SINTER METALS INC, S-1/A, 1997-01-03

SINTER METALS INC
S-1/A, 1997-01-03
METAL FORGINGS & STAMPINGS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 3, 1997.

REGISTRATION NO. 333-18767

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1

FORM S-1

REGISTRATION STATEMENT
UNDER

THE SECURITIES ACT OF 1933
------------------------

SINTER METALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)

3399
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)

25-1677695
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)

------------------------

50 Public Square, Suite 3200
Cleveland, Ohio 44113
(216) 771-6700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

JOSEPH W. CARRERAS
Chairman of the Board and Chief Executive Officer
Sinter Metals, Inc.
50 Public Square, Suite 3200
Cleveland, Ohio 44113
(216) 771-6700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

COPIES TO:

CHRISTOPHER M. KELLY, ESQ.
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939

HOWARD S. LANZNAR, ESQ.
Katten Muchin & Zavis
525 West Monroe Street
<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.

PROSPECTUS (Subject to Completion)

Issued January 3, 1997

2,200,000 Shares

SINTER METALS, INC.
CLASS A COMMON STOCK

------------------
OF THE 2,200,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED, 1,760,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 440,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE
THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF CLASS A COMMON STOCK
OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. THE COMPANY'S
CLASS A COMMON STOCK IS LISTED ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "SNM." ON DECEMBER 20,
1996, THE REPORTED LAST SALE PRICE OF THE CLASS
A COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE WAS $27 PER SHARE.

------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

------------------

PRICE $ A SHARE

------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total (3).......................... $ $ $
</TABLE>

- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.

(2) Before deducting expenses payable by the Company estimated at $ .

(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of 330,000
additional Shares of Class A Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions and
proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriters."

------------------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Katten Muchin & Zavis, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1997 at the office
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.

------------------

MORGAN STANLEY & CO. SALOMON BROTHERS INC
Incorporated

, 1997
<PAGE> 3

[ART WORK -- TO BE PROVIDED]

------------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------

For investors outside of the United States: No action has been or will be
taken in any jurisdiction by the Company or any Underwriter that would permit a
public offering of the Class A Common Stock or possession or distribution of
this Prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about and to observe any restrictions as to the offering of the Class A Common
Stock and the distribution of this Prospectus.
------------------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 9
The Company.............................. 14
Use of Proceeds.......................... 16
Capitalization........................... 17
Price Range of Common Stock.............. 18
Dividend Policy.......................... 18
Exchange Rates........................... 18
Unaudited Pro Forma Financial
Information............................ 19
Selected Historical Financial Data....... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 27
Industry................................. 35
Business................................. 37

<CAPTION>
PAGE
----
<S> <C>
Management............................... 47
Executive Compensation................... 50
Principal Stockholders................... 53
Certain Transactions..................... 55
Description of Capital Stock............. 55
Shares Eligible For Future Sale.......... 58
Certain United States Federal Tax
Considerations for Non-U.S. Holders of
Class A Common Stock................... 60
Underwriters............................. 62
Legal Matters............................ 64
Experts.................................. 65
Available Information.................... 65
Index to Financial Statements............ F-1
</TABLE>

------------------------

Sinter and PMH report their consolidated financial statements in U.S.
dollars. Krebsoge reports its consolidated financial statements in German
Deutschmarks ("DM"). ALL DOLLAR AMOUNTS SET FORTH IN THIS PROSPECTUS ARE IN U.S.
DOLLARS, EXCEPT WHERE OTHERWISE INDICATED. In this Prospectus references to
"dollars" and "$" are to United States dollars, and the term "United States" or
"U.S." means the United States of America, its states, its territories, its
possessions and all areas subject to its jurisdiction. For the convenience of
the reader, certain financial information contained in this Prospectus has been
translated into U.S. Dollars ($ or US$) from German Deutschmarks using, for
assets and liabilities, exchange rates at the end of the period for which the
relevant statements are prepared and, for revenues and expenses, the weighted
average rates for the period. These translations should not be construed as
representations that the German Deutschmark amounts actually represent such U.S.
dollar amounts or could be converted into U.S. dollars at the rate indicated or
at any other rate. See "Exchange Rates" for information regarding the rates of
exchange between the German Deutschmark and the U.S. dollar from January 1, 1993
to December 19, 1996. See "Risk Factors -- Risk of International Operations."

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) and pro forma
financial information appearing elsewhere in this Prospectus. As used in this
Prospectus, "Sinter" refers to Sinter Metals, Inc. and its subsidiaries and
their combined operations on a historical basis; "PMH" refers to Powder Metal
Holding, Inc. and its subsidiaries and their combined operations on a historical
basis; "Krebsoge" refers to Krebsoge Sinterholding GmbH and its subsidiaries and
their combined operations on a historical basis; and the "Company" refers to
Sinter, PMH and Krebsoge on a pro forma combined basis after consummation of
Sinter's acquisition of PMH and Krebsoge. Except as otherwise indicated herein,
the information contained in this Prospectus assumes that the U.S. Underwriters'
over-allotment option is not exercised. Certain capitalized terms which are used
but not defined in this summary are defined elsewhere in this Prospectus.
Prospective investors should carefully consider the information set forth under
the heading "Risk Factors."

THE COMPANY

The Company is the world's largest independent manufacturer of precision
pressed powder metal parts. With its recent acquisitions of Krebsoge and PMH
(the "Acquisitions"), the Company manufactures and markets over 4,000 different
pressed powder metal parts for use principally in the automotive industry in
North America and Europe and, to a lesser extent, for use in the lawn and
garden, power tool and home appliance industries in North America and Europe.
The Company has completed eight acquisitions since 1991, which, together with
internally generated growth, have resulted in net sales of the Company growing
at a compound annual rate of approximately 62% from $50.8 million in 1991 to
$353.4 million in 1995 on the pro forma basis described herein. See "Unaudited
Pro Forma Financial Information."

Approximately 74% of the Company's net sales in 1995 were made to the
automotive industry. The Company is the largest supplier of pressed powder metal
parts to Ford, Chrysler, Volkswagen, BMW and Daimler Benz and the second largest
supplier of such parts to General Motors. Approximately 95% of the Company's
sales to automotive customers are made on a sole source basis. Management
believes that automotive customers seek suppliers, such as the Company, who are
able to provide broad product lines, higher value-added products, low costs,
reliable service and, increasingly, global distribution capability. As these
customers continue to reduce the number of suppliers, the Company's ability to
meet their requirements is becoming an increasingly important competitive
advantage.

The Company operates 18 manufacturing facilities in the United States,
Germany, Sweden and Canada. At these facilities, the Company uses powder
metallurgy to transform metal alloys in powdered form into durable high quality
metal parts such as gears, bearings and sprockets. Pressed powder metal parts
are increasingly being substituted for metal parts manufactured using more
traditional technologies such as forging and casting, particularly in the
automotive industry. The Company believes the reasons for this trend are: (i)
pressed powder metal parts can be produced at a lower per unit cost due to the
elimination or significant reduction in secondary machining and raw material
waste as well as lower material costs; (ii) pressed powder metal parts have
performance attributes comparable to parts produced through other metalworking
processes; and (iii) powder metallurgy can manufacture parts with complex shapes
and dimensional tolerances that would be impractical or impossible to produce
using other metalworking processes.

According to the Metal Powder Industries Federation ("MPIF"), the North
American shipments of pressed powder metal have increased from approximately
315,000 tons in 1992 to approximately 434,000 tons in 1995, representing a
compound annual growth rate of 11.2%. This growth is primarily attributable to
increased demand for pressed powder metal parts by the North American automotive
industry and occurred even though the sales of light vehicles over this same
period grew at a compound annual rate of only approximately 1.3%. The amount of
pressed powder metal parts contained in the typical North American automobile
increased from approximately 20 pounds in 1990 to approximately 28 pounds in
1995.

According to the European Powder Metallurgy Society (the "EPMS"), the
European shipments of pressed powder metal have increased from approximately
109,000 tons in 1992 to approximately 129,000 tons

3
<PAGE> 6

in 1995, representing a compound annual growth rate of 5.8%. This growth is due
primarily to increased demand from the automotive sector as a result of the
introduction of new pressed powder metal parts for use in automobiles, and
increased demand for such parts.

The Company believes that the current trend of substitution of pressed
powder metal parts for cast or forged parts will continue both in North America
and Europe. Based on industry sources, the Company believes that the current
average pressed powder metal parts content in Ford Motor Company's cars will
rise from 40 pounds in 1996 to 50 pounds by the year 2000, and that the annual
growth in the pressed powder metal part content of General Motors' cars will be
5 to 10% through 2001.

The Company attributes its leading position in the manufacture of precision
pressed powder metal parts to the following competitive strengths: (i) broad
geographic scope and manufacturing capabilities; (ii) technological and
engineering expertise; (iii) a broad, stable customer base; (iv) access to
financial resources; and (v) a proven management team with a successful track
record. The Company believes that these competitive strengths, together with its
growth strategy will enable it to continue to grow in the pressed powder metal
parts industry.

GROWTH STRATEGY

The Company's business objective is to enhance its leadership position in
the pressed powder metal parts industry. To achieve this objective, the Company
will continue to pursue a growth strategy based on the following elements:

- Expanding and Penetrating its Customer Base. The Company believes that
there are significant growth opportunities in the pressed powder metal
parts industry driven principally by (i) the increasing use of pressed
powder metal parts by automotive and other industrial manufacturers and
(ii) the automotive industry's trend towards supplier consolidation and
globalization. The Company also believes that since no supplier controls
a significant share of the pressed powder metal parts market in either
North America or Europe, the Company has a significant opportunity to
increase its market share because of its geographic scope, technical
expertise, broad range of products and financial resources. To capitalize
on the Acquisitions, the Company intends to leverage its relationships
with Ford, Chrysler and General Motors to increase Krebsoge's sales to
American manufacturers in Europe. Similarly, the Company intends to
leverage Krebsoge's relationships with Volkswagen, Daimler Benz and other
European manufacturers to enhance the Company's marketing efforts in
North America with these European manufacturers. The Company also
believes that its broad geographic scope should enable it to increase its
customer base as it integrates its newly acquired foreign operations and
increases its marketing presence in new geographic regions.

- Expanding Product Lines. Since 1995, the Company has expanded its
traditional product line of over 4,000 pressed powder metal parts by
introducing more than 100 new pressed powder metal parts into the market.
As a result of the Company's continued emphasis on innovative research
and development, a number of its recent product introductions have
targeted markets in high growth areas such as completed integrated
sub-assemblies. Through the Acquisitions, the Company has expanded its
product line to include powder metallurgical applications such as filters
made of highly porous sintered metals, powder forged parts, highspeed
steel and highly engineered plastics and composites. Furthermore, new
product lines are currently being introduced by the Company, which are
based upon powder metal injection molding, friction materials and high
performance aluminum alloys. The Company believes that there are
significant growth opportunities associated with these additional product
lines.

4
<PAGE> 7

PMH's production processes to more closely resemble Sinter's,
centralizing its marketing and purchasing departments and coordinating
its research and development activities. The Company intends to
facilitate communication and share best practices among its world-wide
operations so that research and development ideas and accumulated
knowledge is shared among such operations. The Company also intends to
continue to foster an environment of continuous improvement by
benchmarking the attributes of its products and processes to those of its
competitors and customers in terms of quality, cost, efficiency and
delivery. The Company uses the results of such benchmarking to make
adjustments necessary to continue to be a leader in the manufacture,
marketing and distribution of pressed powder metal parts.

- Pursuing Strategic Acquisitions. The pressed powder metal parts industry
is highly fragmented in North America and Western Europe with over 250
participants, most of which have annual sales of less than $50 million.
The pressed powder metal parts industry has and is continuing to undergo
consolidation as evidenced by the Acquisitions and Sinter's recent
acquisition of certain assets of Delco Remy America, Inc. The Company
intends to take advantage of such opportunities by selectively pursuing
additional acquisitions in its existing as well as new markets.

- Achieving Cost Reductions. The Company has historically been able to
achieve cost reductions through the integration of its acquisitions.
Integrating the Acquisitions will enable the Company to eliminate
duplicative functions currently being performed by each of Sinter, PMH
and Krebsoge in the areas of administration, finance, sales, marketing,
purchasing, technical and field services and management information
systems. Management believes that cost savings of at least $4.5 million
can be achieved annually through eliminating duplicative facilities as
well as research and development and engineering personnel. The Company
is in the process of identifying additional cost savings, such as
purchasing, marketing and processing synergies that would increase
potential savings.

THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered(1)
U.S. offering.............................. 1,760,000 shares
International offering..................... 440,000 shares
-----------------
Total.............................. 2,200,000 shares
-----------------
Common Stock to be outstanding after the
Offering:(2)
Class A Common Stock....................... 7,209,747 shares
Class B Common Stock....................... 2,543,381 shares
-----------------
Total.............................. 9,753,128 shares
-----------------
Use of Proceeds.............................. To repay certain outstanding indebtedness
incurred under the New Credit Facility in
connection with the Acquisitions. See "Use of
Proceeds."
NYSE Symbol.................................. SNM
</TABLE>

- ---------------

(1) Assumes no exercise of the U.S. Underwriters' over-allotment option. See
"Underwriters."

(2) Excludes 340,300 shares of Class A Common Stock issuable upon exercise of
employee stock options outstanding as of December 20, 1996, of which 103,000
were exercisable.

5
<PAGE> 8

SUMMARY PRO FORMA FINANCIAL INFORMATION

The summary historical consolidated financial data set forth below for the
year ended December 31, 1995 have been derived from, and are qualified by
reference to, the audited consolidated financial statements of Sinter, PMH and
Krebsoge included elsewhere in this Prospectus. The summary historical
consolidated financial data set forth below for the nine months ended September
30, 1996 have been derived from the unaudited consolidated financial statements
of Sinter and PMH. The unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 give effect to the Acquisitions, the New Credit Facility and
the offering of 2.2 million shares of Class A Common Stock by the Company (the
"Offering") as if they occurred on January 1, 1995. The pro forma as adjusted
condensed consolidated balance sheet as of September 30, 1996 has been prepared
as if the Acquisitions, the New Credit Facility (as defined herein) and the
Offering had occurred on that date.

The summary unaudited pro forma financial information does not purport to
present the actual financial position or results of operations of the Company as
if the transactions assumed therein had in fact occurred on the dates specified,
nor are they necessarily indicative of the results of operations that may be
achieved in the future. The summary unaudited pro forma financial information is
based on certain assumptions and adjustments described in the notes to the
Unaudited Pro Forma Financial Information and should be read in conjunction
therewith. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Consolidated Financial Statements and the Notes
thereto for each of Sinter, PMH and Krebsoge, included elsewhere in this
Prospectus. The summary unaudited pro forma financial information is subject to
a number of assumptions, limitations and qualifications.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
HISTORICAL (1) PRO FORMA
----------------------------- --------------------------
SINTER KREBSOGE PMH ADJUSTMENTS CONSOLIDATED
------- -------- -------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................... $94,310 $152,622 $106,473 -- $353,405
Cost of sales............................................... 73,245 119,386 92,263 $ 850(2) 285,744
------ ------ ------
Gross margin.............................................. 21,065 33,236 14,210 (850) 67,661
Selling, general and administrative expense................. 7,698 21,582 2,417(3) (3,000)(4) 28,697
Amortization of intangible assets........................... 332 18 -- 2,984(5) 3,334
------ ------ ------
Income from operations.................................... 13,035 11,636 11,793 (834) 35,630
Interest expense............................................ 287 6,118 3,133 2,688(6) 12,226
Other expense/(income)...................................... 111 (1,032) 115 -- (806)
------ ------ ------
Income before income tax expense.......................... 12,637 6,550 8,545 (3,522) 24,210
Income tax expense/(credit)................................. 4,750 1,132 (253) 3,191(7) 8,820
------ ------ ------
Net income before cumulative effect of accounting change.... $ 7,887 5,418 $ 8,798 $ (6,713) $ 15,390
====== ====== ======
Weighted average common shares outstanding.................. 7,500 9,700
Net income per share........................................ $ 1.05 $ 1.58
OTHER FINANCIAL DATA:
Depreciation and amortization............................... $ 4,272 $ 8,328 $ 5,622 $ 4,209 $ 22,431
Capital expenditures........................................ 4,301 8,226 3,195 -- 15,722
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-----------------------------------------------------------
HISTORICAL (1) PRO FORMA
---------------------------- --------------------------
SINTER KREBSOGE PMH ADJUSTMENTS CONSOLIDATED
------- -------- ------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................................... $83,068 $121,338 $82,604 -- $287,010
Cost of sales................................................ 64,205 97,467 74,838 $ (206)(2) 236,304
------ ------ ------
Gross margin............................................... 18,863 23,871 7,766 206 50,706
Selling, general and administrative expense.................. 7,322 16,561 5,326 (2,250)(4) 26,959
Amortization of intangible assets............................ 300 12 -- 2,238(5) 2,550
------ ------ ------
Income from operations..................................... 11,241 7,298 2,440 218 21,197
Interest expense............................................. 288 3,574 2,162 836(6) 6,860
Other expense/(income)....................................... (60) (576) 264 -- (372)
------ ------ ------
Income before income tax expense........................... 11,013 4,300 14 (618) 14,709
Income tax expense........................................... 4,025 716 31 500(7) 5,272
------ ------ ------
Net income (loss)............................................ $ 6,988 $ 3,584 $ (17) $(1,118) $ 9,437
====== ====== ======
Weighted average common shares outstanding................... 7,549 9,749
Net income per share......................................... $ 0.93 $ .97
</TABLE>

(footnotes on next page)

6
<PAGE> 9

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
---------------------
PRO FORMA
SINTER AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA(1):
Working capital................................................................... $11,365 $ 44,558
Total assets.................................................................... 90,113 390,782
Short-term debt................................................................. 154 --
Long-term debt.................................................................. 15,821 178,627
Stockholders' equity.............................................................. 48,579 103,227
</TABLE>

- ---------------

(1) Reflects the historical financial statements of the companies. Krebsoge's
financial statements have been prepared in accordance with German GAAP. See
"Unaudited Pro Forma Financial Information". Krebsoge's balance sheet has
been converted to United States dollars using the September 30, 1996
exchange rate, and the statements of operations were converted using average
exchange rates for the period presented.

