................. -15-
4.9 Contracts...................................................................... -16-
4.10 Intellectual Property.......................................................... -17-
4.11 Litigation..................................................................... -18-
4.12 Taxes.......................................................................... -18-
4.13 Environmental Protection....................................................... -18-
4.14 Labor and Employment Matters................................................... -19-
4.15 Employee Benefit Plans......................................................... -20-
4.16 Absence of Certain Changes..................................................... -21-
4.17 Insurance...................................................................... -22-
4.18 Capital Projects............................................................... -22-
4.19 Condition of Properties and Equipment.......................................... -23-
4.20 No Undisclosed Liabilities..................................................... -23-
4.21 Entirety of Business........................................................... -23-
4.22 Compliance with Laws........................................................... -23-
4.23 Completeness of Warranties..................................................... -23-
4.24 Inventory...................................................................... -23-
4.25 Receivables.................................................................... -24-
4.26 Customers and Suppliers........................................................ -24-
4.27 Indebtedness................................................................... -24-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER............................................. -25-
5.1 Organization and Good Standing............................................................. -25-
5.2 Authority.................................................................................. -25-
5.3 No Conflict or Breach...................................................................... -25-
5.4 Consents and Approvals..................................................................... -25-
5.5 [Intentionally Left Blank.................................................................. -26-
5.6 Financial Advisors......................................................................... -26-
5.7 Financing.................................................................................. -26-
ARTICLE VI COVENANTS OF SELLER................................................................. -26-
6.1 Conduct of Business........................................................................ -26-
6.2 Access and Information..................................................................... -28-
6.3 No Solicitation............................................................................ -29-
6.4 Confidentiality............................................................................ -29-
6.5 Repayment of Indebtedness.................................................................. -29-
6.6 Intentionally Left Blank................................................................... -30-
6.7 Other Actions.............................................................................. -30-
6.8 Intentionally Left Blank................................................................... -30-
6.9 Working Capital............................................................................ -30-
6.10 Director Resignations...................................................................... -30-
6.11 Intellectual Property...................................................................... -30-
6.12 Other Assistance........................................................................... -30-
6.13 Consents................................................................................... -31-
ARTICLE VII COVENANTS OF BUYER.................................................................. -31-
7.1 Confidentiality............................................................................ -31-
7.2 Disclosure to Seller....................................................................... -31-
7.3 Management Notification.................................................................... -32-
ARTICLE VIII MUTUAL COVENANTS.................................................................... -32-
8.1 GWB Filings................................................................................ -32-
8.2 Casualty or Loss........................................................................... -32-
8.3 Further Actions............................................................................ -32-
ARTICLE IX CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS......................................... -33-
9.1 Representations and Warranties............................................................. -33-
9.2 Compliance with Covenants.................................................................. -33-
9.3 Absence of Litigation...................................................................... -34-
9.4 Antitrust Filings.......................................................................... -34-
9.5 Required Consents.......................................................................... -34-
9.6 No Injunction, etc......................................................................... -34-
9.7 Acquisition of Other Shares................................................................ -35-
9.8 Legal Opinion.............................................................................. -35-
9.9 Financing.................................................................................. -35-
9.10 Powder Metal Holding, Inc. Sale............................................................ -35-
9.11 Intentionally Left Blank................................................................... -35-
9.12 Indemnity Escrow Agreement................................................................. -35-
9.13 Intentionally Left Blank................................................................... -35-
9.14 Release or Termination of Liens............................................................ -35-
9.15 Payment of Indebtedness.................................................................... -35-
9.16 U.S. Real Property Holding Company......................................................... -36-
9.17 Swiss Opinion.............................................................................. -36-
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
ARTICLE X CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS........................................ -36-
10.1 Representations and Warranties............................................................. -36-
10.2 Compliance with Covenants.................................................................. -36-
10.3 Absence of Litigation...................................................................... -36-
10.4 Antitrust Filings.......................................................................... -37-
10.5 No Injunction, Etc......................................................................... -37-
10.6 Legal Opinion.............................................................................. -37-
ARTICLE XI CLOSING............................................................................. -37-
11.1 Closing.................................................................................... -37-
11.2 Deliveries by Seller....................................................................... -38-
11.3 Deliveries by Buyer........................................................................ -39-
ARTICLE XII INDEMNIFICATION............................................................................ -39-
12.1 Indemnification by Seller.................................................................. -39-
12.2 Indemnification by Buyer................................................................... -40-
12.3 Notice of Claim............................................................................ -40-
12.4 Defense.................................................................................... -41-
12.5 Time for Claims (Verjahrung)............................................................... -41-
12.6 Limitation................................................................................. -42-
12.7 Characterization........................................................................... -42-
12.8 Indemnity Amounts.......................................................................... -42-
ARTICLE XIII TAX MATTERS......................................................................... -43-
13.1 Straddle Periods........................................................................... -43-
13.2 Carrybacks................................................................................. -43-
ARTICLE XIV TERMINATION......................................................................... -43-
14.1 Termination................................................................................ -43-
14.2 Effect on Obligations...................................................................... -44-
ARTICLE XV EMPLOYEES........................................................................... -45-
ARTICLE XVI MISCELLANEOUS....................................................................... -45-
16.1 Access After the Closing Date.............................................................. -45-
16.2 Payment of Expenses........................................................................ -45-
16.3 Publicity.................................................................................. -46-
16.4 Commercially Reasonable Efforts............................................................ -46-
16.5 Notices.................................................................................... -46-
16.6 Governing Law.............................................................................. -47-
16.7 German Statutory Law....................................................................... -47-
16.8 Counterparts............................................................................... -47-
16.9 Assignment................................................................................. -47-
16.10 Third Party Beneficiaries.................................................................. -48-
16.11 Headings; References....................................................................... -48-
16.12 Amendments; Waiver......................................................................... -48-
16.13 Knowledge.................................................................................. -48-
16.14 Severability............................................................................... -48-
16.15 Entire Agreement........................................................................... -48-
16.16 Arbitration; Submission to Jurisdiction.................................................... -49-
16.17 Governing Language......................................................................... -50-
</TABLE>
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<PAGE> 5
SCHEDULES
Schedule 1.1 - Forecast of EBIT
Schedule 3.4 - Consent and Approvals
Schedule 3.5 - Share Ownership
Schedule 4.3(a) - Direct Subsidiaries
Schedule 4.3(b) - Indirect Subsidiaries
Schedule 4.3(c) - Subsidiary Shares
Schedule 4.3(d) - Other Participation
Schedule 4.4 - No Conflict or Breach
Schedule 4.5 - Consents and Approvals
Schedule 4.8(a) - Owned Real Property
Schedule 4.8(b) - Leased Real Property
Schedule 4.9(a) - Material Contracts with Automotive
Manufacturers
Schedule 4.9(b) - Material Employment Agreements
Schedule 4.9(c) - Material Purchase Orders with Suppliers
Schedule 4.9(d) - Material Equipment Maintenance Agreements
Schedule 4.9(e) - Material Other Agreements
Schedule 4.10 - Intellectual Property
Schedule 4.11 - Litigation
Schedule 4.12 - Tax Matters
Schedule 4.13 - Environmental Protection
Schedule 4.14 - Collective Bargaining Agreement
Schedule 4.15(a) - Employee Benefit Plans
Schedule 4.15(g) - Severance Pay
Schedule 4.15(h) - Employee Benefit Plan Reserves
Schedule 4.16 - Absence of Certain Changes
Schedule 4.18 - Capital Projects
Schedule 4.19 - Properties and Equipment
Schedule 4.20 - Undisclosed Liabilities
Schedule 4.22 - Compliance with Laws
Schedule 4.23 - Materials Provided to the Buyer
Schedule 4.26 - Customer and Suppliers
Schedule 4.27 - Indebtedness
Schedule 5.4 - Consents and Approvals of Buyer
Schedule 5.7 - Financing
Schedule 6.1(e) - Alterations of Material Contracts
Schedule 6.1(k) - Conduct of Business
Schedule 6.11 - Use of Intellectual Property
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<PAGE> 6
KREBSOGE STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (together with all Schedules and
Exhibits hereto, this "Agreement"), dated as of October 11, 1996, is entered
into by and between MAAG HOLDING AG, a Swiss corporation (which, together with
its successors and assigns, is herein referred to as the"Seller"), and SINTER
METALS, INC., a Delaware corporation ("the Buyer").
RECITALS:
WHEREAS, the Seller is the owner of shares representing an
aggregate stated capital (Stammkapital) of DM 29,400,000 (all such shares
hereinafter collectively being referred to as the "Shares") and SGL Carbon AG is
the owner of one share representing an aggregate stated capital (Stammkapital)
of DM 3,700,000 (all such shares hereinafter collectively being referred to as
the "Other Shares"), in KREBSOGE SINTERHOLDING GMBH, a German limited liability
company registered in the Commercial Register of the Local Court of Wipperfurth
under the registration number HRB 1430 (the "Company"), with a total stated
capital (Stammkapital) of DM 33,700,000;
WHEREAS, the Seller desires to sell, and the Buyer desires to
buy from Seller, all of the Shares and all of the Other Shares on the terms and
conditions set forth in this Agreement;
WHEREAS, simultaneously with its purchase of the Shares and
the Other Shares hereunder, the Buyer intends to purchase shares in Powder Metal
Holding, Inc., a Delaware corporation, pursuant to the Powder Metal Agreement,
which has been executed and which shall close simultaneously with this
Agreement;
WHEREAS, prior to the Closing, the Seller intends to purchase
and obtain good title to all of the Other Shares from SGL Carbon AG;
WHEREAS, in connection with or relative to this Agreement, the
Seller and Buyer have executed, delivered and performed certain Seller Ancillary
Documents and Buyer Ancillary Documents, including, without limitation, the Side
Agreement, dated as of September 26, 1996;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"AFFILIATE" -- Has the meaning ascribed to such term in Rule
12b-2 promulgated under the Exchange Act by the United States
<PAGE> 7
Securities and Exchange Commission, as in effect on the date hereof.
"Aggregate Consideration" defined in Section 2.3.
"ANNUALIZED EBITDA" -- (x) the quotient of (i) EBIT of the
Company and the Subsidiaries, PLUS (ii) depreciation and amortization, PLUS
(iii) all other non-cash charges not in excess of DM 1 million in the aggregate
for the period beginning on January 1, 1996 and ending on the last day of the
month immediately preceding the month in which the Closing occurs divided by the
number of months in such period multiplied by (y) 12.
"BALANCE SHEET DATE" -- June 30, 1996.
"BUYER ANCILLARY DOCUMENT" -- Each other document or agreement
executed or to be executed by the Buyer in connection with or relating to this
Agreement.
"BUYER'S COUNSEL" -- Jones, Day, Reavis & Pogue or such other
counsel as is designated by the Buyer.
"CARTEL OFFICE" -- Defined in Section 8.1.
"CERCLA" -- The Comprehensive Environmental Response
Compensation and Liability Act, as amended.
"CLOSING" -- Defined in Section 11.1.
"CLOSING DATE" -- Defined in Section 11.1.
"COMPANY" -- Krebsoge Sinterholding GmbH, a German limited
liability company.
"COMPANY ACT" -- The German Act on Limited Liability Companies
(Gesetz betreffend die Gesellschaften mit beschrankter Haftung), as amended.
"DELIVERED DOCUMENT" - All documents, lists and disclosures
delivered on October 2, 1996 by Seller to Buyer and certified by Notary Dr.
Pilger as true and correct copies.
"DEUTSCHMARK" or "DM" -- German Marks.
"DIRECT SUBSIDIARIES" -- Defined in Section 4.3.
"EBIT" -- Earnings of the Company and the Subsidiaries before
interest and taxes as calculated in accordance with the principles of Swiss
Accounting and Reporting Recommendations on the basis set forth in the Company's
1996 Forecast of EBIT set forth on Schedule 1.1 excluding, however, any
non-recurring income or charges of whatever nature, all non-recurring expenses
or reductions in reserves and all reversals of accruals.
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<PAGE> 8
"EBITDA SHORTFALL AMOUNT" -- (x) the amount, if any, by which
Annualized EBITDA is less than DM 32.5 million, multiplied by (y) 6.28.
"EFFECTIVE TIME" -- Defined in Section 11.1.
"ENVIRONMENTAL LAWS" -- Any and all federal, state,
provincial, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Authority or
Requirements of Law (including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of the environment, as
now or may at any time hereafter be in effect.
"EXCHANGE ACT" -- The Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the United States
Securities and Exchange Commission promulgated from time to time thereunder.
"FINANCIAL STATEMENTS" -- Defined in Section 4.6.
"FINANCING" -- Defined in Section 5.7.
"GERMAN GAAP" -- Generally accepted accounting principles as
in effect in the Federal Republic of Germany from time to time.
"GOVERNMENTAL AUTHORITY" -- Any nation or government, any
province or other political subdivision thereof, and any entity or person
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GWB ACT" -- The German Act Against Restraints on Competition
(Gesetz gegen Wettbewerbsbeschrankungen), as amended, and the rules and
regulations promulgated thereunder.
"HAZARDOUS MATERIALS" -- Any hazardous or toxic substances,
materials, pollutants or wastes, defined or regulated as such in or under any
Environmental Law or that could reasonably result in liability under any
Environmental Law, including crude oil petroleum and any fraction thereof.
"HSR ACT" -- The Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder.
"INCOME TAX ACT"" -- The German Income Tax Act
(Einkommenssteuergesetz), as amended.
"INDEBTEDNESS" -- As to any Person, at any time, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (whether from public or private sources) (other
than current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), (b) any other indebtedness of
such Person
-3-
<PAGE> 9
which is evidenced by a note, bond, debenture or similar instrument, (c) all
obligations of such Person under capitalized leases, (d) all obligations of such
Person in respect of acceptances issued or created for the account of such
Person, (e) all liabilities secured by any lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable for
the payment thereof and (f) all guarantees of any Indebtedness or obligations
referred to in clauses (a) through (e) above.
"INDEMNIFIED PARTY" -- Defined in Section 12.3.
"INDEMNITY AMOUNTS" -- Defined in Section 12.8.
"INDEMNITY ESCROW ACCOUNT" -- Defined in Section 2.4.
"INDEMNITY ESCROW AGREEMENT" -- Defined in Section 2.4.
"INDEMNITY FUND" -- Defined in Section 2.4.
"INDEMNITY FUND DATE" -- Defined in Section 2.4.
"INDEMNITY LETTER OF CREDIT" -- Defined in Section 2.4.
"INDEMNITY OBLIGOR" -- Defined in Section 12.3.
"INDIRECT SUBSIDIARY" -- Defined in Section 4.3.
"INTELLECTUAL PROPERTY" -- Defined in Section 4.10.
"LEASED REAL PROPERTY" -- The land, buildings and structures
leased by the Company or any Subsidiary, as lessee, and listed in Schedule
4.8(b), including any additions thereto or substitutions therefor.
"LOAN AGREEMENTS" -- Defined in Section 9.14.
"LOSS" -- Defined in Section 12.1.
"MATERIAL ADVERSE EFFECT" -- A material adverse effect on or
material adverse change in the business, operations, property, results of
operations or financial condition of the Seller or the Company and the
Subsidiaries, taken as a whole, or the Buyer, as the case may be, or on the
ability of the Seller, the Company and the Subsidiaries or the Buyer, as the
case may be, to consummate the transactions contemplated hereby.
