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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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SINTER METALS, INC.
(Name of Subject Company)
SINTER METALS, INC.
(Name of Person(s) Filing Statement)
CLASS A COMMON STOCK, PAR VALUE $.001 PER SHARE
CLASS B COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class of Securities)
82934Q101
(CUSIP Number of Class of Securities)
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JOSEPH W. CARRERAS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SINTER METALS, INC.
50 PUBLIC SQUARE
TERMINAL TOWER, SUITE 3200
CLEVELAND, OHIO 44113
(216) 771-6700
(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
CHRISTOPHER M. KELLY, ESQ.
JONES, DAY, REAVIS & POGUE
NORTH POINT
901 LAKESIDE AVENUE
CLEVELAND, OHIO 44114
(216) 586-3939
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Sinter Metals, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 50 Public Square, Terminal Tower, Suite 3200, Cleveland, Ohio
44113. The titles of the classes of equity securities to which this Schedule
14D-9 relates are the Class A Common Stock, par value $.001 per share, and the
Class B Common Stock, par value $.001 per share, of the Company (collectively,
the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to a tender offer by GKN Powder Metallurgy, Inc., a
Delaware corporation ("Purchaser") and a wholly owned subsidiary of GKN Powder
Metallurgy Holdings, Inc., a Delaware corporation ("Parent"), disclosed in a
Tender Offer Statement on Schedule 14D-1 filed with the Securities and Exchange
Commission (the "Commission") on May 2, 1997 (the "Schedule 14D-1"), to purchase
all outstanding Shares at a price of $37.00 per Share, net to sellers in cash,
without any interest upon the terms and subject to the conditions set forth in
Purchaser's Offer to Purchase, dated May 2, 1997 (the "Offer to Purchase"), and
the related Letter of Transmittal (which together constitute the "Offer").
Parent is a wholly owned subsidiary of GKN plc, a public limited liability
company organized under the laws of England.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of April 29, 1997 (the "Merger Agreement"), among Purchaser, Parent and the
Company, a copy of which is filed as Exhibit 1 to this Schedule 14D-9 and
incorporated herein by reference. Pursuant to the Merger Agreement, as soon as
practicable after consummation of the Offer and satisfaction of the other
conditions specified in the Merger Agreement, Purchaser will be merged with and
into the Company (the "Merger"), and the Company will continue as the surviving
corporation (the "Surviving Corporation") and become a wholly-owned subsidiary
of Parent.
All information contained in this Schedule 14D-9 or incorporated herein by
reference concerning Purchaser, Parent or their affiliates, or actions or events
with respect to any of them, was provided by Purchaser or Parent, and the
Company takes no responsibility for the accuracy or completeness of such
information or for any failure by such entities to disclose events or
circumstances that may have occurred and may affect the significance,
completeness or accuracy of any such information.
Based on information in the Offer to Purchase, the principal executive
offices of Parent and Purchaser are located at 3300 University Drive, Auburn
Hills, Michigan 48326-2362.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above, and incorporated herein by
reference.
(b) Except as described or referred to in the attached Exhibit 15 or set
forth in this Item 3(b) of Schedule 14D-9, to the knowledge of the Company, as
of the date hereof, there are no material contracts, agreements, arrangements or
understandings, or any actual or potential conflicts of interest, between the
Company or its affiliates and (i) the Company, its executive officers, directors
or affiliates, or (ii) Parent, Purchaser or its executive officers, directors or
affiliates.
EMPLOYMENT AND SEVERANCE AGREEMENTS AND RELATED ARRANGEMENTS
Carreras Employment Agreement and Related Arrangements. Effective as of
April 29, 1997, the Board of Directors of the Company (the "Board"), in order to
retain the services of the Company's Chairman and Chief Executive Officer in the
context of a proposed change in control and the request of GKN plc, approved the
execution of an employment agreement (the "Employment Agreement") with Joseph W.
Carreras. A copy of the Employment Agreement is filed as Exhibit 6 to this
Schedule 14D-9 and is incorporated herein by reference. The following summary of
the Employment Agreement does not purport to be complete and is qualified in its
entirety by reference to the Employment Agreement.
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The Employment Agreement will become operative only upon a change in
control of the Company. A "change in control" is defined in the Employment
Agreement as having occurred when: (i) the Company is merged, consolidated or
reorganized into or with another corporation, and as a result of such
transaction less than a majority of the combined voting stock of the Surviving
Corporation is held in the aggregate by the holders of voting stock of the
Company immediately prior to such transaction; (ii) the Company transfers all or
substantially all of its assets to another corporation, and as a result of the
such transfer less than a majority of the combined voting stock of the surviving
corporation is held in the aggregate by the holders of voting stock of the
Company immediately prior to such transaction, (iii) a Schedule 13D or Schedule
14D-1 is filed with the Commission disclosing that any person has become the
beneficial owner of securities representing 20% or more of the combined voting
power of the voting stock of the Company; or (iv) within any two-year period, a
majority of the directors of the Company at the beginning of such period (not
including persons approved by at least two-thirds of the directors of the
Company still in office who were directors of the Company at the beginning of
such period) cease to be directors of the Company.
Under the Employment Agreement, Mr. Carreras will continue to offer
employment to Mr. Carreras for a period of three years following a change in
control (the "Employment Period"). Mr. Carreras will be entitled to severance
pay if he is terminated by the Company during the Employment Period for any
reason other than "cause" (as defined in the Employment Agreement) or if Mr.
Carreras terminates his own employment for, among other reasons, (i) a material
reduction in duties, responsibilities or compensation, (ii) a relocation of his
principal work location more than 25 miles from the location thereof immediately
prior to the change in control, or (iii) any reason or without reason during the
one-year period commencing upon a change in control.
If Mr. Carreras is terminated or resigns with the right to receive
severance pay under the Employment Agreement, that severance pay will include
(i) a lump-sum payment $1,240,000, which equals the sum of two times his 1997
salary and his 1996 non-salary incentive compensation, and (ii) health and
welfare benefits for a period of two years. The Employment Agreement stipulates
that payments and benefits available to Mr. Carreras will be increased by an
amount such that after the payment of all income and excise taxes, Mr. Carreras
will be in the same after-tax position as if no excise tax under Section 4999 of
the Internal Revenue Code had been imposed. In addition to the severance pay
described above, the Company will also use its reasonable best efforts to assign
to Mr. Carreras its rights under the Company's lease for its executive offices
in Cleveland, Ohio, as well as all the leased office equipment used at that
location.
The Employment Agreement also contains a non-compete provision, which
prohibits Mr. Carreras from certain activities in the business of any company
engaged in the powder metallurgy business for a period ending at the later of
(i) three years following a change in control, or (ii) one year following
termination of his employment in the Company, in either case, provided he is
receiving the severance benefits provided by the Employment Agreement.
On April 29, 1997, Mr. Carreras also delivered a letter (the "Letter") to
Parent whereby he indicated his present intent to remain employed by the Company
for three months following an acquisition of the Company by Parent. A copy of
the Letter is filed as Exhibit 5 to this Schedule 14D-9 and is incorporated
herein by reference.
On April 29, 1997, the Company and Mr. Carreras also entered into an option
agreement relating to the office space in Cleveland, Ohio presently used as the
Company's executive offices (the "Option Agreement"). A copy of the Option
Agreement is filed as Exhibit 14 to this Schedule 14D-9 and is incorporated
herein by reference. The Option Agreement provides that Mr. Carreras, after
September 1, 1997, upon any termination of his employment with the Company may
exercise an option to acquire by assignment all of the Company's right, title
and interest in and to its lease with Terminal Investments, Inc. for such office
space.
Executive and Key Employee Severance Agreements. At its April 29, 1997
meeting, in order to retain the services of certain of the Company's Executives
and other key employees in the context of a proposed change in control, the
Board also approved the execution of change-in-control severance agreements (the
"Severance Agreements") with four of the Company's executives (each, an
"Executive") and seven of the Company's
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other key employees (each, a "Key Employee"). Forms of the severance agreement
with the Executives (the "Executive Agreement") and with the key employees (the
"Key Employee Agreement", and together with the Executive Agreement, the
"Severance Agreements") are filed as Exhibits 7 and 8, respectively, to this
Schedule 14D-9 and are incorporated herein by reference. The following summary
of the Severance Agreements does not purport to be complete and is qualified in
its entirety by reference to the Agreements.
The Severance Agreements will become operative only upon a change in
control of the Company. The definition of change in control in the Severance
Agreements is substantially the same definition as that used in the Employment
Agreement for Mr. Carreras described above. Under the Severance Agreements, the
Executives and Key Employees will be entitled to severance pay if, during the
period commencing upon the change in control and ending upon the earliest to
occur of (i) the death of the Executive or Key Employee, (ii) the Executive's or
Key Employee's attainment of age 65, or (iii) the end of the period commencing
upon the change in control and ending after the completion of (A) two years in
the case of Executives, or (B) thirty months in the case of Key Employees (the
"Severance Period"). If an Executive or Key Employee is terminated by the
Company during the Severance Period for any reason other than "cause" (as
defined in the Severance Agreements) or if an Executive or Key Employee
terminates his own employment for, among other reasons, (i) a material reduction
in duties, responsibilities or compensation, (ii) a relocation of his principal
work location more than 25 miles from the location thereof immediately prior to
the change in control, or (iii) if Mr. Carreras is Chief Executive Officer at
the time of a change in control, any reason or without reason during the 30-day
period commencing upon the termination or resignation of Mr. Carreras during the
one-year period following the change in control.
If an Executive or Key Employee is terminated or resigns with the right to
receive severance pay under the Severance Agreements, that severance pay will
include (i) a lump-sum payment of (A) in the case of an Executive, two times the
sum of his 1997 salary and 1996 non-salary incentive compensation and (B) in the
case of a Key Employee, one and one-half times the sum of his or her 1997 salary
and 1996 non-salary incentive compensation, and (ii) health and welfare benefits
for a period of (A) in the case of an Executive, two years or (B) in the case of
a Key Employee, 18 months. Pursuant to the Severance Agreements, Michael T.
Kestner and Donald L. LeVault are entitled to receive lump-sum payments totaling
$490,000 and $442,500, respectively. The maximum aggregate lump-sum payments
required to be made by the Company pursuant to the Employment Agreements and the
Severance Agreement total $3,538,845. The Severance Agreements stipulate that
payments and benefits available to Executives and Key Employees will be
increased by an amount such that after the payment of all income and excise
taxes, the Executive or Key Employee will be in the same after-tax position as
if no excise tax under Section 4999 of the Internal Revenue Code had been
imposed.
The Severance Agreements also contain a non-compete provision that
prohibits an Executive or Key Employee from certain activities in the business
of any company engaged in the powder metallurgy business for a period ending at
the later of (i) three years following a change in control, or (ii) one year
following termination of his employment with the Company, in either case,
provided that such Executive or Key Employee is receiving the severance benefits
provided by the Severance Agreements.
Non-Employee Director Waivers. In connection with the meeting of the Board
held on April 29, 1997, the non-employee directors of the Board signed
individual waivers (the "Non-Employee Director Waivers") giving up their right
to receive awards under the Company's 1997 Stock Option Plan for Non-Employee
Directors (the "Option Plan") , which is scheduled for a stockholder vote at the
Company's Annual Meeting of Shareholders to be held on May 15, 1997. A copy of
the form of Non-Employee Director Waiver is filed as Exhibit 12 to this Schedule
14D-9 and is incorporated herein by reference.
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
thereof, which is incorporated herein by reference and a copy of which has been
filed with the Commission as an exhibit to the Schedule 14D-1. Capitalized terms
used and not otherwise defined herein shall have the meanings assigned to them
in the Merger Agreement.
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The Offer. The Merger Agreement provides for the commencement of the
Offer. Parent and the Purchaser have expressly reserved the right to modify the
terms of the Offer and to waive any condition of the Offer, but without the
prior written consent of the Company, the Purchaser has agreed not to (i) waive
the condition that there shall have been validly tendered (and not withdrawn)
that number of Shares which would represent at least a majority of the
outstanding Shares or a fully diluted basis (the "Minimum Condition"), (ii)
reduce the number of Shares subject to the Offer, (iii) reduce the price per
Share to be paid pursuant to the Offer, (iv) extend the Offer, if all of the
Offer conditions are satisfied or waived, (v) change the form of consideration
payable in the Offer, (vi) amend or modify any term or condition of the Offer
(including the conditions described in --"Conditions to the Offer" set forth
below) in any manner adverse to the holders of Shares, or (vii) impose
additional conditions to the Offer other than such conditions as are required by
applicable laws. Notwithstanding the foregoing, the Purchaser may, in its sole
discretion without the consent of the Company, extend the Offer at any time and
from time to time (A) if at the then scheduled expiration date of the Offer any
of the conditions to the Purchaser's obligation to accept for payment and pay
for Shares shall not have been satisfied or waived; (B) for any period required
by any rule, regulation, interpretation or position of the Commission or its
staff applicable to the Offer; (C) for any period required by applicable law;
and (D) if all Offer conditions are satisfied or waived but the number of Shares
tendered is less than 90% of the then outstanding number of Shares, for an
aggregate period of not more than 20 business days (for all such extensions
under this clause (D)) beyond the latest expiration date that would be permitted
under clause (A), (B) or (C) of this sentence. So long as the Merger Agreement
is in effect and the Offer conditions have not been satisfied or waived, at the
request of the Company, the Purchaser will, and Parent will cause the Purchaser
to, extend the Offer for an aggregate period of not more than five business days
(for all such extensions) beyond the originally scheduled expiration date of the
Offer. Such period of five business days shall include any grace period
contemplated by the condition to the Offer described in paragraph (d) of
- -- "Conditions to the Offer" that extends beyond the otherwise scheduled
expiration date of the Offer.
Conditions of the Offer. Notwithstanding any other term of the Offer or
the Merger Agreement, Purchaser shall not be required to accept for payment or
pay for, subject to any applicable rules and regulations of the Commission,
including Rule 14e-1(c) of the Exchange Act, any Shares not theretofore accepted
for payment or paid for and may terminate or amend the Offer as to such Shares
unless (i) there shall have been validly tendered and not withdrawn prior to the
expiration of the Offer that number of Shares which would represent at least a
majority of the outstanding Shares on a fully diluted basis (collectively, the
"Minimum Condition") and (ii) any waiting period under the HSR Act applicable to
the purchase of Shares pursuant to the Offer shall have expired or been
terminated. Furthermore, notwithstanding any other term of the Offer or the
Merger Agreement, Purchaser shall not be required to accept for payment or,
subject as aforesaid, to pay for any Shares not theretofore accepted for payment
or paid for, and may terminate or amend the Offer if at any time on or after the
date of the Merger Agreement and prior to the expiration of the Offer, any of
the following conditions exist or shall occur and remain in effect:
(a) a court of competent jurisdiction or other United States
Governmental Entity shall have issued an order, judgment, decree or ruling
on the merits in connection with an action, suit or proceeding brought by
any United States Governmental Entity (i) which challenges or seeks to
restrict the acquisition by Parent or Purchaser (or any of their affiliates
or Subsidiaries) of Shares pursuant to the Offer or seeks to restrain or
prohibit the consummation of the Offer or the Merger, or obtain damages in
connection therewith (ii) which seeks to make the purchase of or payment
for some or all of the Shares pursuant to the Offer or the Merger illegal;
(iii) which seeks to impose material limitations on the ability of Parent,
Purchaser, the Surviving Corporation or any of their respective affiliates
or Subsidiaries effectively to acquire, operate or hold, or to require
Parent, Purchaser or the Surviving Corporation or any of their respective
affiliates or Subsidiaries to dispose of or hold separate, any material
portion of their assets or business or the Company's assets or business or
(iv) which seeks to impose material limitations on the ability of Parent,
Purchaser or their affiliates or subsidiaries to exercise full rights of
ownership of the Shares purchased by it, including, without limitation, the
right to vote the shares purchased by it on all matters properly presented
to the stockholders of the Company; or
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(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any Governmental Entity,
any Law or there shall have been issued any injunction resulting in any of
the consequences referred to in subsection (a) above; or
(c) the Merger Agreement shall have been terminated in accordance with
its terms; or
(d) (i) the representations and warranties made by the Company in the
Merger Agreement (without giving effect to any materiality limitations
contained therein) shall not be true and correct as of the date of
consummation of the Offer as though made on and as of that date (other than
representations and warranties made as of a specified date) except for any
breach or breaches which, in the aggregate, would not have a Material
Adverse Effect or (ii) the Company shall have breached or failed to comply
in any material respect with any of its obligations under this Agreement
and, with respect to any such failure that can be remedied, the failure is
not remedied within five business days after Parent has furnished the
Company with written notice of such failure; or
(e) any person (other than Parent, Purchaser or one or more of their
affiliates or Subsidiaries) shall have entered into an agreement in
principle or definitive agreement with the Company with respect to a tender
or exchange offer for any Shares, or a merger, consolidation or other
business combination with or involving the Company; or
(f) the Board of Directors shall have modified or amended its
recommendation of the Offer or the Merger in any manner adverse to Parent
or Purchaser or shall have withdrawn its recommendation of the Offer or the
Merger or shall have recommended acceptance of any Alternative Proposal or
shall have resolved to do so; or
(g) since the date of the Merger Agreement, any change shall have
occurred which, individually or in the aggregate, has had, or would have, a
Material Adverse Effect; or
(h) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or in the over the counter market in the United States, or in the
London Stock Exchange for a period in excess of ten consecutive trading
hours, (ii) a declaration of any banking moratorium by any United Kingdom
or United States federal or state authorities or any suspension of payments
in respect of banks, by any such authorities or (iii) a commencement of a
war, armed hostilities or any other international or national calamity
directly or indirectly involving the United States, the United Kingdom or
Germany, other than any war, armed hostilities or other international
calamity involving the former Yugoslavia, which is reasonably expected to
have a Material Adverse Effect or to materially adversely affect Parent or
Purchaser's ability to complete the Offer or the Merger.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent or Purchaser regardless of the circumstances
(including any action or inaction by Parent or the Company) giving rise to any
such condition and, except for the Minimum Condition, may be waived by Parent or
Purchaser, in whole or in part, at any time and from time to time, in the sole
discretion of Purchaser. The failure by Parent or Purchaser at any time to
exercise any of the foregoing rights will not be deemed a waiver of any right,
the waiver of such right with respect to any particular facts or circumstances
shall not be deemed a waiver with respect to any other facts or circumstances,
and each right will be deemed an ongoing right which may be asserted at any time
and from time to time.
Consideration to be Paid in the Merger. The Merger Agreement provides
that, upon the terms (but subject to the conditions) set forth in the Merger
Agreement, the Purchaser will be merged with and into the Company and the
separate existence of the Purchaser will cease, and the Company shall be the
Surviving Corporation and shall be a wholly-owned subsidiary of the Parent. In
the Merger, each share of common stock, $.01 par value per share, of the
Purchaser outstanding immediately prior to the time of filing of a certificate
of merger relating to the Merger with the Secretary of State of the State of
Delaware, or such later time as is agreed by the parties (the "Effective Time"),
shall be converted into and exchanged for one validly issued, fully paid and
non-assessable share of Common Stock, $.01 par value per share, of the Surviving
Corporation. In the Merger, each Share issued and outstanding immediately prior
to the Effective Time
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(other than Shares owned by Parent or the Purchaser or held by the Company, all
of which shall be cancelled, and Shares held by stockholders, if any, who
perfect appraisal rights under Delaware law) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive the $37.00 per share in cash (the "Merger Consideration"),
without interest. The Merger Agreement provides that (subject to the provisions
of the Merger Agreement) the closing of the Merger shall occur as soon as
practicable following the satisfaction or, to the extent permitted under the
Merger Agreement, waiver, of the conditions to the Merger set forth in Article 9
of the Merger Agreement.
Treatment of Stock Options. The Merger Agreement provides that all Options
outstanding immediately prior to the acceptance for payment of Shares pursuant
to the Offer under any of the Company's stock option plans, whether or not then
exercisable, shall be acquired by the Company at the Effective Time for a cash
payment by the Company, for each Share subject to an Option, of an amount equal
to the excess of the Merger Consideration over the per share exercise price of
such Option without interest.