(2) Represents the adjustment to cost of sales resulting from:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Increased depreciation as a result of the
step-up in value of property, plant and
equipment.................................. $ 1,225 $ 919
Elimination of operating lease expense as a
result of property acquisition............. (375) (1,125)
------ ------
$ 850 $ (206)
====== ======
</TABLE>

(3) During 1995, PMH recorded $5,200 in income by reversing a restructuring
reserve that had been established in a prior year. This non-recurring
benefit has not been adjusted.

(4) Represents the adjustment to selling, general and administrative expense for
synergies that will be realized on an annual basis by the elimination of
duplicative headquarters facilities and functions ($2,000) and reduced raw
material costs ($1,000).

(5) Represents amortization of the goodwill generated by the Acquisitions,
summarized as follows:

<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
Goodwill recognized...................................................... $119,697
========
Amortization for the year ended December 31, 1995........................ $ 2,984
========
Amortization for the nine months ended September 30, 1996................ $ 2,238
========
</TABLE>

Consistent with the historical accounting policies of Sinter, goodwill is
amortized over 40 years.

(6) Represents net adjustment to reflect (i) interest expense on $169,432 of pro
forma borrowings to complete the Acquisitions after application of the net
proceeds from the Offering, (ii) amortization of the New Credit Facility
costs over the eight year life of the facility, and (iii) elimination of
historical interest expense on debt to be retired with the net proceeds of
the Offering and the New Credit Facility. The interest on the pro forma
borrowings was calculated using the rates in effect on December 20, 1996, as
adjusted for the reduced interest rate based upon a reset leverage ratio, as
defined in the New Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".

(7) Represents the estimated tax effect of the adjustments, including the
reversal of the utilization of operating loss carryforwards of PMH that will
be limited as a result of the Acquisitions.

7
<PAGE> 10

SUMMARY HISTORICAL FINANCIAL DATA

The following sets forth summary historical financial data for Sinter for
the three years ended December 31, 1995, and the nine month periods ended
September 30, 1995 and 1996. The comparability of the historical consolidated
financial data reflected in this financial data has been significantly impacted
by acquisitions. The information presented below is qualified in its entirety
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Selected Historical
Financial Data," and the Consolidated Financial Statements and the Notes thereto
for Sinter, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $68,584 $82,479 $94,310 $69,392 $83,068
Cost of sales.................................. 54,061 64,765 73,245 53,930 64,205
------- ------- ------- ------- -------
Gross margin................................. 14,523 17,714 21,065 15,462 18,863
Selling, general and administrative expense.... 6,442 8,212 7,698 5,476 7,322
Amortization of intangible assets.............. 308 302 332 242 300
Income from operations....................... 7,773 9,200 13,035 9,744 11,241
Interest expense............................... 5,107 1,956 287 220 288
Other expense, net............................. 11 166 111 109 (60)
------- ------- ------- ------- -------
Income before income taxes and extraordinary
charge.................................... 2,655 7,078 12,637 9,415 11,013
Provision for income taxes..................... 2,370 2,900 4,750 3,600 4,025
------- ------- ------- ------- -------
Net income before extraordinary charge....... 285 4,178 7,887 5,815 6,988
Extraordinary charge, net of tax............... -- (580) -- -- --
------- ------- ------- ------- -------
Net income................................... 285 3,598 7,887 5,815 6,988
Preferred dividends............................ (242) (202) -- -- --
------- ------- ------- ------- -------
Net income applicable to common stock.......... $ 43 $ 3,396 $ 7,887 $ 5,815 $ 6,988
======= ======= ======= ======= =======
Net income per share........................... $ .01 $ .61 $ 1.05 $ .78 $ .93
OTHER FINANCIAL DATA:
Depreciation and amortization.................. $ 3,256 $ 3,759 $ 4,272 $ 2,915 $ 3,930
Capital expenditures........................... 4,198 4,160 4,301 2,727 6,023
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................ $ (180) $ 2,130 $ 9,128 $11,365
Total assets................................... 47,086 53,335 65,220 90,113
Short-term debt................................ 2,187 28 267 154
Long-term debt................................. 20,013 2,736 4,432 15,821
Stockholders' equity........................... 5,599 32,244 41,462 48,579
</TABLE>

- ---------------

8
<PAGE> 11

RISK FACTORS

Prospective investors should consider, in addition to the information set
forth elsewhere in this Prospectus, the following matters in evaluating the
Company and the Class A Common Stock offered hereby.

RISKS OF INTEGRATING ACQUISITIONS

On a pro forma basis, the Acquisitions increased the Company's net sales in
1995 from $94.3 million to $353.4 million. Integration of the operations of
Krebsoge and PMH with those of Sinter will place a strain upon the Company's
financial and managerial resources. There can be no assurance that the Company
will be able to integrate these operations successfully. The full benefits of
the business combination of Sinter with Krebsoge and PMH will require the
integration of administrative, finance, purchasing, engineering, sales and
marketing organizations; the coordination of production efforts; and the
implementation of appropriate operational, financial and management systems and
controls. Such benefits will also be dependent, in part, upon an increase in the
productivity of the work force of PMH and Krebsoge and the ability to meet
performance requirements under specific contracts, each of which require
substantial attention from the senior management of the Company. Additionally,
the Company's management must also address concerns related to the integration
of the "corporate cultures" of PMH and Krebsoge with that of Sinter. If the
Company fails to successfully integrate PMH and Krebsoge, the Company's
business, financial condition and results of operations could be materially
adversely affected. In addition, the Unaudited Pro Forma Financial Information
contains adjustments relating to the integration of PMH and Krebsoge with
Sinter. Although these adjustments are based upon available information and
certain assumptions the Company considers reasonable as of the date of this
Prospectus, actual amounts could differ from those set forth therein. Moreover,
no assurance can be given that the anticipated impact of the integration of PMH
and Krebsoge with Sinter upon the Company's financial condition and results of
operations as presented in such pro forma information will be as presented. See
"Unaudited Pro Forma Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON AUTOMOTIVE INDUSTRY; AUTOMOTIVE INDUSTRY CYCLICALITY

The automotive industry is the primary end-user of pressed powder metal
parts, and in 1995 accounted for approximately 67% of the North American pressed
powder metal parts industry's aggregate production. Sinter's sales to the
automotive industry have increased as a percentage of total sales over the last
decade and accounted for approximately 61% of Sinter's net sales during 1995.
Giving effect to the Acquisitions, the Company's sales to the automotive
industry accounted for approximately 74% of the Company's net sales during 1995.
The automotive industry is highly cyclical, dependent on consumer spending and
subject to the impact of domestic and international economic conditions and
international trade. The Company also sells its products to customers in other
industries that experience cyclicality in demand for products, such as the home
appliance industry. Economic factors adversely affecting automotive production
and consumer spending could have an adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Customers."

RELIANCE ON SIGNIFICANT CUSTOMERS

General Motors and Chrysler accounted for approximately 30% and 10%,
respectively, of Sinter's 1995 net sales, and its top five customers accounted
for approximately 55% of its net sales. Giving effect to the Acquisitions, in
1995 Ford, General Motors and Chrysler would have accounted for approximately
18%, 13% and 9%, respectively, of the Company's net sales, and the top five
customers of the Company would have accounted for approximately 49% of the
Company's net sales. Although the Company has had long-standing relationships
with each of Ford, General Motors and Chrysler and sells a wide variety of
products to each company, there can be no assurance that sales to these
customers will continue; further, continuation of these relationships is
dependent on the customers' on-going satisfaction with the price, quality and
delivery of the Company's products. Moreover, while the Company has long-term
supply arrangements with many of its customers, such supply arrangements do not
require such customers to purchase minimum amounts of products. Thus, a
significant decrease or interruption in business from Ford, General Motors or
Chrysler, or a

9
<PAGE> 12

loss of any of the Company's other significant customers, could have a material
adverse effect on the Company's financial condition, liquidity and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Customers."

RISKS OF ACQUISITION STRATEGY

The Company intends to pursue further growth through the opportunistic
acquisition of assets or companies involved in the pressed powder metal parts
industry and routinely reviews such acquisition opportunities. While the Company
believes that currently there are available a number of potential acquisition
candidates that would be complementary to its business, the Company currently
has no agreements, understandings or arrangements to acquire any specific
business or other material assets. The Company cannot predict whether it will be
successful in pursuing such acquisition opportunities or what the consequences
of any such acquisition would be. Future acquisitions may involve the
expenditure of significant funds and management time. Depending upon the nature,
size and timing of future acquisitions, the Company may be required to raise
additional financing. There is no assurance that such additional financing will
be available to the Company on acceptable terms.

SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS

Giving effect to the Acquisitions and the Offering, the Company's total
indebtedness on September 30, 1996 would have been $178.6 million, and the
percentage of total debt to total capitalization as of September 30, 1996 would
have been approximately 63%. The consequences of such leverage include, but are
not limited to, the following: (i) possible impairment of the Company's ability
to obtain additional financing in the future for working capital, capital
expenditures, acquisitions, product innovations, enhanced marketing programs,
refinancing of outstanding indebtedness and general corporate purposes; (ii)
significantly increased cash requirements for debt service; (iii) covenants and
operating restrictions imposed by the terms of the New Credit Facility requiring
the Company to meet certain financial tests and limiting, among other things,
its ability to borrow additional funds or to dispose of assets; (iv) putting the
Company at a competitive disadvantage against less leveraged competitors; and
(v) increasing the impact that a downturn in the Company's business will have on
its results of operations. Additionally, the Company's obligations under the New
Credit Facility are secured by liens on substantially all of its assets.
Accordingly, if the Company is in default under the New Credit Facility, the
lenders thereunder could foreclose upon their collateral, which would have a
material adverse effect upon the Company. The Company's ability to meet its debt
service obligations will depend upon its ability to execute its business plan,
which includes successfully integrating the businesses of PMH and Krebsoge with
existing operations and other factors, many of which are not within its control,
including fluctuating interest rates and general economic conditions. See
"-- Risks of Business Integration," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Pro Forma Liquidity and Capital
Resources."

DEPENDENCE ON CONTINUOUS IMPROVEMENT OF CRITICAL TECHNOLOGIES; PRODUCT CYCLES

The ability of the Company to continue to meet customer specifications in
respect of performance, cost, quality and service will be dependent upon the
ability of the Company to sustain the competitive technological advantages that
management believes the Company currently possesses. The Company's business may
therefore require from time to time significant additional capital expenditures
and investment in the areas of research and development, manufacturing and
management information systems. There can be no assurance that the Company will
be successful in this effort or that it will have the capital or other resources
available to meet this continuing challenge. The inability of the Company to
continuously improve and sustain its competitive technological advantages could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Business Strategy."

The Company's products are subject to obsolescence as the Company's
customers introduce new or redesigned products. The Company competes for new
business principally at the beginning of the development of new products, which
generally begins two to four years prior to full scale production, and the
redesign of existing products by its major customers, which typically involve
long lead times as well. Although the

10
<PAGE> 13

Company has been successful in the past in obtaining such new business, there
can be no assurance that the Company will continue to be able to obtain such new
business in the future. The failure of the Company to obtain new business when
its customers introduce new or redesigned products could lead to product
obsolescence, and thus have a material adverse effect on the Company's financial
condition, liquidity and results of operations.

RECENT FINANCIAL PERFORMANCE OF PMH

PMH, which was organized in 1989 and in which Sinter acquired a 30% equity
interest in 1993, experienced substantial operating losses in each of its fiscal
years prior to 1994, had a stockholders' deficit of approximately $45.1 million
as of December 31, 1993, and had to renegotiate debt arrangements in 1990, 1991
and 1993. In 1993, PMH's management commenced a restructuring of its
manufacturing operations and product lines in an attempt to improve its
financial performance. PMH's earnings increased in 1994, 1995 and 1996, reducing
the stockholders' deficit to $26.3 million as of November 22, 1996. As part of
its integration of PMH, the Company intends to, among other things, lower PMH's
overhead and other costs. However, even if such cost-saving measures are
implemented, there can be no assurance that PMH's future financial performance
will improve. If PMH's financial performance does not so improve, the Company's
business, financial condition and results of operations may be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- PMH" and the Consolidated Financial Statements of PMH,
included elsewhere in this Prospectus.

COMPETITION

The Company operates in a highly competitive, fragmented industry. The
Company competes with other manufacturers of pressed powder metal parts, certain
of which may have greater financial and other resources than the Company, on the
basis of product quality and performance attributes, customer service, price,
new product innovation and timely delivery. The Company also competes with
companies using wrought steel or casting technologies, since the Company's
technological advancements are increasing the instances in which the Company's
parts may be substituted for wrought steel or iron parts. There can be no
assurance that the Company's business will not be adversely affected by
increased competition in the markets in which it operates. See
"Business -- Competition."

RISK OF INTERNATIONAL OPERATIONS

Giving effect to the Acquisitions, international sales accounted for
approximately 45% of the Company's 1995 net sales and approximately 44% of the
Company's assets. Foreign sales are subject to numerous risks, including
political and economic instability in foreign markets, restrictive trade
policies of foreign governments, economic conditions in local markets, the
imposition of product tariffs and the burdens of complying with a wide variety
of international and U.S. export laws. Additionally, a significant portion of
the Company's revenues and expenses are denominated in currencies other than
U.S. dollars. Changes in exchange rates therefore may have a significant effect
on the Company's business, financial condition and results of operations.

RELIANCE ON MANAGEMENT TEAM

The Company's continued success will depend largely on the efforts,
abilities and services of its current management team, which includes members of
Krebsoge's former management team. If for any reason any member of the
management team leaves the Company, the Company could be adversely affected. In
addition, the Company believes future growth will require the hiring of
additional managerial personnel and there can be no assurances that the Company
will be able to attract and retain such personnel when necessary. See
"Management -- Directors and Officers" and "-- Other Significant Employees of
the Company."

11
<PAGE> 14

SUPPLY AND PRICE OF POWDER METAL

The Company's principal raw material is powder metal, which is produced
primarily from scrap metal. Currently there are a limited number of producers of
high quality powder metal. The Company obtains its powder metal requirements
from a number of powder metal producers, including Hoeganaes Corporation in the
United States ("Hoeganaes U.S."), Mannesmann AG, Hoganas AB in Sweden ("Hoganas
Sweden"), Quebec Metal Powder and Kobelco. In 1995, Hoeganaes U.S. and Quebec
Metal supplied Sinter with approximately 45% and 30%, respectively, of its
powder metal requirements, Hoeganaes U.S. supplied PMH with substantially all of
its powder metal requirements and Mannesmann AG and Hoganas Sweden supplied
Krebsoge with approximately 36% and 50%, respectively, of its powder metal
requirements. The Company typically enters into two-year supply contracts with
its suppliers. In September 1996, Sinter entered into a new two-year supply
agreement with Hoeganaes U.S., which contains certain minimum purchase
requirements. Except for a brief period in 1993 during which Sinter experienced
difficulty in obtaining a particular blend of powder metal, the Company has
generally been able to obtain sufficient supplies of powder metal for its
operations. The price of powder metal is subject to change as the price paid by
powder metal producers for scrap metal changes. An interruption in the Company's
supply of powder metal or a substantial increase in its price, which the Company
is generally unable to pass-through to its customers, or a reduction in the
Company's need for powder metal below the minimum purchase requirement from
Hoeganaes U.S., could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Suppliers and
Raw Materials."

LABOR RELATIONS

Approximately 60% of the Company's employees are covered by collective
bargaining or similar agreements which expire at various times over the next
several years. The Company's collective bargaining agreements with its employees
at its Van Wert, Ohio and St. Thomas, Ontario facilities expire March 1, 1997
and May 17, 1998, respectively. The Company's employees located in Germany are
represented by the National Metal Workers Union under a series of regional
contracts that run one to two years. The Company's employees in Sweden are
members of a Swedish labor union. The Company anticipates that new agreements on
satisfactory terms will be reached as the existing agreements expire. There can
be no assurance, however, that new agreements will be reached without a work
stoppage or strike or will be reached on terms satisfactory to the Company. A
prolonged work stoppage or strike at any one of the Company's manufacturing
facilities could have a material adverse effect on the Company's results of
operations. See "Business -- Employees."

ENVIRONMENTAL CONSIDERATIONS

Pressed powder metal parts manufacturers such as the Company are subject to
increasingly stringent environmental standards imposed by federal, state and
local environmental laws and regulations. The Company has made, and will
continue to make, expenditures to comply with such environmental standards. The
Company regularly reviews its procedures and policies for compliance with
environmental laws. However, current conditions and future events, such as
changes in existing laws and regulations, may give rise to additional compliance
costs that could have a material adverse effect on the Company's business,
financial condition, or results of operations. Historical groundwater and soil
contamination has been identified at PMH's St. Thomas, Ontario and Van Wert,
Ohio facilities. Moreover, as the Company integrates the operations of PMH and
Krebsoge, additional environmental issues may be discovered and, as a result,
the Company may incur additional expenditures to address such issues. No
assurance can be given that such additional environmental issues will not
adversely impact the Company's financial condition, liquidity or results of
operations. See "Business -- Environmental Matters."

CONTROL BY CERTAIN EXISTING STOCKHOLDERS; STOCKHOLDERS AGREEMENT; ANTI-TAKEOVER
PROVISIONS

Upon completion of the Offering, Citicorp Venture Capital, Ltd. ("CVC") and
certain members of the Company's management will beneficially own approximately
25% of the outstanding shares of the Class A Common Stock (the only voting
securities of the Company) and CVC will own all the outstanding shares of Class
B Common Stock (which are convertible into Class A Common Stock on a one-for-one
basis at the

12
<PAGE> 15

option of the holder). The Company and certain of its significant stockholders,
who in the aggregate will hold after the Offering approximately 24% of the Class
A Common Stock and all of the shares of Class B Common Stock, have agreed to
vote their respective shares to elect certain persons to the Company's Board of
Directors. As a result, these stockholders may significantly impact the
direction of the affairs of the Company. See "Principal
Stockholders -- Stockholders Agreement" and "Description of Capital Stock."