"MATERIAL CONTRACTS" -- All contracts, commitments, agreements
(including agreements for the borrowing of money or the extension of credit),
leases, licenses, guarantees, understandings and obligations, whether written or
oral, to which the Company or either of the Subsidiaries are party or by which
any of them are bound except for (a) contracts with automotive manufacturers
which may be canceled by the Company or either of the Subsidiaries
-4-
<PAGE> 10
without penalty on not more than sixty days' notice; (b) employment contracts
providing for total annual compensation below DM 100,000 and miscellaneous
service contracts terminable on not more than sixty days' notice without
penalty; (c) purchase orders with suppliers involving payment by the Company or
the Subsidiaries of amounts less than DM 375,000 in the aggregate; (d) equipment
maintenance agreements involving payment by the Subsidiaries of amounts less
than DM 375,000 per year in the aggregate; and (e) other contracts not involving
other aggregate liabilities under all such contracts exceeding DM 375,000 in any
twelve month period.
"NET INDEBTEDNESS" -- On the Closing Date, all Indebtedness of
the Company and its Subsidiaries (excluding any accrued but unpaid interest
thereon) less the Company's and the Subsidiaries' cash on hand and cash
deposited in their respective bank accounts.
"NET INDEBTEDNESS ADJUSTMENT" -- The amount by which Net
Indebtedness on the day immediately preceding the Closing Date (i) exceeds DM
117,000,000, in which case the amount of such excess shall be added to the
Purchase Price pursuant to Section 2.3 or (ii) is less than DM 113,000,000, in
which case the amount less than DM 113,000,000 shall be deducted from the
Purchase Price as provided in Section 2.3.
"NON-WHOLLY OWNED SUBSIDIARIES" -- Defined in Section 4.3.
"OFFICER'S CERTIFICATE" -- Defined in Section 12.8.
"OTHER SHARES" -- Any one or more of the Shares of the Company
owned by SGL Carbon AG in the aggregate amount of DM 3,700,000, which constitute
10.98% of the stated capital (Stammkapital) of the Company.
"OWNED REAL PROPERTY" -- The land, building and structures
owned by the Company or any Subsidiary, including any additions thereto or
substitutions therefor.
"PERSON" -- An individual, partnership, corporation, business
trust, joint stock company, limited liability company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"PLANS" -- (a) Employee benefit plans whether or not funded
and whether or not terminated; (b) employment agreements; and (c) personnel
policies or fringe benefit plans, policies, programs and arrangements, whether
or not funded, and whether or not terminated, including, without limitation,
stock bonus, deferred compensation, pension, severance, bonus, vacation, travel,
incentive and health, disability and welfare.
"POWDER METAL AGREEMENT" -- Defined in Section 9.9.
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<PAGE> 11
"PURCHASE PRICE" -- Defined in Section 2.3.
"REAL PROPERTY LEASES" -- Defined in subsection 4.8(b).
"REPRESENTATIVES" -- Defined in Section 7.1.
"REQUIRED CONSENTS" -- Defined in Section 4.5.
"REQUIREMENTS OF LAW" -- As to any Person, the Articles of
Association, (Gesellschaftsvertrag) Certificate of Incorporation, and By-laws or
other organizational or governing documents of such Person, and any federal,
state, local, municipal, foreign, international, multinational or other
administrative order, constitution, ordinance, law (statutory or
otherwise), treaty, rule or regulation or determination of any arbitrator or
court or other Governmental Authority, in each case applicable to or binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
"SELLER" -- MAAG Holding AG, a Swiss corporation, together
with its successors and assigns.
"SELLER ANCILLARY DOCUMENT" -- Each other document or
agreement executed or to be executed by the Seller, the Company or the
Subsidiaries, as the case may be, in connection with or relating to this
Agreement.
"SELLER'S COUNSEL" -- Cadwalader, Wickersham & Taft, or such
other counsel as is designated by Seller.
"SHARES" -- Any one or more of the shares of the Company owned
by the Seller in the aggregate amount of DM 29,400,000, which constitute 87.24%
of the stated capital (Stammkapital) of the Company.
"STOCK CORPORATION ACT" -- The German Act on Stock
Corporations (Aktiengesetz), as amended.
"SUBSIDIARIES" -- Defined in Section 4.3.
"SUBSIDIARY SHARES" -- Defined in Section 4.3.
"SURVIVAL DATE" -- Defined in Section 12.5.
"TAX OR TAXES" -- Any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes;
license, registration and
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<PAGE> 12
documentation fees; and customs duties, tariffs, and similar charges.
"TAX RETURN OR TAX RETURNS" -- Any report, return declaration
or other information, or any amendment thereof, required to be filed or supplied
in connection with any Tax.
-7-
<PAGE> 13
ARTICLE II PURCHASE AND SALE OF SHARES AND OTHER
SHARES
2.1 SALE, PURCHASE, TRANSFER, ASSIGNMENT AND ACCEPTANCE
(SCHULDRECHTLICHES UND DINGLICHES RECHTSGESCHAFT). Under the conditions
precedent (aufschiebende Bedingungen) contained in Articles IX and X of this
Agreement, the Seller hereby agrees to sell, and to transfer and assign
ownership to the Buyer, and the Buyer hereby agrees to buy, and to accept
transfer and assignment of ownership from the Seller in respect to, all, and not
less than all, of the Shares and the Other Shares, free and clear of all claims,
liens, security interests, charges, community property interests, equitable
interests, options, pledges, rights of first refusal or restrictions or
encumbrances of any kind, including any restrictions on use, transfer, voting,
receipt of income or other attribute of ownership, other than those created by
the Buyer. The transfer and assignment of ownership (dingliche Wirkung) of the
Shares and the Other Shares by the Seller to the Buyer, and the acceptance by
the Buyer of such transfer and assignment of ownership (dingliches
Rechtsgeschaft), shall occur on the Closing Date as more closely described in
Sections 11.2 and 11.3.
2.2 PROFITS. Upon the effectiveness of the transactions
contemplated in this Agreement, the Buyer and any remaining shareholder shall be
entitled to the profits of the Company and the Subsidiaries in the current
fiscal year and in any previous fiscal year, if such previous profits have not
been distributed to the shareholders of the Company and the Subsidiaries.
2.3 CONSIDERATION. The purchase price (the "Purchase Price")
to be paid for the Shares and the Other Shares shall be an amount equal to (a)
(i) $150,000,000 (the "Aggregate Consideration") minus (ii) the sum of (x) the
principal amount of all Indebtedness of the Company and the Subsidiaries
(whether assumed by the Buyer or paid on behalf of the Seller) and (y) the
EBITDA Shortfall Amount, if any, and (iii) plus or minus, as appropriate, the
Net Indebtedness Adjustment, if any, as appropriate multiplied by (b) a
fraction, the numerator of which shall be the aggregate stated capital
(Stammkapital) of the Shares and the Other Shares sold to the Buyer on the
Closing Date and the denominator of which shall be the aggregate stated capital
(Stammkapital) of all the shares of the Company on a fully-diluted basis. The
Purchase Price shall be paid to Seller by wire transfer of immediately available
funds at the Closing.
2.4 INDEMNITY ESCROW ACCOUNT. (a) At the Closing, the Buyer
shall deposit DM 15,000,000 (which may be in the form of an irrevocable, direct
pay letter of credit or similar bank guarantee (the "Indemnity Letter of
Credit") (in either case acceptable to the Buyer) from a financial institution
acceptable to the Buyer issued to the Escrow Agent on behalf of the Seller) into
an escrow account with an escrow agent mutually acceptable to the Buyer and the
Seller (the "Indemnity Escrow Account"). Such amount or
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<PAGE> 14
instrument shall be held in and paid out of the Indemnity Escrow Account in
accordance with the terms hereof and the terms of an Indemnity Escrow Agreement
to be entered into among the Buyer, the Seller and the escrow agent (the "Escrow
Agent"), in form and substance mutually agreeable among such parties (the
"Indemnity Escrow Agreement").
(b) Pursuant to the terms hereof and of the Indemnity Escrow
Agreement, funds held in the Indemnity Escrow Account or drawn under the
Indemnity Letter of Credit shall be applied by the Escrow Agent to make cash
payments to the Buyer equal to the Indemnity Amounts. The "Indemnity Amounts"
shall be those amounts which are due to the Buyer as indemnification pursuant to
the provisions of Section 12.1 hereof. The Escrow Agent shall promptly pay the
Indemnity Amounts out of the Indemnity Escrow Account to the Buyer in accordance
with Section 12.1 hereof and the Indemnity Escrow Agreement. The aggregate
Indemnity Amounts payable pursuant to Section 12.1 hereof may exceed the amount
of cash deposited by the Buyer on behalf of the Seller in the Indemnity Escrow
Account or the face amount of the Indemnity Letter of Credit deposited therein,
as the case may be.
(c) If the Seller deposited cash in the Indemnity Escrow
Account at the Closing, the Escrow Agent shall pay promptly to the Seller in
immediately available funds (i) on the sixth-month anniversary of the Closing
Date, one-half of the aggregate amount remaining in the Indemnity Escrow Account
on such date and not subject to any claim for Indemnity Amounts, and (ii) on the
Survival Date, the aggregate amount remaining in the Indemnity Escrow Account on
such date and not subject to any claim for Indemnity Amounts. If the Seller
deposited the Indemnity Letter of Credit in the Indemnity Escrow Account at the
Closing, the face amount of the Indemnity Letter of Credit shall be reduced in a
corresponding manner pursuant to the terms of the Indemnity Escrow Agreement.
(d) In the event claims to Indemnity Amounts shall have been
made on or prior to the Survival Date pursuant to Section 12.1, and such claims
shall not be resolved or paid as of such date, an amount (the "Indemnity Fund")
equal to such unresolved or unpaid claims (or an Indemnity Letter of Credit with
a face value equal to such amount) shall be held by the Escrow Agent in escrow,
and not distributed, until following the date of resolution or payment to the
Buyer of such claims, together with interest thereon (the "Indemnity Fund
Date"). Promptly after the Indemnity Fund Date, the Escrow Agent shall pay
promptly to the Seller in immediately available funds the aggregate amount
remaining in the Indemnity Fund or return the Indemnity Letter of Credit.
(e) The Escrow Agent shall retain in the Indemnity Escrow
Account all income earned by the Indemnity Escrow Account pursuant to the
Indemnity Escrow Agreement.
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<PAGE> 15
(f) The Escrow Agent shall pay out of the Indemnity Escrow
Account all fees and expenses associated with the Indemnity Escrow Account, as
provided in the Indemnity Escrow Agreement, including, without limitation, its
own reasonable fees and expenses.
ARTICLE III REPRESENTATIONS AND WARRANTIES
CONCERNING SELLER
The Seller represents and warrants to the Buyer in the form of
an independent guarantee (selbstandiges Garantieversprechen) as follows:
3.1 ORGANIZATION AND GOOD STANDING. The Seller is a stock
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and has all requisite power and authority
to own, operate and lease its properties and assets and to conduct its business
as presently conducted. A True, complete and correct copy of the Excerpt from
the Commercial Registry in respect of the Seller, as amended to date, has been
furnished to the Buyer. No bankruptcy or conciliation proceedings have been
initiated in respect to the Seller.
3.2 AUTHORITY OF SELLER. The Seller has all requisite power
and authority to execute and deliver this Agreement and any Seller Ancillary
Document, and to perform the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and any Seller Ancillary
Document in connection herewith have been duly and validly authorized by all
necessary corporate and shareholder action on the part of the Seller and no
further such action is required on the part of the Seller or its shareholders.
This Agreement has been, and each of the Seller Ancillary Documents will be, on
or prior to the Closing Date, duly executed and delivered by the Seller and each
constitutes or will constitute a valid and binding obligation of the Seller,
enforceable in accordance with its respective terms, except that enforceability
hereof or thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
3.3 NO CONFLICT OR BREACH. The execution, delivery and
performance of this Agreement and each of the Seller Ancillary
Documents do not and will not:
(a) conflict with or constitute a violation of the
Articles of Association (Statuten), any other constituent documents
and the excerpt from the Commercial Registry of the Seller;
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<PAGE> 16
(b) assuming compliance with the requirements of the GWB Act
(and HSR Act, if required), conflict with or constitute a violation of
any law, statute, judgment, order, decree or regulation of any
legislative body, court, administrative agency, Governmental Authority
or arbitrator applicable to or relating to the Seller or its properties
or assets; or
(c) conflict with, violate or result in a breach of, or
constitute a default (or an event which, with notice or lapse of time
or both would constitute a default) under, or result in the termination
of or accelerate the performance required by, or result in a right of
termination or acceleration under, any mortgage, note, indenture, deed
of trust, lease, loan agreement or other agreement or instrument
applicable to the Seller or its properties or assets, or any subsidy or
incentive provided to the Seller by any federal, state, provincial, or
local judicial authority or Governmental Authority or administrative
agency, except for conflicts, violations, breaches or defaults which,
individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
3.4 CONSENTS AND APPROVALS. Except as set forth on Schedule
3.4, no (a) consent, approval, authorization, registration or filing with any
federal, state or local judicial or Governmental Authority or administrative
agency (including the German Federal Agency for Reunification-Related
Extraordinary Tasks (Bundesanstalt fur vereinigungsbedingte Sonderaufgaben)),
other than as required under the GWB Act (and, if required, the HSR Act), or (b)
consent, approval, authorization of or notice to any other third party, is
required in connection with the valid execution, delivery and performance by the
Seller of this Agreement or any of the Seller Ancillary Documents or the
consummation by the Seller of the transactions contemplated herein or therein.
3.5 SHARE OWNERSHIP. The Seller is the owner, beneficially and
of record, of all of the Shares and, on the Closing Date, the Other Shares. At
the Closing, the Seller will deliver or cause to be delivered to the Buyer full
right, title and interest in and to the Shares and the Other Shares, free and
clear of all liens, security interests, charges, community property interests,
equitable interests, options, pledges, rights of first refusal or encumbrances
of any kind, including any restrictions on use, transfer, voting, receipt of
income or other attribute of ownership. Except as set forth on Schedule 3.5, the
Seller is not a party to any option, warrant, right, contract, call, put or
other agreement or commitment providing for the disposition or acquisition of
any of the capital stock of the Company, including the Shares and the Other
Shares (other than as set forth in this Agreement). The Shares and the Other
Shares, taken together, do not constitute all or substantially all of the assets
of the Seller for purposes of Article 181 of the Swiss Code of Obligations
(Obligationenrecht) dated March 30, 1911, as amended. On the
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Closing Date, the only holder of the Shares, Other Shares or any other stated
capital (Stammkapital) of the Company other than the Seller is Dr. Lothar
Albano-Muller. Schedule 3.5 contains a complete and correct description of the
development of the stated capital (Stammkapital) and the changes in shareholders
of the Company since its incorporation, including a list of all notarial
documents providing for the incorporation, for the increase or decrease of the
stated capital, and for the transfer of shares in the Company. The Shares
constitute all of the shares of the stated capital of the Company which are
owned by the Seller.
3.6 FINANCIAL ADVISORS. Except for Europeans Investors
Corporate Finance, Inc. and Botts & Company Limited, for whose fees the Seller
shall be solely responsible, the Seller has not retained any finder, broker,
agent or other intermediary to act for it or on its behalf in connection with
the negotiation or consummation of this Agreement, and no party has made any
claim for any brokerage commission, finder's fee or similar payment due from the
Seller. None of the Company or any of the Subsidiaries nor any of their
respective managing directors (Geschaftsfuhrer), officers, directors or
employees has employed any broker, finder or investment banker or incurred any
liability for any brokerage fees, commissions, finders' fees or investment
banking fees in connection with the transactions contemplated hereby.