Board Representation. The Merger Agreement provides that, promptly upon
the purchase of Shares pursuant to the Offer, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, as will
give Parent representation on the Board of Directors equal to the product of (i)
the number of directors on the Board of Directors and (ii) the percentage that
the number of Shares purchased by the Purchaser or Parent or any affiliate bears
to the aggregate number of Shares outstanding, and the Company will, upon
request by Parent, promptly increase the size of the Board of Directors and/or
exercise its best efforts to secure the resignations of such number of directors
as is necessary to enable Parent's designees to be elected to the Board of
Directors and will cause Parent's designees to be so elected. At the request of
Parent, the Company will use its reasonable best efforts to cause such
individuals designated by Parent to constitute the same percentage of (i) each
committee of the Board of Directors, (ii) the board of directors of each
subsidiary of the Company and (iii) the committees of each such board of
directors. The Company's obligations to appoint designees to the Board of
Directors are subject to Section 14(f) of the Exchange Act. The parties have
agreed to use their respective reasonable best efforts to ensure that at least
two of the members of the Board of Directors shall at all times prior to the
Effective Time be Continuing Directors.
Stockholder Meeting. The Merger Agreement provides that, if required by
applicable law, the Company, acting through the Board of Directors, shall (i)
call a meeting of its stockholders (the "Stockholder Meeting") for the purpose
of voting on the Merger, (ii) hold the Stockholder Meeting as soon as
practicable after the purchase of Shares pursuant to the Offer and (iii) subject
to its fiduciary duties under applicable law as advised by outside counsel,
recommend to its stockholders the approval of the Merger. At the Stockholder
Meeting, Parent shall cause all the Shares then owned by Parent, the Purchaser
and any of their subsidiaries or affiliates to be voted in favor of the Merger.
The Merger Agreement provides that, notwithstanding the foregoing, if the
Purchaser, or any other direct or indirect subsidiary of Parent, shall acquire
at least 90 percent of the outstanding Shares, the parties thereto shall take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the expiration of the Offer without a meeting of
stockholders of the Company, in accordance with Section 253 of the Delaware Law.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to (i) the due
incorporation, existence and, subject to certain limitations, the qualification,
good standing, corporate power and authority of the Company and its
subsidiaries; (ii) the due authorization, execution, and delivery of the Merger
Agreement and certain ancillary documents executed in connection therewith and
the consummation of transactions contemplated thereby, and the validity and
enforceability thereof; (iii) subject to certain exceptions and limitations, the
compliance by the Company and its subsidiaries with all applicable foreign,
federal, state or local laws, statutes, ordinances, rules, regulations, orders,
judgments, rulings and decrees ("Laws") of any foreign, federal, state or local
judicial, legislative, executive, administrative or regulatory body or
authority, or any court, arbitration, board or tribunal ("Governmental Entity");
(iv) the capitalization of the Company, including the number of shares of
capital stock of the Company outstanding, the number of shares reserved for
issuance on the exercise of options and similar rights to purchase shares; (v)
the identity, ownership (subject to certain exceptions and limitations) and
capitalization of each of the Company's subsidiaries and ownership by the
Company and its subsidiaries of interests or investments in
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entities other than subsidiaries of the Company or its subsidiaries; (vi)
subject to certain exceptions and limitations, the absence of consents and
approvals necessary for consummation by the Company of the Merger and the
absence of any violations, breaches or defaults which would result from
compliance by the Company with any provision of the Merger Agreement; (vii)
compliance with the Securities Act of 1933 (the "Securities Act") and the
Exchange Act, in connection with each registration statement, report, proxy
statement or information statement (as defined under the Exchange Act) prepared
by it since October 1, 1994, each in the form (including exhibits and any
amendments thereto) filed with the Commission and the financial statements
included therein filed by the Company with the Commission, the Schedule 14D-9
and the information statement, if any, filed by the Company in connection with
the Offer pursuant to Rule 14f-1 under the Exchange Act; (viii) subject to
certain exceptions and limitations, the absence of pending or (to the knowledge
of the Company) threatened claims, actions, suits, proceedings, arbitrations,
investigations or audits (collectively, "Litigation") against the Company which,
except as provided below, would have a material adverse effect on the business,
results of operations or financial condition of the Company and its
subsidiaries, taken as a whole, or the ability of the Company and its
subsidiaries to conduct their business after the Effective Time consistent with
the manner currently conducted ("Material Adverse Effect") and the absence of
product recalls or post-sale warnings concerning any products sold by the
Company and its subsidiaries; (ix) the absence of certain changes or effects
since December 31, 1996; (x) certain tax matters; (xi) certain employee benefit
and ERISA matters; (xii) certain labor and employment matters; (xiii) certain
brokerage fees in connection with the transactions contemplated by the Merger
Agreement; (xiv) subject to certain exceptions and limitations, the possession
by the Company and its subsidiaries of necessary licenses, permits,
certificates, approvals and authorizations; (xv) certain environmental matters;
(xvi) subject to certain exceptions and limitations, title to assets; (xvii)
material contracts of the Company and its subsidiaries; (xviii) the required
vote of stockholders of the Company with respect to the transactions
contemplated by the Merger Agreement; and (xix) intellectual property rights.
For purposes of the Merger Agreement, the definition of "Material Adverse
Effect" shall not include any material adverse effect resulting from work
stoppages in the U.S. auto industry or any material adverse effect arising from
any threatened or actual termination of the business relationships of the
Company and its subsidiaries with any of their customers or suppliers that
commences after the public announcement of the transactions contemplated by the
Merger Agreement.
Parent and the Purchaser have also made certain representations and
warranties, including with respect to (i) the due incorporation, existence, good
standing and, subject to certain limitations, corporate power and authority of
Parent and the Purchaser; (ii) the due authorization, execution and delivery of
the Merger Agreement and certain ancillary documents executed in connection
therewith and the consummation of transactions contemplated thereby, and the
validity and enforceability thereof; (iii) the accuracy and the adequacy of the
information contained in the documents pursuant to which the Offer is being
made, the Schedule 14D-1 required to be filed with the Commission, and any
amendment or supplement to any of the foregoing and the accuracy of the
information provided by Parent and the Purchaser for inclusion in the Schedule
14D-9; (iv) subject to certain exceptions and limitations, the absence of
consents and approvals necessary for consummation by Parent and the Purchaser,
and the absence of any violations, breaches or defaults which would result from
compliance by Parent and the Purchaser with any provision of the Merger
Agreement; and (v) the sufficiency of funds available to Parent and the
Purchaser for the consummation of the Offer and the Merger.
Conduct of Business Pending Merger. The Company has agreed that, from the
date of the Merger Agreement to the Effective Time, with certain exceptions,
unless Parent has consented in writing thereto, the Company will, and will cause
each of its subsidiaries to: (i) conduct its operations according to its usual,
regular and ordinary course of business consistent with past practice; (ii) use
its reasonable best efforts to preserve intact their business organizations,
maintain in effect all existing qualifications, licenses, permits, approvals and
other authorizations, keep available the services of their officers and
employees and maintain satisfactory relationships with those persons having
business relationships with them; (iii) promptly upon the discovery thereof
notify Parent of the existence of any breach of any representation or warranty
contained in the Merger Agreement (or, in the case of any representation and
warranty that makes no reference to Material Adverse Effect, any breach of such
representation and warranty in any material respect) or the occurrence of any
event that would cause any representation or warranty contained in the Merger
Agreement no longer to be
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<PAGE> 9
true and correct (or in the case of any representation and warranty that makes
no reference to Material Adverse Effect, to no longer be true and correct in any
material respect); and (iv) promptly deliver to the Purchaser true and correct
copies of any report, statement or schedule filed with the Commission subsequent
to the date of the Merger Agreement, any internal monthly reports prepared for
or delivered to the Board of Directors after the date of the Merger Agreement
and monthly financial statements for the Company and its subsidiaries for and as
of each month end subsequent to the date of the Merger Agreement.
The Company has agreed that, from the date of the Merger Agreement to the
Effective Time, with certain exceptions, unless Parent has consented in writing
thereto, the Company shall not, and shall not permit any of its Subsidiaries to:
(i) amend its Certificate of Incorporation or Bylaws or comparable governing
instruments; (ii) issue, sell, pledge or register for issuance or sale any
shares of its capital stock or other ownership interest in the Company (other
than issuances of shares of Common Stock in respect of any exercise of Options
outstanding on the date of the Merger Agreement and disclosed to Parent) or any
of the subsidiaries, or any securities convertible into or exchangeable for any
such shares or ownership interest, or any rights, warrants or options to acquire
or with respect to any such shares of capital stock, ownership interest, or
convertible or exchangeable securities; or accelerate any right to convert or
exchange or acquire any securities of the Company or any of its subsidiaries for
any such shares or ownership interest; (iii) effect any stock split or
conversion of its capital stock or otherwise change its capitalization as it
exists on the date of the Merger Agreement other than as set forth in the Merger
Agreement or the Stockholder Agreements; (iv) grant, confer or award any option,
warrant, convertible security or other right to acquire any shares of its
capital stock or take any action, other than as set forth in the Merger
Agreement, to cause to be exercisable any otherwise unexercisable option under
any existing stock option plan; (v) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of its capital
stock or other ownership interests (other than such payments by a wholly-owned
subsidiary); (vi) directly or indirectly redeem, purchase or otherwise acquire
any shares of its capital stock or capital stock of any of its subsidiaries;
(vii) sell, lease or otherwise dispose of any of its assets (including capital
stock of subsidiaries), except in the ordinary course of business, none of which
dispositions individually or in the aggregate will be material; (viii) settle or
compromise any pending or threatened Litigation, other than settlements which
involve solely the payment of money (without admission of liability) not to
exceed $250,000 in any one case; (ix) acquire by merger, purchase or any other
manner, any business or entity or otherwise acquire any assets that are
material, individually or in the aggregate, to the Company and its subsidiaries
taken as a whole, except for purchases of inventory, supplies or capital
equipment in the ordinary course of business consistent with past practice; (x)
incur or assume any long-term or short-term debt, except for working capital
purposes in the ordinary course of business under the Company's existing credit
agreement; (xi) assume, guarantee or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person except wholly-owned subsidiaries of the Company; (xii) make or forgive
any loans, advances or capital contributions to, or investments in, any other
person; (xiii) make any tax election or settle any tax liability; (xiv) waive or
amend any term or condition of any confidentiality or "standstill" agreement to
which the Company is a party; (xv) grant any stock related or performance
awards; (xvi) enter into any new employment, severance, consulting or salary
continuation agreements with any newly hired employees other than in the
ordinary course of business or enter into any of the foregoing with any existing
officers, directors or employees or grant any increases in compensation or
benefits to employees other than increases in the ordinary course of business;
(xvii) adopt or amend in any material respect or terminate any employee benefit
plan or arrangement; (xviii) amend in any material respect or terminate any
employment agreement or severance agreement entered into between the Company and
certain of its officers and employees within the five business days immediately
prior to the date of the Merger Agreement or waive any right of the Company
thereunder; (xix) make any material changes in the type or amount of their
insurance coverage or permit any insurance policy naming the Company or any
subsidiary as a beneficiary or a loss payee to be cancelled or terminated other
than in the ordinary course of business; (xx) make any capital expenditures in
the aggregate for the Company and its subsidiaries in excess of amounts
reflected in the analysts' report for the Company prepared by Morgan Stanley,
dated April 10, 1997 or otherwise acquire assets not in the ordinary course of
business; (xxi) except in certain circumstances and with prior written notice to
Parent, change any material accounting principles or practices used by the
Company or its subsidiaries; (xxii) except in certain circumstances, enter
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<PAGE> 10
into any contracts for Derivatives; (xxiii) waive, relinquish, release or
terminate any right or claim, including any such right or claim under any
material contract, or permit any rights of material value to use any
intellectual property to lapse or be forfeited except, in each case, in the
ordinary course of business consistent with the past practice of the Company;
(xxiv) take any action to cause the Shares to be delisted from the NYSE prior to
the completion of the Offer or the Merger; or (xxv) agree in writing or
otherwise to take any of the foregoing actions.
Conditions to the Merger. The respective obligations of each party to
effect the Merger are subject to the satisfaction or waiver, where permissible,
prior to the Effective Time, of the following conditions: (i) if approval of the
Merger Agreement and the Merger by the holders of Shares is required by
applicable law, the Merger Agreement and the Merger shall have been approved by
the requisite vote of such holders; and (ii) there shall not have been issued
any injunction or issued or enacted any Law which prohibits or has the effect of
prohibiting the consummation of the Merger or makes such consummation illegal.
The obligations of Parent and the Purchaser to effect the Merger shall be
further subject to the satisfaction or waiver on or prior to the Effective Time
of the condition that the Purchaser shall have accepted for payment and paid for
Shares tendered pursuant to the Offer, provided that the condition will be
deemed satisfied if the Purchaser's failure to accept for payment and pay for
such Shares has been the cause of or resulted in the failure of such condition.
Access to Information. Under the Merger Agreement, from the date of the
Merger Agreement to the Effective Time, the Company shall, and shall cause its
subsidiaries to, (i) give Parent and its authorized representatives reasonable
access to all books, records, personnel, offices and other facilities and
properties of the Company and its subsidiaries and their accountants and
accountants' work papers, (ii) permit the Parent to make such copies and
inspections thereof as the Parent may reasonably request and (iii) furnish the
Parent with such financial and operating data and other information with respect
to the business and properties of the Company and its subsidiaries as Parent may
from time to time reasonably request; provided, however, that no investigation
or information furnished pursuant to the Merger Agreement shall affect any
representations or warranties made by the Company therein or the conditions to
the obligations of Parent to consummate the transactions contemplated thereby.
No Solicitation. The Company has agreed in the Merger Agreement that
neither it nor any of its subsidiaries, nor any of their respective officers,
directors, employees, representatives, agents, affiliates or representatives,
shall, directly or indirectly, solicit, initiate or participate in or knowingly
encourage, in any way any discussions or negotiations with, or provide any
information to, or afford any access to the properties, books or records of the
Company or any of its subsidiaries to, or otherwise assist, facilitate or
knowingly encourage, any corporation, partnership, person or other entity or
group (other than Parent or any affiliate or associate of Parent) with respect
to any tender offer, merger, consolidation, business combination, liquidation,
reorganization, sale of significant assets, sale of shares of capital stock or
similar transactions involving the Company or any subsidiary or any division of
any thereof (an "Alternative Proposal"), and shall immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted theretofore with respect to any of the foregoing; provided,
however, that nothing contained in the Merger Agreement shall prohibit the
Company or the Board of Directors from (i) complying with Rule 14d-9 or 14e-2(a)
promulgated under the Exchange Act or (ii) prior to the acceptance for payment
of Shares by Purchaser pursuant to the Offer, providing information (pursuant to
a confidentiality agreement in reasonably customary form) to, or engaging in any
negotiation or discussions with, any person or entity who has made an
unsolicited bona fide Alternative Proposal which the Board of Directors in good
faith determines that it is required to consider in the exercise of its
fiduciary duties to the Company's stockholders imposed by law. The Company is
required to promptly notify the Purchaser in writing if any such information is
requested from the Company, if any such negotiations or discussions are sought
to be initiated with the Company or if any party makes an Alternative Proposal,
including the identity of the person or group requesting such information,
proposing to engage in such negotiations or discussions or making such
Alternative Proposal, the material terms and conditions of any Alternative
Proposals and any subsequent developments with respect thereto. The terms of any
confidentiality agreement entered into by the Company and such a third party
shall not be more favorable
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<PAGE> 11
to or less restrictive on such third party as the terms which apply to GKN plc.
under the terms of the Confidentiality Agreement.
Fees and Expenses. Except as provided in the Merger Agreement, whether or
not the Offer or the Merger is consummated, all costs and expenses incurred in
connection with the transactions contemplated by the Merger Agreement shall be
paid by the party incurring such expenses.
The Merger Agreement provides that, the Company will pay to the Purchaser
the amount of $12 million (the "Commitment Amount") as compensation to Parent
and its affiliates for incurring the costs and expenses related to the Offer and
the Merger and for their foregoing other opportunities, under the following
circumstances: (i) the Company terminates the Merger Agreement because of an
Alternative Proposal which the Board of Directors in good faith determines
represents a superior transaction for the stockholders of the Company as
compared to the Offer and the Merger and the Board of Directors determines,
after consultation with Jones, Day, Reavis & Pogue and Morgan Stanley, it is
required by its fiduciary duties to the Company's stockholders imposed by law to
terminate the Merger Agreement, provided however, that such termination right
would be unavailable the Company materially breached its obligations under its
no-solicitation covenant or failed to pay any required termination fee or failed
to provide at least three business days prior written notice of its intent to
terminate the Merger Agreement; (ii) Parent terminates the Merger Agreement (x)
because the Board of Directors failed to recommend, or withdraws, modifies or
amends in any manner adverse to the Purchaser or Parent, its approval or
recommendation of the Offer or the Merger, or recommended acceptance of any
Alternative Proposal, or resolved to do any of the foregoing (unless the
foregoing occurred solely as a result of the Parent's willful breach in any
material respect of its representations, warranties or obligations under the
Merger Agreement) or (y) the Offer terminates or expires and the Purchaser has
not purchased any Shares pursuant thereto because of the Company's willful
breach of its representations and warranties set forth in the Merger Agreement;
or (iii) if the Offer terminates or expires and Purchaser has not purchased any
shares pursuant thereto at a time when the Minimum Condition shall not have been
satisfied (x) prior to the time the Merger Agreement is terminated, an
Alternative Proposal shall have been publicly announced by a party other than
the Purchaser or shall have been publicly known and (y) within nine months after
terminating the Merger Agreement, such party or any affiliate thereof whether
alone or as part of a "group" (as defined in the Exchange Act) acquires a
majority of the outstanding Shares.
The Company has agreed that under those circumstances where it is obligated
to pay the Commitment Amount to Purchaser it also will reimburse Parent and its
affiliates for their reasonable out-of-pocket expenses, not to exceeed $4
million in the aggregate, incurred in connection with or arising out of the
Offer and the Merger (including amounts paid or payable to banks and investment
bankers, fees and expenses of counsel, accountants and consultants, and printing
expenses) regardless of when those expenses are incurred (collectively, the
"Expenses"). The Company also has agreed to reimburse Parent and its affiliates
for up to $4 million of expenses if Parent terminates the Merger Agreement
because the Offer terminates or expires and the Purchaser has not purchased any
Shares pursuant thereto because of the Company's non-willful breach of its
representations and warranties set forth in the Merger Agreement. The Purchaser
has agreed to reimburse the Company and its affiliates for up to $4 million in
expenses if Parent terminates the Merger Agreement because the Offer terminates
or expires and the Purchaser has not purchased any Shares pursuant to the Offer
on the basis that any changes shall have occurred since the date of the Merger
Agreement which, individually or in the aggregate, have had, or would have, a
Material Adverse Effect, and such termination constitutes a willful breach of
the Purchaser's obligations under the Merger Agreement. The Merger Agreement
provides that if either the Company or the Purchaser fails to pay, in the case
of the Company, the Commitment Amount or the expenses described above, and, in
the case of the Purchaser, the expenses described above, such party will pay to
the other party all costs and expenses incurred by it in collecting such
amounts, together with interest on those amounts at Chemical Bank's prime rate.
Other Agreements. The Merger Agreement provides that, subject to the terms
and conditions provided in the Merger Agreement, the Company, Parent and the
Purchaser shall: (a) cooperate with one another in (i) determining which
regulatory filings are required or permitted to be made prior to the Effective
Time with, and which consents, approvals, permits, authorizations or waivers are
required or permitted to be obtained prior to the Effective Time from,
Governmental Entities or other third parties in connection with the
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<PAGE> 12
execution and delivery of the Merger Agreement and certain other ancillary
documents and the consummation of the transactions contemplated thereby and (ii)
timely making all such regulatory filings and timely seeking all such consents,
approvals, permits, authorizations and waivers; and (b) use their reasonable
best efforts to take, or cause to be taken, all other actions and do, or cause
to be done, all other things necessary, proper or appropriate to consummate and
make effective the transactions contemplated by the Merger Agreement. If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purpose of the Merger Agreement, the proper officers and directors
of Parent and the Surviving Corporation shall take all such necessary action.