Certain provisions of the Company's Restated Certificate of Incorporation
and Restated By-laws, as well as certain provisions of the Delaware General
Corporation Law, could have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company. See
"Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Immediately upon consummation of the Offering, the Company will have
outstanding 7,209,747 shares of Class A Common Stock, (7,539,747 if the U.S.
Underwriters exercise in full their over-allotment option). 4,750,000 of such
shares (5,080,000 if the U.S. Underwriters exercise in full their over-allotment
option) will have been sold in the Offering or the Company's initial public
offering in October 1994 and will be freely transferable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for such shares owned at any time by an "affiliate" of
the Company within the meaning of Rule 144 under the Securities Act, which sales
will be subject to the volume limitations and certain other restrictions set
forth in Rule 144. CVC and certain other stockholders have the right, subject to
certain restrictions and limitations, to participate in future registered sales
of Class A Common Stock by the Company. No prediction can be made as to the
effect, if any, that future sales of shares of Class A Common Stock, or the
availability of shares of Class A Common Stock for future sales, will have on
the market price of shares of Class A Common Stock prevailing from time to time.
The sale of any substantial number of shares of Class A Common Stock following
the Offering, or the perception that such sales could occur, could have a
material adverse impact on the market price of the Class A Common Stock. See
"Shares Eligible for Future Sale."

LIMITED TRADING HISTORY AND MARKET FOR COMMON STOCK

The Company's Class A Common Stock has been traded on the New York Stock
Exchange ("NYSE") since October 1994, although prior to the Offering only
approximately 51% of the Company's outstanding Class A Common Stock was listed
for trading. After the Offering, approximately 66% of the Company's Class A
Common Stock will be listed for trading on the NYSE. The average daily trading
volume in the Class A Common Stock in the eleven months ended November 1996 was
approximately 11,000 shares per day. Accordingly, the prices at which such
trades have been made may not reflect the prices that would have prevailed had
there been a more active market. Furthermore, there can be no assurance that the
trading price for the Class A Common Stock will approximate the price of the
Class A Common Stock prior to the Offering. The public offering price for the
Class A Common Stock offered hereby has been determined by negotiations between
the Underwriters and the Company in light of recent sale prices of the Class A
Common Stock as reported on the NYSE. There can be no assurance that an active
public market for the Class A Common Stock will develop or be sustained after
the Offering or that the public offering price corresponds to the price at which
the Class A Common Stock will trade in the public market subsequent to the
Offering. See "Price Range of Common Stock."

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

All statements contained herein that are not historical facts, including
but not limited to, the Company's integration plans, are based on current
expectations. These statements are forward looking in nature and involve a
number of risks and uncertainties. Actual results may vary materially. The
factors that could cause actual results to vary materially include but are not
limited to those items identified under "Risk Factors" and other risks described
from time to time in the Company's reports filed with the Securities and
Exchange Commission (the "Commission"). The Company cautions potential investors
not to place undue reliance on any such forward looking statements, which
statements are made pursuant to the Private Securities Litigation Reform Act of
1995, and as such, speak only as of the date made.

13
<PAGE> 16

THE COMPANY

HISTORICAL OVERVIEW

Sinter was organized in December 1991 to acquire all of the outstanding
capital stock of Pennsylvania Pressed Metals ("PPM") from a subsidiary of the
Gleason Corporation. PPM had been engaged since 1965 in the design, engineering
and production of precision pressed powder metal parts for use principally in
the automotive, home appliance, lawn and garden and power tool industries. Since
1991, Sinter has completed eight acquisitions, increasing its net sales from
$50.8 million in 1991 to $353.4 million in 1995, on the pro forma basis
described herein.

- In August 1992, Sinter purchased certain assets of American Powder
Metals for $2.2 million and established a manufacturing facility in
Conover, North Carolina that provided Sinter with technology in the
production of aluminum alloy metal parts and broadened Sinter's
geographical scope into the southeastern United States.

- In November 1993, Sinter purchased a 30% interest in PMH, one of the
largest manufacturers of pressed powder metal parts in the United
States, offering products primarily to the United States automotive
industry.

- In July 1994, Sinter acquired Midwest Sintered Products Corporation
for approximately $3.1 million, which provided Sinter with a
strategically-located production facility near certain major
customers as well as additional production technology in the
production of stainless steel pressed powder metal parts.

- In June 1995, Sinter acquired Kolsva Sinterteknik Atkiebolag AB, a
Swedish corporation, for approximately $3.8 million and 100,000
shares of Class A Common Stock, which expanded Sinter's geographical
scope into Europe and introduced Sinter to the Scandinavian
automotive industry.

- In July 1996, Sinter acquired SinterForm Incorporated ("SinterForm")
in Michigan for approximately $8.6 million, which provided Sinter
with a strategically-located facility producing pressed powder metal
parts for use primarily in the automotive industry.

- In December 1996, Sinter acquired the assets of Delco Remy America,
Inc.'s Powder Metal Forge Unit. This acquisition provided Sinter
with additional technology and increased the breadth of its product
offerings.

THE ACQUISITIONS

On October 7, 1996, Sinter and MAAG Holding AG ("MAAG") entered into
agreements whereby Sinter agreed to buy the remaining 70% interest in PMH not
already owned by Sinter and 98.2% of the outstanding capital stock of Krebsoge,
for aggregate consideration of $215.0 million, subject to certain closing and
post-closing adjustments. Before the Acquisitions, PMH was the second largest
pressed powder metal parts manufacturer in North America, based upon 1995 sales
of approximately $106.5 million. Krebsoge, which offers pressed powder metal
parts for use principally in the European automotive, machine, power tool and
home appliance industries, is among the leading pressed powder metal parts
manufacturers in Europe, and the largest pressed powder metal parts producer in
Germany. Krebsoge had 1995 sales of approximately $152.6 million.

On December 19, 1996 (the "Closing Date"), the Acquisitions were
consummated for aggregate consideration of approximately $211.8 million. After
giving effect to the closing adjustments, MAAG received approximately $83.1
million from Sinter, subject to further adjustment based upon PMH's net working
capital, as defined, as of the Closing Date. On the Closing Date, Sinter, on
behalf of PMH and Krebsoge, repaid all of PMH's and Krebsoge's outstanding
indebtedness aggregating approximately $128.7 million. On December 30, 1996, the
Company acquired the remaining 1.8% of the outstanding capital stock of Krebsoge
not already owned for $1.3 million, from a senior executive officer of Krebsoge.

As a result of the Acquisitions, the Company is the world's largest
independent pressed powder metal parts manufacturer, based on net sales. The
Company believes that the Acquisitions have strengthened its core

14
<PAGE> 17

business, expanded its product line and expanded its customer base, particularly
in Europe. Moreover, the Company expects to have an increased ability to bid on
contracts for new business areas that draw upon the complementary capabilities
and customer relationships of PMH and Krebsoge. Additionally, the Company
expects to achieve significant operating efficiencies and cost savings resulting
from the consolidation of facilities, staff reductions, process improvements and
elimination of duplicative costs. See "Business -- Competitive Strengths" and
"-- Growth Strategy."

In October 1994, Sinter completed an initial public offering of
approximately 2.5 million primary shares of Class A Common Stock. The Company
used the net proceeds of approximately $14.7 million to repay certain
outstanding indebtedness and to redeem the Company's then outstanding preferred
stock.

The Company's executive offices are located at 50 Public Square, Suite
3200, Cleveland, Ohio 44113, telephone (216) 771-6700, fax (216) 344-7631,
internet address http://sinter-metals.com. The Company's website and the
information contained in this site shall not be deemed a part of this
Prospectus.

15
<PAGE> 18

USE OF PROCEEDS

The Offering. The net proceeds to be received by the Company from the sale
of the 2.2 million shares of Class A Common Stock in the Offering (after
deduction of estimated underwriting discounts and commissions and expenses
payable by the Company) are estimated to be approximately $54.6 million ($62.8
million if the U.S. Underwriters' over-allotment option is exercised in full)
assuming an offering price of $27 per share. The net proceeds to be received by
the Company from the Offering will be used to retire $54.6 million of the U.S.
Term Facilities on a pro rata basis. Interest on the U.S. Term Facilities is
based on either the LIBOR rate or the Alternate Base Rate, which is the highest
of the Prime Rate, Federal Funds Effective Rate plus 1/2 of 1% and the Base CD
Rate plus 1% (in each case, as defined in the New Credit Facility), in each case
plus an applicable margin. The U.S. Term Facilities currently bear interest at a
weighted average of 8.41% per annum and mature, in the case of the Tranche A
Term Loan Facility, on June 30, 2003, and in the case of the Tranche B Term Loan
Facility, on June 30, 2005.

Financing the Acquisitions. In order to (i) fund the Acquisitions, including
the repayment of certain PMH and Krebsoge indebtedness, (ii) refinance Sinter's
then outstanding debt of $6.8 million, and (iii) pay related costs and expenses
of approximately $5.5 million, Sinter entered into a $275.0 million credit
facility with a syndicate of financial institutions (the "New Credit Facility").
Under the New Credit Facility, the lenders have provided the Company with (i)
three senior secured term loan facilities in the aggregate principal amount of
up to $225.0 million, allocated between (a) a Tranche A Term Loan Facility in an
aggregate principal amount of $30.0 million, (b) a Tranche B Term Loan Facility
in the aggregate principal amount of $115.0 million (together with the Tranche A
Term Loan Facility the "U.S. Term Facilities"), and (c) a German Term Facility
(the "German Term Facility") in the aggregate principal amount of DM 124.5
million (approximately $80.0 million), (ii) a senior secured revolving credit
facility in an aggregate amount equal to $30.0 million, of which up to $20.0
million will be available in the form of standby letters of credit and (iii) a
senior secured revolving credit facility in an aggregate amount of DM 30 million
(approximately $19.3 million), of which DM 10 million (approximately $6.4
million) will be available in the form of standby letters of credit. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Related Party Transactions" and
"Underwriters."

The following sets forth the sources and uses of funds provided by the New
Credit Facility and the Offering.

<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
Gross proceeds from the Offering...................................... $ 59,400
Gross proceeds from the New Credit Facility
Revolving Credit Facility........................................... 3,410
Tranche A Facility.................................................. 30,000
Tranche B Facility.................................................. 115,000
German Term Loan.................................................... 80,000
-------
Total sources............................................... $287,810
=======
USES OF FUNDS:
Consideration for equity of Krebsoge and PMH.......................... $ 81,585
Repayment of Tranche A Facility....................................... 14,200
Repayment of Tranche B Facility....................................... 40,400
Repayment of PMH indebtedness......................................... 53,900
Repayment of Krebsoge indebtedness.................................... 74,832
Refinance existing Sinter bank debt................................... 11,289
Fees and expenses of New Credit Facility.............................. 6,804
Estimated fees and expenses of Offering............................... 4,800
-------
Total uses.................................................. $287,810
=======
</TABLE>

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<PAGE> 19

CAPITALIZATION

The following sets forth the short-term debt and capitalization of Sinter
on (i) an actual basis as of September 30, 1996, (ii) on a pro forma basis to
reflect the consummation of the Acquisitions and the funding thereof with the
proceeds of the New Credit Facility and (iii) on a pro forma as adjusted basis
to reflect the issuance and the sale of 2.2 million shares of Class A Common
Stock by the Company in the Offering (assuming an initial offering price of $27
per share and after deduction of the estimated underwriting discounts and
commissions and expenses) and the application of the net proceeds therefrom to
the repayment of indebtedness. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Financial Information" and the Consolidated
Financial Statements of each of Sinter, Krebsoge and PMH and the Notes thereto,
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt.............. $ 154 $ -- $ --
======== ======== =========
Long-term debt, net of current maturity:
New Credit Facility............................ $ -- $224,080 $ 169,432
Term Loans..................................... 2,121 2,000 2,000
Revolving Credit Facility...................... 6,505 -- --
Industrial Development Bond.................... 7,195 7,195 7,195
-------- -------- ---------
Total long-term debt...................... 15,975 233,275 178,627
-------- -------- ---------
Stockholders' equity:
Preferred Stock, authorized 5,000,000 shares;
none issued and outstanding.................
Class A Common Stock, par value $.001 per
share; authorized 20,000,000 shares; issued
and outstanding 5,004,747 shares, and
7,204,747 shares on a pro forma basis(1).... 5 5 7
Class B Common Stock, par value $.001 per
share; authorized 5,000,000 shares; issued
and outstanding 2,543,381 shares............ 2 2 2
Additional paid-in capital..................... 27,925.. 27,925 82,571
Retained earnings.............................. 20,274 20,274 20,274
Other equity................................... 373 373 373
-------- -------- ---------
Total stockholders' equity................ 48,579 48,579 103,227
-------- -------- ---------
Total capitalization................... $ 64,554 $281,854 $ 281,854
======== ======== =========
</TABLE>

- ---------------
(1) Excludes 340,300 shares of Class A Common Stock issuable upon exercise of
employee stock options outstanding as of December 20, 1996, of which 103,000
were exercisable.

17
<PAGE> 20

PRICE RANGE OF COMMON STOCK

Sinter's Class A Common Stock has been traded on the NYSE since October 26,
1994 under the symbol "SNM." The following table sets forth, for the periods
indicated, the high and low closing sale prices for Sinter's Class A Common
Stock as reported on the NYSE:

<TABLE>
<CAPTION>
CLASS A COMMON
STOCK PRICE
-----------------
HIGH LOW
------ ------
<S> <C> <C>
1994
Fourth Quarter (since October 26, 1994)............. $10 3/8 $ 9
1995
First Quarter....................................... 10 8 1/2
Second Quarter...................................... 10 1/2 8 3/4
Third Quarter....................................... 11 3/8 9 7/8
Fourth Quarter...................................... 12 3/8 9 7/8
1996
First Quarter....................................... 15 7/8 11 5/8
Second Quarter...................................... 19 1/4 13 1/2
Third Quarter....................................... 22 1/4 16 3/4
Fourth Quarter (through December 20, 1996).......... 29 1/8 20
</TABLE>

As of December 20, 1996 there were approximately 99 holders of record of
Class A Common Stock and one holder of record of Class B Common Stock. The
Company believes that it has significantly more than 99 beneficial holders of
its Class A Common Stock. CVC is the sole holder of Class B Common Stock. See
"Principal Stockholders" and "Description of Capital Stock." A recent reported
last sale price of the Class A Common Stock on the NYSE is set forth on the
cover of this Prospectus.

DIVIDEND POLICY

The Company has not declared or paid any dividends on its Common Stock
since its incorporation. The Company currently intends to retain earnings to
support its growth strategy and does not anticipate paying dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion. In addition, the payment of
dividends by the Company on its Common Stock is subject to limitations under the
New Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".

EXCHANGE RATES

The table below sets forth, for the periods and dates indicated, certain
information concerning the exchange rate for the German Deutschmark against the
U.S. dollar, based on the Noon Buying Rate. For a discussion of the effects of
currency fluctuations on the Company's operations, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview."

<TABLE>
<CAPTION>
DM PER US $1.00
--------------------------------------------
AT END AVERAGE
CALENDAR YEAR OF PERIOD RATE (1) HIGH LOW
- --------------------------------------------- --------- -------- ------ ------
<S> <C> <C> <C> <C>
1993......................................... 1.7263 1.6533 1.7480 1.5655
1994......................................... 1.5488 1.6228 1.7670 1.4860
1995......................................... 1.4335 1.4331 1.5653 1.3455
1996 (through December 19, 1996)............. 1.5590 1.5030 1.5730 1.4306
</TABLE>

- ---------------

(1) The average of the Noon Buying Rates on the last business day of each full
month during the relevant period.

18
<PAGE> 21

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information (the "Unaudited Pro
Forma Financial Information") is based on the historical financial statements of
Sinter, PMH and Krebsoge and has been prepared to illustrate the effects of the
Acquisitions, the New Credit Facility, the Offering, and adjustments to the
Krebsoge financial information to conform the presentation to US GAAP.

The unaudited pro forma condensed consolidated statements of operations for
the year ended December 31, 1995 and for the nine months ended September 30,
1996 give effect to each of these transactions as if such transactions had been
completed as of January 1, 1995. The unaudited pro forma condensed consolidated
balance sheet as of September 30, 1996 gives effect to each of these
transactions as if such transactions had been completed on September 30, 1996.

The Krebsoge financial information is prepared in accordance with German
GAAP, and with respect to the year ended December 31, 1995, has been derived
from the audited financial statements included herein. The information presented
for the period ended September 30, 1996 has been derived from unaudited
financial information not included in this Prospectus. German GAAP differs from
U.S. GAAP in certain significant respects. Had the year ended December 31, 1995
financial information been recorded in accordance with U.S. GAAP, the net loss
would have been $(4,873) compared to $5,418 presented herein.

The Acquisitions will be accounted for using the purchase method of
accounting. The total purchase cost of the Acquisitions will be allocated to the
tangible and intangible assets acquired and liabilities assumed based upon their
respective fair values. The allocation of the aggregated purchase price
reflected in the Unaudited Pro Forma Financial Information is preliminary. The
final allocation of the purchase price will be contingent upon the receipt of
the final appraisals of certain acquired assets and final determination of
assumed liabilities.

The Unaudited Pro Forma Financial Information does not purport to represent
the actual financial position or results of operations of the Company had the
transactions and events assumed therein in fact occurred on the dates specified,
nor are they necessarily indicative of the results of operations that may be
achieved in the future. The Unaudited Pro Forma Financial Information is based
on certain assumptions and adjustments described in the notes hereto and should
be read in conjunction therewith. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Consolidated Financial
Statements and the Notes thereto for each of Sinter, PMH and Krebsoge, included
elsewhere in this Prospectus.