ARTICLE IV REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY AND SUBSIDIARIES
The Seller represents and warrants to the Buyer in the form of
an independent guarantee (selbstandiges Garantieversprechen) as follows:
4.1 ORGANIZATION AND GOOD STANDING. The Company and each
Subsidiary are each companies duly organized and validly existing under the laws
of its jurisdiction of organization. The Company, each Subsidiary and each
Non-Wholly Owned Subsidiary have all requisite corporate power and authority and
governmental authorizations to own, operate and lease its properties and assets
and to carry on its respective business as presently conducted. The Company,
each Subsidiary and each Non-Wholly Owned Subsidiary have all corporate power
and authority to consummate the transactions contemplated by this Agreement and
any Seller Ancillary Document. Complete and correct copies of each of the
Subsidiaries' constituent documents and governing instruments, each as amended
to date, have been furnished to the Buyer. There are no shareholder resolutions
in existence which amend the Articles of Association (Gesellschaftsvertrag) of
the Company or any Subsidiary and which have not been registered in the
Commercial Register or, if required under applicable law, any similar register.
No bankruptcy or conciliation proceedings have been initiated in respect to the
Company, any Subsidiary or Non- Wholly Owned Subsidiary.
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4.2 CAPITALIZATION. The authorized stated capital
(Stammkapital) of the Company consists of: (i) shares owned by the Seller in the
aggregate nominal amount of DM 29,400,000, (ii) one share in the nominal amount
of DM 3,700,000, and (iii) one share in the nominal amount of DM 600,000. The
Shares and the Other Shares have been validly issued and are fully paid and
nonassessable. The shareholders of the Company and of any Subsidiary are not
required to make additional capital contributions (keine Nachschu(beta)pflicht).
None of the capital contributions of any shareholder of the Company or the
Subsidiary have been paid back to any shareholder. There are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights or other agreements or commitments or rights of any
kind to which the Company or the Seller is a party or which are binding upon the
Company providing for the issuance, disposition or acquisition or voting of any
of the stated capital (Stammkapital) or other equity or similar interest of the
Company (other than this Agreement), or giving rise to any rights in connection
with the disposition, acquisition or voting of any of the Shares or the Other
Shares. There are no voting trusts, proxies or any other agreements or
understandings with respect to the voting of any stated capital (Stammkapital)
of the Company. Except as set forth on Schedule 3.5, the Company is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any of its stated capital (Stammkapital). The shareholders of the
Company have not resolved to increase the stated capital (Stammkapital) of the
Company.
4.3 SUBSIDIARIES.
(a) DIRECT SUBSIDIARIES. The Company is the owner,
beneficially and of record, of all of the shares of the companies
listed in Schedule 4.3(a) hereto and, except as contained in Delivered
Document 4.5, free and clear of all liens, security interests, charges,
community property interests, equitable interests, options, pledges,
rights of first refusal or restrictions or encumbrances of any kind,
including any restrictions on use, transfer, voting, receipt of income
or other attribute of ownership (other than liens that will be released
at Closing and liens related to Indebtedness assumed by the Buyer).
(Such companies are referred to herein as the "Direct Subsidiaries").
The authorized stated capital (Stammkapital) of each of the Direct
Subsidiaries is as shown in Schedule 4.3(a).
(b) INDIRECT SUBSIDIARIES. The Direct Subsidiaries listed in
Schedule 4.3 (a) are the owners, beneficially and of record, of shares
of the companies listed in Schedule 4.3(b), free and clear of all
liens, security interests, charges, community property interests,
equitable interests, options, pledges, rights of first refusal or
restrictions or encumbrances of any kind, including any restrictions on
use, transfer, voting, receipt of income or other attribute of
ownership (other than liens that will be released at Closing
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and liens related to Indebtedness assumed by the Buyer). (Such
companies other than Krebsoge Excel (Filters) PVT, Ltd., Krebsoge
Feida Danyang Filters and Sintered Metal Components (Pty.) Ltd. are
referred to herein as the "Indirect Subsidiaries," Krebsoge Excel
(Filters) PVT, Ltd., Krebsoge Feida Danyang Filters and Sintered Metal
Components (Pty). Ltd. are referred to herein as the "Non-Wholly Owned
Subsidiaries" and the Indirect Subsidiaries and the Direct
Subsidiaries are referred to herein as the "Subsidiaries". The shares
in the Subsidiaries and the shares in the Non-Wholly Owned
Subsidiaries are collectively referred to herein as the "Subsidiary
Shares"). The authorized stated capital (Stammkapital) of each of the
Indirect Subsidiaries and Non-Wholly Owned Subsidiaries is as shown in
Schedule 4.3(b).
(c) SUBSIDIARY SHARES. All of the Subsidiary Shares have been
validly issued and are fully paid and nonassessable. Except as set
forth on Schedule 4.3(c) and contained in Delivered Document 4.3(c),
there are no outstanding or authorized options, warrants, rights,
contracts, calls, puts, rights to subscribe, conversion rights or
other agreements, commitments or rights of any kind to which any
Subsidiary or Non-Wholly Owned Subsidiary or the Seller or the Company
is a party or which are binding upon any Subsidiary or Non-Wholly
Owned Subsidiary providing for the issuance, disposition, acquisition
or voting of any of its stated capital (Stammkapital), or giving rise
to any rights in connection with the disposition, acquisition or
voting of any of the Subsidiary Shares. Except as set forth on
Schedule 4.3(c), there are no voting trusts, proxies or any other
agreements or understandings with respect to the voting of the stated
capital (Stammkapital) of any Subsidiary or Non-Wholly Owned
Subsidiary. No Subsidiary or Non-Wholly Owned Subsidiary is subject to
any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any of its stated capital (Stammkapital).
(d) OTHER PARTICIPATIONS. The Subsidiaries and Non- Wholly Owned
Subsidiaries are the only entities in which the Company owns, directly
or indirectly, any stated capital (Stammkapital), share capital or
other equity interest other than equity interests held for investment
in the ordinary course of business. Except as disclosed on Schedule
4.3 (d), the Company is not a member in any partnership
(Personengesellschaft), including silent partnerships, cooperatives
(Genossenschaften) or joint ventures. Except as disclosed on Schedule
4.3 (d), there are no enterprise contracts (Unternehmensvertrage) as
defined in Sections 291 and 292 of the Stock Corporation Act, to which
the Company or any Subsidiary or Non-Wholly Owned Subsidiary is a
party.
4.4 NO CONFLICT OR BREACH. Except as set forth on Schedule 4.4
or contained in Delivered Document 4.4, the execution, delivery and performance
of this Agreement or the Seller Ancillary
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Documents by the Seller or the performance of this Agreement by the Company does
not and will not:
(a) conflict with or constitute a violation of the Articles of
Association (Gesellschaftsvertrag) or other governing instrument of
the Company or any Subsidiary;
(b) assuming compliance with the requirements of the GWB Act
(and, if required, the HSR Act), conflict with or constitute a
violation of any Requirement of Law applicable to or relating to the
Company or any Subsidiary in any manner that would have a Material
Adverse Effect; or
(c) conflict with, constitute a default under, result in a breach
or acceleration of or, give to others any interest or rights under or
require notice to or the consent of any third party under any
contract, agreement, commitment, mortgage, note, license or other
instrument or obligation applicable to the Company or any Subsidiary
or their respective properties or assets, or any subsidy or incentive
provided to the Company or any Subsidiary by any federal, state,
provincial or local judicial or Governmental Authority or
administrative agency.
4.5 CONSENTS AND APPROVALS. Schedule 4.5 describes each of the
following which is required on the part of the Company or the Subsidiaries in
connection with the execution and delivery by the Seller of this Agreement or
any Seller Ancillary Document or the consummation by the Seller or the Company
or any Subsidiary, of the transactions contemplated herein or therein: (a) each
consent, approval, authorization, registration, permit, notice or filing with
any federal, state or local judicial or Governmental Authority or administrative
agency, other than as required under the GWB Act (and, if required, the HSR Act)
and (b) each consent, approval, authorization of or notice to any other third
party as contained in Delivered Document 4.5, except with respect to clause (a)
or (b) above, such consents, approvals, authorizations and notices as the
failure to obtain or give would not have a Material Adverse Effect. The consents
described on Schedule 4.5 shall be referred to collectively herein as the
"Required Consents."
4.6 FINANCIAL STATEMENTS. The Buyer has received copies of (a)
the audited consolidated financial statements of the Company and its
Subsidiaries for the fiscal years ended December 31, 1994 and December 31, 1995
and (b) unaudited interim consolidated financial statements of the Company and
its Subsidiaries, for the period ended on the Balance Sheet Date. The financial
statements referred to in the previous sentence are sometimes referred to as the
"Financial Statements." The Financial Statements have been prepared in
accordance with German GAAP (Grundsaetze ordnungsgemaesser Buchfuehrung und
Bilanzierung), consistently applied, from books and records which are maintained
in accordance with the controls and procedures of the Company and its
Subsidiaries with the exceptions that such interim statements do not contain the
disclosures required by German GAAP in notes accompanying financial statements,
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and are subject to normal year-end adjustments. The Financial Statements fully
reflect reserves for commitments under any Plan of the Company or its
Subsidiaries, including pension commitments vested prior to December 31, 1986 to
the extent required under German or other applicable law. In respect to
Financial Statements for which the applicable statute of limitations has not
expired, the Company and the Subsidiaries have not obtained improper benefits
from transactions which were concluded with the Seller, with Affiliates, or with
third parties for the benefit of the Seller or Affiliates. A benefit shall for
example be deemed improper if the Company or the Subsidiaries have made or
received shipments, or have provided or received services, for which prices
other than market rate prices were charged for the benefit of the Company or any
Subsidiary. Except as noted the Financial Statements fairly present the
financial condition and results of operation of the Company and each of the
Subsidiaries, taken as a whole, as of the dates and for the periods indicated.
4.7 TITLE TO ASSETS. The Company and each Subsidiary has good
and marketable title to all of its Owned Real Property. Set forth on Schedule
4.8(a) is a list of all Owned Real Property having a value in excess of DM
75,000. The Company has good title to all tangible personal property owned by
the Company or such Subsidiary and used in the operations of the businesses of
the Company and each Subsidiary ("Tangible Personal Property") and to any and
all tangible personal properties necessary to the operation of the business of
each. Seller has heretofore delivered to Buyer a true and accurate list, dated
September 28, 1996, of all Tangible Personal Property owned by the Company or a
Subsidiary having a value in excess of DM 75,000. All such Owned Real Property
and Tangible Personal Property are owned by the Company free and clear of all
liens, charges, equitable interests, options, rights of first refusal,
encumbrances, claims, security interests, mortgages or pledges of any nature,
other than:
(a) liens arising as a consequence of any
Indebtedness;
(b) easements that could not be reasonably expected to
materially adversely affect the full use and enjoyment of the Owned
Real Property or the purposes for which it is currently used and/or
materially detract from its value;
(c) imperfections of title and encumbrances, if any, which, in
the aggregate, are not material to any of the Company or the
Subsidiaries, do not materially detract from the marketability or value
of the properties subject thereto, and could not be reasonably expected
to materially impair the operations of the owner thereof; and
(d) liens for taxes not yet due and payable.
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4.8 REAL PROPERTY.
(a) OWNED. Schedule 4.8(a) contains a description of all Owned
Real Property having a value in excess of DM 75,000. True, correct and
complete copies of (i) certified land register excerpts and surveys of
the Owned Real Property and (ii) all documents evidencing any liens,
charges, equitable interests, options, rights of first refusal,
encumbrances, claims, security interests, mortgages or pledges of any
nature upon the Owned Real Property are contained in Delivered
Document 4.8(a). None of the liens, charges, equitable interests,
options, rights of first refusal, encumbrances, claims, security
interests, mortgages or pledges of any nature upon the Owned Real
Property secure obligations other than those of the Company or the
Subsidiaries. There are no liens, charges, equitable interests,
options, rights of first refusal, encumbrances, claims, security
interests, mortgages or pledges of any nature upon the Owned Real
Property which are not registered in the applicable land register.
None of the Seller or the Company or the Subsidiaries has received any
notice of any appropriation, condemnation or like proceeding, or of
any violation of any applicable zoning law, regulation or other law,
order, regulation or requirement relating to or affecting any Owned
Real Property. To the best knowledge of the Seller, there are no
material physical, structural or mechanical defects in any material
improvements on any of the Owned Real Property.
(b) LEASED. Schedule 4.8(b) and Delivered Document 4.8(b)
contains a description of all Real Property Leases to which the
Company or any Subsidiary is a party (the "Real Property Leases").
Each of the Real Property Leases is valid, binding and enforceable in
accordance with its terms (except that enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting creditors'
rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing) and is in full force and effect and there have
been no defaults thereunder. None of the Seller or the Company or the
Subsidiaries have received any notice of any appropriation,
condemnation or like proceeding, or of any violation of any applicable
zoning law, regulation or other law, order, regulation or requirement
relating to or affecting any Leased Real Property. To the best
knowledge of the Seller, there are no material physical, structural or
mechanical defects in any material improvements on any of Leased Real
Property. Except as disclosed on Schedule 4.8(b), the sale of the
Shares and/or the Other Shares will not, with respect to any such Real
Property Lease, (i) permit the landlord to accelerate the rent or
cause any material lease terms to be renegotiated, (ii) constitute a
material default
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<PAGE> 23
thereunder, or (iii) except for the Required Consents, require the
consent of the landlord or any third party.
4.9 CONTRACTS. Schedules 4.9 (a)-(e) list all Material
Contracts. Copies of Material Contracts listed in Schedule 4.9 (e) are contained
in Delivered Document 4.9 (e). Each of the Material Contracts is valid, binding
and enforceable against the Company or the Subsidiary party thereto in
accordance with its terms (except that enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing) and is in full force and effect
and there have been no breaches or defaults thereunder. Except as disclosed on
Schedule 4.9, none of the sale of the Shares, the sale of the Other Shares, the
execution, delivery or performance of this Agreement or any Seller Ancillary
Document or the consummation of the transactions contemplated herein or therein
will, with respect to any Material Contract, (i) constitute a default
thereunder, (ii) require notice to or the consent of any person or party, except
for the Required Consents, or (iii) affect the continuation, validity and
effectiveness thereof or the terms thereof, except for such defaults, consents
and effects as do not and will not in the aggregate have a Material Adverse
Effect.
4.10 INTELLECTUAL PROPERTY. All of the following which is
owned by, issued to or licensed to either the Company or a Subsidiary is
"Intellectual Property": patents, patent applications, patent disclosures and
inventions (whether or not patentable and whether or not reduced to practice)
and any reissue, continuation, continuation-in-part, revision, extension or
reexamination thereof; trademarks, service marks, trade dress, logos, trade
names and corporate names together with all goodwill associated therewith, and
all translations, adaptations, derivations and combinations of the foregoing;
copyrights and copyrightable works; and all registrations, applications and
renewals for any of the foregoing; trade secrets and confidential information
(including, without limitation, formulae, know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, and customer and
supplier lists and related information); computer software (including, without
limitation, data and related documentation); other proprietary rights; and all
copies and tangible embodiments of the foregoing (in whatever form or medium),
in each case including the items claimed by employees of the Company or the
Subsidiaries and including, and all rights associated therewith.