Credit Agreement. The Merger Agreement provides that the Company shall use
its reasonable best efforts to obtain waivers or consents from its lenders
pursuant to an Amended and Restated Credit Agreement, dated as of April 23,
1997, among the Company, certain of its subsidiaries, the lenders named therein,
NBD Bank and Salomon Brothers Inc (the "Credit Agreement") necessary so that the
consummation of the Merger will not result in an event of default or otherwise
permit termination of the Credit Agreement or the acceleration of the Company's
obligations thereunder, but that any failure by the Company to obtain such
waivers, approvals or consents shall not constitute a breach of covenant by the
Company under the Merger Agreement or result in any liability by the Company to
the Purchaser or Parent. The Company has made certain representations and
warranties with respect to the ability of the Company to terminate the Credit
Agreement without any prepayment fees or penalties, other than customary LIBOR
breakage costs.
Conversion of Shares of Class B Common Stock. The Merger Agreement
provides that the Company shall convert all shares of Class B Common Stock
purchased by the Purchaser pursuant to the Offer into shares of Class A Common
Stock immediately upon delivery to the Company of the certificates representing
such shares and the notice required under the Merger Agreement, and the Company
has represented and warranted that, upon such conversion, the Purchaser shall
have the same rights with respect to Shares it owns of Class A Common Stock,
including voting rights, as those of holders of Class A Common Stock as of the
date of the Merger Agreement.
Real Property Transfer Taxes. The Merger Agreement provides that any
liability for real property transfer taxes, real property gains taxes or similar
taxes imposed with respect to the property of the Company by any state, local or
foreign taxing authority with respect to the Offer and the Merger shall be paid
or caused to be paid by the Purchaser.
Termination. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of Parent and the Board (the latter
being effected by a majority of the Continuing Directors if such consent
occurs following the election or appointment of Parent's designees to the
Board of Directors);
(b) by the Company, if the Purchaser shall have failed to commence the
Offer within five business days after the date of the Merger Agreement;
(c) by the Company, if Parent or the Purchaser materially breaches any
of their respective representations or warranties or covenants contained in
the Merger Agreement and, with respect to any breach that can be remedied,
the breach is not remedied within five business days after the Company has
furnished the Parent or the Purchaser with written notice of such failure;
(d) by the Purchaser or the Company:
(i) if the Effective Time shall not have occurred on or before
October 31, 1997 (provided that the right to terminate the Merger
Agreement pursuant to this clause (i) shall not be available to any
party whose failure to fulfill any obligation under the Merger Agreement
has been the cause of or resulted in the failure of the Effective Time
to occur on or before such date);
(ii) if there shall be any statute, law, rule or regulation that
makes consummation of the Offer or the Merger illegal or prohibited or
if any court of competent jurisdiction or other Governmental Entity
shall have issued an order, judgment, decree or ruling, or taken any
other action restraining,
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enjoining or otherwise prohibiting the Offer or Merger and such order,
judgment, decree, ruling or other action shall have become final and
non-appealable; or
(iii) if the Offer terminates or expires on account of the failure
of any condition specified in "Condition to the Offer" set forth below
without the Purchaser having purchased any Shares thereunder (provided
that the right to terminate the Merger Agreement pursuant to this clause
(iii) shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of or resulted
in the failure of any such condition);
(e) by the Company at any time prior to the acceptance for payment of
Shares pursuant to the Offer, if there is an Alternative Proposal which the
Board of Directors in good faith determines represents a superior
transaction for the stockholders of the Company as compared to the Offer
and the Merger, and the Board of Directors determines, after consultation
with Jones, Day, Reavis & Pogue and Morgan Stanley, that it is required by
fiduciary duties to the Company's stockholders to terminate the Merger
Agreement provided, however, that the right to terminate the Merger
Agreement in such event shall not be available (i) if the Company has
breached in any material respect its obligations not to solicit Alternative
Proposals, or (ii) if, prior to or concurrently with any purported
termination pursuant to this subsection (e), the Company shall not have
paid the Commitment Amount and the Expenses, if applicable, or (iii) if the
Company has not provided Parent and the Purchaser with at least three
business days' prior written notice of its intent to so terminate the
Merger Agreement together with a summary of the material terms and
conditions of the Alternative Proposal; and
(f) by Parent, if the Board of Directors shall have failed to
recommend, or shall have withdrawn, modified or amended in any manner
adverse to Parent or the Purchaser, its approval or recommendation of the
Offer or the Merger or shall have recommended acceptance of any Alternative
Proposal, or shall have resolved to do any of the foregoing.
Insurance; Indemnification. The Merger Agreement provides that Parent will
cause the Surviving Corporation to purchase a three-year pre-paid noncancellable
directors and officers insurance policy covering the current and all former
directors and officers of the Company with respect to acts or failures to act
prior to the Effective Time, in a single aggregate amount over the three-year
period equal to the policy limit for the Company's current directors and
officers insurance policy (the "Current Policy"). If such insurance is not
obtainable at an annual cost per covered year not in excess of the annual
premium paid by the Company for the Current Policy (the "Cap") times 1.5, then
Parent will cause the Surviving Corporation to purchase policies providing at
least the same coverage as the Current Policy and containing terms and
conditions no less advantageous to the current and former directors and officers
of the Company than the Current Policy with respect to acts or failures to act
prior to the Effective Time; provided, however, that Parent and the Surviving
Corporation shall not be required to obtain policies providing such coverage
except to the extent that such coverage can be provided at an annual cost of no
greater than the Cap; and, if equivalent coverage cannot be obtained, or can be
obtained only by paying an annual premium in excess of the Cap, Parent or the
Surviving Corporation shall be required to obtain only as much coverage as can
be obtained by paying an annual premium equal to the Cap.
Parent has also agreed to cause the Surviving Corporation to keep in effect
in its By-Laws provisions for a period of not less than six years from the
Effective Time (or, in the case of matters occurring prior to the Effective Time
which have not been resolved prior to the sixth anniversary of the Effective
Time, until such matters are finally resolved) which provide for exculpation of
director and officer liability and indemnification (and advancement of expenses
related thereto) of the past and present officers and directors of the Company
to the fullest extent permitted by the Delaware Law which provisions shall not
be amended except as required by applicable law or except to make changes
permitted by law that would enhance the rights of past or present officers or
directors to indemnification or advancement of expenses.
The Merger Agreement provides that, from and after the Effective Time,
Parent shall indemnify and hold harmless, to the fullest extent permitted under
applicable law, each person who is, or has been at any time prior to the date of
the Merger Agreement or who becomes prior to the Effective Time, an officer or
director of the Company or any subsidiary against all losses, claims, damages,
liabilities, costs or expenses (including
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attorneys' fees), judgments, fines, penalties and amounts paid in settlement
(collectively, "Losses") in connection with any litigation arising before or
after the Effective Time out of or pertaining to acts or omissions, or alleged
acts or omissions, by them in their capacities as such, which acts or omissions
occurred or existed prior to the Effective Time.
If the Merger is consummated, the Surviving Corporation shall, to the
fullest extent permitted under applicable law, indemnify and hold harmless
Parent and any person or entity who was a stockholder, officer, director or
affiliate of Parent prior to the Effective Time against any Losses in connection
with any Litigation arising out of or pertaining to any of the transactions
contemplated by the Merger Agreement or certain ancillary documents relating
thereto. Parent is required to periodically advance expenses as incurred with
respect to the foregoing to the fullest extent permitted under applicable law
provided that the person to whom the expenses are advanced provides an
undertaking to repay such advance if it is ultimately determined that such
person is not entitled to indemnification.
The Surviving Corporation will control the defense, through its counsel, of
any action brought against any person seeking indemnification pursuant to the
preceding two paragraphs (an "Indemnified Party"). Counsel for the Indemnified
Party shall be selected by the Indemnified Party and will be permitted to
participate in the defense of such action at the Surviving Corporation's
expense.
If, after the Effective Time, Parent or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger, or (ii) transfers all or substantially all of
its properties and assets to any person, then, in each such case, proper
provisions shall be made so that successors and assigns of Parent or the
Surviving Corporation, as case may be, shall assume all of the foregoing with
respect to indemnification.
Certain Employee Matters. The Merger Agreement provides that, from and
after the Effective Time, the Surviving Corporation and its respective
subsidiaries will honor, and Parent will cause the Surviving Corporation to
honor, in accordance with their terms all existing employment and severance
agreements between the Company or any of its subsidiaries and any officer,
director or employee of the Company or any of its subsidiaries, to the extent
the same shall have been previously disclosed to the Purchaser, and all benefits
or other amounts earned or accrued to the extent vested or which become vested
in the ordinary course through the Effective Time under all employee benefit
plans of the Company and any of its subsidiaries.
Amendment. To the extent permitted by applicable law, the Merger Agreement
may be amended by action taken by or on behalf of the Board of Directors (by
action of a majority of the Continuing Directors if such amendment occurs
following the election or appointment of Parent's designees, if applicable) and
the Purchaser at any time before or after adoption of the Merger Agreement by
the stockholders of the Company but, after any such stockholder approval, no
amendment shall be made which decreases the Merger Consideration or which
adversely affects the rights of the Company's stockholders thereunder without
the approval of such stockholders. The Merger Agreement may not be amended
except by an instrument in writing signed on behalf of all of the parties.
Timing. The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by the Purchaser pursuant to the Offer. Although Parent has agreed to
cause the Merger to be consummated on the terms contained in the Merger
Agreement, there can be no assurance as to the timing of the Merger.
GKN plc Guarantee. GKN plc has agreed pursuant to the Merger Agreement to
guarantee the obligations of Parent and the Purchaser thereunder.
STOCKHOLDER AGREEMENTS
The following is a summary of the material terms of the agreements entered
into by the Purchaser with CVC (the "CVC Agreement") and with Messrs. Carreras,
LeVault, Kestner, Campbell, Roj, Volpe, Putney, Hochreiter, McLean and
Heitzenrater (the "Selling Stockholders") on April 29, 1997. This summary is
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qualified in its entirety by reference to the CVC Agreement and to the form of
individual agreement entered into with the Selling Stockholders (the
"Stockholder Agreements"), copies of which have been filed with the Commission
as Exhibits (c)(2) and (c)(3), respectively, to the Schedule 14D-1, and which
are incorporated herein by reference.
CVC Agreement. Pursuant to the CVC Agreement, CVC agreed to sell to the
Purchaser in the Offer all of its 3,446,706 Shares (representing approximately
33.1% of the outstanding Shares on a fully diluted basis), provided that the
Merger Agreement is not terminated.
Stockholder Agreements. Pursuant to the Stockholder Agreements, the
Selling Stockholders have agreed to tender to the Purchaser all of the 1,242,155
Shares beneficially owned, in the aggregate, representing approximately 11.9% of
the outstanding Shares on a fully diluted basis pursuant to the Offer no later
than the third business day following the commencement of the Offer and not to
withdraw any Shares tendered into the Offer during the term of the Merger
Agreement. The Stockholder Agreements also provide that, during the time the
Stockholder Agreements are in effect, the Selling Stockholders will vote all of
their Shares (i) in favor of the Merger, the Merger Agreement and any of the
transactions contemplated by the Merger Agreement and (ii) against any action or
agreement that would impede, interfere with or attempt to discourage the Offer
or the Merger, or would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation of the Company
under the Merger Agreement. The Stockholder Agreements further provide that, in
the event the Selling Stockholders fail to vote all of the Shares in the manner
described in the preceding sentence, the Purchaser will be irrevocably appointed
the proxy of the Selling Stockholders pursuant to Section 212 of the Delaware
Law.
If, after April 29, 1997, the Selling Stockholders exercise any options to
purchase Shares, the Stockholder Agreements are applicable to all of the Shares
issued upon such exercise (the "Additional Shares") as if such Additional Shares
had been issued and outstanding as of April 29, 1997; provided, however, that
the Additional Shares shall be tendered no later than the second business day
following such exercise. The Stockholder Agreements further provide that, in the
event a Selling Stockholder does not exercise any or all of his or her options
to purchase Shares sufficiently in advance of the expiration of the Offer to
permit the tender of such Additional Shares issued upon such exercise prior to
the expiration of the Offer, the Selling Stockholder will not exercise such
options, and such options will be acquired by the Company in consideration of a
cash payment as set forth in the Merger Agreement.
The Stockholder Agreements will terminate on the earlier of (i) the date on
which the Purchaser purchases all of the Shares pursuant to the Offer and (ii)
the date on which notice is given, or publication of a press release or other
announcement is made, by the Purchaser, the Company or the Purchaser and the
Company, jointly, that it or they, as the case may be, has or have terminated
the Merger Agreement in accordance with its terms (which notice or publication
will be operative for all purposes of terminating the Stockholder Agreements,
without further action).
The Stockholder Agreements contain various customary representations and
warranties by the Selling Stockholders, including those relating to title to the
Shares being sold and authority to execute, deliver and perform the Stockholder
Agreements. The Stockholder Agreements also contain various customary
representations and warranties by Parent and the Purchaser, including those
relating to the authority to execute, deliver and perform the Stockholder
Agreements, among others.
Confidentiality Agreement
Pursuant to an agreement dated as of April 29, 1997 (the "Confidentiality
Agreement") between the Company and GKN plc, the Company has supplied GKN plc
with certain confidential, non-public information about the Company. GKN plc has
agreed in the Confidentiality Agreement that it, together with its directors,
officers, employees, agents, lenders, partners and representatives, will keep
confidential all such information supplied by the Company and that, among other
things, if discussions relating to a possible acquisition of the Company by GKN
plc are abandoned by the parties, GKN plc will not, without the consent of the
Company, enter into or propose to enter into any business combination,
acquisition or other transaction relating to the Company or acquire or offer to
acquire any securities of the Company or seek or offer to control
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<PAGE> 16
or influence the management, Board of Directors or policies of the Company
(collectively, the "Standstill Provisions") until October 29, 1998. If such
discussions are abandoned by the parties, the Company has agreed to waive
certain of the Standstill Provisions prior to entering into an agreement with a
third party (other than Parent or the Purchaser) pursuant to which such third
party would acquire all or substantially all of the stock or assets of the
Company in order to permit GKN plc to make a proposal with respect to such a
transaction. The Confidentiality Agreement is incorporated herein by reference
and a copy of it has been filed with the Commission as Exhibit (c)(4) to the
Schedule 14D-1.
OTHER MATTERS
Section 203 of the Delaware Law. Section 203 of the Delaware Law limits
the ability of a Delaware corporation to engage in business combinations with
"interested stockholders" (defined as any beneficial owner of 15% or more of the
outstanding voting stock of the corporation) unless, among other things, the
corporation's board of directors has given its prior approval to either the
business combination or the transaction which resulted in the stockholder's
becoming an "interested stockholder". On April 29, 1997, the Board of Directors
approved the Offer, the Stockholder Agreements, the CVC Agreement and the Merger
for purposes of Section 203, and, therefore, Section 203 is inapplicable to the
Merger.
Appraisal Rights. No appraisal rights are available to holders of Shares
in connection with the Offer. However, if the Merger is consummated, holders of
Shares will have certain rights under Section 262 of the Delaware Law to dissent
and demand appraisal of, and payment in cash for the fair value of, their
Shares. Such rights, if the statutory procedures are complied with, could lead
to a judicial determination of the fair value (excluding any element of value
arising from accomplishment or expectation of the Merger) required to be paid in
cash to such dissenting holders for their Shares. Any such judicial
determination of the fair value of Shares could be based upon considerations
other than in addition to the Offer Price and the market value of the Shares,
including asset values and the investment value of the Shares. The value so
determined could be more or less than the Offer Price or the Merger
Consideration.
If any holder of Shares who demands appraisal under Section 262 of the
Delaware Law fails to perfect, or effectively withdraws or loses his right to
appraisal, as provided in the Delaware Law, the Shares of such holder will be
converted into the Merger Consideration in accordance with the Merger Agreement.
A stockholder may withdraw his demand for appraisal by delivery to Parent of a
written withdrawal of his demand for appraisal and acceptance of the Merger.
Failure to follow the steps required by Section 262 of the Delaware Law for
perfecting appraisal rights may result in the loss of such rights.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
("Rule 13e-3"), which is applicable to certain "going private" transactions.
Rule 13e-3 requires, among other things, that certain financial information
concerning the Company and certain information relating to the fairness of the
proposed transaction and the consideration offered to minority stockholders in
such transaction be filed with the Commission and disclosed to stockholders
prior to consummation of the transaction.
Parent believes that Rule 13e-3 will not be applicable to the Merger
because of the exemption afforded by Rule 13e-3(g)(1), among other things.
However, under certain circumstances, Rule 13e-3 could be applicable to the
Merger or other business combination in which Parent seeks to acquire the
remaining Shares it does not beneficially own following the purchase of Shares
pursuant to the Offer. For example, if the Merger as consummated is not
substantially similar to the Merger as described in this Offer to Purchase and
the Merger Agreement, Rule 13e-3 could apply. However, the terms and conditions
of the Merger are governed by the Merger Agreement, and any amendment to the
Merger Agreement must be approved by each party thereto. If Parent has exercised
its right to appoint directors to the Board of Directors following its purchase
of Shares pursuant to the Offer, any such amendment must be approved on behalf
of the Company by a majority of the directors of the Company then in office who
have not been designated by Parent.
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<PAGE> 17
There can be no assurance that the Merger will take place, even though each
party has agreed in the Merger Agreement to use its best efforts to cause the
Merger to occur, because the Merger is subject to certain conditions, some of
which are beyond the control of either the Purchaser or the Company.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
BACKGROUND
In recent years, the Company has pursued a growth strategy based on the
opportunistic acquisition of assets or companies involved in the pressed powder
metal parts industry, including its recent acquisition of Powder Metal Holding,
Inc. and Krebsoge Sinterholding GmbH. In connection with such strategy, the
Company routinely reviews acquisition candidates and explores other joint
venture and similar arrangements with other companies.
In November 1996, a representative of the Company met with representatives
of GKN plc in Detroit, Michigan to discuss possible benefits that might arise
from a combination of the powder metallurgy business of GKN plc with that of the
Company or the possible acquisition of the Company by GKN plc. On November 19,
1996, the Company entered into a Confidentiality Agreement, pursuant to which
the Company agreed to treat as confidential certain information provided to it
by or on behalf of GKN plc.
Discussions relating to a possible acquisition of the Company by GKN plc
did not continue beyond November 1996. However, during the period from December
1996 through early April 1997, the Company and GKN plc engaged in preliminary
discussions from time to time exploring possible joint venture and similar
arrangements relating to their respective powder metallurgy businesses, but no
agreements were reached. A series of discussions also took place during this
period between GKN plc and CVC regarding a possible transaction involving the
businesses and CVC's intentions with respect to its investment in the Company.
On April 10 and 11, 1997, representatives of the Company met with
representatives of GKN plc in London, England to continue discussions concerning
a possible transaction involving the two powder metallurgy businesses. Agreement
could not be reached. The acquisition of the Company as an alternative was then
discussed. A representative of CVC joined the meeting. The Company's business,
valuation parameters and general terms and conditions of a possible transaction
were discussed, including GKN plc's requirement that certain principal
stockholders sign agreements providing for the sale of Shares to GKN plc in an
acquisition.
On April 16, 1997, representatives of the Company, CVC and GKN plc met in
New York to further discuss the possibility of the acquisition of the Company by
GKN plc.
Between April 22 and April 24, 1997, meetings were held by representatives
of the Company and GKN plc with respect to the form of a possible offer, the
agreements required and clarification of open items to be finalized. On April
24, 1997, the Board met to discuss the status of a possible transaction and was
briefed by representatives of the Company and engaged Morgan Stanley to assist
the Company in its evaluation of a possible transaction with GKN plc. At such
meeting, the Company's management apprised the Board of the start of
negotiations and presented the Board with the various terms and conditions that
remained subject to negotiation. On April 25, 1997, the Board of Directors of
GKN plc approved the acquisition of the Company and appointed a Committee of the
Board to further negotiate and finalize terms.
Negotiations between representatives of GKN plc and the Company continued
with respect to the terms of the acquisition and the Stockholder Agreements. On
April 27, 1997, the Board again met to discuss the developments in the
negotiations. At that meeting, the Board heard presentations from Company's
management, its legal counsel and Morgan Stanley counsel concerning the Company,
its financial condition, results of operations, business and prospects and the
terms of the Merger Agreement, the Stockholder Agreements and the transactions
contemplated thereby. The Board discussed the proposed terms of the Merger
Agreement and the Stockholder Agreements, particularly those provisions relating
to the ability of the Board to pursue alternative proposals. The Board also
discussed the terms of the proposed agreements for the Company's executive
officers and other key employees.