19
<PAGE> 22

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
HISTORICAL(1) PRO FORMA
--------------------------------- ----------------------------
SINTER KREBSOGE PMH ADJUSTMENTS CONSOLIDATED
------- -------- -------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales........................... $94,310 $152,622 $106,473 -- $353,405
Cost of sales....................... 73,245 119,386 92,263 $ 850(2) 285,744
-------- -------- -------- --------
Gross margin...................... 21,065 33,236 14,210 (850) 67,661
Selling, general and administrative
expense........................... 7,698 21,582 2,417(3) (3,000)(4) 28,697
Amortization of intangible assets... 332 18 -- 2,984(5) 3,334
-------- -------- -------- --------
Income from operations............ 13,035 11,636 11,793 (834) 35,630
Interest expense.................... 287 6,118 3,133 2,688(6) 12,226
Other expense/(income).............. 111 (1,032) 115 -- (806)
-------- -------- -------- --------
Income before income tax
expense........................ 12,637 6,550 8,545 (3,522) 24,210
Income tax expense/(credit)......... 4,750 1,132 (253) 3,191(7) 8,820
-------- -------- -------- --------
Net income before cumulative effect
of accounting change.............. $ 7,887 $ 5,418 $ 8,798 $(6,713) $ 15,390
======== ======== ======== ========
Weighted average common shares
outstanding....................... 7,500 9,700
Net income per share................ $ 1.05 $ 1.58
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-----------------------------------------------------------------
HISTORICAL(1) PRO FORMA
-------------------------------- ----------------------------
SINTER KREBSOGE PMH ADJUSTMENTS CONSOLIDATED
------- -------- ------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales........................... $83,068 $121,338 $82,604 -- $287,010
Cost of sales....................... 64,205 97,467 74,838 $ (206)(2) 236,304
-------- -------- -------- --------
Gross margin...................... 18,863 23,871 7,766 206 50,706
Selling, general and administrative
expense........................... 7,322 16,561 5,326 (2,250)(4) 26,959
Amortization of intangible assets... 300 12 -- 2,238(5) 2,550
-------- -------- -------- --------
Income from operations............ 11,241 7,298 2,440 218 21,197
Interest expense.................... 288 3,574 2,162 836(6) 6,860
Other expense/(income).............. (60) (576) 264 -- (372)
-------- -------- -------- --------
Income before income tax
expense........................ 11,013 4,300 14 (618) 14,709
Income tax expense.................. 4,025 716 31 500(7) 5,272
-------- -------- -------- --------
Net income/(loss)................... $ 6,988 $ 3,584 $ (17) $(1,118) $ 9,437
======== ======== ======== ========
Weighted average common shares
outstanding....................... 7,549 9,749
Net income per share................ $ .93 $ .97
</TABLE>

20
<PAGE> 23

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-----------------------------------------------------------------
HISTORICAL (1) PRO FORMA
-------------------------------- ----------------------------
SINTER KREBSOGE PMH ADJUSTMENTS CONSOLIDATED
------- -------- ------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and equivalents.............. $ 1,752 $ 3,520 $ 373 $ -- $ 5,645
Accounts receivable, net.......... 14,611 24,821 16,457 -- 55,889
Inventories....................... 13,751 19,186 7,062 -- 39,999
Other current assets.............. 775 578 2,169 -- 3,522
------- -------- -------- --------- --------
Total current assets......... 30,889 48,105 26,061 -- 105,055
Property, plant & equipment,
net............................ 35,043 35,412 30,280 33,556(8) 134,291
Intangible assets, net............ 18,325 1,002 -- 119,697(9) 139,024
Other assets...................... 5,856 870 186 5,500(10) 12,412
------- -------- -------- --------- --------
Total assets................. $90,113 $ 85,389 $56,527 $ 158,753 $390,782
======= ======== ======= ========= ========
Liabilities and Stockholder's Equity
Accounts and notes payable........ $10,209 $ 7,908 $59,631 $ (50,201)(11) $ 27,547
Other current liabilities......... 9,315 11,743 7,392 4,500(12) 32,950
------- -------- -------- --------- --------
Total current liabilities.... 19,524 19,651 67,023 (45,701) 60,497
Long-term debt.................... 9,316 42,108 2,600 124,603(11) 178,627
Revolving debt.................... 6,505 -- -- (6,505)(11) --
Related party debt................ -- 35,215 2,084 (37,299)(11) --
Other liabilities................. 810 20,690 13,912 (2,710)(13) 32,702
Deferred income taxes............. 5,379 -- -- 10,350(8) 15,729
------- -------- -------- --------- --------
Total liabilities............ 41,534 117,664 85,619 42,738 287,555
Preferred stock................... -- -- -- -- --
Common stock...................... 7 22,097 -- (22,095)(14) 9
Additional paid-in capital........ 27,925 6,557 49,649 (1,560)(14) 82,571
Other equity...................... 373 (180) 881 (701)(14) 373
Retained earnings................. 20,274 (60,749) (79,622) 140,371(14) 20,274
------- -------- -------- --------- --------
Total liabilities and stockholders'
equity............................ $90,113 $ 85,389 $56,527 $ 158,753 $390,782
======= ======== ======= ========= ========
</TABLE>

21
<PAGE> 24

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

(1) Reflects the historical financial statements of the companies. Krebsoge's
balance sheet has been converted to United States dollars using the
September 30, 1996 exchange rate, and the statements of operations were
converted using average exchange rates for the period presented.

(2) Represents the adjustment to cost of sales resulting from:

(3) During 1995, PMH recorded $5,200 in income by reversing a restructuring
reserve that had been established in a prior year. This non-recurring
benefit has not been adjusted.

(5) Represents amortization of the goodwill generated by the Acquisitions,
summarized as follows:

Consistent with the historical accounting policies of Sinter, goodwill is
amortized over 40 years.

(6) Represents net adjustment to reflect (i) interest expense on $169,432 of pro
forma borrowings, to complete the Acquisitions after application of the net
proceeds from the Offering, (ii) amortization of the New Credit Facility
costs over the eight year life of the facility, and (iii) elimination of
historical interest expense on debt to be retired with the net proceeds of
the Offering and the New Credit Facility. The interest on the pro forma
borrowings was calculated using the rates in effect on December 20, 1996, as
adjusted for the reduced interest rate based upon a reset leverage ratio, as
defined in the New Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".

(7) Represents the estimated tax effect of the adjustments, including the
reversal of the utilization of operating loss carryforwards of PMH that will
be limited as a result of the Acquisitions.

(8) Increase in property, plant and equipment, net is attributable to the
application of purchase accounting to the acquired companies resulting in
the step-up of the property to fair value. The step-up was determined based
on recent appraisals of the property and the corresponding increase in
depreciation is reflected in the pro forma condensed consolidated statements
of operations for the year ended December 31, 1995

22
<PAGE> 25

and nine months ended September 30, 1996. Deferred taxes on the step-up have
been recorded based on the anticipated tax rates in effect.

<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
Historical net book value................................................ $ 65,692
Fair value at acquisition date........................................... 99,248
--------
Recorded step-up....................................................... $ 33,556
========
Deferred tax liability recorded.......................................... $ 10,350
========
</TABLE>

(9) Represents the premium paid after the application of purchase accounting to
identified tangible and intangible assets.

<TABLE>
<S> <C>
Cash purchase price...................................................... $211,800
Other direct costs of acquisition........................................ 12,141
Historical deficit of acquired entities.................................. 61,366
Repayment of historical indebtedness..................................... (132,054)
Value of property step-up................................................ (33,556)
--------
Recorded goodwill........................................................ $119,697
========
</TABLE>

(10) Represents costs incurred in connection with obtaining the New Credit
Facility to finance the Acquisitions. These costs are being amortized over
eight years in accordance with the term of the New Credit Facility. See
Note (6) above.

(11) Represents the effect of the pro forma borrowings under the New Credit
Facility to finance the Acquisitions, and refinance existing debt of Sinter
and application of the net proceeds of the Offering. See "Capitalization"
and Note (6) above.

(12) Represents the accrual of estimated severance and shut down costs of the
acquired companies in connection with the Acquisitions.

(13) Represents the recording of the fair value of certain long term liabilities
assumed as a result of the Acquisitions. These adjustments include
approximately $4,000 to reflect the pension liability in accordance with
Statement of Financial Accounting Standards No. 87 -- Employers' Accounting
for Pensions, and approximately $3,000 related to the present value of a
capital lease obligation.

(14) Reflects the elimination of the historical equity of Krebsoge and PMH as a
result of the Acquisitions. Additionally, represents the issuance of 2.2
million shares of Class A Common Stock at an assumed offering price of $27
per share, net of estimated underwriting discounts, commissions and
expenses.

23
<PAGE> 26

SELECTED HISTORICAL FINANCIAL DATA

SINTER

The selected consolidated financial data for Sinter presented below for,
and as of the end of each of the years in the three-year period ended December
31, 1995, is derived from Sinter's Consolidated Financial Statements which have
been audited by Arthur Andersen LLP, independent accountants. The consolidated
financial statements at December 31, 1994 and 1995 and for each of the three
years in the period ended December 31, 1995 and the auditors' report thereon are
included elsewhere in this Prospectus. The selected combined results of
operations data for the nine months ended September 30, 1995 and 1996 and the
balance sheet data at September 30, 1996 are derived from the unaudited
financial statements of Sinter and, in the opinion of Sinter's management,
reflect all adjustments necessary for a fair presentation of its results of
operations and financial condition. All such adjustments are of a normal
recurring nature. The results of operations for an interim period are not
necessarily indicative of results that may be expected for a full year or any
other interim period. This selected combined financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Sinter" and Sinter's Consolidated Financial
Statements and related Notes, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
THE NINE MONTHS ENDED
PREDECESSOR SEPTEMBER 30,
----------- -----------------
1991 1992 1993 1994 1995 1995 1996
----------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $50,809 $57,778 $68,584 $82,479 $94,310 $69,392 $83,068
Cost of sales...................... 42,054 46,606 54,061 64,765 73,245 53,930 64,205
------- ------- ------- ------- ------- ------- -------
Gross margin....................... 8,755 12,172 14,523 17,714 21,065 15,462 18,863
Selling, general and administrative
expense.......................... 3,837 5,018 6,442 8,212 7,698 5,476 7,322
Amortization of intangible
assets........................... 289 264 308 302 332 242 300
------- ------- ------- ------- ------- ------- -------
Income from operations............. 4,629 6,890 7,773 9,200 13,035 9,744 11,241
Interest expense................... 232 2,768 5,107 1,956 287 220 288
Other expense, net................. 203 45 11 166 111 109 (60)
------- ------- ------- ------- ------- ------- -------
Income before income taxes and
extraordinary
charge........................... 4,194 4,077 2,655 7,078 12,637 9,415 11,013
Provision for income
taxes............................ 1,986 1,875 2,370 2,900 4,750 3,600 4,025
------- ------- ------- ------- ------- ------- -------
Net income before extraordinary
charge........................... 2,208 2,202 285 4,178 7,887 5,815 6,988
Extraordinary charge, net.......... 42,054 -- -- (580) -- -- --
Net income......................... 2,208 2,202 285 3,598 7,887 5,815 6,988
Preferred dividends................ -- (242) (242) (202) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income applicable to common
stock......................... $ 2,208 $ 1,960 $ 43 $ 3,396 $ 7,887 $ 5,815 $ 6,988
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA:
Income before extraordinary
charge........................... $ .47 $ .01 $ .72 $ 1.05 $ .78 $ .93
Extraordinary charge............... -- -- (.11) -- -- --
Net income......................... .47 .01 .61 1.05 .78 .93
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.......................... $44,894 $47,086 $53,335 $65,220 $90,113
Total debt............................ 23,037 22,200 2,764 4,699 15,975
Stockholder's equity.................. 5,038 5,599 32,244 41,462 48,579
</TABLE>

24
<PAGE> 27

KREBSOGE

The selected consolidated statement of operations and balance sheet data
for the three years in the period ended December 31, 1995 are derived from
Krebsoge's Consolidated Financial Statements which have been audited for fiscal
year 1995 by Price Waterhouse GmbH, independent accountants, and for fiscal
years 1994 and 1993 by BDO Grunewalder Treuhard GmbH, independent accountants.
The Consolidated Financial Statements at December 31, 1994 and 1995 and for each
of the three years in the period ended December 31, 1995 and the auditors'
reports thereon are included elsewhere in this Prospectus. This selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Krebsoge" and Krebsoge's Consolidated Financial Statements and
related Notes, included elsewhere in this Prospectus.

The selected consolidated financial data presented below (unless otherwise
indicated) and Krebsoge's Consolidated Financial Statements included elsewhere
in this Prospectus are prepared in accordance with German GAAP and are presented
in DMs. German GAAP differs in certain significant respects from U.S. GAAP. For
a discussion of the significant differences between German GAAP and U.S. GAAP as
they relate to Krebsoge, see Note 26 to Krebsoge's Consolidated Financial
Statements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. DM164,836 DM178,936 DM224,798
Net income (loss)..................................... (4,695) 4,416 7,782
Net (loss) in accordance with U.S. GAAP............... (12,590) (7,378) (6,569)
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets, including cumulative loss in excess of
equity.............................................. DM173,165 DM167,220 DM178,211
Total debt............................................ 140,756 130,734 123,107
Stockholders' deficit, classified as cumulative loss
in excess of equity................................. (70,501) (66,274) (54,905)
Stockholders' equity (deficit) in accordance with U.S.
GAAP................................................ 6,413 (1,154) (1,206)
</TABLE>

PMH

The selected consolidated statement of operations and balance sheet data
for the two years in the period ended December 31, 1995 and the period from
January 1, 1996 to November 22, 1996 are derived from PMH's Consolidated
Financial Statements which have been audited by Deloitte & Touche LLP,
independent auditors. The consolidated financial statements at December 31, 1995
and November 22, 1996 and for each of the two years in the period ended December
31, 1995 and the period from January 1, 1996 to November 22, 1996 and the
auditors' report thereon are included elsewhere in this Prospectus. The
consolidated statement of operations data for the year ended December 31, 1993
and the balance sheet data as of December 31, 1994 are derived from audited
financial statements not presented herein. This selected financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Opera-

25
<PAGE> 28

tions -- PMH" and PMH's Consolidated Financial Statements and related Notes,
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1, 1996
---------------------------------- TO
1993 1994 1995 NOVEMBER 22, 1996
-------- -------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 97,647 $107,803 $106,473 $ 101,671
Income (loss) from operations............. (26,550) 7,002 11,793 4,774
Income (loss) before accounting change.... (36,524) 5,394 8,798 2,172
Cumulative effect of accounting change.... (1,853) -- 770 --
Net income (loss)......................... (38,377) 5,394 9,568 2,172
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------- AS OF
1994 1995 NOVEMBER 22, 1996
-------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.......................................... $ 54,148 $ 56,276 $ 59,094
Total debt............................................ 50,926 53,804 54,192
Capital leases........................................ 249 208 155
Stockholders' deficit................................. (39,815) (29,082) (26,331)
</TABLE>

26
<PAGE> 29

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Overview and Pro Forma Liquidity and Capital Resources sections give
effect to the Acquisitions, the New Credit Facility and the Offering. This
discussion should be read in conjunction with Unaudited Pro Forma Financial
Information and Notes thereto set forth elsewhere in this Prospectus.

OVERVIEW

The Company is the world's largest independent manufacturer of precision
pressed powder metal parts. The Company manufactures and markets over 4,000
different pressed powder metal parts for use principally in the automotive
industries in North America and Europe and, to a lesser extent, the lawn and
garden, power tool and home appliance industries in North America and Europe.
Sinter was organized in 1991 to facilitate the stock acquisition of Pennsylvania
Pressed Metals, Inc. Since then, the Company has grown considerably through its
eight additional acquisitions, including Sweden's Kolsva Sinterteknik
("Sinterteknik") in June 1995, SinterForm, Inc. in 1996 and the Acquisitions.
Sinter accounted for all of these acquisitions under the purchase method of
accounting where the purchase price is allocated between identified tangible and
intangible assets purchased and liabilities assumed. Unallocated purchase price
is treated as goodwill and amortized over 40 years.

In October 1994, Sinter completed an initial public offering of its Class A
Common Stock, raising net proceeds of approximately $14.7 million. Sinter used
these net proceeds together with borrowings of approximately $2.0 million under
the Company's revolving credit facility to repay all of its then outstanding
senior and subordinated indebtedness and to redeem its then outstanding
preferred stock.

Net Sales. The Company's net sales are affected by numerous factors,
including automotive production schedules and North American and European
economic conditions. The Company's sales are also dependent on its ability to
provide highly engineered powder metal parts at competitive prices, and are
subject to fluctuation based on the production cycles of the major automotive
OEMs. Once an automotive OEM designates the Company to supply pressed powder
metal parts for a new vehicle program, the OEM will usually continue to purchase
those parts from the Company for the life of the program, although not
necessarily for a redesign. As a result, the life cycle for a typical pressed
powder metal part for use by an automotive OEM is about five to ten years,
although the exact time period may vary based on the particular part or the
success of the OEM platform of which it is a part. Approximately 95% of the
Company's automotive sales are made on a sole source basis. On a pro forma
basis, net sales to the automotive industry accounted for approximately 74% of
the Company's net sales in 1995, reflecting PMH's and Krebsoge's relatively high
concentration of sales to the automotive industry. Without the effect of the
Acquisitions, Sinter's sales to the automotive industry accounted for
approximately 61% of 1995 net sales.

The Company expects the percentage of automotive sales to increase as it
expands its ability to offer global service and based on the forecasted increase
in pressed powder metal part content per automobile. Before the Acquisitions,
substantially all of the Company's sales were made in North America. Giving
effect to the Acquisitions, international sales accounted for approximately 45%
of the Company's 1995 net sales. The Company expects sales in Western Europe to
account for an increasing percentage of the Company's total sales. A significant
portion of the Company's revenues and expenses are denominated in currencies
other than U.S. dollars. Changes in exchange rates therefore may have a
significant effect on the Company's results of operations and financial
condition.