(a) Schedule 4.10 sets forth a complete and correct list of all:
(i) patented or registered Intellectual Property or for which
applications or other applications for such registrations are pending;
(ii) all trade names and unregistered trademarks and service marks
owned or used by the
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<PAGE> 24
Company or a Subsidiary; and (iii) all licenses or similar agreements
or arrangements for the Intellectual Property to which the Company or
a Subsidiary is a party, either as licensee or licensor (including any
intracompany licensing arrangements) other than, in each case,
Intellectual Property that is not material to the Company or any
Subsidiary. None of the Non-Wholly Owned Subsidiaries owns or licenses
Intellectual Property which is material to the business of any
Non-Wholly Owned Subsidiary.
(b) Except as set forth in Schedule 4.10: (i) either the Company
or a Subsidiary owns and possesses all right, title and interest in
and to, or has a valid and enforceable license to use, the
Intellectual Property free and clear of all liens, licenses, security
interests, encumbrances and other restrictions; (ii) no claim by any
third party contesting the validity, enforceability, use or ownership
of any of the Intellectual Property has been made, is currently
outstanding or is threatened, and there are no grounds for the same;
(iii) neither the Company nor any Subsidiary has received any notices
of, and is not aware of any facts which indicate a likelihood of, any
infringement or misappropriation by, or conflict with, any third party
with respect to the Intellectual Property (including, without
limitation, any demand or request that the Company or a Subsidiary
license any rights from a third party); and (iv) to the best knowledge
of the Company, neither the Company nor any Subsidiary has infringed,
misappropriated or otherwise conflicted with any intellectual property
rights or other rights of any third parties other than, in the case of
clauses (ii), (iii) and (iv), those claims, infringements,
misappropriations and conflicts which could not reasonably be expected
to have a Material Adverse Effect.
4.11 LITIGATION. Except as set forth in Schedule 4.11, (i)
there are no claims, actions, suits, inquiries, hearings or investigations
pending or, to the best knowledge of Seller, threatened against the Company, or
any Subsidiary, (ii) to the best knowledge of Seller, there are no claims,
suits, inquiries, hearings or investigations pending or threatened against any
Non-Wholly Owned Subsidiary, except those which could not reasonably be
expected to have a Material Adverse Effect on any such Non-Wholly Owned
Subsidiary or (iii) which seeks to restrain or enjoin the consummation of the
transactions contemplated by this Agreement or any of the Seller Ancillary
Documents.
4.12 TAXES.
(a) The Company and each Subsidiary has paid and discharged, or
has reserved on the Financial Statements or its books and records, all
Taxes required to be paid and currently due as of the Closing Date in
respect of the business and operations of the Company and the
Subsidiaries and the Company and each Subsidiary has filed all Tax
Returns required in
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connection therewith to be filed. Neither the Company nor any
Subsidiary has executed or filed with the German tax authorities or
any other taxing authority, domestic or foreign, any extension or
agreement extending the period for the assessment or collection of any
Taxes, except for permitted statutory extensions. Neither the Company
nor any Subsidiary is a party to any pending action or proceeding and
neither the Company nor any Subsidiary has received written notice of
any audit or review of any Tax Return or report of the Company or any
Subsidiary which would result in the imposition of any Tax upon the
Company or any Subsidiary. In respect to Taxes for which the
applicable statute of limitations has not expired, there have not been
any concealed dividend distributions (verdeckte Gewinnausschuttungen)
by the Company or any of the Subsidiaries to any of its respective
shareholders.
(b) Schedule 4.12(b) sets forth the taxable years of Company and
each Subsidiary as to which the respective statutes of limitations
with respect to Taxes have not expired.
4.13 ENVIRONMENTAL PROTECTION.
(a) Except as set forth on Schedule 4.13, neither of the Company
nor any of the Subsidiaries has received any notice of violation,
alleged violation, noncompliance, liability or potential liability
regarding environmental matters or compliance with Environmental Laws.
To the Seller's knowledge, neither the Company nor any of the
Subsidiaries is subject to any ongoing investigation relating to or
arising out of any environmental matter.
(b) Except as set forth on Schedule 4.13, to the knowledge of the
Seller, neither the Company nor any Subsidiary has transported or
arranged for the transport of any Hazardous Materials (i) to any site
or location listed or proposed to be listed on the National Priorities
List as of September 1, 1996 or any other similar state list; or (ii)
to a location which could reasonably be expected to give rise to
liability under Environmental Laws.
(c) Except as set forth on Schedule 4.13, there is no condition
relative to the Company, or either of the Subsidiaries or their
respective operations or owned or used properties, including, but not
limited to, any contractual relationship, that could reasonably be
expected to result in any material violation of, or liability under,
applicable Environmental Laws or Environmental Permits (as defined
below) or, to the knowledge of the Seller, the Company or any of the
Subsidiaries, could interfere with continued material compliance with
applicable Environmental Laws in the future.
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<PAGE> 26
(d) Each of the Company and the Subsidiaries has obtained, or has
filed, all required applications for, all permits, licenses,
registrations, consents and other authorizations required under any
Environmental Law through the date hereof with respect to the
operation of the Company and the Subsidiaries ("Environmental
Permits"), except where the failure to have such permits or to file
such applications does not have a Material Adverse Effect, and all
such Environmental Permits are, and have continuously been, in full
force and effect.
(e) Except as set forth on Schedule 4.13, to the knowledge of the
Seller, no above or below ground storage tanks have ever been used for
the storage of Hazardous Materials on or at (i) the Owned Real
Property; (ii) the Leased Real Property; or (iii) any previously owned
or leased real property of the Company or the Subsidiaries.
(f) Except as set forth on Schedule 4.13, to the knowledge of the
Seller, there has never been a release (as defined in CERCLA) of
Hazardous Materials at, on, under or from any of the Owned Real
Property or Leased Real Property, or any previously owned or leased
real property of the Company or the Subsidiaries.
4.14 LABOR AND EMPLOYMENT MATTERS. With respect to
employment matters:
(a) On the Closing Date the Company and the Subsidiaries will
employ no more than 1,500 employees. After the execution of this
Agreement, the amendment or termination by the Company or any
Subsidiary of existing employment agreements with any of their
respective managing directors (Geschaftsfuhrer), officers, directors
or employees will require the express written approval of the Buyer
except in the ordinary course of business consistent with past
practice.
(b) Except as disclosed on Schedule 4.14, no collective
bargaining agreements apply to the Company or any Subsidiary. Copies
of all voluntary shops agreements (Betriebsvereinbarungen) are
contained in Delivered Document 4.14.
(c) There is no labor strike, dispute, slowdown, stoppage or
similar labor difficulty pending or threatened against or affecting
the Company or any of the Subsidiaries.
(d) There is no unfair labor practice charge or other complaint
pending or, to the best knowledge of the Seller, threatened against or
otherwise affecting the Company or any Subsidiary.
(e) The Company and Subsidiaries are in compliance with their
obligations pursuant to all notification and bargaining
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obligations arising under any collective bargaining agreement, statute
or otherwise, respecting their employees.
4.15 EMPLOYEE BENEFIT PLANS. Schedule 4.15(a) contains a list
of, and Delivered Document 4.15 contains copies of, all Plans contributed to,
maintained or sponsored by the Company or the Subsidiaries to which any of them
are obligated to contribute, or with respect to which any of them has any
liability or potential liability.
(a) Except as disclosed in Schedule 4.15(a), neither the Company
nor any of the Subsidiaries contributes to, has any obligation to
contribute to or otherwise has any liability or potential liability
with respect to any voluntary Plan which provides health, life
insurance, accident or other "welfare-type" benefits to current or
future retirees or current or former employees, their spouses or
dependents.
(b) Each Plan of the Company and the Subsidiaries has been
maintained, operated, and administered in compliance with its terms
and any related documents or agreements and in compliance with all
applicable laws.
(c) Seller has previously delivered to Buyer true, complete and
correct copies of each of the Plans set forth on Schedule 4.15(a),
including all amendments thereto, and any other documents, forms, or
other instruments relating thereto reasonably requested by Buyer's
counsel.
(d) Except for routine claims for benefits, there is no pending
or threatened assessment, complaint, proceeding, audit, or
investigation of any kind in any court or Governmental Authority with
respect to any Plan of the Company and the Subsidiaries, nor to the
Seller's knowledge is there any basis for one.
(e) With respect to any insurance policy providing funding for
benefits under any Plan, (i) there is no liability of the Company or
the Subsidiaries in the nature of a retroactive or retrospective rate
adjustment, loss sharing arrangement, or other actual or contingent
liability, nor would there be any such liability if such insurance
policy were terminated on the date hereof, and (ii) no insurance
company issuing such policy is in receivership, conservatorship,
liquidation, or similar proceeding and, to the best of the Seller's
knowledge, no such proceedings with respect to any insurer are
imminent.
(f) The Company and the Subsidiaries have reserved all rights
necessary to amend or terminate each of the Plans of the Company and
the Subsidiaries without the consent of any other Person, except (i)
to the extent such rights are limited by any applicable collective
bargaining agreement or law, and (ii) with respect to claims under any
such Plan that are
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accrued but unpaid as of the date of such amendment or termination.
Neither the Company nor the Subsidiaries has agreed or committed to
make any amendments to any of the Plans of the Company and the
Subsidiaries.
(g) Except as disclosed in Schedule 4.15(g), neither the Company
nor any Subsidiary maintains any plans or programs or is a party to
any agreement that could result in the payment of severance pay or
similar compensation prior to the Closing, at the time of the Closing
or during the one-year period commencing on the Closing Date.
Aggregate payments under any such plan, program, or arrangement during
the one-year period commencing on the Closing Date will not exceed DM
150,000.
(h) In the Financial Statements, the Company and the Subsidiaries
have included adequate reserves for existing obligations under any
Plan on the basis of actuarial opinions (versicherungsmathematische
Gutachten) in accordance with Section 6a of the Income Tax Act. Except
as disclosed on Schedule 4.15(h), the Company and the Subsidiaries do
not have obligations under any Plan for which reserves have not been
included in the Financial Statements.
4.16 ABSENCE OF CERTAIN CHANGES. Except as described in
Schedule 4.16, since the Balance Sheet Date, the operations of the Company and
the Subsidiaries have been conducted only in the ordinary course and in a manner
consistent with past practice, and the Company and the Subsidiaries have not:
(a) suffered any uninsured damage, destruction, theft or loss to
any asset of the Company or the Subsidiaries of a value in excess of
DM 500,000 in the aggregate;
(b) sold, transferred, distributed or otherwise disposed of any
assets used in the operation of the Company or the Subsidiaries, or
returned to any customers or otherwise disposed of, any tooling owned
by such customer and in the possession of the Company or any
Subsidiary, except for (i) assets consumed or disposed of in the
ordinary course of business; (ii) assets disposed of in connection
with the acquisition of replacement property of equivalent kind and
value; or (iii) assets which were returned in the ordinary course of
business or that are no longer used or useful in the business or
operations of the Company or the Subsidiaries;
(c) made, authorized, entered into, or permitted to go into
effect any general wage or salary increase for its employees as a
group, other than in the ordinary course of business consistent with
past practice;
(d) amended or terminated, or authorized the amendment or
termination of, any Material Contract or Real Property
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Lease, other than in the ordinary course of business consistent with
past practice;
(e) incurred any material obligation or liability except normal
trade or business obligations incurred in the ordinary course of
business consistent with past practice, except for expenses relating
to the transactions contemplated hereby not to exceed DM 750,000;
(f) experienced or learned of any change or event which could
reasonably be expected to have a Material Adverse Effect; or
(g) agreed or committed, whether in writing or otherwise, to take
any action described in this Section.
4.17 INSURANCE. The insurable properties owned or leased by
the Company or any Subsidiary are, and until the Closing Date will be,
adequately insured by financially sound and reputable insurers at levels of
coverage reasonable and customary in the powder metal industry. All such
policies are in full force and effect and will continue to be in full force and
effect upon the consummation of the transactions contemplated herein and by the
Seller Ancillary Documents. Buyer has been provided with true, correct and
complete copies of all insurance policies relating to or affecting the Owned
Real Property, Real Property Leases or any Material Contract.
4.18 CAPITAL PROJECTS. Schedule 4.18 sets forth each
unfinished capital project with a total cost in excess of DM 75,000 relating to
the business of each of the Company and the Subsidiaries, the Company's
reasonable estimate of the capital expenditures that will be required subsequent
to the Closing Date to complete such projects and the expected date of
completion of such projects. The required capital contributions of the Non-
Wholly Owned Subsidiaries do not, in the aggregate, have a total cost in excess
of 500,000 DM.
4.19 CONDITION OF PROPERTIES AND EQUIPMENT. Except for
equipment not currently used in the operation of the business of the Company or
Subsidiaries and except for the equipment set forth in Schedule 4.19, the assets
and equipment of each of the Company and the Subsidiaries required for the
normal operation of their respective business are in good condition, normal wear
and tear excepted.
4.20 NO UNDISCLOSED LIABILITIES. Each of the Company and the
Subsidiaries has no liabilities or obligations of any nature (absolute, accrued,
contingent or otherwise) that are not fully reflected or reserved against in the
Financial Statements, except for liabilities that may have arisen in the
ordinary and usual course of business and consistent with past practice and
which are disclosed on Schedule 4.20.
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<PAGE> 30
4.21 ENTIRETY OF BUSINESS. The Company and Subsidiaries and
the Owned Real Property, Tangible Personal Property, Leased Real Property and
Intellectual Property constitute all of the companies, businesses, rights,
assets and arrangements necessary to conduct the business of each of the Company
and Subsidiaries as presently conducted, and there are no other companies,
businesses, assets, rights or arrangements necessary to conduct the business of
the Company as presently conducted.
4.22 COMPLIANCE WITH LAWS. Except as set forth in Schedule
4.22, each of the Company and the Subsidiaries (a) is in material compliance
with all laws, regulations, reporting and licensing requirements and orders
applicable to its business or employees conducting its business, the breach or
violation of which could reasonably be expected to have a Material Adverse
Effect; and (b) has received no notification or communication from any
Governmental Authority (i) asserting that the Company or the Subsidiaries are
not in compliance with any of the statutes, treaties, regulations or ordinances
that such Governmental Authority enforces, which noncompliance could reasonably
be expected to have a Material Adverse Effect or (ii) threatening to revoke any
license, franchise, permit or authorization of any Governmental Authority would
have a Material Adverse Effect.
4.23 COMPLETENESS OF WARRANTIES. To the Seller's best
knowledge, the representations made by the Seller on behalf of itself or the
Company or the Subsidiaries in this Agreement (including the Schedules and
Exhibits hereto) and other materials provided to the Buyer by the Seller or the
Company as set forth on Schedule 4.23 do not contain any untrue statement of a
material fact or omit any material fact necessary to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading.
4.24 INVENTORY. All of the finished goods inventory of the
Company and the Subsidiaries will at the Closing consist of goods useable or
saleable in the ordinary course of the business of the Company and the
Subsidiaries except for such amount of inventory that can be reasonably expected
to be written off in the ordinary course of their businesses determined by
reference to past practice. The Company and the Subsidiaries currently have and
on the Closing Date will have, inventory and work-in-progress in an amount which
is not in excess of the amount of inventory that can reasonably be expected to
be sold in the ordinary course of their business determined by reference to past
practice, except for such amount of inventory that can be reasonably expected to
be written off in the ordinary course of their businesses determined by
reference to past practice.