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<PAGE> 18
The Board met again on April 29, 1997. The Board heard a further
presentation from Morgan Stanley concerning the Company, its historical stock
price performance and its financial condition, results of operations, business
and prospects. The Board discussed with Morgan Stanley and management of the
Company various matters raised in the implementation of the Company's current
strategic plan, the likely timing of realization of benefits from such
implementation, the competitive environment in which the Company operates and
the likelihood of GKN plc or a third party being willing to pay more than $37.00
per share for the Company. Morgan Stanley rendered its oral opinion,
subsequently confirmed in writing (the "Morgan Stanley Opinion"), that, based
upon and subject to certain considerations and assumptions, the consideration to
be received by the holders of Shares pursuant to the Offer and the Merger is
fair from a financial point of view to such holders. Copies of the Morgan
Stanley Opinion containing the assumptions made, procedures followed, matters
considered and limits of its review is attached hereto as Annex A and is
incorporated herein by reference. THE FULL TEXT OF SUCH OPINION SHOULD BE READ
IN CONJUNCTION WITH THIS STATEMENT.
The Board then heard a further presentation from the Company's legal
counsel concerning the terms and conditions of the Merger Agreement, the
Stockholders Agreement, the terms of the proposed employment and severance
agreements for the Company's executive officers and certain key employees, and
the other instruments under consideration. The Board discussed the likely timing
of the transaction and the conditions to consummation of the Offer, the right of
the Board to terminate the Merger Agreement to accept a superior proposal after
paying a termination fee of $12 million and expenses not to exceed $4 million
and the other principal terms of the Merger Agreement and the Stockholder
Agreements. Thereafter, the Board unanimously approved and adopted the Merger
Agreement, approved the Offer, the Merger, the Stockholder Agreements and the
transactions contemplated by the Merger Agreement and the Stockholder Agreements
and determined that the terms of the Offer and the Merger were fair and in the
best interests of the stockholders of the Company and recommended that the
stockholders of the Company accept the Offer and tender their Shares to
Purchaser pursuant to the Offer.
Negotiations continued thereafter, culminating in GKN plc and the Company
agreeing upon a form of Merger Agreement and a form of Stockholder Agreement.
The Merger Agreement and various Stockholder Agreements were executed and the
transactions were publicly announced on April 30, 1997.
RECOMMENDATION OF BOARD
At its meeting held on April 29, 1997, as discussed above, the Board
unanimously approved and adopted the Merger Agreement, approved the Offer, the
Merger, the Stockholder Agreements and the transactions contemplated by the
Merger Agreement and determined that the terms of the Offer and the Merger were
fair to and in the best interest of the stockholders of the Company and
recommended that the stockholders of the Company accept the Offer and tender
their Shares to Purchaser pursuant to the Offer. In making its recommendations
to the stockholders of the Company with respect to the Offer and the Merger, the
Board considered a number of factors, including the following:
Financial Condition, Results of Operations, Business and Prospects of
the Company. The Board considered the financial condition, results of
operations, business and prospects of the Company, including its prospects
if it were to remain independent. The Board discussed the Company's current
strategic plan for aggressive expansion, including the costs of such plan
and the risks for the Company involved in its implementation. The Board
also discussed the competitive environment in which the Company operates.
Other Potential Transactions. The Board also considered information
provided by Morgan Stanley and the Company's management regarding
alternative transactions and other potential acquirors of the Company. The
Board noted that none of the potential acquirors that had been identified
by the Company's management and Morgan Stanley had made any proposals or
offers for the Company, and that the Company had not solicited any such
offers. The Board noted, however, that GKN plc, by virtue of its ownership
of powder metallurgy operations in Europe and the United States, could
realize very substantial operating synergies from an acquisition of the
Company. Moreover, the Board noted that
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<PAGE> 19
GKN plc would benefit from a different accounting treatment for goodwill
than similar U.S. companies. The Board also noted that the Merger Agreement
would permit the Company to terminate the Merger to accept a superior
proposal from a third party (subject to payment of the $12 million
termination fee).
Historical Stock Price Performance. The Board reviewed the historical
stock price performance of the Company and noted that the consideration to
be received by the Company's stockholders pursuant to the Offer and the
Merger would represent a premium of approximately 37% over the closing
price of the Shares on the New York Stock Exchange on the day before the
announcement of the Offer, a 54% premium over the offering price of the
Shares in the Company's public offering consummated March 6, 1997 and 32%
premium over the 30-day average closing price for the Shares. The Board
also noted that the Company's stock does not have a significant public
float, and therefore even if the price of the Shares increased
significantly, the lack of public float would negatively affect the ability
of shareholders to fully realize such price increase.
Morgan Stanley Presentations. The Board took into account the
presentations and advice of Morgan Stanley with respect to the financial
and other terms of the Offer and the Merger and the Morgan Stanley Opinion
as of the date of its opinion that the consideration to be received by the
holders of Shares pursuant to the Merger Agreement is fair from a financial
point of view to such holders. The Board considered the presentations of
Morgan Stanley in connection with such opinion as to various financial and
other considerations deemed relevant to the Board's evaluation of the Offer
and the Merger. In connection with the preparation of its opinion, Morgan
Stanley informed the Board that it had (a) analyzed certain publicly
available financial statements and other information of the Company and GKN
plc; (b) analyzed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management of the
Company; (c) analyzed and discussed certain financial projections prepared
by the management of the Company; (d) discussed the past and current
operations and financial condition and the prospects of the Company with
senior executives of the Company; (e) reviewed the reported prices and
trading activity for the Shares; (f) compared the financial performance of
the Company and the prices and trading activity of the Shares with that of
certain other comparable publicly-traded companies and their securities;
(g) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions; (h) reviewed the Merger
Agreement and certain related documents; and (i) performed such other
analyses and considered such other factors as Morgan Stanley deemed
appropriate.
A copy of the Morgan Stanley Opinion is attached as Annex B to this
Statement and is incorporated herein by reference. Holders of Shares should
read the Morgan Stanley Opinion in its entirety for a description of
procedures followed, assumptions and qualifications made, matters
considered and limitations on the review undertaken by Morgan Stanley. In
considering such opinion, the Board was aware that upon delivery thereof,
Morgan Stanley became entitled to certain fees described in Item 5 hereof
in connection with its engagement by the Company and that, in addition,
Morgan Stanley expressed no opinion or recommendation as to whether the
shareholders of the Company should accept the Offer and the Merger.
Terms and Conditions of the Offer and the Merger. The Board also
considered the terms and conditions of the Offer and the Merger Agreement
including the fact that the Offer is not subject to financing but is
subject to minimum tender conditions and that it contemplates the payment
or reimbursement to Parent, under certain circumstances and subject to
certain limits, of certain fees and expenses; in analyzing the conditions,
the Board considered, among other things, the risk of the Offer's
non-consummation; in assessing the termination fees, the Board considered
the likelihood of any third party making a proposal for a third party
transaction and that the effect of the termination fee would be to increase
by the amount of such termination fee the costs to a third party of
acquiring the Company. The Board noted that the transaction was being
structured as a cash tender offer for all Shares, and it would permit all
holders of Shares to participate on the same basis. The Board considered
that CVC, as principal stockholder, was committing to the transaction but
was not being afforded any preferential treatment in connection with the
Offer and the Merger. The Board also considered the terms of the CVC
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<PAGE> 20
Agreement and the Stockholder Agreements, including the fact that such
agreements would terminate if the Merger Agreement terminated, thus
enabling the Board's to pursue a superior proposal from a third party.
Other Considerations. The Board also considered the financial ability
of the Parent to consummate the Offer and the Merger and the guaranty of
GKN plc related thereto; the possible impact of the Offer and the Merger
and of alternatives thereto on the Company's business and prospects; and
the fact that following the consummation of the Offer and the Merger, the
current shareholders of the Company will no longer be able to participate
in any increases or decreases in the value of the Company's business and
profits.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Offer and
the Merger, the Board did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determination. In addition, individual members of the Board may have given
different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Morgan Stanley has been retained by the Company to act as financial advisor
to the Company with respect to the Offer, the Merger and matters arising in
connection therewith. Pursuant to a letter agreement dated April 4, 1997,
between the Company and Morgan Stanley, the Company has agreed to pay Morgan
Stanley a fee of $900,000. In addition, the Company has agreed to reimburse
Morgan Stanley for certain out-of-pocket expenses, if any, whether or not any
transaction is consummated, and to indemnify Morgan Stanley and certain related
persons against certain liabilities in connection with their engagement.
Morgan Stanley has provided certain investment banking services to the
Company from time to time for which it has received customary compensation. In
the ordinary course of its business, Morgan Stanley may trade the equity
securities of the Company for its own account and for the accounts of customers
and may, therefore, at any time hold a long or short position in such
securities.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any other person to make solicitations or
recommendations to the stockholders of the Company on its behalf concerning the
Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, no transaction in Shares have been effected by
the Company or, to the Company's knowledge, by any executive officer, director
or affiliate of the Company, other than the Company's public offering of
2,530,000 shares of Class A Common Stock made pursuant to a Prospectus dated
March 6, 1997.
(b) To the Company's knowledge, to the extent permitted by applicable
securities laws, rules or regulations, each of the Company's executive officers
and directors currently intends to tender all Shares over which he has sole
dispositive power pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) As described under Item 4 above, the Company has agreed in the Merger
Agreement not to engage in certain activities in connection with any proposal to
engage in a business combination with, or acquire an interest in or assets of,
the Company.
Except in accordance with the terms of the Merger Agreement, in connection
with the exercise of fiduciary duties as advised by counsel as described under
Item 4 hereof and except as described in this Statement, the Company does not
presently intend to undertake any negotiations in response to the Offer which
relate to or would result in (i) an extraordinary transaction, such as a merger
or reorganization, involving the Company or any of its subsidiaries, (ii) a
purchase, sale or transfer of a material amount of assets
19
<PAGE> 21
by the Company or any of its subsidiaries, (iii) a tender offer for or other
acquisition of securities by or of the Company or (iv) any material change in
the present capitalization or dividend policy of the Company.
(b) Except as described herein, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the events referred to
in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
<TABLE>
<S> <C>
Exhibit 1: Agreement and Plan of Merger, dated as of April 29, 1997, among GKN Powder
Metallurgy Holdings, Inc., GKN Powder Metallurgy, Inc. and Sinter Metals,
Inc. (incorporated by reference to Exhibit (c)(1) of the Schedule 14D-1 of
GKN Powder Metallurgy Holdings, Inc. and GKN Powder Metallurgy, Inc. filed
with the Securities and Exchange Commission on May 2, 1997 (the "Schedule
14D-1")).
Exhibit 2: Agreement, dated as of April 29, 1997, by and between Citicorp Venture
Capital, Ltd. and GKN Powder Metallurgy, Inc. (incorporated by reference to
Exhibit (c)(2) of the Schedule 14D-1).
Exhibit 3: Form of Stockholder Agreement for Individuals, dated as of April 29, 1997,
by and between GKN Powder Metallurgy, Inc. and each of Ronald G. Campbell,
Joseph W. Carreras, E. Joseph Hochreiter, Michael T. Kestner, Donald L.
LeVault, Mary Lynn Putney, William H. Roj, Charles E. Volpe, Richard A.
McLean and Gregory T. Heitzenrater (incorporated by reference to Exhibit
(c)(3) of the Schedule 14D-1)
Exhibit 4: Form of letter dated May 2, 1997, to be sent to the stockholders of Sinter
Metals, Inc.*
Exhibit 5: Letter, dated April 29, 1997, between Joseph W. Carreras and GKN Powder
Metallurgy Holdings, Inc.
Exhibit 6: Employment Agreement, dated as of April 29, 1997, between Sinter Metals,
Inc. and Joseph W. Carreras.
Exhibit 7: Form of Severance Agreement, dated as of April 29, 1997, between Sinter
Metals, Inc. and each of Michael T. Kestner, Ronald G. Campbell, Alex G.
Garcia, Jr. and Ian B. Hessel.
Exhibit 8: Form of Severance Agreement, dated as of April 29, 1997, between Sinter
Metals, Inc. and each of Gregory T. Heitzenrater, Joseph A. Newton, Beth A.
Packo, Kristin Maclellan, Gloria S. Sturghill and Suzanne Paulett.
Exhibit 9: Confidentiality Agreement, dated as of April 28, 1997, between Sinter
Metals, Inc. and GKN plc (incorporated by reference to Exhibit (c)(4) of the
Schedule 14D-1).
Exhibit 10: Offer to Purchase dated May 2, 1997 (incorporated by reference to Exhibit
(a)(1) of the Schedule 14D-1).**
Exhibit 11: Letter of Transmittal (incorporated by reference to Exhibit (a)(2) of the
Schedule 14D-1).**
Exhibit 12: Form of Waiver, dated as of April 29, 1997, executed by each of Charles E.
Volpe, William H. Roj, Mary Lynn Putney, David Y. Howe and E. Joseph
Hochreiter.
Exhibit 13: Form of Letter to Participants in Sinter Metals, Inc.'s Savings Plan.*
</TABLE>
20
<PAGE> 22
<TABLE>
<S> <C>
Exhibit 14: Option Agreement, dated as of April 29, 1997, by and between Sinter Metals,
Inc. and Joseph W. Carreras.
Exhibit 15: Page 8-9 of Sinter Metals, Inc.'s Proxy Statement for its 1997 Annual
Meeting of Shareholders.
</TABLE>
- ---------------
* Copy sent to stockholders of the Company.
** Included in the Offer to Purchase Materials being mailed to Company
stockholders.
21
<PAGE> 23
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Schedule 14D-9 is true, complete
and correct.
SINTER METALS, INC.
By /s/ JOSEPH W. CARRERAS
------------------------------------
Name: Joseph W. Carreras
Title: Chairman and Chief Executive
Officer
Dated: May 2, 1997
<PAGE> 24
ANNEX A
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
April 29, 1997
Board of Directors
Sinter Metals, Inc.
50 Public Square, Suite 3200
Cleveland, OH 44113
Members of the Board:
We understand that Sinter Metals, Inc. ("SNM" or the "Company"), GKN plc
("Buyer") and GKN Acquisition Corp., a wholly owned subsidiary of Buyer
("Acquisition Sub") intend to enter into an Agreement and Plan of Merger,
substantially in the form of the draft dated April 29, 1997 (the "Merger
Agreement") which provides, among other things, for (i) the commencement by
Acquisition Sub of a tender offer (the "Tender Offer") for all outstanding
shares of common stock, par value $.001 per share (the "Common Stock") of SNM
for $37 per share net to the seller in cash, and (ii) the subsequent merger (the
"Merger") of Acquisition Sub with and into SNM. Pursuant to the Merger, SNM will
become a wholly owned subsidiary of Buyer and each outstanding share of Common
Stock, other than shares held in treasury or held by Buyer or any affiliate of
Buyer or as to which dissenters' rights have perfected, will be converted into
the right to receive $37 per share in cash. We also understand that certain
shareholders of SNM intend to enter into shareholder agreements substantially in
the form of the draft dated April 29, 1997, in which the shareholders agree to
tender pursuant to and in accordance with the Tender offer all owned shares
(collectively, the "Shareholder Agreements"). The shareholders who are parties
to these agreements will receive the same per share consideration to other
shareholders who have tendered their shares. The terms and conditions of the
Tender Offer and the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of the Company and the Buyer:
(ii) analyzed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed and discussed certain financial forecasts and targets
related to the Company with the management of the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
A-1
<PAGE> 25
(viii) reviewed the Merger Agreement and the Shareholder Agreement and
certain related documents; and
(ix) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. For purposes of rendering this opinion, we have assumed that the
financial forecasts and targets discussed with the management of the Company
reflect the best currently available estimates and judgments of the future
financial performance of the Company. We have not made any independent valuation
or appraisal of the assets or liabilities of the Company nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets, nor did we receive any indication of interest in such
acquisition from any party other than the Buyer.
We have been engaged to render this opinion to the Board of Directors of
the Company in connection with this transaction and will receive a fee for our
services. In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financing services for the Company and have
received fees for the rendering of these services. In particular, in March 1997,
Morgan Stanley & Co. and its affiliates acted as lead manager of an underwriting
syndicate in connection with the public offering of Common Stock by the Company
and received a customary underwriting discount as compensation for the rendering
of such activity. In addition, in the past, Morgan Stanley & Co. and its
affiliates have provided financial advisory and financing services for the Buyer
and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission in
connection with the Tender Offer and the Merger. In addition, we express no
opinion and make no recommendation as to whether the stockholders of the Company
should accept the Tender Offer.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Common Stock pursuant
to the Merger Agreement is fair from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Jonathan G. Morphett
------------------------------------
Jonathan G. Morphett
Principal
A-2
<PAGE> 1
[Sinter Metals, Inc. Logo]
Dear Stockholder:
On April 29, 1997, Sinter Metals, Inc. (the "Company") announced that it
had entered into an Agreement and Plan of Merger ("Agreement") with GKN Powder
Metallurgy Holdings, Inc., an indirect wholly-owned subsidiary of GKN plc
("Parent"), pursuant to which GKN Powder Metallurgy, Inc. ("Purchaser"), a
Delaware corporation and a wholly-owned subsidiary of Parent, agreed to offer to
purchase all of the issued and outstanding shares of the Company's Class A
Common Stock and Class B Common Stock at a price of $37.00 net per share payable
in cash through a tender offer to the stockholders of the Company (the "Offer").
The Agreement provides for a subsequent merger of Purchaser into the Company at
the same price per share paid pursuant to the Offer.
Based in part on the opinion of Morgan Stanley & Co. Incorporated, the
Company's financial advisor, that the consideration to be paid to stockholders
of the Company in the Agreement is fair to such stockholders from a financial
point of view, your Board of Directors has unanimously approved the Agreement
and determined that the Agreement is in the best interests of stockholders.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS TENDER THEIR
SHARES PURSUANT TO THE OFFER.
In arriving at its decision to recommend the Offer, the Board of Directors
gave careful consideration to a number of factors, which are described in the
Schedule 14D-9 filed by the Company with the Securities and Exchange Commission
and enclosed with this letter. I urge you to read the Schedule 14D-9 carefully.
Finally, the Annual Meeting of the Company scheduled for May 15, 1997 will
be postponed until further notice in view of the proposed transactions
contemplated by the Agreement.
Sincerely,
/s/ Joseph W. Carreras
Joseph W. Carreras
Chairman and
Chief Executive Officer
<PAGE> 1
EXHIBIT 5
TERMINAL TOWER
50 PUBLIC SQUARE/SUITE 3200
[SINTER METALS, INC. LOGO] CLEVELAND, OH 44113
SINTER TELEPHONE: (216) 771-6700
METALS, INC. FAX: (216) 344-7631
- --------------------------------------------------------------------------------
JOSEPH W. CARRERAS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
April 29, 1997
GKN Powder Metallurgy Holdings, Inc.
3300 University Drive
Auburn Hills, Michigan 48321
Dear Sirs:
Reference is made to the Agreement and Plan of Merger, dated as of the
date hereof (the "Agreement"), between you and your subsidiary and Sinter
Metals, Inc. (the "Company"). This letter is to inform you that I currently
anticipate to continue my employment with the Company as Chief Executive Officer
for at least three months following the acquisition of shares of Common Stock
pursuant to the Offer (as each term is defined in the Agreement). I intend to
work with you in good faith towards achieving our goals during what undoubtedly
will be a most challenging period following the Company's acquisition.
Very truly yours,
/s/ Joseph W. Carreras
<PAGE> 1
EXHIBIT 6
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of
April 29, 1997, is made and entered by and between Sinter Metals, Inc., a
Delaware corporation (the "Company"), and Joseph W. Carreras (the "Executive").
WITNESSETH:
-----------
WHEREAS, the Executive is a senior executive of the Company
and has made and is expected to continue to make major contributions to the
short- and long-term profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
below) exists;
WHEREAS, the Company desires to assure itself of both present
and future continuity of management and desires to establish certain minimum
compensation benefits for certain of its senior executives, including the
Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior
executives are not practically disabled from discharging their duties in respect
of a proposed or actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement
for the Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as
follows:
1. CERTAIN DEFINED TERMS. In addition to terms defined
elsewhere herein, the following terms have the following meanings when used in
this Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a
rate not less than the Executive's annual fixed or base compensation as
in effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be determined from time to time
by the Board or a committee thereof.