Cost of Sales. The principal elements of cost of sales are direct labor,
raw materials and manufacturing overhead. The Company's costs are affected by
fluctuating raw material costs, but the impact of such fluctuation is partially
mitigated because the Company does not maintain long-term fixed price contracts
with its customers and is able to buy raw materials at competitive prices due to
the size of its purchases. Due to the capital-intensive nature of the Company's
business, plant utilization is a significant factor in determining the Company's
profitability. The Company manufactures over 4,000 parts with varying gross
margins. Accord-

27
<PAGE> 30

ingly, the Company's overall gross margin is impacted by its product mix, raw
material costs and plant utilization rates.

Selling, general and administrative expenses. Selling, general and
administrative expenses include the costs, associated with selling, general
corporate overhead and other related administrative functions. Integrating the
Acquisitions will enable the Company to eliminate duplicative functions
currently being performed by each of Sinter, PMH and Krebsoge in the areas of
administration, finance, sales, marketing, purchasing, technical and field
services and management information systems.

Income taxes. Income taxes consist of the consolidation of the tax
provisions, computed on a separate company basis, in each country in which the
Company has an established presence. In 1994 and 1995, the effective tax rate
was affected by the favorable difference in statutory tax rates between Sweden
and the United States and the utilization of certain net operating loss
carryforwards relating to PMH and Krebsoge.

RESULTS OF OPERATIONS: SINTER

The following table sets forth, for each of the periods indicated, certain
income statement data expressed as a percentage of net sales:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------
1993 1994 1995 1995 1996
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Gross profit..................................... 21.2 21.5 22.3 22.3 22.7
Selling, general and administrative expenses..... 9.4 10.0 8.2 7.9 8.8
Amortization of intangible assets................ .4 .4 .3 .4 .4
----- ----- ----- ----- -----
Income from operations........................... 11.3 11.2 13.8 14.0 13.5
Interest expense................................. 7.4 2.4 .3 .3 .4
Provision for income taxes....................... 3.5 3.5 5.0 5.2 4.8
Extraordinary charge............................. -- .7 -- -- --
----- ----- ----- ----- -----
Net income....................................... .4% 4.4% 8.4% 8.4% 8.4%
===== ===== ===== ===== =====
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995

Net Sales. Net sales increased $13.7 million, or 19.7%, to $83.1 million
in the first nine months of 1996 from $69.4 million in the comparable period of
1995. The increase in net sales reflects the impact of the Sinterteknik
acquisition, the SinterForm acquisition, increased penetration by the Company in
the automotive market and an increase in average selling price per unit. The
increased penetration in the automotive market is evidenced by an approximate
11.6% increase in automotive sales experienced by the Company in the first nine
months of 1996 over the first nine months of 1995, while North American light
vehicle production during the same period declined by .7%.

Gross Profit. Gross profit increased by $3.4 million, or 22.0%, to $18.9
million in 1996. The gross profit margin increased from 22.3% in 1995 to 22.7%
in 1996. The increase is principally attributable to a change in product mix and
the inclusion of Sinterteknik for a full nine months, which consistently reports
a higher gross margin than the domestic plants.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.8 million in 1996 to $7.3 million.
Similarly, selling, general and administrative expenses as a percentage of sales
increased from 7.9% to 8.8% for the first nine months of 1995 and 1996,
respectively. The increase in selling, general and administrative expenses in
1996 is primarily attributable to the inclusion of Sinterteknik for nine months
of 1996 as compared to two months of 1995. Sinterteknik historically reports
higher selling, general and administrative expenses as a percentage of sales
than the domestic plants.

28
<PAGE> 31

Income From Operations. Income from operations increased by $1.5 million,
or 15.4%, in 1996, as compared to 1995. Income from operations as a percent of
net sales decreased from 14.0% in 1995 to 13.5% in 1996, reflecting the increase
in selling, general and administrative expenses described above.

Income Taxes. The provision for income taxes was $4.0 million in 1996 and
$3.6 million in 1995. The increase reflects increased income before income taxes
which was partially offset by the decline in the effective tax rate as a result
of more favorable income tax rates in Sweden.

YEAR ENDED 1995 COMPARED TO YEAR ENDED 1994

Net Sales. Net sales increased $11.8 million, or 14.3% to $94.3 million in
1995 from $82.5 million in 1994. The increase in net sales reflects increased
penetration in the automotive market, the partial year impact of the
Sinterteknik acquisition in June 1995, and the full year impact of the Midwest
Sintered Products Corporation ("Midwest") acquisition in July 1994. Due to the
increased utilization of powder metal parts by the automobile industry, Sinter
posted a 9% increase in automotive sales for the year, excluding the
Sinterteknik acquisition. This increase was primarily attributable to Sinter's
introduction of nearly 60 new parts in the last half of 1995. The sales
improvement was also partially the result of an increase in average selling
price per pound. The average selling price per pound, excluding Sinterteknik,
increased 9.5% in 1995. The increase in selling price per pound is a reflection
of a change in product mix, and an increase in Sinter's secondary finishing
operations.

Gross Profit. Gross profit increased by $3.4 million, or 18.9%, to $21.1
million in 1995. The gross profit margin increased modestly from 21.5% in 1994
to 22.3% in 1995, reflecting a change in product mix and the impact of improved
operating efficiencies. The improvement in operating efficiencies offset an
increase in raw material prices of approximately 5.6% in 1995 and an increase in
Sinter's outside secondary operations of 24.1%. The increase in outside
secondary costs is attributable to an increase in both volume and price.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses declined from the 1994 level of $8.2 million or 10.0% of
net sales to $7.7 million or 8.2% of net sales in 1995. The decline was
primarily attributable to the $2.4 million charge to compensation expense in
1994 resulting from the award of common stock to certain members of management
under Sinter's Management Incentive Stock Compensation Plan (the "Stock
Incentive Plan"). The Stock Incentive Plan was terminated at the time of
Sinter's initial public offering.

Income From Operations. Income from operations increased by $3.8 million
to $13.0 million, or 13.8% of net sales in 1995, as compared to $9.2 million, or
11.2% of net sales in 1994, reflecting the increase in net sales, the increase
in gross profit and gross profit percentage as well as the decline in selling,
general and administrative expenses.

Interest Expense. Interest expense decreased $1.7 million from $2.0
million in 1994 to $ .3 million in 1995. The decrease is the result of Sinter's
repayment of long-term indebtedness in 1994 from the proceeds of Sinter's
initial public offering. While Sinter's long-term debt was increased in 1995 due
to the acquisition of Sinterteknik, the amount of the indebtedness was reduced
in the last half of the year from cash flow generated by Sinter.

Income Taxes. The provision for income taxes was $4.8 million in 1995
reflecting an increase of $1.9 million from the 1994 provision of $2.9 million.
The effective tax rate in 1995 declined modestly from 1994 due to the lower
effective tax rate of Sinterteknik.

YEAR ENDED 1994 COMPARED TO YEAR ENDED 1993

Net Sales. Net sales increased $13.9 million, or 20.3%, to $82.5 million in
1994 from $68.6 million in 1993. The increase in net sales reflected the
five-month impact of the Midwest acquisition, general improvement in automotive
production and increased penetration in the automotive market. Excluding
Midwest, net sales increased $10.8 million, or 15.7%, from the 1993 level. The
sales improvement is attributable to an increase in volume and mix. Average
selling price per pound excluding Midwest increased

29
<PAGE> 32

4.9% in 1994, which is a reflection of a change in product mix as well as an
increase in Sinter's secondary finishing operations.

Gross Profit. Gross profit increased by $3.2 million, or 22.0% to $17.7
million in 1994. The gross profit margin increased modestly from 21.2% in 1993
to 21.5% in 1994, reflecting a change in product mix and the impact of improved
operating efficiencies offset in part by a raw material price increase in the
fourth quarter of 1994.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.8 million in 1994 to $8.2 million or 10.0%
of net sales, from $6.4 million or 9.4% of net sales in 1993. The increase was
primarily attributable to the $2.4 million charge to compensation expense in
1994 resulting from the award of common stock to certain members of management
under the Stock Incentive Plan. The Stock Incentive Plan was terminated at the
time of Sinter's initial public offering.

Income From Operations. Income from operations increased by $1.4 million,
or 18.4% to $9.2 million, in 1994, compared to $7.8 million in 1993. This
increase is attributable to the increase in net sales and gross margin partially
offset by the increase in selling, general and administrative expenses.

Interest Expense. Interest expense decreased by approximately $3.1 million
or 61.7% from $5.1 million in 1993 to $2.0 million in 1994. Interest expense in
1993 included a charge of $2.9 million due to the repurchase of the capital
appreciation rights associated with Sinter's original acquisition financing.
Excluding the charge in 1993, interest expense would have been $2.2 million,
generating a decrease of $.2 million in 1994. The net decrease is the result of
Sinter's repayment of long-term indebtedness in the fourth quarter of 1994 from
the net proceeds of Sinter's initial public offering.

Income Taxes. The provision for income taxes was $2.9 million in 1994
reflecting an increase of $.5 million from the 1993 provision of $2.4 million.
The effective tax rate in 1994 declined significantly from 1993, primarily due
to the charge associated with the capital appreciation rights in 1993.

Extraordinary Charge. In 1994, the Company incurred an extraordinary charge
of $6.0 million reflecting the write-off of deferred financing costs and debt
discount associated with Sinter's early repayment of its long-term indebtedness.

LIQUIDITY AND CAPITAL RESOURCES

Sinter's principal capital requirements are to fund its working capital,
purchase capital equipment and fund potential acquisitions. In addition, the
Company's capital requirements will be affected by the substantial indebtedness
the Company incurred in connection with the financing of the Acquisitions, which
will increase the Company's cash requirements for debt service and will impose
various operating restrictions. Historically, Sinter has used income generated
by operations as well as borrowings available under long-term credit agreements
and the issuance of subordinated notes to fund these capital needs.

For the years ended December 31, 1994 and 1995 and for the nine months
ended September 30, 1996, Sinter's cash flow from operations was $10.2 million,
$8.7 million and $10.6 million; cash used by investing activities was $7.2
million, $8.3 million and $21.7 million; and cash provided by financing
activities was $(3.0) million, $1.0 million and $11.4 million, respectively. The
primary sources of cash provided by operating activities are net income and
non-cash charges for depreciation and amortization expense. Fluctuations between
periods in cash flows used for investing activities are attributable to the
levels of acquisition activity and fixed asset additions. Fluctuations between
periods in cash flows from financing activities are attributable to the levels
of borrowings required to fund that portion of investing activities not funded
by cash flows from operations.

Upon consummation of the Offering, the Company's primary sources of
liquidity will be cash flow from operations and borrowings under the New Credit
Facility. Under the New Credit Facility, the lenders have provided the Company
and its subsidiaries with (i) the U.S. Term Facilities and (ii) (a) a U.S.
dollar-denominated senior secured revolving credit facility (the "U.S. Revolving
Facility" and, together with the U.S. Term Facilities, the "U.S. Facilities") in
an aggregate principal amount equal to $30.0 million, of which

30
<PAGE> 33

up to $20.0 million will be available in the form of standby and trade letters
of credit and (b) a DM-denominated senior secured revolving credit facility (the
"German Revolving Facility" and, together with the German Term Facility, the
"German Facilities") in an aggregate principal amount equal to DM 30.0 million,
of which up to DM 10.0 million may be used for standby and trade letters of
credit. All obligations of the Company under the U.S. Facilities are guaranteed
by each domestic subsidiary of the Company and will be secured by substantially
all the assets of the Company and each of its domestic subsidiaries. All
obligations under the German Facilities are guaranteed by (i) German
subsidiaries of the Company (other than the German subsidiary borrower
thereunder) and (ii) the Company, and are secured by (i) substantially all the
assets of the Company and (ii) pledges of shares of certain German subsidiaries
of the Company and collateral assignments of certain intercompany obligations.
On the Closing Date, the Company used substantially all of the funds available
under the Term Facilities and approximately $3.4 million under the U.S.
Revolving Facility to finance the Acquisitions and related costs (including
repayment of related indebtedness and refinancing of certain Sinter
indebtedness). The net proceeds of the Offering will be used to repay a portion
of the indebtedness outstanding under the U.S. Term Facilities. See "Use of
Proceeds." Amounts repaid under the Term Facilities may not be reborrowed. The
New Credit Facility will require the Company to comply with certain financial
covenants (including a maximum debt to consolidated EBITDA ratio, a minimum
fixed charge coverage ratio, a minimum consolidated EBITDA to consolidated
interest expense ratio, minimum levels of annualized consolidated EBITDA and
minimum levels of net worth). The New Credit Facility also contains operating
covenants and restrictions that, among other things, limit the ability of the
Company and its subsidiaries to incur additional indebtedness, create liens, pay
dividends and make other restricted payments, make capital expenditures, make
certain investments, transact with affiliates, and consolidate, merge or
transfer assets.

Under the U.S. Facilities, the Company may elect to borrow at either the
LIBOR Rate (for dollar deposits) or the Alternate Base Rate ("ABR"), while the
borrowings under the German Facilities are at the DIBOR Rate (the LIBOR Rate for
DM deposits), or a German Prime Rate, in each case plus an additional spread
(the "Interest Rate Spread"). The Interest Rate Spread varies based upon the
underlying interest rate election, the facility under which funds were borrowed,
and the Company's leverage ratio (the ratio of indebtedness to EBITDA). In the
absence of a default under the New Credit Facility, the maximum Interest Rate
Spreads for the various combinations of interest rate elections and facilities
are as follows: 1.00% for U.S. Revolving Loans at the ABR; 2.00% for U.S.
Revolving Loans at the LIBOR Rate; 1.50% for Tranche A Term Loans at the ABR;
2.00% for Tranche B Term Loans at the ABR; 2.50% for Tranche A Term Loans at the
LIBOR Rate; 3.00% for Tranche B Term Loans at the LIBOR Rate; 1.00% for German
loans at the German Prime Rate; 2.50% for German Term Loans at the DIBOR Rate;
and 2.00% for German Revolving Loans at the DIBOR Rate. The Company's initial
borrowings under the New Credit Facility were made at the LIBOR Rate (in the
case of the U.S. Facilities) and DIBOR Rate (in the case of the German
Facilities), supplemented in all cases by the highest applicable Interest Rate
Spreads. Following the Offering, the Company may qualify for reduced Interest
Rate Spreads based upon an improved leverage ratio after the application of the
net proceeds.

The Company's aggregate capital expenditures for fiscal 1994 and fiscal
1995 and the nine months ended September 30, 1996 were $14.6 million, $14.5
million and $18.2 million, respectively. Management anticipates that the total
capital expenditures of the Company for the balance of fiscal 1996 and for
fiscal 1997 will be approximately $22.6 million, which will be used for the
Company's previously announced plant expansions, required improvements in PMH's
operations and other customary expenditures for a capital-intensive business.
Management plans to fund these capital expenditures from cash flow from
operations, and, if necessary, borrowings under the New Credit Facility.

Based upon current and anticipated levels of operations and plans for
integrating the Acquisitions, the Company believes that its cash on hand and
cash flow from operations, combined with borrowings available under the New
Credit Facility after application of the net proceeds from the Offering, will be
sufficient to enable the Company to meet its current and anticipated cash
operating requirements, including scheduled interest and principal payments,
capital expenditures and working capital needs for the next 12 months. However,
actual capital requirements may change, particularly as a result of any
acquisitions which the

31
<PAGE> 34

Company may make. The ability of the Company to meet its current and anticipated
operating requirements will be dependent upon the future performance of the
Company and its subsidiaries which, in turn, will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond the Company's control. Depending on the nature, size and timing of future
acquisitions, the Company may be required to raise additional financing. There
can be no assurances that such additional financing will be available to the
Company on acceptable terms. Substantially all of the debt of the Company bears
interest at floating rates; therefore, its liquidity and financial condition is
and will continue to be affected by changes in prevailing interest rates.

ACCOUNTING STANDARDS CHANGES

Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121) and Statement of Financial Accounting Standard No. 123, "Stock-Based
Compensation" (SFAS 123) are effective for fiscal years beginning after December
15, 1995. The Company has elected to adopt the disclosure only method allowed by
SFAS 123 for 1996. The Company does not believe that SFAS 121 will have a
material effect on the results of operations or financial position of the
Company.

EFFECT OF INFLATION

Inflation generally affects the Company by increasing the interest expense
of floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. The Company does not believe that inflation has had any material
effect on its business over the past three years.

BACKLOG

The Company has long-term supplier relationships with virtually all of its
customers and believes it supplies over 95% of its products to its automotive
customers on a sole source basis under blanket purchase orders. A majority of
the Company's shipments of products are made pursuant to releases from blanket
purchase orders and to meet the customers' requirements for the following 90
days. At September 30, 1996, giving effect to the Acquisitions, the Company's
backlog of firm sales releases amounted to approximately $73.7 million, compared
to approximately $67.2 million at December 31, 1995. The Company believes that
substantially all of its backlog of firm sales releases existing on September
30, 1996 will be shipped before March 31, 1997.

SEASONALITY

The Company typically experiences slightly lower revenues, gross profits
and operating income during the third and fourth quarters as compared to the
first and second quarters. Third and fourth quarter results are affected by
scheduled plant shut-downs for vacations and holidays at many of the Company's
customers, as well as manufacturers' changeovers in production lines.

RESULTS OF OPERATIONS: KREBSOGE

Sintermetallwerk Krebsoge GmbH was established in 1943 when Schweimer
Eisenwerke diversified into the production of self-lubricating bronze bearings
and soft iron materials. Between 1987 and 1995, Krebsoge made various
acquisitions in North America and the former East Germany, and invested in
smaller companies in China and India. In March of 1995, Krebsoge made a major
acquisition by purchasing the powder metal plant of a competitor, Ringsdorff
Sinter GmbH, with its operations in Bonn, Germany.