4.25 RECEIVABLES. All receivables of the Company and the
Subsidiaries which are reflected on the balance sheet of the Company at June 30,
1996 and which are reflected on the books of the Company and the Subsidiaries as
of the Closing Date represent actual, bona fide obligations owing to the Company
or the
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Subsidiaries in the ordinary course of business and are carried at their net
realizable value. At the Closing, such receivables will be free and clear of any
liens, charges, equitable interests, options, rights of first refusal,
encumbrances, claims, security interests, mortgages or pledges of any nature. No
reserve allowance in excess of the recorded reserve is required to be
established in accordance with German GAAP with respect to such receivables
which are reflected on the Balance Sheet of the Company at June 30, 1996, and no
allowance will be required to be established in accordance with German GAAP with
respect to such receivables which will be reflected on the books of the Company
and the Subsidiaries as of the Closing Date. None of such receivables are, or on
the Closing Date, will be past due for a period of more than 90 days.
4.26 CUSTOMERS AND SUPPLIERS. Schedule 4.26 contains a
complete and correct list of (a) the 10 largest customers of and the 10 largest
suppliers to the Company and the Subsidiaries in the aggregate, and any
sole-source suppliers of significant goods or services to the Company and the
Subsidiaries with respect to which alternative sources of supply are not readily
available on comparable terms and conditions, in the case of the customers,
during the 7-month period ended July 31, 1996, and in the case of the suppliers,
during the 6-month period ended June 30, 1996, setting forth the sales by or to
the Company and the Subsidiaries for each such customer or supplier during such
period. The Company has not received written or oral notice that any such
customer or supplier will or may substantially reduce the extent of such
relationship, at any time prior to or after the Closing Date. The Company has
not received written or oral notice of (a) any other existing or contemplated
material modification or change in the business relationship of the Company and
the Subsidiaries with such customers or suppliers, or (b) any existing condition
or state of facts or circumstances, in either case which has, or will materially
adversely affect any such business relationship with any such customer or
supplier.
4.27 INDEBTEDNESS. Schedule 4.27 contains a complete and
correct description of all Indebtedness, including name of creditor, amount
outstanding per September 30, 1996 and amortization and repayment schedule.
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to the Seller in the form of
an independent guarantee (selbstandiges Garantieversprechen) as follows:
5.1 ORGANIZATION AND GOOD STANDING. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
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<PAGE> 32
5.2 AUTHORITY. The Buyer has all requisite power and authority
to execute and deliver this Agreement and to perform the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
have been duly and validly authorized by all necessary corporate and shareholder
action on the part of the Buyer. This Agreement has been duly executed and
delivered by the Buyer and constitutes a valid and binding obligation of the
Buyer, enforceable against the Buyer in accordance with its terms, except that
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing or other applicable law or other similar laws affecting creditors'
rights generally and by principles of equity regarding the availability of
remedies.
5.3 NO CONFLICT OR BREACH. The execution, delivery and
performance of this Agreement and any Buyer Ancillary Document do not and will
not:
(a) conflict with or constitute a violation of the Certificate of
Incorporation or Bylaws or other governing instrument of Buyer;
(b) assuming compliance with the requirements of the GWB Act
(and, if required, the HSR Act), conflict with or constitute a
violation of any Requirement of Law applicable to or relating to
Buyer; or in any manner that would have a Material Adverse Effect; or
(c) conflict with, constitute a default under, result in a breach
or acceleration of or require notice to or the consent of any third
party under any contract, agreement, commitment, mortgage, note,
license or other instrument or obligation to which Buyer is party or
by which it is bound; or in any manner that would have a Material
Adverse Effect.
5.4 CONSENTS AND APPROVALS. No (a) consent, approval,
authorization, registration, permit, notice, or filing with any federal, state
or local judicial or Governmental Authority or administrative agency, other than
as required under the GWB Act (and, if required, the HSR Act), or (b) each
consent, approval, authorization of or notice to any other third party, is
required in connection with the valid execution and delivery by Buyer of this
Agreement or any Buyer Ancillary Document the consummation by Buyer of the
transactions contemplated herein or therein except, in either case, such
consents, approvals, authorizations and notices as the failure to obtain or give
would not have a Material Adverse Effect.
5.5 INTENTIONALLY LEFT BLANK.
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5.6 FINANCIAL ADVISORS. Except for Salomon Brothers Inc, for
whose fees the Buyer shall be solely responsible, the Buyer has not retained any
finder, broker, agent or other intermediary to act for it or on its behalf, has
acted for or on behalf of Buyer in connection with the negotiation or
consummation of this Agreement, and no party has made any claim for any
brokerage commission, finder's fee or similar payment due from Buyer.
5.7 FINANCING. Buyer has secured binding commitments for all
financing (the "Financing") that will be required for it to consummate the
purchase of the Shares and the Other Shares, which are set forth on Schedule 5.7
hereto.
ARTICLE VI COVENANTS OF SELLER
Seller covenants and agrees with Buyer as follows:
6.1 CONDUCT OF BUSINESS. From the date hereof to the Closing
Date, except as provided by this Agreement or as Buyer shall otherwise consent
in writing, Seller shall cause the Company and each Subsidiary to:
(a) continue to carry on its business, maintain its facilities
and equipment, and keep its books of account, records and files in
substantially the same manner as heretofore carried on and maintained;
(b) maintain in full force and effect through the Closing Date
property damage, liability and other insurance with respect to the
assets of the Company and the Subsidiaries at levels of coverage
reasonable and customary and consistent with past practice;
(c) refrain from selling or otherwise transferring or
disposing of assets having an aggregate value in excess of DM 300,000,
except for (i) assets consumed or disposed of in the ordinary course of
business, (ii) assets which are no longer used or, in Seller's
reasonable judgment, useful in the business or operations of the
Subsidiaries or (iii) in connection with the acquisition of replacement
property of equivalent kind or value;
(d) not make any distribution of assets of the Company or any
Subsidiary or declare, pay or set aside for payment any dividend (of
any kind or nature) or distribution with respect to the Shares or the
Other Shares;
(e) not alter the terms of any existing Material Contract
except where such alteration would not have a Material Adverse Effect,
nor enter into any new agreement which, if entered into, would be a
Material Contract except
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for those set forth on Schedule 6.1(e) and those which will have been
provided to Buyer for its comments, at least 5 business days prior to
their execution;
(f) refrain from issuing, selling, delivering, or agreeing to
issue, sell or deliver, any capital stock, warrants, options or
similar rights or other corporate securities of the Company or any
Subsidiary and granting or issuing, or agreeing to grant or issue, any
options, warrants, incentive awards or similar rights calling for the
issuance of such securities;
(g) refrain from repurchasing, redeeming and making a
distribution with respect to, any shares of capital stock of the
Company or any Subsidiary, except as otherwise provided in this
Agreement;
(h) refrain from effecting any recapitalization of stated capital
(Stammkapital) of the Company or any Subsidiary and making any
amendment, whether by merger, consolidation or otherwise, to the
Articles of Association (Gesellschaftsvertrag) of Company or any
Subsidiary;
(i) refrain from (i) merging or consolidating with or into, or
transforming into, any other corporation or entity, (ii) conveying,
selling, leasing or otherwise disposing of in any transaction or
related series of transactions all or substantially all of the
property, business or assets of the Company and the Subsidiaries
(including, without limitation, the capital stock or assets of the
Company and the Subsidiaries), and (iii) acquiring by purchase the
business, assets or stock of any business;
(j) use reasonable efforts to preserve intact the business
organization of the Company and each Subsidiary and to keep available
the services of their present officers and key employees, and use
reasonable efforts to preserve the goodwill of those having business
relationships with the Company and each Subsidiary;
(k) refrain from (i) granting any increase in the compensation of
officers or employees currently receiving total compensation in excess
of DM 100,000 (including any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment), except as set
forth on Schedule 6.1(k) and except for reasonable increases in the
ordinary course of business and consistent with past practice, not to
exceed, individually or in the aggregate, 5% of the current base
compensation level; (ii) assuming or incurring any lien in respect to
the property of the Company or any Subsidiary, other than liens made
in the ordinary course of business; (iii) factoring, selling,
transferring or otherwise disposing of any Receivable other than
factors, sales, transfers or dispositions of Receivables in the
ordinary
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course of business; or (iv) entering into any agreement that is
material to the Company and its Subsidiaries taken as a whole, except
in the ordinary course of business;
(l) refrain from taking any action that would have the effect of
deferring any Tax liability of the Company or any Subsidiary from any
taxable period ending at or before the Closing Date in a manner that
is inconsistent with past practice;
(m) refrain from renewing, extending or otherwise amending any of
the agreements listed on Schedule 4.15(a) except as required by law;
(n) refrain from making any capital expenditure other than
payments made pursuant to those capital projects set forth on Schedule
4.18; and
(o) refrain from agreeing, whether in writing or otherwise, to do
any of the foregoing;
in each case, except where failure to do any of the foregoing would not have a
Material Adverse Effect and PROVIDED that nothing contained in this Section
shall require Seller, the Company or any Subsidiary to incur any extraordinary
cost or make any extraordinary payment.
6.2 ACCESS AND INFORMATION.
(a) During the period commencing on the date hereof and ending on
the Closing Date, Seller shall permit Buyer and its counsel,
accountants, advisors, providers of financing, and other
representatives reasonable access during normal business hours to all
the properties, assets, employees, books, records, agreements and
other documents of the Company and the Subsidiaries; PROVIDED that,
Buyer will obtain the approval of Hans Peter Wursch, or any
representative of Botts & Co. or European Investors Corporate Finance,
Inc. prior to each visit to any Company or Subsidiary premises, whose
approval shall not be withheld. Any investigation by Buyer pursuant to
this Section shall be conducted in such manner as not to interfere
unreasonably with the normal operation of the Subsidiaries. Buyer and
its representatives shall be accompanied on any visits to the premises
of the Subsidiaries by representatives of Seller.
(b) The Seller shall, within 15 business days after the date of
this Agreement, provide to Buyer a list of all contracts, commitments,
agreements (including agreements for the borrowing of money or the
extension of credit), leases, licenses, guarantees, understandings and
obligations, whether written or oral, to which the Company or either
of the Subsidiaries are party and which involve a payment by or to the
Company or a Subsidiary exceeding DM 150,000, in the case
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of employment or similar agreements, or DM 75,000 in all other
cases, in any twelve-month period.
6.3 NO SOLICITATION. From the date hereof to the Closing Date,
neither Seller, the Company, the Subsidiaries nor any representatives
(including, without limitation, attorneys, investment bankers and accountants)
of Seller, the Company or the Subsidiaries will directly or indirectly, through
any partner, managing director, officer, director, employee, agent, affiliate or
otherwise (a) solicit, initiate or encourage, directly or indirectly, the
submission of inquiries, proposals or offers from any Person relating to any
acquisition or purchase of assets or capital stock of the Company or any
Subsidiary or any other transaction that would result in the transfer of control
of the Company, any Subsidiary or an investment by any Person in the Company or
any Subsidiary (each an "Acquisition Proposal") or (b) participate in any
discussions or negotiations regarding an Acquisition Proposal or any of the
foregoing or furnish to any Person any information concerning the Company or any
Subsidiary or any of the foregoing, or (c) otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other Person to do or seek any of the foregoing.
6.4 CONFIDENTIALITY. Following the Closing, Seller agrees to
retain in confidence, and to require its directors, managing directors,
officers, employees, consultants, professional representatives and agents
(collectively, "Seller Representatives") to retain in confidence all information
concerning the Company and the Subsidiaries and further agrees that, following
the Closing, it will not use for its own benefit and will not use or disclose to
any third party, or permit the use or disclosure to any third party of, any such
information, except that Seller may disclose the information to those of the
Seller Representatives who need the information for the proper performance of
their assigned duties with respect to the consummation of the transactions
contemplated hereby and the preparation of appropriate Tax Returns. In making
such information available to its Representatives, Seller shall take any and all
precautions necessary to ensure that the Seller Representatives use the
information only as permitted hereby. Notwithstanding the foregoing, such
information may be disclosed (a) if it is required by court order or decree or
applicable law or in connection with the preparation of Tax Returns, (b) if it
is ascertainable or obtained from public or published information, or (c) if it
is received from a third party not known to the recipient to be under an
obligation to keep such information confidential. If Seller shall be required to
make disclosure of any such information by operation of law (other than in
connection with the preparation of Tax Returns), Seller shall give Buyer prior
notice of the making of such disclosure and shall use all reasonable efforts to
afford Buyer an opportunity to contest the making of such disclosure.
6.5 REPAYMENT OF INDEBTEDNESS. At the Closing, the Buyer shall
determine which Indebtedness of the Company and the
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Subsidiaries shall be paid at the Closing (which Indebtedness shall include the
Indebtedness referenced in clause (i) of Section 9.15), and the Buyer shall, as
directed by and on behalf of the Seller, cause such Indebtedness (including all
accrued but unpaid interest thereon) to be paid out of the Aggregate
Consideration at the Closing.
6.6 INTENTIONALLY LEFT BLANK.
6.7 OTHER ACTIONS. The Seller shall not, and shall not permit
the Company or any of its Subsidiaries to, take any action that would, or that
could reasonably be expected to, result in (i) any of the representations and
warranties of the Seller or the Company and the Subsidiaries set forth in this
Agreement that are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect, or (iii) any of the conditions set forth in Section 9.1 not
being satisfied.
6.8 INTENTIONALLY LEFT BLANK.
6.9 WORKING CAPITAL. The Company and each of its Subsidiaries
will not (i) delay payment of any accounts payable beyond normal and customary
terms, (ii) fail to maintain adequate inventory or replenish inventory
consistent with past practice, or (iii) accelerate payment of any accounts
receivable other than in the ordinary course.
6.10 DIRECTOR RESIGNATIONS. The Seller shall, after
consultation with the Buyer and with its express approval, cause all
Seller-appointed members of the Company's or any Subsidiary's supervisory board
(Aufsichtsrat), advisory committee (Beirat/Verwaltungsrat) or any other
governing body, if any, to resign effective as of the Closing.
6.11 INTELLECTUAL PROPERTY. Except for the licenses set forth
in Schedule 6.11, after the Closing the Seller shall refrain from using, and
shall ensure that its Affiliates will not use, directly or indirectly, any
Intellectual Property.
6.12 OTHER ASSISTANCE. To the extent requested by the Buyer,
the Seller shall reasonably cooperate with and assist the Buyer in the
preparation of a registration statement or similar offering document relating to
a proposed issuance of securities of the Buyer. In connection therewith, the
Seller shall make available to the Buyer and its representatives and agents the
officers and employees of the Company and the Subsidiaries and the legal
accounting and other professional advisors to the Seller, the Company and the
Subsidiaries at reasonable times and locations. All reasonable out-of-pocket
expenses incurred by the Seller, the Company or the Subsidiaries in connection
with such cooperation and assistance shall be promptly paid by the Buyer.
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6.13 CONSENTS. Prior to the Closing Date, the Seller shall use
its best efforts to obtain or cause to be obtained all Required Consents,
including, without limitation, paying reasonable consideration necessary to
obtain such consent.