<PAGE> 2
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant to
Section 5(b) or Section 5(c), the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft
in connection with his duties or in the course of his employment with
the Company or any Subsidiary;
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret
processes or confidential information of the Company or any Subsidiary;
(iv) intentional wrongful engagement in any Competitive
Activity; or
(v) a willful failure or refusal to follow the lawful
and proper directives of the Board consistent with the Executive's
position, after receipt by the Executive of a resolution duly adopted
by the Board specifying in reasonable detail the alleged failure or
refusal and after a reasonable opportunity for the Executive to cure
such failure or refusal;
and any such act shall have been materially harmful to the Company. For
purposes of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an
error in judgment or negligence, but shall be deemed "intentional" only
if done or omitted to be done by the Executive not in good faith and
without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less
than three quarters of the Board then in office at a meeting of the
Board called and held for such purpose, after reasonable notice to the
Executive and an opportunity for the Executive, together with his
counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith
opinion of the Board, the Executive had committed an act constituting
"Cause" as herein defined and specifying the particulars thereof in
detail. Nothing herein will limit the right of the Executive or his
beneficiaries to contest the validity or propriety of any such
determination.
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(d) "Change in Control" means the occurrence during the Term
of any of the following events:
(i) The Company is merged, consolidated or reorganized
into or with another corporation or other legal person, and as a result
of such merger, consolidation or reorganization less than a majority of
the combined voting power of the then-outstanding Voting Stock of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of Voting Stock of the Company immediately
prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other legal
person, and as a result of such sale or transfer less than a majority
of the combined voting power of the then-outstanding Voting Stock of
such corporation or person immediately after such sale or transfer is
held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Exchange Act, disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 20% or
more of the combined voting power of the then-outstanding Voting Stock
of the Company; or
(iv) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Directors of the Company cease for any reason to constitute at least a
majority thereof; PROVIDED, HOWEVER, that for purposes of this clause
(iv) each Director who is first elected, or first nominated for
election by the Company's stockholders, by a vote of at least
two-thirds of the Directors of the Company (or a committee thereof)
then still in office who were Directors of the Company at the beginning
of any such period will be deemed to have been a Director of the
Company at the beginning of such period.
Notwithstanding the foregoing provisions of Section 1(d)(iii), unless
otherwise determined in a specific case by majority vote of the Board,
a "Change in Control" shall not be deemed to have occurred for purposes
of Section 1(d)(iii) solely because (A) the Company, (B) a Subsidiary,
or (C) any Company-sponsored employee stock ownership plan or any other
employee benefit plan of the Company or any Subsidiary either files or
becomes obligated to file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A
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<PAGE> 4
(or any successor schedule, form or report or item therein) under the
Exchange Act disclosing beneficial ownership by it of shares of Voting
Stock, whether in excess of 20% or otherwise, or because the Company
reports that a change in control of the Company has occurred or will
occur in the future by reason of such beneficial ownership.
(e) "Competitive Activity" means the Executive's participation
as an employee, officer, director or partner, without the written
consent of the Board, in the management operation or control of any
business enterprise if such enterprise is engaged in the powder
metallurgy business in any geographic area in which the Company or any
of is subsidiaries is engaged in such business. "Competitive Activity"
will not include the mere ownership of less than five percent of the
outstanding Voting Stock in any such enterprise and the exercise of
rights appurtenant thereto.
(f) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, stock purchase, stock
appreciation, savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit, deferred compensation,
incentive compensation, group or other life, health, medical/hospital
or other insurance (whether funded by actual insurance or self-insured
by the Company), disability, expense reimbursement and other employee
benefit policies, plans, programs or arrangements that may now exist or
any equivalent successor policies, plans, programs or arrangements that
may be adopted hereafter by the Company, providing perquisites,
benefits and service credit for benefits at least as great in the
aggregate as are payable thereunder prior to a Change in Control.
(g) "Employment Period" means the period of time commencing on
the date of the first occurrence of a Change in Control and continuing
until the earliest of (i) the third anniversary of the occurrence of
the Change in Control, (ii) the Executive's death, or (iii) the
Executive's attainment of age 65.
(h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(i) "Incentive Pay" means an annual amount equal to not less
than the highest aggregate annual cash bonus, cash incentive or other
payments of cash compensation, in addition to Base Pay, made or to be
made in regard to services rendered in any calendar year during the
three calendar years immediately preceding the year in which the Change
in Control occurred pursuant to any bonus, incentive,
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<PAGE> 5
profit-sharing, performance, discretionary pay or similar agreement,
policy, plan, program or arrangement (whether or not funded) of the
Company, or any successor thereto providing benefits at least as great
as the benefits payable thereunder prior to a Change in Control.
(j) "Subsidiary" means an entity in which the Company directly
or indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
(k) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on December
31, 2000, or (ii) the expiration of the Employment Period; PROVIDED,
HOWEVER, that (A) commencing on January 1, 1998 and each January 1
thereafter, the term of this Agreement will automatically be extended
for an additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Executive shall have
given notice that it or the Executive, as the case may be, does not
wish to have the Term extended and (B) subject to the last sentence of
Section 11, if, prior to a Change in Control, the Executive ceases for
any reason to be an employee of the Company and any Subsidiary,
thereupon without further action the Term shall be deemed to have
expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(k), the Executive shall
not be deemed to have ceased to be an employee of the Company and any
Subsidiary by reason of the transfer of Executive's employment between
the Company and any Subsidiary, or among any Subsidiaries.
(l) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date
of termination.
(m) "Voting Stock" means securities entitled to vote generally
in the election of directors.
2. OPERATION OF AGREEMENT. This Agreement will be effective
and binding immediately upon its execution, but, anything in this Agreement to
the contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in Control at
any time during the Term, without further action, this Agreement shall become
immediately operative.
3. EMPLOYMENT PERIOD. Subject to the terms and conditions of
this Agreement, upon the occurrence of a Change in Control, the Company shall
continue the Executive in its employ and the Executive shall remain in the
employ of the Company for the Employment Period, in the position and with
substantially the same duties and responsibilities that he had immediately prior
to the Change in Control, or to which the Company and the Executive may
hereafter mutually agree in writing. Throughout the
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<PAGE> 6
Employment Period, the Executive shall devote substantially all of his time
during normal business hours (subject to vacations, sick leave and other
absences in accordance with the policies of the Company as in effect for senior
executives immediately prior to the Change in Control) to the business and
affairs of the Company, but nothing in this Agreement shall preclude the
Executive from devoting reasonable periods of time during normal business hours
to (i) serving as a director, trustee or member of or participant in any
organization or business so long as such activity would not constitute
Competitive Activity if conducted by the Executive after the Executive's
Termination Date, (ii) engaging in charitable and community activities, or (iii)
managing his personal investments, provided that such activities do not
materially interfere with the Executive's performance of his duties hereunder.
4. COMPENSATION DURING EMPLOYMENT PERIOD. (a) Upon the
occurrence of a Change in Control, the Executive shall receive during the
Employment Period, (i) Base Pay and (ii) an opportunity to receive annual cash
incentive compensation pursuant to a plan or arrangement mutually agreed upon by
the Board and the Executive.
(b) For his service pursuant to Section 4(a) hereof, during
the Employment Period the Executive shall be a full participant in, and shall be
entitled to the perquisites, benefits and service credit for benefits as
provided under, any and all policies, plans, programs or arrangements in which
senior executives of the Company participate providing Employee Benefits;
provided however, that the Executive's rights thereunder shall be governed by
the terms thereof and shall not be enlarged hereunder or otherwise affected
hereby. Notwithstanding the foregoing, if and to the extent such Employee
Benefits are not payable or provided under any such policy, plan, program or
arrangement, then the Company shall itself pay or provide therefor. Nothing in
this Agreement shall preclude improvement or enhancement of any Employee
Benefits, provided that no such improvement shall in any way diminish any other
obligation of the Company under this Agreement.
5. TERMINATION FOLLOWING A CHANGE IN CONTROL. (a) In the event
of the occurrence of a Change in Control, the Executive's employment may be
terminated by the Company during the Employment Period and the Executive shall
be entitled to the benefits provided by Section 6 and, if applicable, Section 7
unless such termination is the result of the occurrence of one or more of the
following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled
within the meaning of, and begins actually to receive disability
benefits pursuant to, the long-term disability
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<PAGE> 7
plan in effect for, or applicable to, Executive immediately prior to
the Change in Control; or
(iii) Cause.
If, during the Employment Period, the Executive's employment is terminated by
the Company or any Subsidiary other than pursuant to Section 5(a)(i), 5(a)(ii)
or 5(a)(iii), the Executive will be entitled to the benefits provided by Section
6 and, if applicable, Section 7.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary during
the Employment Period with the right to severance compensation as provided in
Section 6 and, if applicable, Section 7 upon the occurrence of one or more of
the following events (regardless of whether any other reason for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the Company and/or a Subsidiary, as the
case may be, which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a director of the Company
(or any successor thereto) if the Executive shall have been a director
of the Company immediately prior to the Change in Control;
(ii) (A) A significant diminution in the nature or scope of
the authorities, powers, functions, responsibilities or duties attached
to the position with the Company and any Subsidiary which the Executive
held immediately prior to the Change in Control, (B) a reduction in the
Executive's Base Pay, (C) a reduction in the Executive's Opportunity
for Incentive Pay, or (D) the termination or denial of the Executive's
rights to Employee Benefits or a reduction in the scope or value
thereof, any of which is not remedied by the Company within 10 calendar
days after receipt by the Company of written notice from the Executive
of such change, reduction or termination, as the case may be; provided,
however, that the Executive agrees that changes resulting solely from
the fact that the Company is not an independent public company
following a change in Control shall not provide the basis for the
Executive to terminate his employment with the Company;
(iii) A determination by the Executive (which determination
will be conclusive and binding upon the parties hereto provided it has
been made in good faith and in all events will be presumed to have been
made in good faith unless otherwise shown by the Company by clear and
convincing evidence) that a change in circumstances has
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<PAGE> 8
occurred following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for which the
Executive was responsible immediately prior to the Change in Control,
which has rendered the Executive substantially unable to carry out, has
substantially hindered Executive's performance of, or has caused
Executive to suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the position
held by the Executive immediately prior to the Change in Control, which
situation is not remedied within 10 calendar days after written notice
to the Company from the Executive of such determination; provided,
however, that the Executive agrees that changes resulting solely from
the fact that the Company is not an independent public company
following a Change in Control shall not provide the basis for the
Executive to terminate his employment with the Company;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (directly or by operation of law) assumed
all duties and obligations of the Company under this Agreement pursuant
to Section 13(a);
(v) The Company relocates its principal executive offices, or
requires the Executive to have his principal location of work changed,
to any location that is in excess of 25 miles from the location thereof
immediately prior to the Change in Control; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto.
(c) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any Subsidiary for any reason, or without
reason, during the one year period commencing upon the occurrence of a Change in
Control with the right to severance compensation as provided in Section 6 and,
if applicable, Section 7. It is expressly acknowledged that the Executive may
exercise his rights under this Section 5(c) notwithstanding that the Company may
have terminated the Executive's employment pursuant to Section 5(a).
(d) A termination by the Company pursuant to Section 5(a) or
by the Executive pursuant to Section 5(b) or Section 5(c) will not affect any
rights that the Executive may have pursuant to any agreement, policy, plan,
program or arrangement of the Company providing Employee Benefits, which
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rights shall be governed by the terms thereof; provided however, that in the
event that the Executive's employment with the Company is terminated during the
Employment Period, the Executive acknowledges that he shall not be entitled to
severance benefits under any other plan, policy, practice or agreement of the
Company other than this Agreement.
6. SEVERANCE COMPENSATION. (a) If, following the occurrence of
a Change in Control, the Company terminates the Executive's employment during
the Employment Period other than pursuant to Section 5(a), or if the Executive
terminates his employment pursuant to Section 5(b) or Section 5(c), the Company
will pay to the Executive the following amounts within 10 business days after
the Termination Date and continue to provide to the Executive the following
benefits:
(i) A lump sum payment in an amount equal to $1,240,000.
(ii) For a period of 24 months following the Termination Date
(the "Continuation Period"), the Company will arrange to provide the
Executive with Employee Benefits that are welfare benefits (but not
stock option, stock purchase, stock appreciation or similar
compensatory benefits) substantially similar to those that the
Executive was receiving or entitled to receive immediately prior to the
Termination Date (or, if greater, immediately prior to the reduction,
termination, or denial described in Section 5(b)(ii)). If and to the
extent that any benefit described in this Section 6(a)(ii) is not or
cannot be paid or provided under any policy, plan, program or
arrangement of the Company or any Subsidiary, as the case may be, then
the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits.
Without otherwise limiting the purposes or effect of Section 7,
Employee Benefits otherwise receivable by the Executive pursuant to
this Section 6(a)(ii) will be reduced to the extent comparable welfare
benefits are actually received by the Executive from another employer
during the Continuation Period following the Executive's Termination
Date, and any such benefits actually received by the Executive shall be
reported by the Executive to the Company.
(iii) If requested in writing by the Executive within 90
calendar days following the Termination Date, the Company will use its
reasonable best efforts to assign to the Executive all of its rights
under the Lease Agreement dated May 15, 1996 between the Company and
Terminal Investments, Inc. and all other leases of office equipment
used at such location (collectively, the "Leases"). Notwithstanding the
foregoing, the Company shall not be obligated to assign any Lease
unless the Company is released from its obligations under such Lease.
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(b) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit required
to be made or provided hereunder on a timely basis, the Company will pay
interest on the amount or value thereof at an annualized rate of interest equal
to the so-called composite "prime rate" as quoted from time to time during the
relevant period in the Northeast Edition of THE WALL STREET JOURNAL. Such
interest will be payable as it accrues on demand. Any change in such prime rate
will be effective on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the
contrary, the parties' respective rights and obligations under this Section 6
and under Sections 7 and 9 will survive any termination or expiration of this
Agreement or the termination of the Executive's employment following a Change in
Control for any reason whatsoever.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in
this Agreement to the contrary notwithstanding, in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the payment or payments provided for in this Section 7)
or distribution by the Company or any of its affiliates to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right, or the
lapse or termination of any restriction on or the vesting or exercisability of
any of the foregoing (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any successor provision thereto) by reason of being considered "contingent
on a change in ownership or control" of the Company, within the meaning of
Section 280G of the Code (or any successor provision thereto) or to any similar
tax imposed by state or local law, or any interest or penalties with respect to
such tax (such tax or taxes, together with any such interest and penalties,
being hereafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including any Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payment. The intent of
this Section 7 is that the Executive shall suffer no detriment as a result of
the imposition of the Excise Tax on any Payment and it shall be construed
accordingly.
(b) Subject to the provisions of Section 7(f), all
determinations required to be made under this Section 7,
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including whether an Excise Tax is payable by the Executive and the amount of
such Excise Tax and whether a Gross-Up Payment is required to be paid by the
Company to the Executive and the amount of such Gross-Up Payment, if any, shall
be made by a nationally recognized accounting firm (the "Accounting Firm")
selected by the Executive in his sole discretion. The Executive shall direct the
Accounting Firm to submit its determination and detailed supporting calculations
to both the Company and the Executive within 30 calendar days after the
Termination Date, if applicable, and any such other time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay the
required Gross-Up Payment to the Executive within five business days after
receipt of such determination and calculations with respect to any Payment to
the Executive. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall, at the same time as it makes such determination,
furnish the Company and the Executive an opinion that the Executive has
substantial authority not to report any Excise Tax on his federal, state or
local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts or fails
to pursue its remedies pursuant to Section 7(f) and the Executive thereafter is
required to make a payment of any Excise Tax, the Executive shall direct the
Accounting Firm to determine the amount of the Underpayment that has occurred
and to submit its determination and detailed supporting calculations to both the
Company and the Executive as promptly as possible. Any such Underpayment shall
be promptly paid by the Company to, or for the benefit of, the Executive within
five business days after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 7(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the
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Company true and correct copies (with any amendments) of his federal income tax
return as filed with the Internal Revenue Service and corresponding state and
local tax returns, if relevant, as filed with the applicable taxing authority,
and such other documents reasonably requested by the Company, evidencing such
payment. If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction. If after filing the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive, at the direction of the Company, following procedures similar to
those described in Section 7(f) shall file a claim for refund. The Executive
will promptly pay to the Company the amount of any refund received (together
with any interest paid or credited thereon after any taxes applicable thereto).
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 7(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than 10
business days after the Executive actually receives notice of such claim and the
Executive shall further apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid (in each case, to the extent
known by the Executive). The Executive shall not pay such claim prior to the
earlier of (i) the expiration of the 30-calendar-day period following the date
on which he gives such notice to the Company and (ii) the date that any payment
of amount with respect to such claim is due. If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) provide the Company with any written records or documents
in his possession relating to such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including
without limitation accepting legal representation with respect to such claim by
an attorney
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competent in respect of the subject matter and reasonably selected by the
Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 7(f), the Company shall control all proceedings taken in connection with
the contest of any claim contemplated by this Section 7(f) and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
(provided, however, that the Executive may participate therein at his own cost
and expense) and may, at its option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income or other tax, including interest
or penalties with respect thereto, imposed with respect to such advance; and
PROVIDED FURTHER, HOWEVER, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such contested claim
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 7(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after
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<PAGE> 14
the receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(f), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial or refund prior to the
expiration of 30 calendar days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of any such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this Section 7.
8. NO MITIGATION OBLIGATION. The Company hereby acknowledges
that it will be difficult and may be impossible for the Executive to find
reasonably comparable employment following the Termination Date. Accordingly,
the payment of the severance compensation by the Company to the Executive in
accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable, and the Executive will not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor will any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise, except as
expressly provided in the last sentence of Section 6(a)(ii).
9. LEGAL FEES AND EXPENSES. It is the intent of the Company
that the Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails,
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<PAGE> 15
in whole or in part, in connection with any of the foregoing, the Company will
pay and be solely financially responsible for any and all reasonable attorneys'
and related fees and expenses incurred by the Executive in connection with any
of the foregoing.
10. COMPETITIVE ACTIVITY. During a period ending at the later
of (a) three years following the first occurrences of a Change in Control, and
(b) one year following the Termination Date, if the Executive shall have
received or shall be receiving benefits under Section 6 and, if applicable,
Section 7, the Executive shall not, without the prior written consent of the
Company, engage in any Competitive Activity.
11. EMPLOYMENT RIGHTS. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any termination of
employment of the Executive or the removal of the Executive from the office or
position in the Company or any Subsidiary following the commencement of any
discussion with a third person that ultimately results in a Change in Control
shall be deemed to be a termination or removal of the Executive after a Change
in Control for purposes of this Agreement.
12. WITHHOLDING OF TAXES. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
the Company is required to withhold pursuant to any law or government regulation
or ruling.
13. SUCCESSORS AND BINDING AGREEMENT. (a) The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
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<PAGE> 16
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 13(a) and 13(b). Without limiting the generality
or effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by Executive's
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 13(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
14. NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof confirmed), or five
business days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, or three business days after
having been sent by a nationally recognized overnight courier service such as
Federal Express, UPS, or Purolator, addressed to the Company (to the attention
of the Secretary of the Company) at its principal executive office and to the
Executive at his principal residence, or to such other address as any party may
have furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
15. GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Delaware, without giving
effect to the principles of conflict of laws of such State.
16. VALIDITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances will not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
17. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior
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<PAGE> 17
or subsequent time. No agreements or representations, oral or otherwise,
expressed or implied with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. References to
Sections are to references to Sections of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
[Executed on Following Page]
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<PAGE> 18
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
SINTER METALS, INC.
By: /s/ Michael T. Kestner
---------------------------------
Michael T. Kestner
Vice President,
Chief Financial Officer
and Secretary
/s/ Joseph W. Carreras
---------------------------------
Joseph W. Carreras
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<PAGE> 1
EXHIBIT 7
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of April
29, 1997, is made and entered by and between Sinter Metals, Inc., a Delaware
corporation (the "Company"), and ___________ (the "Executive").
WITNESSETH:
-----------
WHEREAS, the Executive is a senior executive of the Company
and has made and is expected to continue to make major contributions to the
short- and long-term profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
below) exists;
WHEREAS, the Company desires to assure itself of both present
and future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives, including the
Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior
executives are not practically disabled from discharging their duties in respect
of a proposed or actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement
for the Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as
follows:
1. CERTAIN DEFINED TERMS. In addition to terms defined
elsewhere herein, the following terms have the following meanings when used in
this Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a
rate not less than the Executive's annual fixed or base compensation as
in effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be determined from time to time
by the Board or a committee thereof.