This discussion should be read in conjunction with the Krebsoge
Sinterholding GmbH Consolidated Financial Statements and notes thereto, which
are presented on a German GAAP basis. Such financial statements differ
significantly from U.S. GAAP. For a discussion of the principal differences
between German GAAP and U.S. GAAP, see Note 26.

32
<PAGE> 35

The following table sets forth, for each of the periods indicated, certain
income statement data expressed as a percentage of net sales:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1994 1995
---- ----
<S> <C> <C>
Net sales.................................................... 100% 100%
==== ====
Gross profit................................................. 71.9 71.2
Personnel expenses........................................... 44.4 46.9
Other operating expenses..................................... 11.8 13.3
Taxes on income.............................................. 1.3 0.7
---- ----
Net income................................................... 2.5% 3.5%
==== ====
</TABLE>

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Net Sales. Net sales increased DM 45.9 million, or 25.6%, to DM 224.8
million in 1995 from DM 178.9 million in 1994. The increase in net sales relates
primarily to the inclusion of the results of the former Ringsdorf Sinter GmbH
("Bonn") since April 1, 1995 and Sintermetallwerk Krebsoge GmbH, which
experienced a DM 8.1 million increase in "pressed metal forging" sales and a
general increase in conventional pressed metal sales due to improved economic
conditions. The increase in net sales from acquisitions was offset in part by a
slight decrease in sales due to design changes from producers of airbag safety
parts, reduced volumes, and lower prices.

Gross profit. Gross profit, defined as total output less material costs,
increased by DM 31.3 million, or 24.3%, to DM 160.1 million in 1995 from DM
128.8 million in 1994. Gross margin declined by .7% to 71.2% in 1995 from 71.9%
in 1994. The decline in gross margin is a result of the lower margins
experienced at Bonn. Without the effect of Bonn, Krebsoge had a gross margin of
71.9%.

Personnel expenses. The increase in personnel expenses relates primarily
to wage increases at Bonn due to collective bargaining agreements and increased
overtime and headcount.

Other operating expenses. The increase in other operating expenses relates
primarily to increased commissions, freight and professional fees as a result of
the inclusion of Bonn and the increased sales levels.

Taxes on income. The taxes on income declined from 33.4% of pre-tax income
in 1994 to 16.7% of pre-tax income in 1995 as a result of the utilization of tax
loss carryforwards related to Bonn. Without the effect of these carryforwards,
the provisions would have remained relatively constant.

RESULTS OF OPERATIONS: PMH

PMH was established in 1989 for the purpose of forming ICM/Krebsoge, a
Delaware partnership (the "Partnership"), between Amplex Van West Corporation
("Amplex"), and Krebsoge Powder Metal, Inc. ("KPM"), a subsidiary of PMH. In
1991, Amplex sold its equity interest in the Partnership to American PM, Inc.
("APM"), a Delaware corporation and newly formed subsidiary of PMH. In 1993, a
30% equity interest in PMH was sold to Sinter and Sinter acquired the remaining
70% in connection with the Acquisitions.

This discussion should be read in conjunction with the Powder Metal
Holding, Inc. and Subsidiaries Consolidated Financial Statements and notes
thereto.

33
<PAGE> 36

The following table sets forth, for each of the periods indicated, certain
income statement data expressed as a percentage of net sales:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1,
DECEMBER 31, 1996
--------------- THROUGH
1994 1995 NOVEMBER 22, 1996
----- ----- -----------------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
----- ----- -----
Gross profit................................................ 11.6 13.3 10.8
Selling, general and administrative expenses................ 8.1 7.2 6.1
Income from operations...................................... 6.5 11.1 4.7
Interest expense............................................ 1.5 2.9 2.3
Income tax credit........................................... -- 0.2 --
Cumulative effect of accounting change...................... -- (0.7) --
----- ----- -----
Net income.................................................. 5.0% 9.0% 2.1%
===== ===== =====
</TABLE>

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Net Sales. Net sales decreased $1.3 million, or (1.2)%, to $106.5 million
from $107.8 million. The decrease in net sales is the result of an overall
decline in North American light vehicle production in 1995 of approximately 3%.
The decline in automotive production was partially offset by the introduction of
new parts by PMH and the ramp-up of new parts introduced in previous years.
Pricing of PMH's products remained relatively stable during 1995 compared to
1994.

Gross Margin. Gross margin increased by $1.8 million, or 14.1% to $14.2
million in 1995. As a percentage of sales, gross margin increased from 11.6% to
13.3% in 1994 and 1995, respectively. The increase in gross margin is
attributable to a cost reduction plan implemented by PMH in 1995, which resulted
in reductions of direct and indirect labor, plant overtime and maintenance
expense, offset in part by raw material price increases during the first half of
1995.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses declined from the 1994 level of $8.8 million, or 8.1% of
net sales, to $7.7 million, or 7.2% of net sales in 1995. The decrease was also
a result of the cost reduction plan implemented in 1995, particularly general
and administrative cost declines at plant locations.

Restructuring Reserve. Income recorded as a result of reversing the
restructuring reserve increased $2.0 million to $5.3 million in 1995 from $3.3
million in 1994. The reversal of the restructuring reserve was the result of
PMH's decision to retain the Canadian facility. See Note 8 to the Consolidated
Financial Statements of PMH for a discussion of this reversal.

Income from Operations. Income from operations increased by $4.8 million
to $11.8 million, or 11.1% of sales in 1995, as compared to $7.0 million, or
6.5% of net sales in 1994. This increase reflects the improved gross margin,
reduced selling and administrative expenses, and the reversal of the
restructuring reserve as discussed above.

Interest Expense. Interest expense increased $1.5 million from $1.6
million in 1994 to $3.1 million in 1995. The increase is the result of an
overall increase in outstanding indebtedness, an increase in the letters of
credit outstanding and a general rate increase on the revolving loan. See Note 2
to the Consolidated Financial Statements of PMH for a discussion of PMH's
accounting treatment for the debt and interest forgiven by the lender in 1993.

Cumulative Effect of Accounting Change. Effective January 1, 1995, PMH
changed its method of recognizing actuarial gains and losses related to its U.S.
union and nonunion postretirement plans from the defer and amortize method
prescribed in Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," to a method of
immediately recognizing the gains or losses at the measurement date. The
cumulative effect of this change as of January 1, 1995 was approximately $1.2
million, or approximately $.8 million after tax.

34
<PAGE> 37

INDUSTRY

OVERVIEW

The pressed powder metal parts industry in North America and Europe is
highly fragmented, with over 250 participants, most of which have annual sales
of less than $50 million. The Company believes that it is the only participant
in the pressed powder metal parts industry in either North America or Western
Europe with a market share of over 5% other than the Company. Pressed powder
metal parts are principally sold to automobile manufacturers and, to a lesser
extent, other industrial manufacturers.

Automotive Industry. The automotive industry is the largest purchaser of
pressed powder metal parts in North America and Europe, accounting for over 70%
of the total sales of pressed powder metal parts in these markets in 1995. In
Europe, sales of pressed powder metal parts to automotive manufacturers
accounted for over 77% of total industry sales in 1995, while in North America
sales of pressed powder metal parts to automotive manufacturers accounted for
over 67% of total sales in 1995. In addition, sales to the automotive market are
highly concentrated, particularly in North America, with General Motors, Ford
and Chrysler. Furthermore, sales to automotive manufacturers continue to
increase as a percentage of total pressed powder metal parts sales. For example,
in 1994, sales to automotive manufacturers accounted for 64% of total pressed
powder metal parts sales in North America, while in 1996 sales to automotive
manufacturers are expected to account for approximately 74% of such sales.

According to the MPIF, the North American shipments of pressed powder metal
have increased from approximately 315,000 tons in 1992 to approximately 434,000
tons in 1995, representing a compound annual growth rate of 11.2%. According to
the EPMS, the European shipments of pressed powder metal have increased from
approximately 109,000 tons in 1992 to approximately 129,000 tons in 1995,
representing a compound annual growth rate of 5.8%. This growth is due primarily
to increased demand from the automotive sector as a result of the introduction
of new pressed powder metal parts for use in automobiles and increased demand
for such parts.

Other Industrial Manufacturers. Sales of pressed powder metal parts to
non-automobile manufacturers, such as John Deere, Frigidaire and Electrolux,
represent an important part of the pressed powder metal parts industry in North
America and Europe. The customer base in this sector is highly fragmented, with
pressed powder metal parts being used by traditional industrial manufacturers
and increasingly by manufacturers of recreational and electronic products. The
pressed powder metal parts sold to these sectors are generally less
technologically advanced than those sold to automotive manufacturers because the
parts are generally less complex and require lower tolerances. However, the
average product life cycles in this sector (e.g., 20 to 25 years) are generally
longer than the average product life cycles in the automotive industry (e.g., 5
to 10 years). Sales in this sector tend to be cyclical in nature and are driven
by general economic conditions such as consumer durable goods spending and new
housing starts. Also, many sales in the lawn and garden category tend to be
seasonal and may also be affected by weather.

CURRENT INDUSTRY TRENDS

The key trends affecting the pressed powder metal parts industry include:
(i) increased substitution of pressed powder metal parts for cast or forged
parts in the automotive and non-automotive markets; (ii) globalization and
consolidation of the automotive OEM supplier base; and (iii) consolidation of
the pressed powder metal parts industry. The Company believes that these trends
have had and will continue to have a significant impact on its future
profitability and growth prospects.

Increased Substitution of Pressed Powder Metal Parts for Cast or Forged
Parts. The technology associated with the manufacture of pressed powder metal
parts has advanced significantly over the last decade. As a result, larger,
stronger, more structurally complex pressed powder metal parts have been
developed, which are being substituted more frequently for metal parts
manufactured using more traditional technologies, particularly in the automotive
industry. This trend has been driven principally by the cost advantages offered

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by powder metal technology, which allow parts to be manufactured faster with
less labor and with reduced material waste than conventional forged or cast
technology.

Globalization and Consolidation of OEM Supplier Base. Since the 1980s, in
response to competitive pressures to improve quality and reduce costs, Ford,
Chrysler, General Motors and other automotive original equipment manufacturers
("OEMs") have been actively reducing their supplier base to focus on key
suppliers who can meet increasingly strict standards for product quality,
on-time delivery and manufacturing costs. In addition, these OEMs have also
increasingly required their suppliers to maintain manufacturing facilities
capable of producing parts or components with consistent quality on a world-wide
basis. As a result, the automotive OEMs are more frequently awarding long-term
sole source supply arrangements to suppliers who are able to offer broad product
lines, higher value-added innovative products, low costs, reliable service and
global manufacturing capability. The Company believes that this trend should
continue in the foreseeable future and should provide the Company with an
opportunity, based on its competitive strengths, to expand its customer base and
increase its market penetration with current customers.

Consolidation of Pressed Powder Metal Parts Industry. The pressed powder
metal parts industry in North America and Europe has and is continuing to
undergo consolidation due to the trend in the automotive industry toward
long-term contracts with sole-source suppliers who can provide global
manufacturing and distribution capabilities, increasing customer demands for a
broad product line and the increasing financial resources needed to satisfy the
stringent quality and performance specifications of many customers, particularly
in the automotive industry. The Company believes that this trend towards
consolidation will continue and presents the Company with the opportunity to
make strategic acquisitions.

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BUSINESS

The Company is the world's largest independent manufacturer of precision
pressed powder metal parts. With the Acquisitions, the Company manufactures and
markets over 4,000 different pressed powder metal parts for use principally in
the automotive industry in North America and Europe and, to a lesser extent, for
use in the lawn and garden, power tool and home appliance industries in North
America and Europe. The Company has completed eight acquisitions since 1991,
which, together with internally generated growth, have resulted in net sales of
the Company growing at a compound annual rate of approximately 62% from $50.8
million in 1991 to $353.4 million in 1995 on the pro forma basis described
herein. See "Unaudited Pro Forma Financial Information."

Approximately 74% of the Company's net sales in 1995 were made to the
automotive industry. The Company is the largest supplier of pressed powder metal
parts to Ford, Chrysler, Volkswagen, BMW and Daimler Benz and the second largest
supplier of such parts to General Motors. Approximately 95% of the Company's
sales to automotive customers are made on a sole source basis. Management
believes that automotive customers seek suppliers, such as the Company, who are
able to offer broad product lines, higher value-added innovative products, low
costs, reliable service and, increasingly, global distribution capability. As
these customers continue to reduce the number of suppliers, the Company's
ability to meet their requirements becomes an increasingly important competitive
advantage.

The Company operates 18 manufacturing facilities in the United States,
Germany, Sweden and Canada. At these facilities, the Company uses powder
metallurgy to transform metal alloys in powdered form into high quality metal
parts such as gears, bearings and sprockets. Pressed powder metal parts are
increasingly being substituted for metal parts manufactured using more
traditional technologies such as forging and casting, particularly in the
automotive industry. The reasons for this trend are: (i) pressed powder metal
parts can be produced at a lower per unit cost due to the elimination or
significant reduction in secondary machining and raw material waste as well as
lower material costs; (ii) pressed powder metal parts have performance
attributes comparable to parts produced through other metalworking processes;
and (iii) powder metallurgy can manufacture parts with complex shapes and
dimensional tolerances that would be impractical or impossible to produce using
other metalworking processes.

COMPETITIVE STRENGTHS

The Company believes that it is a leading manufacturer of pressed powder
metal parts in North America and Europe and attributes this position and its
continued opportunities for growth and profitability to the following
competitive strengths:

- Broad Geographic Scope and Manufacturing Capabilities. The Company is
the world's largest independent pressed powder metal parts manufacturer
with a significant manufacturing and marketing presence in both North
America and Europe. Due to the opportunity for improved product quality
and consistency and cost savings, the trend among automotive OEMs has
been to consolidate their number of suppliers and require their suppliers
to manufacture parts or components in multiple geographic markets. The
Company believes that its geographic scope, which includes ten
manufacturing facilities in North America and eight in Europe, is unique
in the highly fragmented pressed powder metal parts industry and that it
is well-positioned to capitalize on these trends. As a result, the
Company believes that it should be able to increase its sales and profits
from the automotive industry even without long-term growth in this
industry. Furthermore, the Company believes that its broad geographic
scope should enable it to better withstand the effect of cyclical
downturns in any individual automotive market. Additionally, the Company
believes that the scope of its manufacturing facilities also allows it to
reduce or eliminate delays in satisfying customer orders because of
equipment problems and provides it with an opportunity to increase
capacity in the future without incurring additional capital expenditures.

- Technological and Engineering Expertise. The Company is an industry
leader in the development of engineering systems, processes and
technologies which allow the manufacturing of more complex and

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larger pressed powder metal parts that have higher densities, wear
resistance and strength than parts produced by more traditional powder
metallurgical processes. The Company's technological and engineering
capabilities have allowed it to develop new, higher value added products
for its customers, improve production processes to reduce per unit costs
and achieve the quality and reliability required by its major automotive
customers. Such capabilities enhance the Company's ability to win sole
source contracts, reduce operating costs and improve margins. For
example, the Company was the first pressed powder metal parts
manufacturer to introduce a new processing technology, known as HPP
processing, which expands the range of densities for pressed powder metal
parts that the Company can produce, while reducing the per product unit
cost than has been historically possible with other available processes.
To maintain and enhance its reputation as a technological leader, the
Company has made substantial investments in research and development.

- Broad, Stable Customer Base. The Company is a leading supplier of
pressed powder metal parts in North America and Europe to most major
automotive OEMs and a significant supplier of such parts to
non-automotive industrial manufacturers such as Frigidaire, John Deere
and Electrolux. The Company believes that its commitment to quality,
innovation, service and just-in-time delivery has enabled it to build and
maintain strong and stable customer relationships. In particular, the
Company believes that its strong relationships with its automotive OEM
customers allow it to identify business opportunities and customer needs
at the early stages of vehicle part design. Once an automotive OEM
designates the Company to supply pressed powder metal parts for a
specific program, the OEM usually will continue to purchase those parts
from the Company for the life of the program. The Company believes that
its broad customer base should also enable it to withstand the effects of
any downturn in business with any particular customer.

- Financial Resources. The pressed powder metal industry is
capital-intensive, requiring significant financial resources in order to
make the investments in facilities, equipment and technology necessary to
satisfy increasingly stringent customer demands for quality, global
manufacturing capability, reliability and cost control. With the
completion of the New Credit Facility and the Offering, together with
cash flow from operations, the Company believes that it will be able to
maintain and enhance its leadership position in the pressed powder metal
parts industry compared to smaller competitors with more limited
resources and capabilities.

- Proven Management Team With Successful Track Record. The Company's
senior management team has consistently increased sales and operating
profitability since 1991 by recognizing and acting on growth and
consolidation opportunities in the pressed powder metal parts industry,
introducing higher value added products, improving manufacturing
processes, reducing overhead and administrative costs and effecting and
integrating strategic acquisitions. The Company's senior management team
(Messrs. Carreras, LeVault and Kestner) collectively own 777,406 shares
of Class A Common Stock on a fully diluted basis (7.7% of total shares
outstanding giving effect to the Offering).

GROWTH STRATEGY

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Ford, Chrysler and General Motors to increase Krebsoge's sales to
American manufacturers in Europe. Similarly, the Company intends to
leverage Krebsoge's relationships with Volkswagen, Daimler Benz and other
European manufacturers to enhance the Company's marketing efforts in
North America with these European manufacturers. The Company also
believes that its broad geographic scope should enable it to increase its
customer base as it integrates its newly acquired foreign operations and
increases its marketing presence in new geographic regions.

- Expanding Product Lines. Since 1995, the Company has expanded its
traditional product line of over 4,000 pressed powder metal parts by
introducing more than 100 new pressed powder metal parts into the market.
As a result of the Company's continued emphasis on innovative research
and development, a number of its recent product introductions have
targeted markets in high growth areas such as completed integrated
subassemblies. Through the Acquisitions, the Company has expanded its
product line to include powder metallurgical applications such as filters
made of highly porous sintered metals, powder forged parts, high-speed
steel and highly engineered plastics and composites. Furthermore, the
Company is introducing new product lines, which are based upon powder
metal injection molding, friction materials and high performance aluminum
alloys. The Company believes that there are significant growth
opportunities associated with these additional product lines.