ARTICLE VII COVENANTS OF BUYER
Buyer covenants and agree with Seller as follows:
7.1 CONFIDENTIALITY. In consideration of the confidential
nature of certain of the information which will be provided to Buyer by Seller,
the Company and the Subsidiaries prior to the Closing, Buyer agrees to retain in
confidence, prior to the Closing, and to require its directors, officers,
employees, consultants, professional representatives and agents (collectively,
its "Representatives") to retain in confidence all information transmitted or
disclosed to it by Seller, the Company and the Subsidiaries, and further agrees
that, prior to the Closing, it will not use for its own benefit and will not use
or disclose to any third party, or permit the use or disclosure to any third
party of, any information so obtained or revealed, except that Buyer may
disclose the information to (i) those of its Representatives who need the
information for the proper performance of their assigned duties with respect to
the consummation of the transactions contemplated hereby, (ii) the parties from
which Buyer seeks financing and their representatives and (iii) in a
registration statement or similar offering document relating to a proposed
issuance of securities by Buyer. In making such information available to its
Representatives, Buyer shall take any and all precautions necessary to ensure
that its Representatives use the information only as permitted hereby.
Notwithstanding anything to the contrary in the foregoing provisions, such
information may be disclosed (a) where it is necessary to any regulation
authorities or governmental agencies, (b) if it is required by court order or
decree or applicable law, (c) if it is ascertainable or obtained from public or
published information, or (d) if it is received from a third party not known to
the recipient to be under an obligation to keep such information confidential.
If Buyer shall be required to make disclosure of any such information by
operation of law, Buyer shall give Seller prior notice of the making of such
disclosure and shall use all reasonable efforts to afford Seller an opportunity
to contest the making of such disclosure. In the event that the Closing shall
not occur, Buyer shall immediately deliver, or cause to be delivered, to Seller
(without retaining any copies thereof) any and all documents, statements or
other written information obtained from Seller, the Company or any Subsidiary
that contain confidential information of Seller.
7.2 DISCLOSURE TO SELLER. The Buyer will notify the Seller if
the Buyer knows or learns of the existence of any facts which cause any of the
representations and warranties contained in Article III or IV to be or become
untrue, PROVIDED, HOWEVER, that
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such disclosure shall not affect any of the Buyer's rights or remedies pursuant
to this Agreement.
7.3 MANAGEMENT NOTIFICATION. After the Closing, Buyer shall
notify the management of the Company of the change in the ownership of the
Shares, as required by Section 16 of the Company Act.
ARTICLE VIII MUTUAL COVENANTS
8.1 GWB FILINGS. Buyer and Seller shall, as promptly as
practicable following the execution of this Agreement, and in cooperation with
each other, file with (if required under the HSR Act) the Department of Justice
and the Federal Trade Commission (if required under the HSR Act), and the German
Federal Cartel Office (Bundes-kartellamt, the "Cartel Office") premerger
notification pursuant to Section 24a of the GWB Act, and each shall use its
reasonable efforts to obtain earliest termination of all waiting periods under
the GWB Act and (if required), the HSR Act. Buyer shall be responsible for and
shall pay all fees assessed in connection with the filing of such forms and
documents.
8.2 CASUALTY OR LOSS. The risk of any loss, damage or
impairment, confiscation or condemnation of any of the assets of the
Subsidiaries from any cause whatsoever shall be borne by Seller at all times
prior to the completion of the Closing. In the event of any loss, damage or
impairment, confiscation or condemnation of any such assets prior to the
completion of the Closing, Seller shall have the option, but shall not be
required, to expend such funds and take such other actions as are necessary to
repair, replace or restore such assets to their prior condition. If Seller has
commenced but not completed the restoration or replacement of such assets before
the Closing Date, the Closing Date shall be postponed during such period not to
extend beyond the date specified in subsection 14.1(e) to permit completion of
the repair or replacement of the damage or loss. If such assets have not been
restored or replaced by such date, Buyer may then take the action specified in
subsection 14.1(c). Alternatively, Buyer may, at its option, proceed to Closing
as of such date and complete the restoration and replacement of such damaged
assets after the Closing Date, in which event Seller shall assign to Buyer the
right to receive all insurance proceeds payable in connection with such damage
to or destruction of the assets.
8.3 FURTHER ACTIONS.
(a) Seller and Buyer will notify each other immediately of any
litigation, arbitration or administrative proceeding pending or to
its/their knowledge, threatened against either of them, the Company or
any Subsidiary which challenges the transactions contemplated in this
Agreement.
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(b) Subject to the terms and conditions of this Agreement,
Seller and Buyer each agree to use commercially reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done,
all things necessary, proper or advisable to consummate and make
effective the transactions contemplated in this Agreement and to
satisfy the conditions hereto.
(c) The Seller and the Buyer agree (i) to furnish upon request
to each other such further information, (ii) to execute and deliver to
each other such other documents, and (iii) to do such other acts and
things, all as the other party may reasonably request for the purpose
of carrying out the content of this Agreement, the Seller Ancillary
Documents, the Buyer Ancillary Documents and the documents referred to
herein and therein.
(d) Prior to the Closing or the termination of this Agreement
pursuant to Section 14(e), the Seller and Buyer will notify each other
immediately orally and in writing if the satisfaction of any condition
to the Closing is or becomes impossible.
ARTICLE IX CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligation of the Buyer to consummate the transactions
contemplated by this Agreement, including the Buyer's obligations pursuant to
Section 12.2 hereunder, and excluding the obligations contained in Articles VI,
VII, VIII and XVI of this Agreement, is subject to the satisfaction of the
following conditions on or before the Closing Date, unless specifically waived
(mit schuldrechtlicher und dinglicher Wirkung) in writing by the Buyer on or
prior to the Closing Date (such waiver shall not constitute a waiver of Buyer's
rights pursuant to Section 12.1 hereof):
9.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller contained in this Agreement (other than in Section 4.19)
(i) shall have been true and correct in all material respects on the date of
this Agreement (except the representations and warranties which relate to the
Other Shares but only insofar as such representations and warranties relate to
the Other Shares) and (ii) shall be true and correct in all material respects
(except that those representations which expressly contain a materiality
qualifier each shall be true and correct in all respects, giving effect to each
such qualifier) on the Closing Date as though made on and as of the Closing
Date. Buyer shall have received a certificate executed by an officer of the
Seller dated as of the Closing Date, certifying the satisfaction of the
conditions in this Section 9.1.
9.2 COMPLIANCE WITH COVENANTS. Seller shall have duly
performed and complied in all material respects with all covenants,
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agreements and obligations required by this Agreement to be performed or
complied with by it on or prior to the Closing. Buyer shall have received a
certificate executed by an officer of Seller dated as of the Closing Date,
certifying the satisfaction of the conditions in this Section 9.2.
9.3 ABSENCE OF LITIGATION. No action or proceeding shall be
pending by or before any court or other governmental body or agency seeking to
(a) restrain, prohibit or invalidate the transactions contemplated by this
Agreement in whole or material part or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the transactions
contemplated by this Agreement or the Seller Ancillary Documents or the Buyer
Ancillary Documents, or (b) impose material limitations on the Buyer's freedom
of action with respect to the Company and its Subsidiaries or any material
portion thereof or all or a material portion of the assets or businesses of the
Buyer.
9.4 ANTITRUST FILINGS.
(a) The Cartel Office
(i) shall not have notified the parties within
one month from the filing of the premerger
notification that it will investigate the
transactions contemplated by this Agreement,
or
(ii) after having made the notification pursuant
to proviso (i) of this Section 9.4, the
Cartel Office shall not have prohibited the
transactions contemplated by this Agreement
within four months from the filing of the
premerger notification, or
(iii) the Cartel Office shall have informed the
parties prior to the expiration of the time
periods referred to in provisos (i) and (ii)
of this Section 9.4 that it will not
investigate the transactions contemplated by
this Agreement.
(b) All applicable waiting periods under the HSR Act
shall have expired or been terminated.
9.5 REQUIRED CONSENTS. All Required Consents and the consents
listed on Schedule 3.4 shall have been obtained by Seller, the Company or the
Subsidiaries, as the case may be, except where failure to have such consent
would not have a Material Adverse Effect.
9.6 NO INJUNCTION, ETC. No preliminary or permanent injunction
or other order, decision or decree issued by any court
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of competent jurisdiction in the United States or the Federal Republic of
Germany or by any United States or German federal or state, foreign or
provincial, governmental or regulatory body nor any statute, rule, regulation or
executive order promulgated or enacted by any United States or German federal or
state, foreign or provincial, governmental authority which restrains, enjoins or
otherwise prohibits the transactions contemplated hereby shall be in effect.
9.7 ACQUISITION OF OTHER SHARES. Seller shall have (i)
purchased, for good and valuable consideration, and (ii) acquired good title to
each and all of the Other Shares free and clear of all liens, security
interests, charges, community property interests, equitable interests, options,
pledges, rights of first refusal or encumbrances of any kind, including any
restrictions on use, transfer, voting, receipt of income or other
attribute of ownership.
9.8 LEGAL OPINION. Buyer shall have received from Seller's
Counsel an opinion, dated the Closing Date, that the Seller, the Company and the
Subsidiaries are duly organized and validly existing under the laws of their
respective jurisdiction of organization as well as the jurisdiction of their
respective headquarters, that the Seller has all requisite power and authority
to execute and deliver this Agreement and the transactions contemplated thereby,
that the Agreement constitutes a valid and binding obligation of the Seller,
that the Seller has, at the time of the Closing, full legal and equitable title
to the Shares and the Other Shares, that at the Closing good and marketable
title to the Shares and the Other Shares, free and clear of any claims, liens,
equities or encumbrances, will pass to the Buyer and that the Company has,
directly or indirectly full legal and equitable title to the Subsidiary Shares.
9.9 FINANCING. The Buyer shall have received proceeds of the
Financing.
9.10 POWDER METAL HOLDING, INC. SALE. The transactions
contemplated by the Purchase Agreement, dated the date hereof, between the Buyer
and the Seller relating to the sale of Powder Metal Holding, Inc. and its
subsidiaries (the "Powder Metal Agreement") shall have occurred simultaneously
with the Closing.
9.11 INTENTIONALLY LEFT BLANK.
9.12 INDEMNITY ESCROW AGREEMENT. The Indemnity Escrow
Agreement shall have been executed by the parties and the amounts required
thereunder shall have been funded or instruments deposited as provided in
Section 2.4.
9.13 INTENTIONALLY LEFT BLANK.
9.14 RELEASE OR TERMINATION OF LIENS. Other than any liens
created by the Buyer or liens relating to Indebtedness which
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the Buyer has agreed to assume, all liens, security interests, charges,
community property interests, equitable interests, options, pledges, rights of
first refusal or restriction or encumbrance of any kind, including any
restrictions on use, transfer, voting, receipt of income or other attribute of
ownership, on any of (i) the Shares, (ii) the Other Shares or (iii) the assets
or properties of the Seller, the Company or the Subsidiaries shall have been
terminated, and the Buyer shall have received written evidence of such releases.
9.15 PAYMENT OF INDEBTEDNESS. To the extent Buyer has not
agreed to assume, the following shall be paid in full (i) the unpaid principal
amount owing by the Company to MAAG Overseas International N.V. Curacao,
together with any and all accrued but unpaid interest thereon computed through
the day preceding the Closing Date, (ii) the unpaid principal amount owing to
the Company's banks together with any and all accrued but unpaid interest
thereon computed through the day preceding the Closing Date and (iii) loans from
former and existing shareholders together with any and all accrued but unpaid
interest thereon computed through the day preceding the Closing Date (such loan
agreements, the "Loan Agreements") and (iii) all other Indebtedness of the
Company and the Subsidiaries outstanding as of the Closing Date, together with
any accrued but unpaid interest thereon through the Closing Date.
9.16 U.S. REAL PROPERTY HOLDING COMPANY. The Seller shall
certify to Buyer that neither the Company nor any of the Subsidiaries is a
United States Real Property Holding Company as such term is defined under the
United States Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder.
9.17 SWISS OPINION. Buyer shall have received from a Swiss law
firm acceptable to Buyer an opinion, dated the Closing Date, that the Shares,
the Other Shares, and the Shares as defined under the Powder Metal Agreement
together do not constitute all or substantially all the assets of the Seller for
purposes of Article 181 of the Swiss Code of Obligations (Obligationenrecht),
dated March 30, 1911, as amended.
ARTICLE X CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the transaction
contemplated by this Agreement (including the Seller's obligations pursuant to
Section 12.1 hereunder), and excluding the obligations contained in Articles VI,
VII, VIII and XVI of this Agreement, are subject to the satisfaction of each of
the following conditions on or before the Closing Date, unless specifically
waived (mit schuldrechtlicher und dinglicher Wirkung) in writing by Seller prior
to the Closing (such waiver shall not constitute a waiver of Seller's rights
pursuant to Section 12.2 hereof):
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10.1 REPRESENTATIONS AND WARRANTIES. Notwithstanding any
notice provided pursuant to Section 7.3, the representations and warranties of
Buyer contained in this Agreement shall have been true and correct on the date
of this Agreement and shall be true and correct in all material respects (except
that those representations which expressly contain a materially qualifier each
shall be true and correct in all respects, giving effect to each such qualifier)
on the Closing Date as through made on and as of the Closing Date. Seller shall
have received a certificate executed by an officer of Buyer dated as of the
Closing Date, certifying the satisfaction of the conditions in this Section.
10.2 COMPLIANCE WITH COVENANTS. Buyer shall have duly
performed and complied with in all material respects all covenants, agreements
and obligations required by this Agreement to be performed or complied with by
it on or before the Closing Date. Seller shall have received a certificate
executed by an officer of Buyer dated as of the Closing Date, certifying the
satisfaction of the conditions in this Section.
10.3 ABSENCE OF LITIGATION. No action or proceeding against
Buyer shall be pending by or before any court or other Governmental Authority
seeking to restrain, prohibit or invalidate the transactions contemplated by
this Agreement.
10.4 ANTITRUST FILINGS.
(a) The Cartel Office
(i) shall not have notified the parties within one month
from the filing of the premerger notification that it
will investigate the transactions contemplated by this
Agreement, or
(ii) after having made the notification pursuant to proviso
(i) of this Section 9.4, the Cartel Office shall not
have prohibited the transactions contemplated by this
Agreement within four months from the filing of the
premerger notification, or
(iii) the Cartel Office shall have informed the parties
prior to the expiration of the time periods referred to
in provisos (i) and (ii) of this Section 9.4 that it
will not investigate the transactions contemplated by
this Agreement.
(b) All applicable waiting periods under the HSR Act
shall have expired or been terminated.
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10.5 NO INJUNCTION, ETC. No preliminary or permanent
injunction or other order, decision or decree issued by any court of competent
jurisdiction in the Federal Republic of Germany or by any German federal or
state, foreign or provincial governmental or regulatory body nor any statute,
rule, regulation or executive order promulgated or enacted by any German federal
or state, foreign or provincial governmental authority which restrains, enjoins
or otherwise prohibits the transactions contemplated hereby shall be in effect.
10.6 LEGAL OPINION. Seller shall have received from Buyer's
Counsel an opinion, dated the Closing Date, that the Buyer is duly organized and
validly existing under the laws of its jurisdiction of organization, that the
Buyer has all requisite power and authority to execute and deliver this
Agreement and the transactions contemplated thereby, and that the Agreement
constitutes a valid and binding obligation of the Buyer.