<PAGE> 2
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b) or Section 3(c), the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft
in connection with his duties or in the course of his employment with
the Company or any Subsidiary;
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret
processes or confidential information of the Company or any Subsidiary;
(iv) intentional wrongful engagement in any Competitive
Activity; or
(v) a willful failure or refusal to follow the lawful
and proper directives of the Chief Executive Officer of the Company (the "CEO")
consistent with the Executive's position, after receipt by the Executive of
written notice from the CEO specifying in reasonable detail the alleged failure
or refusal and after a reasonable opportunity for the Executive to cure such
alleged failure or refusal;
and any such act shall have been materially harmful to the Company. For
purposes of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an
error in judgment or negligence, but shall be deemed "intentional" only
if done or omitted to be done by the Executive not in good faith and
without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less
than three quarters of the Board then in office at a meeting of the
Board called and held for such purpose, after reasonable notice to the
Executive and an opportunity for the Executive, together with his
counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith
opinion of the Board, the Executive had committed an act constituting
"Cause" as herein defined and specifying the particulars thereof in
detail. Nothing herein will limit the right of the Executive or his
beneficiaries to contest the validity or propriety of any such
determination.
(d) "Change in Control" means the occurrence during the Term
of any of the following events:
<PAGE> 3
(i) The Company is merged, consolidated or reorganized
into or with another corporation or other legal person, and as a result
of such merger, consolidation or reorganization less than a majority of
the combined voting power of the then-outstanding Voting Stock of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of Voting Stock of the Company immediately
prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other legal
person, and as a result of such sale or transfer less than a majority
of the combined voting power of the then-outstanding Voting Stock of
such corporation or person immediately after such sale or transfer is
held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Exchange Act, disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 20% or
more of the combined voting power of the then-outstanding Voting Stock
of the Company; or
(iv) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Directors of the Company cease for any reason to constitute at least a
majority thereof; PROVIDED, HOWEVER, that for purposes of this clause
(iv) each Director who is first elected, or first nominated for
election by the Company's stockholders, by a vote of at least
two-thirds of the Directors of the Company (or a committee thereof)
then still in office who were Directors of the Company at the
beginning of any such period will be deemed to have been a Director
of the Company at the beginning of such period.
Notwithstanding the foregoing provisions of Section 1(d)(iii) unless
otherwise determined in a specific case by majority vote of the Board,
a "Change in Control" shall not be deemed to have occurred for purposes
of Section 1(d)(iii) solely because (A) the Company, (B) a Subsidiary,
or (C) any Company-sponsored employee stock ownership plan or any other
employee benefit plan of the Company or any Subsidiary either files or
becomes obligated to file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or
any successor schedule, form or report or item therein)
<PAGE> 4
under the Exchange Act disclosing beneficial ownership by it of shares
of Voting Stock, whether in excess of 20% or otherwise, or because the
Company reports that a change in control of the Company has occurred or
will occur in the future by reason of such beneficial ownership.
(e) "Competitive Activity" means the Executive's participation
as an employee, officer, director or partner, without the written
consent of the Board in the management, operation or control of any
business enterprise if such enterprise is engaged in the powder
metallurgy business in any geographic area in which the Company or any
of its subsidiaries is engaged in such business. "Competitive Activity"
will not include the mere ownership of less than five percent of the
outstanding Voting Stock in any such enterprise and the exercise of
rights appurtenant thereto.
(f) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, stock purchase, stock
appreciation, savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit, deferred compensation,
incentive compensation, group or other life, health, medical/hospital
or other insurance (whether funded by actual insurance or self-insured
by the Company), disability, expense reimbursement and other employee
benefit policies, plans, programs or arrangements that may now exist or
any equivalent successor policies, plans, programs or arrangements that
may be adopted hereafter by the Company, providing perquisites,
benefits and service credit for benefits at least as great in the
aggregate as are payable thereunder prior to a Change in Control.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Incentive Pay" means an annual amount equal to not less
than the highest aggregate annual cash bonus, cash incentive or other
payments of cash compensation, in addition to Base Pay, made or to be
made in regard to services rendered in any calendar year during the
three calendar years immediately preceding the year in which the Change
in Control occurred pursuant to any bonus, incentive, profit-sharing,
performance, discretionary pay or similar agreement, policy, plan,
program or arrangement (whether or not funded) of the Company, or any
successor thereto providing benefits at least as great as the benefits
payable thereunder prior to a Change in Control.
<PAGE> 5
(i) "Severance Period" means the period of time commencing on
the date of the first occurrence of a Change in Control and continuing
until the earliest of (i) the second anniversary of the occurrence of
the Change in Control, (ii) the Executive's death, or (iii) the
Executive's attainment of age 65,
(j) "Subsidiary" means an entity in which the Company directly
or indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
(k) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on December
31, 2000, or (ii) the expiration of the Severance Period; PROVIDED,
HOWEVER, that (A) commencing on January 1, 1998 and each January 1
thereafter, the term of this Agreement will automatically be extended
for an additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Executive shall have
given notice that it or the Executive, as the case may be, does not
wish to have the Term extended and (B) subject to the last sentence of
Section 8, if, prior to a Change in Control, the Executive ceases for
any reason to be an employee of the Company and any Subsidiary,
thereupon without further action the Term shall be deemed to have
expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(k), the Executive shall
not be deemed to have ceased to be an employee of the Company and any
Subsidiary by reason of the transfer of Executive's employment between
the Company and any Subsidiary, or among any Subsidiaries.
(l) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date
of termination).
(m) "Voting Stock" means securities entitled to vote generally
in the election of directors.
2. OPERATION OF AGREEMENT. This Agreement will be effective
and binding immediately upon its execution, but, anything in this Agreement to
the contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in Control at
any time during the Term, without further action, this Agreement shall become
immediately operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL. (a) In the event
of the occurrence of a Change in Control, the Executive's employment may be
terminated by the Company during the Severance Period and the Executive shall be
entitled to the benefits provided by Section 4 unless such termination is the
result of the occurrence of one or more of the following events:
<PAGE> 6
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled
within the meaning of, and begins actually to receive disability
benefits pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control; or
(iii) Cause.
If, during the Severance Period, the Executive's employment is terminated by the
Company or any Subsidiary other than pursuant to Section 3(a)(i), 3(a)(ii) or
3(a)(iii), the Executive will be entitled to the benefits provided by Section 4
and, if applicable, Section 5.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary during
the Severance Period with the right to severance compensation as provided in
Section 4 and, if applicable, Section 5 upon the occurrence of one or more of
the following events (regardless of whether any other reason for such
termination exits or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the Company and/or a Subsidiary, as the
case may be, which the Executive held immediately prior to a Change in
Control;
(ii) (A) A significant diminution in the nature or scope of
the authorities, powers, functions, responsibilities or duties attached
to the position with the Company and any Subsidiary which the Executive
held immediately prior to the Change in Control, (B) a reduction in the
Executive's Base Pay, (C) a reduction in the Executive's opportunity
for Incentive Pay, or (D) the termination or denial of the Executive's
rights to Employee Benefits or a reduction in the scope or value
thereof, any of which is not remedied by the Company within 10 calendar
days after receipt by the Company of written notice from the Executive
of such change, reduction or termination, as the case may be; provided
however, that the Executive agrees that changes resulting solely from
the fact that the Company is not an independent public company
following a Change in Control shall not provide the basis for the
Executive to terminate his employment with the Company;
(iii) A determination by the Executive (which determination
will be conclusive and binding upon the parties hereto provided it has
been made in good faith and
<PAGE> 7
in all events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing evidence) that a
change in circumstances has occurred following a Change in Control,
including, without limitation, a change in the scope of the business or
other activities for which the Executive was responsible immediately
prior to the Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused Executive to suffer a
substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to the position held by the
Executive immediately prior to the Change in Control, which situation
is not remedied within 10 calendar days after written notice; provided
however, that the Executive agrees that changes resulting solely from
the fact that the Company is not an independent public company
following a Change in Control shall not provide the basis for the
Executive to terminate his employment with the Company;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (directly or by operation of law) assumed
all duties and obligations of the Company under this Agreement pursuant
to Section 11(a);
(v) The Company relocates its principal executive offices, or
requires the Executive to have his principal location of work changed,
to any location that is in excess of 25 miles from the location thereof
immediately prior to the Change in Control; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto.
(c) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control at a time during which Joseph
W. Carreras is the Chief Executive Officer of the Company and during the one
year period immediately following such Change in Control Mr. Carreras'
employment with the Company is terminated, the Executive may terminate
employment with the Company and any Subsidiary for any reason, or without
reason, during the 30-day period following the termination of Mr. Carreras'
employment with the Company with the right to severance compensation as provided
in Section 6 and, if applicable, Section 7. It is expressly acknowledged that
the Executive may exercise his rights under this Section 3(c) notwithstanding
that the Company may have terminated the
<PAGE> 8
Executive's employment pursuant to Section 3(a).
(d) A termination by the Company pursuant to Section 3(a) or
by the Executive pursuant to Section 3(b) or Section 3(c) will not affect any
rights that the Executive may have pursuant to any agreement, policy, plan,
program or arrangement of the Company providing Employee Benefits, which rights
shall be governed by the terms thereof; provided however, that in the event that
the Executive's employment with the Company is terminated during the Severance
Period, the Executive acknowledges that he shall not be entitled to severance
benefits under any other plan, policy, practice or agreement of the Company
other than this Agreement.
4. SEVERANCE COMPENSATION. (a) If, following the occurrence of
a Change in Control, the Company terminates the Executive's employment during
the Severance Period other than pursuant to Section 3(a), or if the Executive
terminates his employment pursuant to Section 3(b) or Section 3(c), the Company
will pay to the Executive the following amounts within 10 business days after
the Termination Date and continue to provide to the Executive the following
benefits:
(i) A lump sum payment in an amount equal to $________.
(ii) For a period of twenty-four months following the
Termination Date (the "Continuation Period"), the Company will arrange
to provide the Executive with Employee Benefits that are welfare
benefits (but not stock option, stock purchase, stock appreciation or
similar compensatory benefits) substantially similar to those that the
Executive was receiving or entitled to receive immediately prior to the
Termination Date (or, if greater, immediately prior to the reduction,
termination, or denial described in Section 3(b)(ii)). If and to the
extent that any benefit described in this Section 4(a)(ii) is not or
cannot be paid or provided under any policy, plan, program or
arrangement of the Company or any Subsidiary, as the case may be, then
the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits.
Without otherwise limiting the purposes or effect of Section 5,
Employee Benefits otherwise receivable by the Executive pursuant to
this Section 4(a)(ii) will be reduced to the extent comparable welfare
benefits are actually received by the Executive from another employer
during the Continuation Period following the Executive's Termination
Date, and any such benefits actually received by the Executive shall be
reported by the Executive to the Company.
(b) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit required
to be made or provided hereunder on
<PAGE> 9
a timely basis, the Company will pay interest on the amount or value thereof at
an annualized rate of interest equal to the so-called composite "prime rate" as
quoted from time to time during the relevant period in the Northeast Edition of
THE WALL STREET JOURNAL. Such interest will be payable as it accrues on demand.
Any change in such prime rate will be effective on and as of the date of such
change.
(c) Notwithstanding any provision of this Agreement to the
contrary, the parties' respective rights and obligations under this Section 4
and under Sections 5 and 7 will survive any termination or expiration of this
Agreement or the termination of the Executive's employment following a Change in
Control for any reason whatsoever.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in
this Agreement to the contrary notwithstanding, in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the payment or payments provided for in this Section 5)
or distribution by the Company or any of its affiliates to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right, or the
lapse or termination of any restriction on or the vesting or exercisability of
any of the foregoing (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any successor provision thereto) by reason of being considered "contingent
on a change in ownership or control" of the Company, within the meaning of
Section 280G of the Code (or any successor provision thereto) or to any similar
tax imposed by state or local law, or any interest or penalties with respect to
such tax (such tax or taxes, together with any such interest and penalties,
being hereafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including any Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payment. The intent of
this Section 5 is that the Executive shall suffer no detriment as a result of
the imposition of the Excise Tax on any Payment and it shall be construed
accordingly.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is
<PAGE> 10
required to be paid by the Company to the Executive and the amount of such
Gross-Up Payment, if any, shall be made by a nationally recognized accounting
firm (the "Accounting Firm") selected by the Executive in his sole discretion.
The Executive shall direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Company and the Executive within 30
calendar days after the Termination Date, if applicable, and any such other time
or times as may be requested by the Company or the Executive. If the Accounting
Firm determines that any Excise Tax is payable by the Executive, the Company
shall pay the required Gross-Up Payment to the Executive within five business
days after receipt of such determination and calculations with respect to any
Payment to the Executive. If the Accounting Firm determines that no Excise Tax
is payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts or fails
to pursue its remedies pursuant to Section 5(f) and the Executive thereafter is
required to make a payment of any Excise Tax, the Executive shall direct the
Accounting Firm to determine the amount of the Underpayment that has occurred
and to submit its determination and detailed supporting calculations to both the
Company and the Executive as promptly as possible. Any such Underpayment shall
be promptly paid by the Company to, or for the benefit of, the Executive within
five business days after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his
<PAGE> 11
federal income tax return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed with the
applicable taxing authority, and such other documents reasonably requested by
the Company, evidencing such payment. If prior to the filing of the Executive's
federal income tax return, or corresponding state or local tax return, if
relevant, the Accounting Firm determines that the amount of the Gross-Up Payment
should be reduced, the Executive shall within five business days pay to the
Company the amount of such reduction. If after filing the Executive's federal
income tax return, or corresponding state or local tax return, if relevant, the
Accounting Firm determines that the amount of the Gross-Up Payment should be
reduced, the Executive, at the direction of the Company, following procedures
similar to those described in Section 7(f) shall file a claim for refund. The
Executive will promptly pay to the Company the amount of any refund received
(together with any interest paid or credited thereon after any taxes applicable
thereto).
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than 10
business days after the Executive actually receives notice of such claim and the
Executive shall further apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid (in each case, to the extent
known by the Executive). The Executive shall not pay such claim prior to the
earlier of (i) the expiration of the 30-calendar-day period following the date
on which he gives such notice to the Company and (ii) the date that any payment
of amount with respect to such claim is due. If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) provide the Company with any written records or documents
in his possession relating to such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including
without limitation accepting legal representation with respect to such claim by
an attorney
<PAGE> 12
competent in respect of the subject matter and reasonably selected by the
Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 5(f), the Company shall control all proceedings taken in connection with
the contest of any claim contemplated by this Section 5(f) and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
(provided, however, that the Executive may participate therein at his own cost
and expense) and may, at its option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income or other tax, including interest
or penalties with respect thereto, imposed with respect to such advance; and
PROVIDED FURTHER, HOWEVER, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such contested claim
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or
<PAGE> 13
credited thereon after any taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 5(f), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial or refund prior to the expiration
of 30 calendar days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of any such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this Section 5.
6. NO MITIGATION OBLIGATION. The Company hereby acknowledges
that it will be difficult and may be impossible for the Executive to find
reasonably comparable employment following the Termination Date. Accordingly,
the payment of the severance compensation by the Company to the Executive in
accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable, and the Executive will not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor will any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise, except as
expressly provided in the last sentence of Section 4(a)(ii).
7. LEGAL FEES AND EXPENSES. It is the intent of the Company
that the Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a
<PAGE> 14
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all reasonable attorneys' and related fees
and expenses incurred by the Executive in connection with any of the foregoing.
8. COMPETITIVE ACTIVITY. During a period ending at the later
of (a) three years following the first occurrence of a Change in Control, and
(b) one year following the Termination Date, if the Executive shall have
received or shall be receiving benefits under Section 4 and, if applicable,
Section 5, the Executive shall not, without the prior written consent of the
Company engage in any Competitive Activity.
9. EMPLOYMENT RIGHTS. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any termination of
employment of the Executive or the removal of the Executive from the office or
position in the Company or any Subsidiary following the commencement of any
discussion with a third person that ultimately results in a Change in Control
shall be deemed to be a termination or removal of the Executive after a Change
in Control for purposes of this Agreement.
10. WITHHOLDING OF TAXES. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
the Company is required to withhold pursuant to any law or government regulation
or ruling.
11. SUCCESSORS AND BINDING AGREEMENT. (a) The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
<PAGE> 15
executors, administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 11(a) and 11(b). Without limiting the generality
or effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by Executive's
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 11(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
12. NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof confirmed), or five
business days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, or three business days after
having been sent by a nationally recognized overnight courier service such as
Federal Express, UPS, or Purolator, addressed to the Company (to the attention
of the Secretary of the Company) at its principal executive office and to the
Executive at his principal residence, or to such other address as any party may
have furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
13. GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Delaware, without giving
effect to the principles of conflict of laws of such State.
14. VALIDITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances will not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
15. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at
<PAGE> 16
any time of any breach by the other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
16. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
[Executed on Following Page]
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
SINTER METALS, INC.
By:
-------------------------------
Joseph W. Carreras
Chairman and
Chief Executive Officer
-------------------------------
Executive
<PAGE> 1
EXHIBIT 8
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of April
29, 1997, is made and entered by and between Sinter Metals, Inc., a Delaware
corporation (the "Company"), and __________________ (the "Key Employee").
WITNESSETH:
-----------
WHEREAS, the Key Employee is a senior employee of the Company
and has made and is expected to continue to make major contributions to the
short- and long-term profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
below) exists;
WHEREAS, the Company desires to assure itself of both present
and future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior employees, including the Key
Employee, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior
employees are not practically disabled from discharging their duties in respect
of a proposed or actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement
for the Key Employee to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Key Employee agree as
follows:
1. CERTAIN DEFINED TERMS. In addition to terms defined
elsewhere herein, the following terms have the following meanings when used in
this Agreement with initial capital letters:
(a) "Base Pay" means the Key Employee's annual base salary at
a rate not less than the Key Employee's annual fixed or base
compensation as in effect for Key Employee immediately prior to the
occurrence of a Change in Control or such higher rate as may be
determined from time to time by the Board or a committee thereof.
<PAGE> 2
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b) or Section 3(c), the Key Employee shall have committed:
(i) an intentional act of fraud, embezzlement or theft
in connection with his duties or in the course of his employment with
the Company or any Subsidiary;
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret
processes or confidential information of the Company or any Subsidiary;
(iv) intentional wrongful engagement in any Competitive
Activity; or
(v) a willful failure or refusal to follow the lawful
and proper directives of the Chief Executive Officer of the company
(the "CEO") consistent with the Key Employee's position, after receipt
by the Key Employee of written notice from the CEO specifying in
reasonable detail the alleged failure or refusal and, after a
reasonable opportunity for the Key Employee to cure such alleged
failure or refusal;
and any such act shall have been materially harmful to the Company.
For purposes of this Agreement, no act or failure to act on the part
of the Key Employee shall be deemed "intentional" if it was due
primarily to an error in judgment or negligence, but shall be deemed
"intentional" only if done or omitted to be done by the Key Employee
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, the Key Employee shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have
been delivered to the Key Employee a copy of a resolution duly adopted
by the affirmative vote of not less than three quarters of the Board
then in office at a meeting of the Board called and held for such
purpose, after reasonable notice to the Key Employee and an
opportunity for the Key Employee, together with his counsel (if the
Key Employee chooses to have counsel present at such meeting), to be
heard before the Board, finding that, in the good faith opinion of the
Board, the Key Employee had committed an act constituting "Cause" as
herein defined and specifying the particulars thereof in detail.
Nothing herein will limit the right of the Key Employee or his
beneficiaries to contest the validity or
<PAGE> 3
propriety of any such determination.