- Improving Operating Efficiencies. Based on its experience with
integrating prior acquisitions, the Company believes that significant
opportunities exist to increase the operating efficiency of both PMH and
Krebsoge. The Company also believes that the Acquisitions will allow it
to increase the operating efficiency of the Company as a result of the
significant increase in the scale of the Company's operations, both
geographically and in terms of equipment, products lines, customer base
and financial resources. As part of integrating the Acquisitions, the
Company intends to implement changes in its operations, including
restructuring its management information systems, modifying Krebsoge's
and PMH's production processes to more closely resemble Sinter's,
centralizing its marketing and purchasing departments and coordinating
its research and development activities. The Company intends to
facilitate communication and share best practices among its world-wide
operations so that research and development ideas and accumulated
knowledge is shared among such operations. The Company also intends to
continue to foster an environment of continuous improvement by
benchmarking the attributes of its products and processes to those of its
competitors and customers in terms of quality, cost, efficiency and
delivery. The Company uses the results of such benchmarking to make
adjustments necessary to continue to be a leader in the manufacture,
marketing and distribution of pressed powder metal parts.

- Pursuing Strategic Acquisitions. The pressed powder metal parts industry
is highly fragmented in North America and Western Europe with over 250
participants, most of which have annual sales of less than $50 million.
The pressed powder metal parts industry has and is continuing to undergo
consolidation as evidenced by the Acquisitions and Sinter's most recent
acquisition of certain assets of Delco Remy America, Inc. The Company
intends to take advantage of such opportunities by selectively pursuing
additional acquisitions in its existing as well as new markets.

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PRODUCTS

The Company manufactures and markets over 4,000 different pressed powder
metal parts and has introduced over 100 new parts since 1995. The Company
focuses on the manufacture of large, complex pressed powder metal parts that
have higher-densities, wear resistance and strength than parts produced by
traditional powder metallurgical processes.

Pressed Powder Metal Parts. The Company produces a wide variety of pressed
powder metal parts for use primarily in engines, transmissions and other drive
mechanisms. These parts include gears, sprockets, bearings, clutch mechanisms,
oil pump gears and rotors, pulleys, sensor rings and other structural parts
suitable for high-stress applications. The Company focuses on manufacturing
pressed powder metal parts suitable for such high-stress applications because
such parts generally provide higher margins and involve less competition than
traditional high volume, undifferentiated pressed powder metal parts, which
typically require less engineering and less sophisticated production techniques.

Pressed powder metal parts can typically be manufactured at a lower per
unit cost as compared to similar parts produced using wrought steel or iron
technologies due to (i) a reduction in the amount of additional capital, labor,
energy and overhead costs required and (ii) the reduction or elimination of raw
material scrap or waste that is inherent in secondary manufacturing processes.
In addition to cost savings, powder metallurgy permits the manufacture of parts
to close dimensional tolerances and of complex or unique shapes which would be
impractical or impossible to produce using other metalworking processes.

Additional Products. The Company has expanded its traditional product line
to include powder metallurgical applications such as filters made of highly
porous sintered metals, powder forged parts, high-speed steel and highly
engineered plastics and composites. The Company is also introducing new product
lines to the market which are based upon powder metal injection molding,
friction materials and high performance aluminum alloys.

- Sintered Filters. Highly porous filters, primarily for use in the
chemical and processing industries, are manufactured using pressed metal
technology and either bronze, stainless steel fibers or powders, nickel
based alloys or titanium.

- Powder Forging. Powder forging adds a forging step to a pre-formed
pressed powder metal part resulting in a product that is comparable to a
conventionally forged steel part.

- Plastics and Composites. Precision parts made of high thermo-set
material which are corrosion resistant, light weight and provide wide
design flexibility.

- Powder Metal Injection Molding. Metal injection molding involves a
mixture of metal powder and plastic binder which is injection molded and
sintered, and enables the Company to manufacture small pressed powder
metal parts in intricate shapes with tight tolerances.

- Aluminum Alloys. Aluminum parts are manufactured using substantially the
same procedure as conventional pressed powder metal parts, except the
sintering process is performed at a lower temperature.

The Company believes that there are significant growth opportunities
associated with these additional product lines.

Product Cycles. In the automotive market, the Company principally competes
for new business at the beginning of the development of new products, which
generally begins two to five years prior to full scale production, and the
redesign of existing products which also involves long lead times. During this
pre-production period, the Company usually works with its customers to develop
the parts and tooling required to meet the customers' specifications. Once the
parts are developed, they are subjected to rigorous customer testing to confirm
that such parts meet its specifications and quality standards. Because of the
time and costs involved in developing and testing new parts, once an automotive
OEM designates the Company to supply

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pressed powder metal parts for a new vehicle program, the OEM will usually
continue to purchase those parts from the Company for the life of the program,
although not necessarily for a redesign. As a result, the life cycle for a
typical pressed powder metal part for use by an automotive OEM is about five to
ten years, although the exact time period may vary based on the particular part
or the success of the specific OEM platform. The Company believes that it has
developed strong relationships with its automotive OEMs which allows it to
identify business opportunities and customer needs at early stages of vehicle
design and has helped the Company develop a significant backlog of business.

The pre-production phase for the Company's non-automotive parts is
typically shorter than for automotive parts, while the production phase for
non-automotive parts generally runs significantly longer, in some cases as long
as twenty to twenty-five years. However, because there are less start-up costs
and shorter lead times involved, non-automotive parts are generally more
price-sensitive and do not create as much customer loyalty as do automotive
parts.

MANUFACTURING

The Company uses powder metallurgy to transform powdered metal alloys into
high quality pressed powder metal parts using the following three steps:

- MIXING/COMPOUNDING: Elemental or alloyed metal powders, lubricants and
certain other additives are blended together according to formulas, many
of which are proprietary, designed to produce specific performance
characteristics. The Company often collaborates with pressed powder metal
suppliers, equipment manufacturers and customers in developing new
mixtures that will produce pressed powder metal parts with greater
strength, hardness and durability.

- MOLDING/COMPACTING: A specific amount of the powder formulation is
automatically fed into a cavity within a precision die in a molding
press. The material is then compacted under pressures up to 60 tons per
square inch. This produces a "green part" of the size and shape of the
finished component when ejected from the die but requires sintering to
bond the materials together.

- SINTERING: After compacting, the green part is sent through a controlled
atmosphere furnace where it is heated to a specific temperature which
metallurgically bonds the metal powders while retaining the shape of the
compacted part. The sintering process hardens and strengthens the pressed
powder metal part.

In certain circumstances, the pressed powder metal part undergoes
additional processing operations to attain customer specifications for tighter
dimensional tolerances, greater density, increased hardness or corrosion
resistance. These operations include heat treatment, coining, turning, drilling,
grinding or applying a corrosion resistant coating. These additional processing
operations are typically performed by the Company or, in certain instances, are
subcontracted to outside processors.

The Company's manufacturing capabilities are enhanced by its expertise in
the development, engineering and production of precision tools and dies for use
in its own production operations, which enables the Company to produce
higher-quality, low cost pressed powder metal parts while minimizing down time
and accelerating turnaround time in production. For example, the Company is
often able to design a die that minimizes the need for additional machining of a
particular product, which in turn lowers the overall production costs associated
with such products. The Company also maintains state-of-the-art technology to
improve its tool and die capabilities and has computerized most of the design
and engineering portions of its tool and die production process.

SALES AND MARKETING

The Company's sales are handled through a combination of independent sales
representatives and in-house account representatives and technical advisors. The
independent sales representatives' primary responsibility is to develop new
business by understanding each customer's product development plans to involve
the Company in the development stage of new products and to suggest replacements
for competitors' products. In

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addition, the independent sales representatives serve each account after the
sale has been made to ensure continued customer satisfaction. The Company's
in-house account representatives, together with Company technical advisors,
provide technical expertise and advice needed in the development stage of new
products and serve as troubleshooters for customers with respect to existing
products. As of December 15, 1996, the Company had 35 independent sales
representatives and 30 in-house account representatives.

The Company intends to restructure its sales and marketing department in
order to centralize its world-wide sales and marketing efforts. As part of this
restructuring, the Company established the position of director of marketing to
take responsibility for, among other things, coordinating and enhancing the
sales and marketing efforts of the Company's in-house and independent sales
representatives. The Company has decided to use its in-house sales
representatives principally for its automotive customers in North America, and
its independent sales representatives for its non-automotive customers in North
America. These changes are intended to better align the Company's sales force
with the needs of its customers. In Europe, the Company intends to continue
using a combination of in-house and independent sales representatives to market
its products.

The Company currently markets and sells its products principally in the
Northeast, Midwest and Southeast, and internationally, principally in Germany
and Sweden. International sales accounted for approximately 45% of the Company's
net sales in 1995 on a pro forma basis.

CUSTOMERS

Sales to the automotive industry have historically constituted a
substantial portion of the net sales of the Company. The majority of the
Company's remaining sales are distributed among the lawn and garden, home
appliance and power tool industries. In 1995, on a pro forma basis, sales to the
automotive industry accounted for approximately 74% of the net sales of the
Company with Ford, General Motors, Chrysler and Volkswagen accounting for
approximately 18%, 13%, 9% and 5% of the Company's net sales, respectively. No
other customer accounted for over 5% of the Company's net sales in 1995 on a pro
forma basis. The Company's top five customers accounted for approximately 49% of
its net sales in 1995 giving effect to the Acquisitions. No single part sold to
a customer accounted for more than 5% of Sinter's or, giving effect to the
Acquisitions, the Company's net sales in 1995. On a pro forma basis, over the
past ten years, the Company has not lost any customer accounting for over 5% of
net sales.

The Company works closely with its major customers during the development
and redesign stages of their products. The Company believes that its commitment
to quality, service and just-in-time delivery has enabled it to build and
maintain strong and stable customer relationships. In addition, the Company has
received preferred supplier awards from many of its customers, including General
Motors, Ford and Chrysler.

SUPPLIERS AND RAW MATERIALS

The basic raw materials required for the Company's pressed powder metal
operations are ferrous and nonferrous powder metals. The Company obtains these
powder metals from a number of powder metal producers, including Hoeganaes U.S.,
Hoganas Sweden, Mannesmann AG and Quebec Metal Powder. Giving effect to the
Acquisitions, Hoeganaes U.S. and Quebec Metal Powder supplied the Company with
approximately 45% and 30%, respectively, of its powder metal requirements in the
United States in 1995, while Hoganas Sweden and Mannesmann AG supplied the
Company with approximately 50% and 36%, respectively, of its powder metal
requirements in Europe in 1995. The Company believes that it is one of the
largest customers of Hoeganaes U.S., Hoganas Sweden and Mannesmann.

The Company typically enters into purchase contracts with its principal
suppliers which generally have two-year terms. In North America, these contracts
provide for adjustments in the prices paid by the Company depending upon the
price of scrap metal. In Europe, the price paid by the Company for powder metal
is fixed at the time the contract is executed. In September 1996, Sinter entered
into a two-year supply minimum purchase contract with Hoeganaes U.S. None of the
Company's contracts with other suppliers provide for minimum purchase
requirements. The Company has generally been able to obtain adequate supplies of
powder metal for its operations.

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In an effort to ensure a continued source of supply of powder metal at
competitive prices, the Company concentrates on developing relationships with
its suppliers and becoming an important customer to such suppliers. In many
instances, the Company works in close consultation with its suppliers in the
development of new combinations of powder metal. The Company believes that its
relationships with its suppliers are good.

TECHNOLOGY AND QUALITY CONTROL

The Company believes that it is an industry leader in the development of
engineering systems, processes and technologies to allow the manufacturing of
more complex and larger pressed powder metal parts that have higher densities,
wear resistance and strength than parts produced by more traditional powder
metallurgical processes. In many instances, the Company works with its suppliers
and customers, as well as with others, to develop new processes and
technologies. The Company was the first pressed powder metal parts manufacturer
to introduce a new pressed powder metal processing technology, known as HPP
processing, which expands the range of densities for pressed powder metal parts
that the Company can produce, at a lower cost per product unit than has been
possible to date with other available processes. In addition, Sinter has
considerable production experience in pressed aluminum and stainless steel
technologies, which allow reductions in weight of parts when substituted for
steel products. Krebsoge has successfully developed a proprietary powder forging
process, which has been an important contributor to its growth, and powder metal
injection molding. Krebsoge, through its joint venture PEAK, is currently also
marketing a high performance aluminum alloy product.

General Motors and Chrysler have each indicated that beginning in 1997 they
will not award new or additional business to companies that are not QS 9000
certified or actively working toward QS 9000 certification. As a result of
Sinter's efforts with respect to quality control, in December 1995, Sinter
received QS 9000 and ISO 9002 standard certifications at the Company's Emporium,
Pennsylvania facilities. The Company's facility in Sweden has also achieved ISO
9002 certification. Krebsoge's two main facilities have achieved ISO 9001
certification, while PMH's Salem, Indiana and St. Thomas, Ontario facilities
have achieved ISO 9002 and QS 9000 certification. The Company focuses
substantial effort on quality control. Its Quality Control Department has helped
the Company virtually eliminate product failures in parts delivered to
customers. In order to produce parts that need minimal machining, the Company
relies on quality control systems that provide a high degree of measurement
consistency and precision. The Company uses a variety of equipment, such as an
electronic measuring system and computer controlled testing machines to ensure
tight tolerances. In addition, the Company uses statistical process controls as
an integral part of its quality control systems. The computerized statistical
processes provide for real time feedback through each of the manufacturing
processes.

COMPETITION

The Company operates in a highly competitive, fragmented industry, with no
participant other than the Company having greater than a 5% market share in
North America or Western Europe. Competition is based largely on product quality
and performance attributes, customer service, price, new product innovation and
timely delivery. The Company competes with a number of local and regional
competitors both in North America and in Europe, most of which have annual sales
of less than $50 million. However, as the pressed powder metal parts industry
continues to consolidate, the Company will increasingly compete against larger
companies like itself, which have the financial resources, national and
international manufacturing presence and high quality products that are required
by major customers, such as automobile OEMs. In addition, the Company competes
with companies using wrought steel or casting technologies since the Company's
technological advancements are increasing the instances in which the Company's
parts may be substituted for wrought steel and iron parts. Also, a number of
large industrial manufacturers, particularly in Japan, produce pressed powder
metal parts for their internal use. Some or all of these manufacturers may have
greater financial resources than the Company. Although such manufacturers do not
currently market their pressed powder metal parts in North America or Europe, no
assurance can be given that such manufacturers will not do so in the future.

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ENVIRONMENTAL MATTERS

The Company's operations are subject to frequently changing environmental
laws and related regulation applicable in the jurisdiction of their respective
locations. This extensive regulatory framework imposes significant compliance
burdens and risks on the Company. Notwithstanding these burdens, the Company
believes that it is in material compliance with all laws and regulations
governing its present operations. Based upon the Company's experience to date,
the cost of compliance with environmental laws has not had and is not expected
to have a material adverse effect on the Company's financial condition,
liquidity or results of operations. However, future events, such as changes in
existing laws and regulations, may give rise to additional compliance costs that
could have a material adverse effect on the Company's financial condition,
liquidity or results of operations.

In the United States, the Company is subject to, among other requirements,
the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery
Act, the Safe Drinking Water Act, and similar federal, state or local laws
regulating air emissions, water discharges, and solid and hazardous waste
generation, treatment, storage and disposal. The Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") and similar state laws can
impose joint and several liability for releases of hazardous substances into the
environment, without regard to fault or the lawfulness of the original activity.
Categories of potentially responsible parties under CERCLA include current or
former owners and operators of a contaminated site and companies that generated
waste at or sent waste to a site. The Company believes that it is in material
compliance with the U.S. laws and regulations described above.

With respect to its facilities located in Germany, the Company is subject
to, among other requirements, the following acts and regulations: the federal
Pollution Control Act (including Technical Instructions Air, Noise, and Waste
regulations), the Water Resources Management Act and the Waste Act. Pursuant to
such acts and regulations, the authorities are entitled to inspect production
sites every one to three years. Furthermore, the Company's German facilities
must comply with the Plant Security Act, Employment Security Act, Regulations
for the Prevention of Accidents and the Toxic Substances Control Act, which
includes the technical regulations on hazardous substances and the Dangerous
Chemicals Ordinance. The Company believes that it is in material compliance with
the German laws and regulations described above.

Prior to the consummation of the Acquisitions, the Company conducted a
Phase I environmental review of each of PMH's facilities. Based upon the results
of these Phase I reviews, the Company anticipates that it will incur
expenditures at the St. Thomas, Ontario facility to address historical
environmental issues associated with groundwater and soil contamination. The
source of contamination have not been positively identified and may be related
to either past facility operations or off-site origins. As the successor to PMH,
the Company could be required to expend funds under Ontario's Environmental
Protection Act to address the soil and groundwater at this facility. The Company
also anticipates that it may be required to make capital expenditures to improve
the St. Thomas facility's environmental performance to ensure compliance with
sewer use by-law criteria, air emission criteria and PCB disposal.

The Company has also been informed of the existence of historical soil and
groundwater contamination at PMH's Van Wert, Ohio facility. Under the terms of
an October 31, 1988 indemnity agreement, Chrysler Corporation has assumed
responsibility for all contamination at the site in existence prior to October
31, 1988, for which it receives notice by October 31, 1998. Pursuant to this
indemnity agreement, Chrysler has performed a risk assessment concerning the
known soil and groundwater contamination at the facility, and has concluded that
no threat to human health or the environment exists. To date, the Ohio
Environmental Protection Agency has not formally concurred with Chrysler's
conclusions. In the event remediation of this historical contamination is
required under Ohio law or under CERCLA, Chrysler would be liable for the cost
of such remediation under the indemnity agreement. If Chrysler defaults in its
indemnification obligations, the Company could incur liability under CERCLA for
the remediation of the contamination based upon the Company's status as the
owner of the property.