ARTICLE XI CLOSING
11.1 CLOSING. The closing of the sale by Seller of the Shares
and the Other Shares to Buyer (the "Closing") shall take place at the offices of
Cadwalader, Wickersham & Taft in New York, New York or such other place as
agreed to by Seller and Buyer at 6:00 a.m., local time, on the later to occur of
(i) December 10, 1996 or (ii) fifth business day after the date on which the
conditions contained in Sections 9.4 and 10.4 are met; PROVIDED, HOWEVER, as
follows: (a) if one or more conditions to this Agreement is not satisfied by
such date, the party benefiting from such condition may elect, in its sole
discretion, one or more postponements of the Closing for the purpose of enabling
such condition to be satisfied; and (b) upon agreement of the parties hereto,
the Closing may be postponed to a future date, PROVIDED that, notwithstanding
the provisions of the preceding subparagraphs (a) and (b), in no event may the
Closing be postponed beyond January 31, 1997. The date of the Closing is
referred to as the "Closing Date." The Closing when completed shall be deemed to
have occurred at 12:01 a.m., local time, on the Closing Date (the "Effective
Time").
11.2 DELIVERIES BY SELLER. At the Closing, Seller
shall deliver or cause to be delivered to Buyer the following:
(a) A certificate of an officer of Seller confirming the
satisfaction of the conditions set forth in Sections 9.1 and 9.2.
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(b) A copy of all corporate resolutions authorizing the
execution, delivery and performance of this Agreement and the Seller
Ancillary Documents, and the consummation of the transactions
contemplated herein or therein.
(c) The legal opinions referred to in Section 9.8 and 9.17, the
Indemnity Escrow Agreement and the lien releases and terminations
referred to in Section 9.14.
(d) A certificate certifying as to the matters referred to in
Section 9.15.
(e) A written statement by both the Seller and the Buyer stating
that the conditions precedent contained in Articles IX and X of this
Agreement have been met, such statement to be signed by Buyer and
Seller before a notary public and subsequently furnished with an
apostille, and to be delivered subsequent to the Closing to Notary Dr.
Pilger, Wiesenau 43, 60323 Frankfurt am Main, Germany or such other
notary as Buyer and Seller may agree.
(f) Satisfactory evidence, in Buyer's reasonable judgment, that
all Indebtedness (other than that Indebtedness Buyer has agreed to
assume) has been repaid or discharged.
(g) The termination agreements (Aufhebungsvertrage) regarding any
consulting and support agreement (Beratungsvertrag) or similar
agreement amongst the Seller and the Company or any Subsidiary.
(h) Such other documents, certificates and information as Buyer
may reasonably request.
11.3 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver
or cause to be delivered to Seller the following:
(a) A certificate of an officer of Buyer confirming the
satisfaction of the conditions set forth in Sections 10.1 and 10.2 as
to representations, warranties and covenants.
(b) A copy of all corporate resolutions authorizing the
execution, delivery and performance of this Agreement and the Buyer
Ancillary Documents, and the consummation of the transactions
contemplated herein or therein.
(c) The legal opinion referred to in Section 10.5 and the
Indemnity Agreement.
(d) The Purchase Price, paid by a wire transfer of immediately
available funds in accordance with the terms of Section 2.3.
(e) A written statement by both the Seller and the Buyer stating
that the conditions precedent contained in Articles IX
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and X of this Agreement have been met, such statement to be signed by
Buyer and Seller before a notary public and subsequently furnished
with an apostille, and to be delivered subsequent to the Closing to
Notary Dr. Pilger, Wiesenau 43, 60323 Frankfurt am Main, Germany or
such other notary as Buyer and Seller may agree.
(f) Such other documents, certificates and information as Seller
may reasonably request.
ARTICLE XII INDEMNIFICATION
12.1 INDEMNIFICATION BY SELLER. Subject to the provisions of
Sections 2.4, 12.5 and 12.6, the Seller shall indemnify, defend and hold
harmless Buyer and its officers, directors, employees, agents and Affiliates
from, against and with respect to any and all loss, damage, claim, obligation,
liability, cost and expense (including, without limitation, reasonable
attorneys' fees and costs and expenses incurred in investigating, preparing,
defending against or prosecuting any litigation, claim, proceeding or demand),
of any kind or character (a "Loss") arising out of or in connection with any of
the following:
(a) any breach of any of the representations or warranties of
Seller contained in this Agreement (other than those contained in
Sections 4.18 and 4.24 or the first three sentences of Section 4.25);
(b) any failure by Seller to perform or observe, or to have
performed or observed any covenant or agreement to be performed or
observed by it pursuant to this Agreement;
(c) all liability for Taxes in excess of DM 15,000, or payable by
or with respect to, the Company and the Subsidiary for any period
ending on or before the end of the day immediately preceding the
Closing Date and that portion of a Straddle Period up to and including
the Closing Date ("Pre-Closing Tax Period");
(d) any debt or liability of any Company or Subsidiary to the
extent not disclosed on the balance sheet included in the Financial
Statements, on any Schedule hereto, or not otherwise expressly assumed
by Buyer hereunder; or
(e) any matter set forth on Schedule 4.5, 4.10(b) (ii), (iii) and
(iv), 4.11, 4.13, 4.16(e), 4.20, and 4.22 to the extent Losses
relating thereto exceed, in the aggregate together with Losses arising
in connection with any matter set forth on Schedule 4.5, 4.10, 4.11,
4.13, 4.16(e), 4.20 and 4.22 of the Powder Metal Agreement, $1.5
million.
12.2 INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend
and hold harmless each of the Seller, the Company and the
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Subsidiaries and their respective officers, directors, employees, agents and
Affiliates from, against and with respect to any Loss arising out of or in
connection with any of the following:
(a) any breach of any of the representations and warranties of
Buyer contained in this Agreement;
(b) any failure by Buyer to perform or observe, or to have
performed or observed any covenant or agreement to be performed or
observed by it pursuant to this Agreement;
(c) Buyer's operation of the Company and the Subsidiaries on and
after the Effective Time;
(d) all liability for Taxes of any Company or Subsidiary for any
taxable period ending after the Closing Date (except to the extent
such taxable period is a Straddle Period in which case Buyer's
indemnity will cover only that portion of such Taxes that are not
attributable to the Pre-Closing Tax Period).
12.3 NOTICE OF CLAIM. If any third party shall notify any
party (the "Indemnified Party") with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification against the other
party (the "Indemnity Obligor") under this Article XII, then the Indemnified
Party shall, within 30 days following receipt of such Third Party Claim,
promptly notify the Indemnity Obligor in writing of any claim for recovery,
specifying in reasonable detail the nature of the Loss and the amount of the
liability estimated to arise therefrom. If the Indemnified Party does not so
notify the Indemnity Obligor within 30 days of its discovery of a claim for
recovery, such claim shall be barred only to the extent that the Indemnity
Obligor is prejudiced by such failure to notify. The Indemnified Party shall
provide to the Indemnity Obligor as promptly as practicable thereafter all
information and documentation reasonably requested by the Indemnity Obligor to
verify the claim asserted.
12.4 DEFENSE. If the facts relating to a Loss arise out of the
claim of any third party, or if there is any claim against a third party
available by virtue of the circumstances of the Loss, the Indemnity Obligor may,
by giving written notice to the Indemnified Party within 15 days following its
receipt of the notice of such claim, elect to assume the defense or the
prosecution thereof, including the employment of counsel or accountants at its
cost and expense; PROVIDED, HOWEVER, that during the interim the Indemnified
Party shall use its commercially reasonable efforts to take all action (not
including settlement) reasonably necessary to protect against further damage or
loss with respect to the Loss. The Indemnified Party shall have the right to
employ counsel separate from counsel employed by the Indemnity Obligor in any
such action and to participate therein, but the fees and expenses of such
counsel shall be at the Indemnified Party's own expense, unless (i) the
employment thereof has been
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specifically authorized by the Indemnity Obligor, (ii) such Indemnified Party
will have been advised by counsel reasonably satisfactory to the Indemnity
Obligor that there may be one or more legal defenses available to it which are
different from or additional to those available to the Indemnity Obligor and in
the reasonable judgment of such counsel it is advisable for such Indemnified
Party to employ separate counsel, or (iii) the Indemnity Obligor has failed to
assume the defense of such action and employ counsel reasonably satisfactory to
the Indemnified Party. Whether or not the Indemnity Obligor chooses so to defend
or prosecute such claim, all the parties hereto shall cooperate in the defense
or prosecution thereof and shall furnish such records, information and testimony
and shall attend such conferences, discovery proceedings and trials as may be
reasonably requested in connection therewith. The Indemnity Obligor shall not be
liable for any settlement of any such claim effected without its prior written
consent. In the event of payment by the Indemnity Obligor to the Indemnified
Party in connection with any Loss arising out of a third party claim, the
Indemnity Obligor shall be subrogated to and shall stand in the place of the
Indemnified Party as to any events or circumstances in respect of which the
Indemnified Party may have any right or claim against such third party relating
to such Indemnified Matter. The Indemnified Party shall cooperate with the
Indemnity Obligor in prosecuting any subrogated claim. The Indemnity Obligor
will take no action in connection with any claim that would adversely affect the
Indemnified Party without the consent of the Indemnified Party.
12.5 TIME FOR CLAIMS (Verjahrung). Any claim asserted with
respect to Sections 12.1(a) or (b) (other than in respect of Section 6.4) or
12.2(a) or (b) (other than in respect of Section 7.1) must be submitted to the
Indemnity Obligor in writing, or invoked in official proceedings, by April 15,
1998 (the "Survival Date"), other than claims with respect to (i) Sections 4.12
and 4.15, which may be submitted until sixty (60) days following the expiration
of the longest applicable statute of limitations, (ii) Section 4.13, which may
be submitted until the third anniversary of the Closing Date, and (iii) Sections
3.5 and 4.3 (solely with respect to the ownership of the Subsidiary Shares),
which may be submitted at any time without limitation.
12.6 LIMITATION. Notwithstanding the provisions of Section
12.1, neither Seller nor the Buyer shall have any indemnification obligation
under this Agreement
(a) (i) with respect to the Seller, in excess of DM 30,000,000
and (ii) with respect to both Buyer and Seller unless and until and to
the extent that the aggregate amount of the Losses of the Indemnified
Party exceeds DM 375,000 in the aggregate provided, that Losses arising
from an indemnification obligation under Section 12.1(c) or resulting
from a breach of a representation or warranty contained in this clause
(ii) and shall also be applied toward the
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aggregate of Losses when determining whether such threshold of DM
375,000 shall have been met;
(b) with respect to an indemnification obligation resulting from
a breach of the representation and warranty contained in the last
sentence of Section 4.25, in excess of the amount of such receivable
giving rise to such breach, net of any recorded reserve on the books
of the Company and the Subsidiaries at the time of the Closing with
respect to such receivable. Buyer agrees to assign to Seller any such
receivable for which Buyer has received an indemnification payment
pursuant to this Article XII.
12.7 CHARACTERIZATION. Any payments pursuant to this Article
XII shall be treated by the parties as adjustments to the Purchase Price for tax
purposes, unless otherwise required by law.
12.8 INDEMNITY AMOUNTS. If the Buyer shall incur any Losses
(whether pursuant to a Third Party Claim or otherwise) or determine that it is
likely to incur any Losses and shall consider that it is entitled to be
indemnified against such Losses, the Buyer shall deliver a certificate signed by
an officer thereof (an "Officer's Certificate"), to the Seller which Officer's
Certificate shall (i) state that the Buyer has incurred Losses, or anticipates
that it will incur Losses for which the Buyer is entitled to indemnification
pursuant to Section 12.1 and (ii) specify in reasonable detail each individual
Loss included in the amount so stated, the date such Loss was incurred, the
basis for any anticipated Loss and the nature of the misrepresentation or breach
of warranty or agreement to which each such Loss is related and the computation
of the amount to which the Buyer claims to be entitled hereunder. In the event
that the Seller shall object to the indemnification of the Buyer in respect of
any Loss specified in an Officer's Certificate, the Seller shall, within 30 days
of receiving such Officer's Certificate, deliver to the Buyer a written notice
to such effect and the Seller and the Buyer shall, within the 30-day period
beginning on the date of receipt by the Buyer of such written objection, attempt
in good faith to agree upon the rights of the respective parties with respect to
each of such claims to which the Seller shall have so objected. If the Buyer and
the Seller shall succeed in reaching agreement on their respective rights with
respect to any of such claims, the Buyer and the Seller shall promptly prepare
and sign a memorandum setting forth such agreement. If no agreement is reached,
the Buyer may commence a cause of action in any court having competent
jurisdiction with respect to the Indemnity Escrow Account. The amounts set forth
in (A) claims specified in any Officer's Certificate to which the Seller shall
not object in writing within 30 days after its receipt of such Officer's
Certificate, (B) claims covered by a memorandum of agreement of the nature
described in this Section 12.8 and (C) claims the validity and amount of which
shall have been determined by a final judgment are hereinafter referred to,
collectively, as the "Indemnity Amounts."
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ARTICLE XIII TAX MATTERS
13.1 STRADDLE PERIODS. In the case of any taxable
period that includes (but does not end on) the Closing Date (a
"Straddle Period"):
(a) real, personal and intangible property Taxes ("Property
Taxes") of the Company and the Subsidiaries for the Pre-Closing Tax
period shall include the amount of such property Taxes for the entire
Straddle Period multiplied by a fraction, the numerator of which is
the number of days during the Straddle Period that are in the
Pre-Closing Tax Period and the denominator of which is the number of
days in the Straddle Period; and
(b) the Taxes of the Company and the Subsidiaries (other than
Property Taxes) attributable to the Pre-Closing Tax Period shall be
computed as if such taxable period ended at the end of the day on the
Closing Date and the amount of Taxes attributable to such period shall
be based upon a closing of the books of the applicable Company and
Subsidiary at the end of the day on the Closing Date.
13.2 CARRYBACKS. Buyer shall not be entitled to carryback any
Losses, credits or other Tax benefit items of the Company or the Subsidiaries
that arises in a taxable period (or portion thereof) ending after the Closing
Date to a Pre-Closing Tax Period of Company, Seller, the Company or the
Subsidiaries.
ARTICLE XIV TERMINATION
14.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by the mutual written consent of Seller and Buyer;
(b) by Seller (if Seller is not then in breach of any term of
this Agreement), if Buyer shall (i) fail to perform in any material
respect its agreements contained herein to be performed on or prior to
the Closing Date, or (ii) materially breach any of its representations
or warranties contained herein, which failure or breach is not cured
within ten days after Seller has notified Buyer of its intent to
terminate this Agreement pursuant to this subparagraph;
(c) by Buyer (if Buyer is not then in breach of any term of this
Agreement), if Seller shall (i) fail to perform in any material
respect its agreements contained herein required to be performed on or
prior to the Closing Date, or (ii) materially breach any of its
representations or warranties contained herein, which failure or
breach is not cured within
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ten days after Buyer has notified Seller of its intent to terminate
this Agreement pursuant to this subparagraph;
(d) by either Seller or Buyer, if there shall be any
nonappealable or final order, writ, injunction or decree of any court
or governmental or regulatory agency binding on Seller or Buyer which
prohibits or restrains Seller or Buyer from consummating the
transactions contemplated hereby (other than temporary injunctions);
(e) by Buyer, if any of the conditions in Article IX has not been
satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer
has not waived such condition on or before the Closing Date; or (ii)
by Seller, if any of the conditions in Article X has not been
satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Seller to comply with its obligations under this Agreement) and Seller
has not waived such condition on or before the Closing Date; or
(f) by either the Seller or the Buyer, if the Closing has not
occurred by January 31, 1997, for any reason other than delay or
nonperformance of the party seeking such termination.
14.2 EFFECT ON OBLIGATIONS. Termination of this Agreement
pursuant to this Article shall terminate all obligations of the parties
hereunder, except for the obligations under Sections 16.3 (with respect to
expenses), 16.4 (with respect to publicity) and 7.1 (with respect to
confidentiality); PROVIDED, HOWEVER, that termination pursuant to subparagraphs
(b) or (c) of Section 14.1 shall not relieve the defaulting or breaching party
from any liability to the other party hereto.