(d) "Change in Control" means the occurrence during the Term
of any of the following events:
(i) The Company is merged, consolidated or reorganized
into or with another corporation or other legal person, and as a result
of such merger, consolidation or reorganization less than a majority of
the combined voting power of the then-outstanding Voting Stock of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of Voting Stock of the Company immediately
prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other legal
person, and as a result of such sale or transfer less than a majority
of the combined voting power of the then-outstanding Voting Stock of
such corporation or person immediately after such sale or transfer is
held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Exchange Act, disclosing that any person (as
the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 20% or
more of the combined voting power of the then-outstanding Voting Stock
of the Company; or
(iv) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Directors of the Company cease for any reason to constitute at least a
majority thereof; PROVIDED, HOWEVER, that for purposes of this clause
(iv) each Director who is first elected, or first nominated for election
by the Company's stockholders, by a vote of at least two-thirds of the
Directors of the Company (or a committee thereof) then still in office
who were Directors of the Company at the beginning of any such period
will be deemed to have been a Director of the Company at the beginning
of such period.
Notwithstanding the foregoing provisions of Section 1(d)(iii), unless
otherwise determined in a specific case by majority vote of the Board,
a "Change in Control" shall not be deemed to have occurred for purposes
of Section 1(d)(iii) solely because (A) the Company, (B) a Subsidiary,
or (C) any Company-sponsored employee stock ownership plan or any other
employee benefit plan of the
<PAGE> 4
Company or any Subsidiary either files or becomes obligated to file a
report or a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule,
form or report or item therein) under the Exchange Act disclosing
beneficial ownership by it of shares of Voting Stock, whether in excess
of 20% or otherwise, or because the Company reports that a change in
control of the Company has occurred or will occur in the future by
reason of such beneficial ownership.
(e) "Competitive Activity" means the Key Employee's
participation as an employee, officer, director or partner, without the
written consent of the Board, in the management, operation or control
of any business enterprise if such enterprise is engaged in the powder
metallurgy business in any geographic area in which the Company or any
of its subsidiaries is engaged in such business. "Competitive Activity"
will not include the mere ownership of less than five percent of the
outstanding Voting Stock in any such enterprise and the exercise of
rights appurtenant thereto.
(f) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Key Employee is entitled to participate,
including without limitation any stock option, stock purchase, stock
appreciation, savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit, deferred compensation,
incentive compensation, group or other life, health, medical/hospital
or other insurance (whether funded by actual insurance or self-insured
by the Company), disability, expense reimbursement and other employee
benefit policies, plans, programs or arrangements that may now exist or
any equivalent successor policies, plans, programs or arrangements that
may be adopted hereafter by the Company, providing perquisites,
benefits and service credit for benefits at least as great in the
aggregate as are payable thereunder prior to a Change in Control.
(g) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(h) "Incentive Pay" means an annual amount equal to not less
than the highest aggregate annual cash bonus, cash incentive or other
payments of cash compensation, in addition to Base Pay, made or to be
made in regard to services rendered in any calendar year during the
three calendar years immediately preceding the year in which the Change
in Control occurred pursuant to any bonus, incentive, profit-sharing,
performance, discretionary pay or similar agreement, policy, plan,
program or arrangement (whether or
<PAGE> 5
not funded) of the Company, or any successor thereto providing benefits
at least as great as the benefits payable thereunder prior to a Change
in Control.
(i) "Severance Period" means the period of time commencing on
the date of the first occurrence of a Change in Control and continuing
until the earliest of (i) the 30- month anniversary of the occurrence
of the Change in Control, (ii) the Key Employee's death, or (iii) the
Key Employee's attainment of age 65.
(j) "Subsidiary" means an entity in which the Company directly
or indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
(k) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on December
31, 2000, or (ii) the expiration of the Severance Period; PROVIDED,
HOWEVER, that (A) commencing on January 1, 1998 and each January 1
thereafter, the term of this Agreement will automatically be extended
for an additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Key Employee shall have
given notice that it or the Key Employee, as the case may be, does not
wish to have the Term extended and (B) subject to the last sentence of
Section 8, if, prior to a Change in Control, the Key Employee ceases
for any reason to be an employee of the Company and any Subsidiary,
thereupon without further action the Term shall be deemed to have
expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(k), the Key Employee
shall not be deemed to have ceased to be an employee of the Company and
any Subsidiary by reason of the transfer of Key Employee's employment
between the Company and any Subsidiary, or among any Subsidiaries.
(l) "Termination Date" means the date on which the Key
Employee's employment is terminated (the effective date of which shall
be the date of termination.
(m) "Voting Stock" means securities entitled to vote generally
in the election of directors.
2. OPERATION OF AGREEMENT. This Agreement will be effective
and binding immediately upon its execution, but, anything in this Agreement to
the contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in Control at
any time during the Term, without further action, this Agreement shall become
immediately operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL. (a) In
<PAGE> 6
the event of the occurrence of a Change in Control, the Key Employee's
employment may be terminated by the Company during the Severance Period and the
Key Employee shall be entitled to the benefits provided by Section 4 unless such
termination is the result of the occurrence of one or more of the following
events:
(i) The Key Employee's death;
(ii) If the Key Employee becomes permanently disabled within
the meaning of, and begins actually to receive disability benefits
pursuant to, the long-term disability plan in effect for, or applicable
to, Key Employee immediately prior to the Change in Control; or
(iii) Cause.
If, during the Severance Period, the Key Employee's employment is terminated by
the Company or any Subsidiary other than pursuant to Section 3(a)(i), 3(a)(ii)
or 3(a)(iii), the Key Employee will be entitled to the benefits provided by
Section 4 and, if applicable, Section 5.
(b) In the event of the occurrence of a Change in Control, the
Key Employee may terminate employment with the Company and any Subsidiary during
the Severance Period with the right to severance compensation as provided in
Section 4 and, if applicable, Section 5 upon the occurrence of one or more of
the following events (regardless of whether any other reason for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to maintain the
Key Employee in the office or the position, or a substantially
equivalent office or position, of or with the Company and/or a
Subsidiary, as the case may be, which the Key Employee held immediately
prior to a Change in Control;
(ii) (A) A significant diminution in the nature or scope of
the authorities, powers, functions, responsibilities or duties attached
to the position with the Company and any Subsidiary which the Key
Employee held immediately prior to the Change in Control, (B) a
reduction in the Key Employee's Base Pay, (C) a reduction in the Key
Employee's opportunity for Incentive Pay, or (D) the termination or
denial of the Key Employee's rights to Employee Benefits or a reduction
in the scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company of written
notice from the Key Employee of such change, reduction or termination,
as the case may be; provided, however, that the Key Employee agrees
that changes resulting solely from the fact that the Company is not an
independent public company
<PAGE> 7
following a Change in Control shall not provide the basis for the Key
Employee to terminate employment with the Company;
(iii) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (directly or by operation of law) assumed
all duties and obligations of the Company under this Agreement pursuant
to Section 11(a);
(iv) The Company relocates its principal executive offices, or
requires the Key Employee to have his principal location of work
changed, to any location that is in excess of 25 miles from the
location thereof immediately prior to the Change in Control; or
(v) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto.
(c) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control at a time during which Joseph
W. Carreras is the Chief Executive Officer of the Company and during the one
year period immediately following such change in control Mr. Carreras'
employment with the Company is terminated, the Key Employee may terminate
employment with the Company and any Subsidiary for any reason, or without
reason, during the 30-day period following the termination of Mr. Carreras'
employment with the Company with the right to severance compensation as provided
in Section 6 and, if applicable, Section 7. It is expressly acknowledged that
the Key Employee may exercise his rights under this Section 3(c) notwithstanding
that the Company may have terminated the Key Employee's employment pursuant to
Section 3(a).
(d) A termination by the Company pursuant to Section 3(a) or
by the Key Employee pursuant to Section 3(b) or Section 3(c) will not affect any
rights that the Key Employee may have pursuant to any agreement, policy, plan,
program or arrangement of the Company providing Employee Benefits, which rights
shall be governed by the terms thereof; provided however, that [, subject to
Section 17,]** in the event that the Key Employee's employment with the Company
is terminated during the Severance Period, the Key Employee acknowledges that
he shall not be entitled to severance benefits under any other plan, policy,
practice or agreement of the Company other than this Agreement.
4. SEVERANCE COMPENSATION. (a) If, following the occurrence of
a Change in Control, the Company terminates the Key
<PAGE> 8
Employee's employment during the Severance Period other than pursuant to Section
3(a), or if the Key Employee terminates his employment pursuant to Section 3(b)
or Section 3(c), the Company will pay to the Key Employee the following amounts
within 10 business days after the Termination Date and continue to provide to
the Key Employee the following benefits:
(i) if the Key Employee's employment with the Company is
terminated on or prior to the first anniversary of the Change in
Control, an amount equal to $__________. If the Key Employee's
employment with the Company is terminated after the first anniversary
of the Change in Control, an amount equal to $__________ less
$__________ for each full calendar month the Key Employee remains in
the employ of the Company following the first anniversary of the
Change in Control.
(ii) For a period of eighteen months following the Termination
Date (the "Continuation Period"), the Company will arrange to provide
the Key Employee with Employee Benefits that are welfare benefits (but
not stock option, stock purchase, stock appreciation or similar
compensatory benefits) substantially similar to those that the Key
Employee was receiving or entitled to receive immediately prior to the
Termination Date (or, if greater, immediately prior to the reduction,
termination, or denial described in Section 3(b)(ii)). If and to the
extent that any benefit described in this Section 4(a)(ii) is not or
cannot be paid or provided under any policy, plan, program or
arrangement of the Company or any Subsidiary, as the case may be, then
the Company will itself pay or provide for the payment to the Key
Employee, his dependents and beneficiaries, of such Employee Benefits.
Without otherwise limiting the purposes or effect of Section 5,
Employee Benefits otherwise receivable by the Key Employee pursuant to
this Section 4(a)(ii) will be reduced to the extent comparable welfare
benefits are actually received by the Key Employee from another
employer during the Continuation Period following the Key Employee's
Termination Date, and any such benefits actually received by the Key
Employee shall be reported by the Key Employee to the Company.
(b) Without limiting the rights of the Key Employee at law or
in equity, if the Company fails to make any payment or provide any benefit
required to be made or provided hereunder on a timely basis, the Company will
pay interest on the amount or value thereof at an annualized rate of interest
equal to the so-called composite "prime rate" as quoted from time to time during
the relevant period in the Northeast Edition of THE WALL STREET JOURNAL. Such
interest will be payable as it accrues on demand. Any change in such prime rate
will be effective on and as of the date of such change.
<PAGE> 9
(c) Notwithstanding any provision of this Agreement to the
contrary, the parties' respective rights and obligations under this Section 4
and under Sections 5 and 7 will survive any termination or expiration of this
Agreement or the termination of the Key Employee's employment following a Change
in Control for any reason whatsoever.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in
this Agreement to the contrary notwithstanding, in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the payment or payments provided for in this Section 5)
or distribution by the Company or any of its affiliates to or for the benefit of
the Key Employee, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise pursuant to or by reason of
any other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right, or the
lapse or termination of any restriction on or the vesting or exercisability of
any of the foregoing (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any successor provision thereto) by reason of being considered "contingent
on a change in ownership or control" of the Company, within the meaning of
Section 280G of the Code (or any successor provision thereto) or to any similar
tax imposed by state or local law, or any interest or penalties with respect to
such tax (such tax or taxes, together with any such interest and penalties,
being hereafter collectively referred to as the "Excise Tax"), then the Key
Employee shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Key Employee of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed upon the Gross-Up Payment, the Key Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payment. The intent of
this Section 5 is that the Key Employee shall suffer no detriment as a result of
the imposition of the Excise Tax on any Payment and it shall be construed
accordingly.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Key Employee and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the Key
Employee and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Key Employee in his sole discretion. The Key Employee shall direct the
Accounting Firm to submit its determination and detailed supporting calculations
to both the Company and the Key Employee within 30 calendar days after the
Termination Date, if applicable, and any such other time or times
<PAGE> 10
as may be requested by the Company or the Key Employee. If the Accounting Firm
determines that any Excise Tax is payable by the Key Employee, the Company shall
pay the required Gross-Up Payment to the Key Employee within five business days
after receipt of such determination and calculations with respect to any Payment
to the Key Employee. If the Accounting Firm determines that no Excise Tax is
payable by the Key Employee, it shall, at the same time as it makes such
determination, furnish the Company and the Key Employee an opinion that the Key
Employee has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts or fails
to pursue its remedies pursuant to Section 5(f) and the Key Employee thereafter
is required to make a payment of any Excise Tax, the Key Employee shall direct
the Accounting Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed supporting calculations to
both the Company and the Key Employee as promptly as possible. Any such
Underpayment shall be promptly paid by the Company to, or for the benefit of,
the Key Employee within five business days after receipt of such determination
and calculations.
(c) The Company and the Key Employee shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Key Employee, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Key Employee.
(d) The federal, state and local income or other tax returns
filed by the Key Employee shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Key Employee. The Key Employee shall make proper payment of the amount of
any Excise Payment, and at the request of the Company, provide to the Company
true and correct copies (with any amendments) of his federal income tax return
as filed with the Internal Revenue Service and corresponding state and local tax
<PAGE> 11
return, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Key Employee's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the Key
Employee shall within five business days pay to the Company the amount of such
reduction. If after filing the Key Employee's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the Key
Employee, at the direction of the Company, following procedures similar to those
described in Section 5(f) shall file a claim for refund. The Key Employee will
promptly pay to the Company the amount of any refund received (together with any
interest paid or credited thereon after any taxes applicable thereto).
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Key Employee, the Company shall reimburse the Key Employee
the full amount of such fees and expenses within five business days after
receipt from the Key Employee of a statement therefor and reasonable evidence of
his payment thereof.
(f) The Key Employee shall notify the Company in writing of
any claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than 10
business days after the Key Employee actually receives notice of such claim and
the Key Employee shall further apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid (in each case, to the
extent known by the Key Employee). The Key Employee shall not pay such claim
prior to the earlier of (i) the expiration of the 30-calendar-day period
following the date on which he gives such notice to the Company and (ii) the
date that any payment of amount with respect to such claim is due. If the
Company notifies the Key Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Key Employee shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including
without limitation accepting legal representation with respect to such claim by
an attorney competent in respect of the subject matter and reasonably selected
by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
<PAGE> 12
(iv) permit the Company to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Key Employee, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 5(f), the Company shall control all proceedings taken in connection with
the contest of any claim contemplated by this Section 5(f) and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
(provided, however, that the Key Employee may participate therein at his own
cost and expense) and may, at its option, either direct the Key Employee to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Key Employee agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; PROVIDED, HOWEVER,
that if the Company directs the Key Employee to pay the tax claimed and sue for
a refund, the Company shall advance the amount of such payment to the Key
Employee on an interest-free basis and shall indemnify and hold the Key Employee
harmless, on an after-tax basis, from any Excise Tax or income or other tax,
including interest or penalties with respect thereto, imposed with respect to
such advance; and PROVIDED FURTHER, HOWEVER, that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the Key
Employee with respect to which the contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
any such contested claim shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Key Employee shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Key Employee of an amount
advanced by the Company pursuant to Section 5(f), the Key Employee receives any
refund with respect to such claim, the Key Employee shall (subject to the
Company's complying with the requirements of Section 5(f)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after any taxes applicable thereto). If, after the receipt by the Key
Employee of an amount advanced by the Company pursuant to Section 5(f), a
determination is made that the Key Employee shall not be entitled to any refund
with respect to such claim and the Company does not notify the Key Employee in
writing of its intent to contest such denial or refund prior to the expiration
of 30 calendar days after such determination, then
<PAGE> 13
such advance shall be forgiven and shall not be required to be repaid and the
amount of any such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid by the Company to the Key Employee pursuant
to this Section 5.
6. NO MITIGATION OBLIGATION. The Company hereby acknowledges
that it will be difficult and may be impossible for the Key Employee to find
reasonably comparable employment following the Termination Date. Accordingly,
the payment of the severance compensation by the Company to the Key Employee in
accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable, and the Key Employee will not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise, nor will any profits, income, earnings or other
benefits from any source whatsoever create any mitigation, offset, reduction or
any other obligation on the part of the Key Employee hereunder or otherwise,
except as expressly provided in the last sentence of Section 4(a)(ii).
7. LEGAL FEES AND EXPENSES. It is the intent of the Company
that the Key Employee not be required to incur legal fees and the related
expenses associated with the interpretation, enforcement or defense of Key
Employee's rights under this Agreement by litigation or otherwise because the
cost and expense thereof would substantially detract from the benefits intended
to be extended to the Key Employee hereunder. Accordingly, if it should appear
to the Key Employee that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or any other
person takes or threatens to take any action to declare this Agreement void or
unenforceable, or institutes any litigation or other action or proceeding
designed to deny, or to recover from, the Key Employee the benefits provided or
intended to be provided to the Key Employee hereunder, the Company irrevocably
authorizes the Key Employee from time to time to retain counsel of Key
Employee's choice, at the expense of the Company as hereafter provided, to
advise and represent the Key Employee in connection with any such
interpretation, enforcement or defense, including without limitation the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any existing
or prior attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to the Key Employee's entering into an
attorney-client relationship with such counsel, and in that connection the
Company and the Key Employee agree that a confidential relationship shall exist
between the Key Employee and such counsel. Without respect to whether the Key
Employee prevails, in whole or in part, in connection with any of the foregoing,
the Company will pay and be solely financially responsible for any and all
reasonable attorneys' and related
<PAGE> 14
fees and expenses incurred by the Key Employee in connection with any of the
foregoing.
8. COMPETITIVE ACTIVITY. During a period ending at the later
of (a) three years following the first occurrence of a Change in Control, and
(b) one year following the Termination Date, if the Key Employee shall have
received or shall be receiving benefits under Section 4 and, if applicable,
Section 5, the Key Employee shall not, without the prior written consent of the
Company engage in any Competitive Activity.
9. EMPLOYMENT RIGHTS. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the Key
Employee to have the Key Employee remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any termination of
employment of the Key Employee or the removal of the Key Employee from the
office or position in the Company or any Subsidiary following the commencement
of any discussion with a third person that ultimately results in a Change in
Control shall be deemed to be a termination or removal of the Key Employee after
a Change in Control for purposes of this Agreement.
10. WITHHOLDING OF TAXES. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
the Company is required to withhold pursuant to any law or government regulation
or ruling.
11. SUCCESSORS AND BINDING AGREEMENT. (a) The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance
satisfactory to the Key Employee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Key Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other,
<PAGE> 15
assign, transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 11(a) and 11(b). Without
limiting the generality or effect of the foregoing, the Key Employee's right to
receive payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other than by
a transfer by Key Employee's will or by the laws of descent and distribution
and, in the event of any attempted assignment or transfer contrary to this
Section 11(c), the Company shall have no liability to pay any amount so
attempted to be assigned, transferred or delegated.
12. NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof confirmed), or five
business days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, or three business days after
having been sent by a nationally recognized overnight courier service such as
Federal Express, UPS, or Purolator, addressed to the Company (to the attention
of the Secretary of the Company) at its principal executive office and to the
Key Employee at his principal residence, or to such other address as any party
may have furnished to the other in writing and in accordance herewith, except
that notices of changes of address shall be effective only upon receipt.
13. GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Delaware, without giving
effect to the principles of conflict of laws of such State.
14. VALIDITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances will not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
15. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Key Employee and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or
<PAGE> 16
otherwise, expressed or implied with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
References to Sections are to references to Sections of this Agreement.
16. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
[17. EMPLOYMENT AGREEMENT. The Company acknowledges that as
of the date of this Agreement, the Company and the Executive are parties to an
Employment Agreement, dated as of January 1, 1992 (as such agreement may be
hereinafter amended from time to time, the "Employment Agreement"). In the
event the Executive terminates employment with the Company under circumstances
pursuant to which he is entitled to receive severance compensation under both
this Agreement and the Employment Agreement, the Executive shall give written
notice to the Company within three business days after his Termination Date
electing to receive the benefits provided under either this Agreement or the
Employment Agreement. Should the Executive elect to receive benefits under this
Agreement as contemplated by the preceding sentence or should the
Executive terminate employment with the Company under circumstances in which he
is not entitled to receive severance compensation under the Employment
Agreement, the Company and the Executive agree that the Employment Agreement
shall, without further action, be deemed to have been terminated and neither
the Company nor the Executive shall have any further obligations hereunder.]**
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the ___ day of April, 1997.
SINTER METALS, INC.
By:
-------------------------
Joseph W. Carreras
Chairman and
Chief Executive Officer
-------------------------
Key Employee
** Bracketed language is included only in the Severance Agreement of Donald L.
LeVault.