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ARTICLE XV EMPLOYEES
It is the Buyer's present intention to cause the Company and
the Subsidiaries to continue to provide, immediately following the Closing
compensation levels and employee benefit programs the same as or reasonably
comparable to the compensation levels and employee benefit programs provided by
the Company and the Subsidiaries prior to the Closing, and to continue to credit
service under the employee benefit programs of the Company and the Subsidiaries
following the Closing in a manner consistent with the manner in which service
has been credited under such programs prior to the Closing. Notwithstanding the
foregoing, however, the parties recognize that the Company and the Subsidiaries
may, subject to the requirements of applicable law, any applicable voluntary
shop agreement (Betriebsvereinbarung) and any applicable collective bargaining
agreement, change the compensation levels or benefit programs provided by the
Company and the Subsidiaries following the Closing in ways that either the
Company or any Subsidiary determines to be necessary or appropriate for the
operation of its business.
ARTICLE XVI MISCELLANEOUS
16.1 ACCESS AFTER THE CLOSING DATE. After the Closing Date,
the Buyer shall provide the Seller with reasonable access during normal business
hours to copies of all of the books and records of the Company and the
Subsidiaries whenever requested by the Seller, and the Buyer shall retain such
books and records for the later of the end of the normal document retention
period of the Buyer; PROVIDED that the Buyer shall retain all required Tax books
and records until 60 days following the expiration of the applicable statute of
limitations. At the request and expense of the Seller, the Buyer shall deliver
copies of any such books and records to the Seller. At the Seller's out of
pocket expense, the Buyer shall use reasonable efforts to cause any of the
employees of the Company or any Subsidiary or the Buyer who were previously
employed by the Company or any Subsidiary to meet with the Seller and its
representatives and agents (including counsel and accountants) at such times and
places as the Seller may reasonably request in order to provide the Seller with
information concerning the operation of the Company and the Subsidiaries and the
conduct of their business by the Company or such Subsidiary prior to the Closing
Date.
16.2 PAYMENT OF EXPENSES.
(a) Except as provided in Sections 8.1 and 8.2, all costs of
transferring the Shares and the Other Shares to Buyer in accordance
with this Agreement, including recordation, notarial, registration,
stamp, transfer and documentary taxes and fees, and any federal, state
or local excise, sales or use taxes, and any filings or grant fees
imposed by any
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governmental authority, shall be paid one-half by Seller and one-half
by Buyer.
(b) All costs, including recordation, notarial, registration,
stamp, transfer and documentary taxes and fees, and any federal, state
or local excise, sales or use taxes, and any filings or grant fees
imposed by any governmental authority caused by, or arising from, any
liquidation, merger, sale or transfer by or of the Company or any
Subsidiary or assets of the Company or any Subsidiary which occurs
after the Closing shall be paid by Buyer.
(c) Except as otherwise expressly provided in this Agreement,
each of the parties shall bear its own expenses, including the fees of
any attorneys and accountants engaged by such party, in connection
with this Agreement, the Seller Ancillary Documents and the Buyer
Ancillary Documents and the consummation of the transactions
contemplated herein or therein.
16.3 PUBLICITY. Seller and Buyer agree that they will not make
any press releases or other announcements prior to the Closing with respect to
the transactions contemplated hereby, except as required by applicable law,
without the prior approval of all other parties. The Seller acknowledges that
the Buyer is required to make certain public disclosures and filings pursuant to
the Exchange Act with respect to the transactions contemplated hereby.
16.4 COMMERCIALLY REASONABLE EFFORTS. Each party hereto agrees
to use commercially reasonable efforts to effect the Closing set forth in this
Agreement and otherwise to consummate the transactions contemplated by this
Agreement. Specifically, but without limiting the generality of the foregoing,
each of Buyer and Seller shall use commercially reasonable efforts to make or
obtain all consents, approvals, authorizations, registrations and filings with
all federal, state, provincial or local judicial or governmental authorities or
administrative agencies as are required in connection with the consummation of
the transactions contemplated by this Agreement.
16.5 NOTICES. All notices, demands and other communications
made hereunder shall be in writing and shall be given either by personal
delivery, by nationally recognized overnight courier (with charges prepaid) or
by telecopy (with telephone confirmation), and shall be deemed to have been
given or made when personally delivered, the day following the date deposited
with such overnight courier service or when transmitted to telecopy machine and
confirmed by telephone, addressed to the respective parties at the following
addresses (or such other address for a party as shall be specified by like
notice):
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If to Seller:
Maag Holding AG
Hardstrasse 219
Zurich, Switzerland CH-8023
Attn: Samuel Gartmann
Telephone: 011-41-1-278-7215
Telecopy: 011-41-1-271-9204
With a copy (which shall not constitute notice) to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attn: Jonathan M. Wainwright, Esq.
Telephone: (212) 504-6122
Telecopy: (212) 504-6666
If to Buyer:
Sinter Metals, Inc.
Terminal Tower
50 Public Square/Suite 3200
Cleveland, OH 44113
Attn: Joseph W. Carreras
Telephone: (216) 771-6700
Telecopy: (216) 344-7631
With a copy (which shall not constitute notice) to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, OH 44114
Attn: Christopher M. Kelly, Esq.
Telephone: (216) 586-3939
Telecopy: (216) 579-0212
16.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Federal Republic of Germany,
without regard to conflict of laws principles.
16.7 GERMAN STATUTORY LAW. Sections 460 and 464 of the German
Civil Code (BGB) and Section 377 of the German Commercial Code (HGB) shall not
apply to this Agreement. Section 460 of the German Civil Code (BGB) provides
that a seller shall not be liable to the buyer for the breach of a
representation or warranty, if the buyer has knowledge of such breach prior to
the consummation of the sale. The exclusion of Section 460 from this Agreement
shall not entitle the Buyer to indemnification pursuant to this Agreement in
respect to matters which were disclosed by the Seller in any Schedule (including
such Delivered Documents, which are incorporated by reference in any Schedule to
this Agreement), with
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the exception of the Schedules listed in Section 12.1 (e) hereof. The mere
listing of agreements in any Schedule, however, shall not be regarded as a
disclosure of a matter for purposes of the preceding sentence. For the purposes
of clarification with respect to Schedules 4.9(a), (b), (e) and 4.10, 4.15(a)
the Parties hereto acknowledge that the preceding sentence shall not increase
the Seller's liability with respect to the matters set forth in Section 4.9,
4.10 and 4.15.
16.8 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.9 ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interest or
obligations hereunder shall be assigned by either of the parties hereto without
the prior written consent of the other party hereto, and any purported
assignment without such consent shall be void; PROVIDED, HOWEVER, that the Buyer
may, without the consent of the Seller, (i) grant a security interest in its
rights under this Agreement to a lender as security for Buyer's obligations to
such lender and (ii) assign its rights hereunder to one or more wholly-owned
subsidiaries of the Buyer, but no such grant of security interest or assignment
shall release the Buyer from its obligations hereunder.
16.10 THIRD PARTY BENEFICIARIES. None of the provisions of
this Agreement or any document contemplated hereby is intended to grant any
right or benefit to any person or entity which is not a party to this Agreement.
16.11 HEADINGS; REFERENCES. The article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of this Agreement and shall not in any way affect the meaning or
interpretation of this Agreement. When a reference is made in this Agreement to
a clause Section, subsection or Article, such reference shall be to such clause,
Section, subsection or Article of this Agreement unless otherwise indicated.
16.12 AMENDMENTS; WAIVER. Any waiver, amendment, modification
or supplement of or to any term or condition of this Agreement shall be
effective only if in writing and signed by both parties hereto, and the parties
hereto waive the right to amend the provisions of this Section orally. No waiver
by any party of any of the provisions hereof shall be effective unless
explicitly set forth in writing and executed by the party so waiving. The waiver
by any party hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any other or subsequent breach. No
failure on the part of either party hereto to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof. The remedies
herein are cumulative and not exclusive of any remedies provided by law.
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16.13 KNOWLEDGE. Whenever used herein with respect to the
Seller the Company and its Subsidiaries, the term "knowledge" or "best
knowledge" shall mean the actual knowledge of Dr. Lothar Albano-Muller, Dr.
Manfred Weber and Dr. Volker Arnhold. Notwithstanding any notice provided
pursuant to Section 7.3, the Seller acknowledges and agrees that the Buyer's
right to rely on the representations and warranties of the Seller with respect
to itself and the Company and its Subsidiaries shall not be affected in any way
by any investigation conducted by the Buyer.
16.14 SEVERABILITY. In the event that any provision in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect, the remaining provisions of this Agreement shall not be in any way
impaired, and the illegal, invalid or unenforceable provision shall be fully
severed from this Agreement and there shall be automatically added in lieu
thereof a provision as similar in terms and intent to such severed provision as
may be legal, valid and enforceable.
16.15 ENTIRE AGREEMENT. This Agreement and the Schedules
hereto together with the Seller Ancillary Documents and the Buyer Ancillary
Documents, constitute the entire contract between the parties hereto pertaining
to the subject matter hereof, and supersede all prior agreements and
understandings between the parties with respect to such subject matter (except
with respect to that certain Confidentiality Agreement by and between Buyer and
Seller which shall not be superseded hereby in the event of a termination of
this Agreement for any reason before Closing).
16.16 ARBITRATION; SUBMISSION TO JURISDICTION.
(a) Any dispute relating to this Agreement or the Seller
Ancillary Documents or the Buyer Ancillary Documents or the performance
by the parties of their respective obligations hereunder, which is not
resolved after the parties' attempt at amicable negotiations, shall be
finally settled by arbitration. If such a dispute arises, either party
may initiate arbitration proceedings by filing a demand for arbitration
with the other party and the New York, New York, office of the American
Arbitration Association (the "AAA"). In making the selection of the
arbitrators, each party will select one arbitrator and the two
arbitrators selected will mutually agree upon the third arbitrator in
accordance with the Commercial Rules of Arbitration of the AAA. If the
two selected arbitrators are unable to agree on the third arbitrator,
then the third arbitrator will be selected in accordance with the
Commercial Rules of Arbitration of the AAA. All arbitration proceedings
shall be held in New York, New York. The arbitrator's award resulting
from such arbitration may be confirmed and entered as a final judgment
in any court of competent jurisdiction and enforced accordingly.
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(b) The enforcement of any arbitration award or any legal action
or proceeding relating in any way to any matter concerning any
arbitration proceedings pursuant to Section 16.5(a) above may be
brought and enforced in the federal courts of the United States for
the Southern District of New York, and (i) the Seller accepts for
itself, the Company and the Subsidiaries and in respect of its
property, and (ii) the Buyer accepts for itself and in respect of its
property, each generally, irrevocably and unconditionally, the
jurisdiction of each such court in respect of any such action or
proceeding; PROVIDED, THAT if for whatever reason the federal courts
of the United States for the Southern District of New York will not or
cannot hear such action or proceeding, it may be brought and enforced
in the courts of the State of New York in The City of New York,
Borough of Manhattan. The Seller and the Buyer each agree that a
judgment, after exhaustion of all available appeals, in any such
action or proceeding shall be conclusive and binding upon, and may be
enforced in any other jurisdiction, by a suit upon such judgment, a
certified copy of which shall be conclusive evidence of the judgment.
The Seller and the Buyer each irrevocably designate, appoint and
empower CT Corporation System, with offices at 1633 Broadway, New
York, New York 10019, as its designee, appointee and agent to receive
service of any and all legal process, summons, notices and documents
which may be served in any such action or proceeding and agree that
the failure of any such agent to give any advice of service of process
to it shall not impair or affect the validity of such service or of
any such judgment based thereon. If for any reason such designee,
appointee and agent shall cease to be available to act as such, the
Seller and the Buyer each agree to designate a new designee, appointee
and agent in New York City on the terms and for the purposes of this
provision reasonably satisfactory to the other party. The Seller and
the Buyer each further irrevocably consent to the service of process
out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to such party, at its address set forth in
Section 16.6, such service to become effective 30 days after such
mailing. Nothing herein shall affect the right of the Seller or the
Buyer to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Seller or
the Buyer in any other jurisdiction.
(c) The Seller and the Buyer each hereby irrevocably waive any
objection which it may now or hereafter have to the laying of venue of
any of the aforesaid actions or proceedings arising out of or in
connection with any matter concerning any arbitration proceedings
pursuant to Section 16.5(a) above or in the courts referred to in
clause (b) above, and hereby further irrevocably waive and agree not
to plead or claim in any such court that any such action or proceeding
brought in
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any such court has been brought in an inconvenient or improper forum.
16.17 GOVERNING LANGUAGE. The English version of this
Agreement shall govern any interpretation of its provisions. To the extent
German terms are provided in the governing English version of this Agreement,
such German wording shall prevail for purposes of interpretation.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed by its duly authorized officer as of the date first above
written.
MAAG HOLDING AG
By:
------------------------------
Name:
Title:
SINTER METALS, INC.
By:
------------------------------
Name:
Title:
<PAGE> 1
Exhibit 99.1
SECTION: Financial News
DISTRIBUTION: TO BUSINESS EDITOR
LENGTH: 351 words
HEADLINE: Sinter Metals, Inc. Completes the Acquisition of Krebsoge
Sinterholding GmbH and Powder Metal Holding, Inc.
DATELINE: CLEVELAND, Dec. 19
BODY:
Cleveland-based Sinter Metals, Inc. (NYSE: SNM) today said that it has
completed the previously announced acquisition of Powder Metal Holding, Inc.
(PMH), and substantially all of the shares of Krebsoge Sinterholding GmbH, from
Maag Holding AG, based in Zurich, Switzerland. PMH is the second largest
producer of precision pressed powder metal components in the U.S. and Krebsoge
Sinterholding is Europe's largest producer of such components.
PMH had 1995 sales of $106.5 million and Krebsoge had sales of $146.2
million. Sinter Metals, 1995 sales totaled $94.3 million. PMH, based in Livonia,
MI, has two operating facilities in Indiana, one in Ohio and one in Canada.
Krebsoge, based in Radevormwald, Germany, has seven operating facilities in
Germany and one in Connecticut. Prior to the acquisition, Sinter Metals held a
30% interest in PMH, whose major operating subsidiary was Krebsoge.
"The closing of these transactions culminates an active year for Sinter
Metals in moving forward with our acquisition strategy," said Joseph W.
Carreras, Chairman of the Board and Chief Executive Officer. "In July 1996 we
completed the acquisition of SinterForm, Inc. (Zeeland, MI), and earlier this
month we acquired the Powder Metal Forge Unit of Delco Remy America, Inc. These
acquisitions, along with the $215 million combined transactions being announced
today, position Sinter Metals as the world's largest producer of powder metal
parts," added Carreras.
Sinter Metals is engaged in the engineering and production of precision
pressed metal components for use principally in the automotive, lawn and garden,
power tool and home appliance industries. The acquisitions add 12 additional
production facilities to Sinter Metals' existing seven facilities in the U.S.
and Europe, and the Company's combined employment is over 3,000. Sinter Metals
now produces over 4,000 different pressed powder metal components such as gears,
bearings and sprockets, primarily for use in engines, transmissions and other
drive mechanisms. SOURCE Sinter Metals, Inc.
CONTACT: Joseph W. Carreras, Chairman of the Board and Chief Executive
officer, of Sinter Metals, Inc., 216-771-6700