<PAGE> 1
EXHIBIT 12
WAIVER
------
Reference is hereby made to that certain 1997 Stock Option Plan for
Non-Employee Directors (the "Option Plan"), which was authorized, subject to
stockholder approval, by the Board of Directors of Sinter Metals, Inc. (the
"Company") on February 3, 1997. The stockholders of the Company will vote on
the Option Plan at the Company's Annual Meeting, to be held on May 15, 1997.
Pursuant to the Option Plan, certain non-employee directors of the Company (the
"Covered Directors") are eligible to receive options to purchase shares of
Class A Common Stock of the Company (the "Options").
In order to facilitate the Company's obligations under an Agreement and
Plan of Merger between GKN Powder Metallurgy Holdings, Inc., GKN Powder
Metallurgy, Inc. and the Company, dated as of April 29, 1997 (the "Merger
Agreement"), the undersigned Covered Director hereby waives any right under the
Option Plan to receive any grant of Options in fiscal 1997. This Waiver shall
not constitute a waiver of the Covered Director's rights under the Option Plan
in any year other than 1997.
NOW, THEREFORE, the undersigned has caused this Waiver to be signed as of
the 29th day of April, 1997.
----------------------
Non-Employee Director
<PAGE> 1
Exhibit 13
SINTER METALS, INC.
TENDER INSTRUCTION FORM
FOR SHARES IN THE SINTER METALS, INC.
SAVINGS PLAN (THE "PLAN")
[label -- same size as for Letter of Transmittal]
TO CG TRUST COMPANY:
I am a participant in the above-referenced Plan who beneficially owns
Shares, and, as such, I received a copy of the Letter to Participants.
I wish to direct you as follows with respect to Shares allocated to my
Account:
TENDER INSTRUCTIONS
<TABLE>
<S> <C>
- ----- By checking this space, I direct the Trustee to tender ALL Shares
allocated to my Account under the Plan.
- ----- By checking this space, I direct the Trustee NOT to tender any Shares
allocated to my Account under the Plan.
</TABLE>
I have read and understand the Offer to Purchase and the Letter to
Participants and I agree to be bound by the terms of the Offer. I hereby direct
CG Trust Company, as Plan Trustee, to follow the direction set forth above. If I
have directed the Trustee to tender Shares allocated to my Account on my behalf,
I understand that the Trustee will hold and invest the proceeds from the sale of
these Shares in a money market or similar fund, to be invested as soon as
practicable in accordance with my revised investment election, as described in
the Letter to Participants. I understand and declare that if the tender of
Shares allocated to my Account is accepted, the payment received by the Trustee
therefor will be full and adequate compensation for these Shares in my judgment.
<PAGE> 2
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
DATE SIGNATURE OF PARTICIPANT
- --------------------------------------------- ---------------------------------------------
SOCIAL SECURITY NUMBER PLEASE PRINT NAME AND ADDRESS
---------------------------------------------
---------------------------------------------
---------------------------------------------
TELEPHONE NO.
</TABLE>
NOTE: THIS TENDER INSTRUCTION FORM MUST BE PROPERLY COMPLETED AND SIGNED IF IT
IS TO BE FOLLOWED. IF THE FORM IS NOT SIGNED, THE DIRECTIONS INDICATED WILL NOT
BE ACCEPTED. PLEASE RETURN THIS TENDER INSTRUCTION FORM TO THE TRUSTEE USING THE
PREADDRESSED REPLY ENVELOPE PROVIDED WITH YOUR TENDER MATERIALS, BY 1:00 P.M.,
EASTERN STANDARD TIME, MAY 26, 1997, UNLESS EXTENDED.
YOUR DECISION WHETHER OR NOT TO HAVE SHARES ALLOCATED TO YOUR ACCOUNT TENDERED
WILL BE KEPT CONFIDENTIAL.
IF YOU DO NOT RETURN THIS FORM BY THE DEADLINE, THE PLAN PROVIDES THAT NO PLAN
SHARES ALLOCATED TO YOUR ACCOUNT WILL BE TENDERED BY THE TRUSTEE.
BECAUSE A PORTION OF YOUR ACCOUNT IS INVESTED IN THE FUND, NO DISTRIBUTIONS
WILL BE MADE FROM THE PORTION OF YOUR ACCOUNT INVESTED IN THE FUND FOR ANY
REASON (E.G., LOANS, DISTRIBUTIONS ON ACCOUNT OF RETIREMENT, DEATH, DISABILITY
OR TERMINATION OF EMPLOYMENT) DURING OR IMMEDIATELY FOLLOWING THE OFFER PERIOD
WHETHER OR NOT YOU DIRECT THE TRUSTEE TO TENDER SHARES.
If you elect to direct the Trustee to tender Shares allocated to your
Account, the enclosed Tender Instruction Form must be sent to the Trustee. The
address to which the Form can be mailed or delivered is shown on the reply
envelope. PLEASE NOTE THAT ALTHOUGH THE DEADLINE FOR THE TRUSTEE TO TENDER
SHARES IS 12:00 MIDNIGHT, NEW YORK CITY TIME, MAY 30, 1997, UNLESS EXTENDED,
YOUR TENDER INSTRUCTION FORM MUST BE RECEIVED BY THE TRUSTEE BY 1:00 P.M.,
EASTERN STANDARD TIME, MAY 26, 1997, UNLESS EXTENDED.
All questions and requests for assistance should be addressed to Ronald G.
Campbell at the Company at (216) 771-6700.
IF YOU WISH TO DIRECT THE TRUSTEE TO TENDER SHARES ALLOCATED TO YOUR
ACCOUNT OR NOT TO TENDER THEM, YOU MUST COMPLETE AND SIGN THE ENCLOSED TENDER
INSTRUCTION FORM. IF YOU DO NOT SIGN THE FORM OR IF YOU DO NOT PROPERLY FILL IT
OUT, YOUR DIRECTIONS WILL NOT BE ACCEPTED AND THE INSTRUCTION FORM, AS WELL AS
YOUR DIRECTIONS, WILL BE VOID.
2
<PAGE> 3
LETTER TO PARTICIPANTS
IN THE SINTER METALS, INC. SAVINGS PLAN
OFFER TO PURCHASE SINTER METALS, INC. COMMON STOCK
We are enclosing materials being sent to all stockholders of Sinter Metals,
Inc., a Delaware corporation (the "Company"), relating to a tender offer by GKN
Powder Metallurgy, Inc., a Delaware corporation ("Purchaser") and a wholly owned
subsidiary of GKN Powder Metallurgy Holdings, Inc., a Delaware corporation, to
purchase all outstanding shares of Class A Common Stock, par value $.001 per
share, and Class B Common Stock, $.001 par value per share (collectively, the
"Shares") of the Company for $37.00 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in its
Offer to Purchase dated May 2, 1997 (the "Offer to Purchase") and in the related
Letter of Transmittal, which together constitute the "Offer." The Offer is made
only pursuant to the Offer to Purchase and the Letter of Transmittal, copies of
which are enclosed for your information.
PLEASE NOTE THAT PURSUANT TO THE PLAN (AS DEFINED BELOW), THESE MATERIALS ARE
BEING DELIVERED TO PERSONS PARTICIPATING IN THE PLAN AS OF MAY 1, 1997. IF YOU
NO LONGER PARTICIPATE IN THE PLAN AND HAVE RECEIVED THE ENTIRE BALANCE OF YOUR
ACCOUNT (AS DEFINED BELOW), PLEASE DISREGARD THESE MATERIALS. IF YOU HAVE ANY
QUESTIONS REGARDING YOUR STATUS AS A PARTICIPANT IN THE PLAN, PLEASE CONTACT
RONALD G. CAMPBELL AT THE COMPANY AT (216) 771-6700.
Under the terms of the Sinter Metals, Inc. Savings Plan (the "Plan"),
Shares owned by the Plan under the Sinter Metals, Inc. Stock Fund investment
option (the "Fund") are held by CG Trust Company, the Trustee under the Plan
("Trustee"), for the benefit of participants who have allocated a portion of
their account under the Plan ("Account") to the Fund. This means that instead of
direct ownership of Shares, you have an undivided interest in the Shares owned
by the Trustee, that is, you are a "beneficial" stockholder. Since you are a
beneficial owner of Shares, a copy of the Company's offering materials to its
stockholders is being sent to you. You are urged to examine these materials
carefully. The enclosed Letter of Transmittal, which direct stockholders are to
use, has been enclosed for your information only and cannot be used by you to
tender Shares held under the Plan.
If you are also a direct stockholder of the Company, you will receive under
separate cover another copy (or copies) of the offering materials which should
be used to tender the Shares you own directly if you should choose to do so.
Only the Trustee can tender Shares owned by the Plan ("Plan Shares"). The
Plan provides for a pass through to participants of the decision whether to
tender Shares allocated to their Accounts under the Plan. This letter describes
how the Offer affects your interest under the Plan and sets forth the special
procedures that must be followed in order for you to give valid and timely
directions to the trustee. AS A PARTICIPANT IN THE PLAN, YOU CAN HAVE SHARES
BENEFICIALLY OWNED BY YOU UNDER THE PLAN TENDERED ONLY BY FOLLOWING THESE
INSTRUCTIONS. THE TENDER OF ANY OF THESE SHARES WILL NOT RESULT IN A DIRECT
PAYMENT TO YOU; RATHER, PAYMENT WILL BE RECEIVED BY THE TRUSTEE AND WILL AFFECT
YOUR INTEREST IN THE PLAN, AS DESCRIBED BELOW.
If the Purchaser consummates the Offer, the Trustee will receive $37.00 per
Share for each Plan Share tendered at your direction and subsequently these
proceeds will be allocated based on the number of Shares allocated to your
Account on the date the Offer is consummated.
<PAGE> 4
Under the Plan, as a participant, you may direct the Trustee to tender all
Shares allocated to your Account by following the procedures described in this
Letter to Participants. You may also direct the Trustee not to tender any such
Shares allocated to your Account or to withdraw any tender you have directed it
to make.
Before making a decision, you should read carefully the materials in the
enclosed Offer to Purchase and the Tender Instruction Form. The Trustee makes no
recommendation as to whether to tender or to refrain from tendering.
As set forth in the enclosed materials, the Company's Board of Directors
has recommended that the Company's stockholders tender their shares pursuant to
the Offer.
The Offer is conditioned upon, among other things, the holders of at least
a majority of the Shares (on a fully diluted basis) tendering such Shares
pursuant to the Offer (the "Minimum Condition"). See Sections 12 and 14 of the
Offer to Purchase for a description of the conditions to the Offer. If the
Minimum Condition and the other conditions to the Offer are satisfied and the
Purchaser consummates the Offer, the Company will be merged with and into the
Purchaser, with the Company as the surviving corporation. In connection with the
merger, any Shares that are not tendered in the Offer will be converted
automatically into the right to receive $37.00 per Share, except for Shares held
by any holder which exercises its appraisal rights pursuant to Section 262 of
the Delaware General Corporation Law (see Section 12 of the Offer to Purchase).
The Offer to Purchase discusses these matters in detail.
The Trustee will tender or not tender Shares upon the direction of Plan
participants on the enclosed Tender Instruction Form. If you take no action, the
Plan provides that no Shares allocated to your Account will be tendered by the
Trustee. It is very important that you read all of the enclosed materials and
follow the instructions carefully if you wish to direct the Trustee whether to
tender any Shares allocated to your Account. THE TRUSTEE WILL TREAT
CONFIDENTIALLY YOUR DECISION WHETHER OR NOT TO DIRECT IT TO TENDER SHARES
ALLOCATED TO YOUR ACCOUNT AND WILL NOT DISCLOSE IT TO THE COMPANY.
If you direct the Trustee to tender the Shares allocated to your Account,
the cash that is paid for the tendered Shares will be held by the Trustee in a
money market or similar fund and then as soon as practicable will be reinvested
by the Trustee in accordance with a revised investment election to be completed
by you.
During the Offer period (and thereafter for so long as legal restrictions
apply), the Trustee will not execute any transactions under the Fund including
purchasing any Shares for the Fund. Instead, the Trustee will accumulate any of
your contributions, Company contributions, and any loan repayments that you have
directed into the Fund. The Trustee will invest these amounts in the CIGNA
Guaranteed Income Fund, pending re-investment as directed by you.
2
<PAGE> 1
EXHIBIT 14
OPTION AGREEMENT
----------------
This Option Agreement (this "Agreement") is made and entered into as
of this 29th day of April, 1997 by and between Sinter Metals, Inc., a Delaware
corporation ("Sinter"), and Joseph W. Carreras ("Carreras").
WHEREAS, Sinter is a party to a Lease Agreement with Terminal
Investments, Inc. ("Landlord"), dated as of May 15, 1996 (the "Lease
Agreement"), whereby Sinter leased from the Landlord the Premises (as defined in
the Lease Agreement); and
WHEREAS, Sinter and Carreras have agreed to enter into this Agreement
in order to provide Carreras with an option to acquire by assignment from Sinter
all of Sinter's right, title and interest in and to the Lease Agreement, subject
to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, Sinter and Carreras hereby agree as follows:
1. OPTION/ASSIGNMENT.
(a) Sinter hereby irrevocably grants an absolute right and option (the
"Option") to Carreras or his designee to acquire by assignment from Sinter to
him or his designee all of Sinter's right, title and interest in and to the
Lease Agreement upon the terms set forth in Section l(c) hereof. Carreras or his
designee may exercise this Option by delivering written notice to Sinter (the
"Option Notice") any time on or after September 1, 1997 upon his termination of
employment with Sinter and prior to the termination of this Agreement.
(b) Within one business day after Sinter receives the Option Notice
from Carreras or his designee of the exercise of the Option, Sinter and Carreras
shall execute and deliver an Assignment and Assumption Agreement pursuant to
which (i) Sinter shall transfer, sell, assign and convey to Carreras or his
designee, and Carreras or his designee shall acquire from Sinter, all of
Sinter's right, title and interest in and to the Lease Agreement and (ii)
Carreras or his designee shall assume all of Sinter's obligations under the
Lease Agreement arising from and after the date of the assignment. The foregoing
is subject to Sinter's obtaining the consent of the Landlord to such assignment
[and a release from Landlord of Sinter's obligations under the Lease Agreement].
Sinter agrees to use its best efforts to obtain such consent and release.
<PAGE> 2
2. COVENANTS OF SINTER. Prior to the termination of this Agreement,
Sinter shall not take any of the following actions without the prior written
consent of Carreras:
(i) transfer, sell, assign or convey its right, title and interest in and
to the Lease Agreement to any third party (other than Carreras or his
designee pursuant to this Agreement); or
(ii) fail to comply with any of the terms and conditions of the Lease
Agreement; or
(iii) enter into any agreement or understanding to do any of the foregoing;
or
(iv) amend, modify or terminate the Lease Agreement.
3. MISCELLANEOUS.
(a) Neither Sinter nor Carreras may assign or otherwise transfer
(whether by operation of law or otherwise) this Agreement or any of their
respective rights and obligations hereunder without the prior written consent of
the other.
(b) All notices and other communications required or permitted
hereunder will be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been duly given when delivered in person or when
dispatched by telegram or electronic facsimile transfer (confirmed in writing by
mail simultaneously dispatched) or one business day after having been dispatched
by a nationally recognized overnight courier service to the appropriate party at
the address specified below:
If to Sinter:
Sinter Metals, Inc.
Terminal Tower
50 Public Square, Suite 3200
Cleveland, Ohio 44113
Attention: Chief Financial Officer
If to Carreras:
Joseph W. Carreras
2677 Belvoir Boulevard
Shaker Hts., Ohio 44122
(c) This Agreement shall be construed in accordance with the laws of
the State of Ohio, without regard to principles of conflicts of law, and may be
amended or modified only by a writing executed by each of the parties which
makes reference to this Agreement.
2
<PAGE> 3
(d) This Agreement may be executed in several counterparts, each of
which when so executed will be deemed to be an original and all of which
together constitute one and the same agreement.
(e) If a court of competent jurisdiction should find any term or
provision of this Agreement to be unenforceable and invalid by reason of being
overly broad, the parties agree that the court shall limit the scope or duration
of such provision to the maximum enforceable scope or duration allowed by law.
Any term or provision deemed by a court of competent jurisdiction to be
unenforceable and invalid for any other reason shall be severed from this
Agreement, and the remainder of this Agreement shall continue in full force and
effect.
(f) This Agreement and the Option granted hereby shall terminate upon
the earlier of (i) the date on which Carreras or his designee acquires by
assignment all of Sinter's right, title and interest in and to the Lease
Agreement pursuant to Section 1 hereof, (ii) a permitted termination of the
Lease Agreement, or (iii) April 29, 2002.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year first above written.
SINTER METALS, INC.
Signed and Acknowledged By: /s/ Michael T. Kestner
in the presence of: ------------------------
(as to both signatories): Name:
Title:
/s/ Patrick J. Leddy
- ------------------------------
/s/ Joseph W. Carreras
-------------------------
Joseph W. Carreras
/s/ Patrick J. Leddy
- ------------------------------
<PAGE> 4
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
------------
This instrument was acknowledged before me on this 29th day of April,
----
1997 by Michael T. Kestner, the Chief Financial Officer of Sinter Metals, Inc.,
------------------ ----------------------
a Delaware corporation, on behalf of said corporation.
/s/ Leonard C. Pojednic
--------------------------------------
Notary Public
Printed Name: Leonard C. Pojednic
-------------------
My commission expires:
November 25, 1998
--------------------------------------
[NOTARY SEAL]
LEONARD C. POJEDNIC
Notary Public, State of New York
No. 31-4688166
Qualified in New York County
Commission Expires 11/25/98
STATE OF NEW YORK )
) SS.
COUNTY OF New York )
---------
This instrument was acknowledged before me on this 29th day of April,
----
1997, by Joseph W. Carreras.
/s/ Leonard C. Pojednic
---------------------------------------
Notary Public
Printed Name: Leonard C. Pojednic
--------------------
My commission expires:
November 25, 1998
---------------------------------------
[NOTARY SEAL]
LEONARD C. POJEDNIC
Notary Public, State of New York
No. 31-4688166
Qualified in New York County
Commission Expires 11/25/98
This instrument prepared by Jones, Day, Reavis & Pogue, Cleveland, Ohio.
4
<PAGE> 1
EXHIBIT 15
EMPLOYMENT AGREEMENT
Pursuant to an employment agreement with the Company, Mr. LeVault has
agreed to serve as President of the Company through April 1997, subject to an
annual, automatic one-year extension unless either party elects to discontinue
such extensions. Mr. LeVault has indicated to the Company that he intends to
serve as President of the Company through April 1998, and the Company has agreed
to this one-year extension. Mr. LeVault receives an annual base salary of at
least $150,000, or a higher amount as determined by the Board of Directors,
which was $173,875 for 1995 and $179,440 for 1996, plus an annual bonus as
determined by the Board of Directors of the Company based upon the operating
performance of the Company. Under the terms of the agreement, Mr. LeVault may
not engage in any competitive business while he is employed by the Company and
for a period of one year thereafter. See "Compensation Committee Report on
Executive Compensation."
OPTION GRANTS IN 1996
The following table sets forth information with respect to stock options
granted to each Named Executive Officer in 1996.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OF BASE GRANT DATE
OPTIONS IN FISCAL PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) YEAR ($/SH) DATE $(1)
- ----------------------------------- ----------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Joseph W. Carreras................. 65,000 35.8% $ 21 9/18/2006 $ 559,650
Donald L. LeVault.................. 20,000 11.0% $ 21 9/18/2006 172,200
Michael T. Kestner................. 25,000 13.8% $ 21 9/18/2006 215,250
</TABLE>
- ---------------
(1) The present value of the options granted was estimated using the
Black-Scholes option pricing model with the following assumptions: (i)
Dividend yield -- 0%; (ii) Expected volatility -- 31.9%; (iii) Risk-free
rate of return -- 6.5%; and (iv) Expected average holding period -- 5 years.
STOCK OPTION HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning the stock options held by each as of March 1,
1997. There were no stock options exercised by any of the Named Executive
Officers during the last fiscal year of the Company.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END
---------------------- -----------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---------------------------------- ---------------------- -----------------
<S> <C> <C>
Joseph W. Carreras................ 43,333/86,667 $855,824/$996,676
Donald L. LeVault................. 16,667/28,333 $329,176/$339,574
Michael T. Kestner................ 16,667/33,333 $329,176/$383,324
</TABLE>