The Company is indemnified by MAAG for certain environmental liabilities
with respect to PMH and Krebsoge under the respective purchase agreements.
However, the Company's indemnification rights under the PMH purchase agreement
are subject to certain limitations, and therefore no assurances can be made that

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such indemnification will be sufficient to address the Company's potential
liability with respect to the St. Thomas or Van Wert facilities. Furthermore,
there can be no assurance that additional environmental issues will not be
discovered which were not brought to light by the Phase I site assessments
referred to above or which come to light as the operations of PMH and Krebsoge
become integrated with Sinter's operations. As a result, over time the Company
may incur additional expenditures at these and its other facilities to improve
their environmental performance and to address historical contamination.

EMPLOYEES

As of December 15, 1996, the Company had approximately 3,300 employees,
1,800 of which were located in North America and 1,462 of which were located in
Europe. All of the Company's operations are non-union except for operations
located in Sweden; Germany; Van Wert, Ohio; and St. Thomas, Ontario. The
Company's employees located in Germany are represented by the National Metal
Workers Union under a series of regional contracts that run one to two years.
The Company's employees at its Sinterteknik subsidiary are members of a Swedish
labor union whose contract expires in February 1998. The collective bargaining
agreements covering the Company's other employees expire as follows: Van Wert
March 1, 1997; and St. Thomas May 17, 1998. There has been no recent history of
labor strikes or unrest at any of its facilities and the Company believes that
its employee relations are good.

LEGAL PROCEEDINGS

The Company is involved in various lawsuits arising in the ordinary course
of business. In management's opinion, the outcome of these matters will not have
a material adverse effect on the Company's business, financial condition or
results of operations.

PROPERTIES

The Company operates 18 manufacturing facilities in the United States,
Germany, Sweden and Canada. As of September 30, 1996, Sinter operated
manufacturing and office space in the United States and Sweden with a total
floor space of approximately 575,000 square feet. Of this footage approximately
484,000 square feet are owned and approximately 91,000 square feet are leased.
As a result of the Acquisitions, the Company acquired 11 manufacturing
facilities with a total floor area of approximately 1.2 million square feet and
a tooling facility located in Indianapolis, Indiana. The manufacturing
facilities acquired in connection with the Acquisitions are located in Germany
(seven), Indiana, Ohio, Connecticut and Ontario, Canada.

The Company's corporate headquarters are located in Cleveland, Ohio and
occupy approximately 3,500 square feet of leased office space under a lease
expiring in April 2006. The Company has begun consolidating operations at PMH's
former Livonia, Michigan headquarters. The Company anticipates that this
consolidation will be completed in the first quarter of 1997.

The Company believes that substantially all of its property and equipment
is in good condition and that it has sufficient capacity to meet its current and
projected operational needs in the foreseeable future. All of the

45
<PAGE> 48

Company's owned facilities currently are pledged as collateral under the New
Credit Facility. The following table describes the Company's manufacturing
facilities as of December 20, 1996:

<TABLE>
<CAPTION>
OWNED OR EXPIRATION
LOCATION LEASED OF LEASE SQUARE FEET
- ----------------------------------------------------- -------- --------------- -----------
<S> <C> <C> <C>
SINTER
Emporium, Pennsylvania (3 facilities).............. Owned -- 289,000
Conover, North Carolina............................ Leased 8/11/97 63,000
Richton Park, Illinois(1).......................... Owned -- 64,000
Riverdale, Illinois(1)............................. Leased 7/19/99 28,000
Zeeland, Michigan.................................. Owned -- 67,000
Kolsva, Sweden..................................... Owned -- 64,000
PMH
Salem, Indiana..................................... Owned -- 152,000
Van Wert, Ohio..................................... Owned -- 206,000
St. Thomas, Ontario................................ Owned -- 185,000
KREBSOGE
Radevormwald, Germany (3 facilities)............... Owned -- 398,000
Bad Bruckenau, Germany............................. Owned -- 127,000
Lubeck, Germany.................................... Owned -- 25,000
Bad Langensalza, Germany........................... Owned -- 37,000
Bonn, Germany...................................... Leased One year term; 89,000
renews annually
Terryville, Connecticut............................ Owned -- 25,000
</TABLE>

- ---------------
(1) In January 1997, the Company shall commence manufacturing operations at its
Richton Park, Illinois facility and terminate manufacturing operations at
its Riverdale, Illinois facility. The Riverdale facility will be used for
distribution.

46
<PAGE> 49

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The name, age, current principal position or employment of each director
and executive officer of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Joseph W. Carreras............. 43 Chairman of the Board and Chief Executive Officer
Donald L. LeVault.............. 61 President, Chief Operating Officer, Director and Secretary
Michael T. Kestner............. 42 Vice President, Chief Financial Officer and Secretary
E. Joseph Hochreiter(1)(2)..... 50 Director
Mary Lynn Putney............... 48 Director
William H. Roj (1)(2).......... 47 Director
Charles E. Volpe............... 59 Director
David Y. Howe (1)(2)........... 32 Director
</TABLE>

- ---------------

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

Executive officers are elected by and serve at the discretion of the Board
of Directors until their successors are duly elected and qualified. There are no
family relationships between or among any Directors or executive officers of the
Company.

JOSEPH W. CARRERAS has been Chairman of the Board of the Company since
June 1993, Chief Executive Officer since January 1994 and a Director since the
Company's formation in December 1991. Prior to December 1993, Mr. Carreras was a
Vice President with CVC, one of the principal stockholders of the Company. Mr.
Carreras joined CVC in 1984 and held various executive positions in addition to
Vice President.

DONALD L. LEVAULT has been the President and a Director of the Company
since its formation in December 1991. From 1981 to 1989, Mr. LeVault served as
Vice President and General Manager of Ajay Enterprises Corporation, a division
of Fuqua Corporation. Mr. LeVault also serves as a director of Omega
Pultrusions, Inc., a manufacturer of specialized fiberglass products.

MICHAEL T. KESTNER has been the Vice President and Chief Financial Officer
of the Company since January 1995. Prior to joining the Company and since 1992,
Mr. Kestner was a Vice President of Banc One Capital Partners. From 1988 to
1992, Mr. Kestner served as a financial executive of Wolfensohn Ventures, L.P.
Mr. Kestner is a certified public accountant.

E. JOSEPH HOCHREITER has been a Director of the Company since its
formation in December 1991. Mr. Hochreiter is currently the Chairman and Chief
Executive Officer of Lanxide Precision, Inc., a microprecision machining and
engineered products company, and chairman of National Recovery Systems, an
on-site metal oxide recovery company. Prior to August 1994, Mr. Hochreiter was
the President, Chief Operating Officer and director of Fisher & Porter Company,
a manufacturer of process control systems and equipment. From 1987 to 1991, Mr.
Hochreiter was the President of HMA Investments, a private investment firm of
which he was the principal founder.

DAVID Y. HOWE has been a Director of the Company since November 1994.
Since 1993, Mr. Howe has been employed by CVC in its venture capital division.
From 1990 to 1993, Mr. Howe was employed by Butler Capital Corporation, a
private investment company. Mr. Howe serves on the Board of Directors of Aetna
Industries, Inc., Cable Systems International, Inc., Brake-Pro Inc.,
Copes-Vulcan, Inc., Milk Specialties Company and American Italian Pasta Company.

47
<PAGE> 50

MARY LYNN PUTNEY has been a Director of the Company since December 1994.
Ms. Putney is currently a Managing Director of Citibank, N.A., in its private
banking division. Ms. Putney has been employed by Citibank, which is the parent
corporation of CVC, for 27 years.

WILLIAM H. ROJ has been a Director of the Company since February 1994. Mr.
Roj was a partner in the law firm of Jones, Day, Reavis & Pogue from 1983 until
December 31, 1995. Mr. Roj is currently the President of ERICO International
Corporation, a construction machinery manufacturing company. Mr. Roj is also a
director of DNX Corporation, which conducts research, develops therapeutic
products and provides biological testing services on transgenic animals.

CHARLES E. VOLPE has been a Director of the Company since November 1994.
Until 1996, Mr. Volpe was an Executive Vice President, Chief Operating Officer
and director of KEMET Electronics Corporation and its parent, KEMET Corporation,
which manufactures tantalum and ceramic capacitors. Mr. Volpe has served as a
director of KEMET Electronics Corporation since April 1987 and serves as a
director of Encad, Inc.

OTHER SIGNIFICANT EMPLOYEES OF THE COMPANY

Other significant employees of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ---------------------------------------------------
<S> <C> <C>
Lars-Erik Dahlgren............ 55 Managing Director -- Kolsva Sinterteknik AB
Dr. Ing. Lothar
Albano-Muller............... 57 President and Chief Executive Officer -- Krebsoge
Dr. Manfred Weber............. 46 Director of Central Sales and Marketing -- Krebsoge
Dr. Volker Arnhold............ 47 Director of Research and Development -- Krebsoge
Ronald G. Campbell............ 35 Treasurer and Assistant Secretary -- Sinter
Alex Garcia................... 49 Vice President of Operations -- Sinter
Ian B. Hessel................. 31 Vice President -- Controller -- Sinter
</TABLE>

LARS-ERIK DAHLGREN has been the Managing Director of Kolsva Sinterteknik
AB (Kolvsa, Sweden) since 1981. Prior to joining Sinterteknik, Mr. Dahlgren
headed the finance division of Swedbank, Stockholm. From 1975 to 1981, Mr.
Dahlgren was Managing Director for Scandinavian Operations of Tenneco-
Automotive. From 1981 to 1984, Mr. Dahlgren was Managing Director, European
Operations for the Walker division of Tenneco.

DR. ING. LOTHAR ALBANO-MULLER has been the President and Chief Executive
Officer of Krebsoge since 1979. Dr. Albano-Muller also has served as Manager of
R&D and Marketing and Director of R&D of Krebsoge. Dr. Albano-Muller is
currently the President of the Board, German Association of Powder Metallurgy
and President, European PM Association.

DR. MANFRED WEBER has been the Director of Central Sales and Marketing of
Krebsoge Group since 1990. Dr. Weber also serves as Vice President Technology of
MWU and deputy Vice President of two major facilities. Dr. Weber has been with
Krebsoge since 1984.

DR. VOLKER ARNHOLD has been the Director of Research and Development of
the Krebsoge Group since 1987. Dr. Arnhold also serves as Quality Management
Representative and Vice President Technology of Metallwerk Langensalza GmbH and
Pressmetall Krebsoge GmbH. Dr. Arnhold has been with Krebsoge since 1981.

RONALD G. CAMPBELL has been the Treasurer of the Company since December
1996 and Assistant Secretary of the Company since February 1996. Mr. Campbell
had previously been Assistant Treasurer since May 1995. Prior to joining the
Company and since 1991, Mr. Campbell was Director-Corporate Finance for PT
Unggul Indah Corporation, a chemical manufacturer in Jakarta, Indonesia. From
1984 to 1991, Mr. Campbell was with Citicorp/Citibank in the United States and
Singapore, where he specialized in leveraged and structured transactions and
held various executive positions in addition to Vice President.

48
<PAGE> 51

ALEX GARCIA has been the Vice President-Operations of the Company since
August 1996. Prior to joining the Company and since 1987, Mr. Garcia was with
the Forming Technologies operations of Masotech Forming Technologies. Since
1994, he was Director of Operations of Masotech.

IAN B. HESSEL has been the Vice President-Controller of the Company since
October 1996. Prior to joining the Company and since 1989, Mr. Hessel was with
Arthur Andersen LLP. Mr. Hessel is a certified public accountant.

49
<PAGE> 52

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The table below provides information relating to compensation for the
Company's last two fiscal years for the Chief Executive Officer and the other
named executive officers of the Company who received compensation in excess of
$100,000 in those years (collectively, the "Named Executive Officers"). The
amounts shown include compensation for services in all capacities that were
provided to the Company and its subsidiaries.

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
--------------------------------------
ANNUAL COMPENSATION (1) RESTRICTED SECURITIES
-------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) AWARDS(3) OPTIONS COMPENSATION
- ------------------------------ ---- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph W. Carreras(4)......... 1995 $249,995 $125,000 -- -- --
Chairman of the Board 1994 200,000 -- -- 65,000 --
and Chief Executive Officer
Donald L. LeVault............. 1995 173,857 85,000 -- -- $ 10,894(5)(6)
President 1994 168,000 80,000 $1,032,245 25,000 7,500(6)
1993 157,000 100,000 13,768 -- 9,260(6)
Michael T. Kestner............ 1995 120,200 50,000 -- 25,000 36,079(5)
Vice President,
Chief Financial Officer
and Secretary
Richard A. McLean............. 1995 89,611 11,000 -- -- 5,871(6)
Vice President, 1994 79,418 27,876 474,865 2,000 5,095(6)
Group Controller
</TABLE>

- ---------------

(1) Unless otherwise indicated, no executive officer named in the Summary
Compensation Table received personal benefits or perquisites in excess of
the lesser of $50,000 or 10% of his aggregate salary and bonus.

(2) Represents cash bonuses received by the applicable executive officers in
March 1996, February 1995 and March 1994 as a result of the operating
performance of the Company in 1995, 1994 and 1993, respectively.

(3) Represents the estimated fair market value at the time of grant of shares of
Class B Common Stock (which were converted into shares of Class A Common
Stock) awarded to Messrs. LeVault and McLean under the Company's Management
Incentive Stock Plan (the "Stock Plan"). The Stock Plan was terminated at
the time of the Company's initial public offering. Fair market value was
determined by the Company to be equal to book value at the time of grant
with respect to the awards in January 1994 and April 1993 and the initial
public offering price with respect to the award in November 1994. An
aggregate of 31,187 and 28,689 restricted shares issued to Messrs. LeVault
and McLean, respectively, under the Stock Plan are fully vested. At the end
of the Company's last completed fiscal year, Messrs. LeVault and McLean held
an aggregate of 93,474 and 42,997 shares, respectively, of restricted stock,
which had an estimated fair market value of approximately $1,156,741 and
$532,088, respectively, at such time. Mr. LeVault's restricted shares are
scheduled to vest on January 1, 1998 and Mr. McLean's restricted shares vest
at the rate of one-third per year commencing on January 1, 1995.

(4) Pursuant to the terms of a consulting agreement, Mr. Carreras received
annual compensation of $200,000 for serving as the Company's Chairman of the
Board in fiscal 1994. The consulting agreement was terminated, effective
January 1, 1995, and Mr. Carreras now serves as a full-time employee of the
Company.

(5) The Company paid $3,394 and $36,079 for the moving expenses of Mr. LeVault
and Mr. Kestner, respectively.

50
<PAGE> 53

(6) The amounts listed for 1994 and 1993 were contributed by the Company to the
Company's qualified profit sharing plan, as profit sharing and matching
contributions relating to before-tax contributions made by Messrs. LeVault
and McLean. In 1995, the Company contributed $7,500 and $5,871 to the
Company's qualified profit sharing retirement plan, as profit sharing and
matching contributions relating to before-tax contributions made by Messrs.
LeVault and McLean, respectively.

1994 KEY EMPLOYEE STOCK INCENTIVE PLAN

The Company's 1994 Key Employee Stock Incentive Plan (the "Plan")
authorized grants to officers and other key employees of the Company and its
subsidiaries of (i) stock options that are intended to qualify as "incentive
stock options" within the meaning of the Internal Revenue Code and (ii)
nonqualified stock options. The Plan authorizes the granting of stock options
for up to an aggregate of 474,705 shares of Class A Common Stock, subject to
adjustments upon the occurrence of certain events to prevent dilution. Incentive
stock options are exercisable for up to ten years at an option price either more
than, less than or equal to the fair market value of such shares, as determined
by the Board of Directors. Nonqualified stock options may be granted for up to
ten years at such exercise price and upon such terms and conditions as the Board
of Directors or the Compensation Committee may determine at the time of grant.
Options are exercisable for up to ten years from the date of grant. As of
December 20, 1996, Sinter had granted stock options for an aggregate of 340,000
shares of Class A Common Stock to 21 employees, with Messrs. Carreras, Kestner
and LeVault holding stock options for an aggregate of 130,000, 50,000 and 45,000
shares of Class A Common Stock, respectively. These stock options have an
exercise price equal to the fair market value of Sinter's Class A Common Stock
on the date such options were granted.

EMPLOYMENT AGREEMENTS

Donald L. LeVault. 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
will continue to serve as President of the Company through April 1998. Mr.
LeVault receives an annual base salary of at least $150,000, or a higher amount
determined by the Board of Directors, $168,000 for 1994 and $173,875 for 1995,
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 or for a period of one year thereafter.

Dr. Albano-Muller. Pursuant to an employment agreement with the Company,
Dr. Albano-Muller serves as a managing director of Krebsoge until December 31,
1997, subject to an automatic one-year extension unless either party terminates
the employment agreement upon twelve months' notice. Dr. Albano-Muller receives
an annual base salary of DM 315,000 plus an annual bonus as determined by the
stockholders's committee of Krebsoge. The bonus is based on the operating
performance of Krebsoge and the personal efforts of Dr. Albano-Muller. Under the
terms of the agreement Dr. Albano-Muller may not engage in any competitive
business while he is employed by Krebsoge and for a period of two years
thereafter. Dr. Albano-Muller also entered into employment agreements with two
subsidiaries of Krebsoge, Sintermetallwerk Krebsoge GmbH and Metallwerk
Unterfranken GmbH, where he also serves as a managing director. He does not
receive additional compensation for his services under these agreements.

Dr. Manfed Weber. Pursuant to an employment agreement with the Company, Dr.
Weber serves as a president of the area "Central Sales and Marketing" of
Krebsoge until December 31, 1997, subject to an automatic one-year extension
unless either party terminates the employment agreement upon twelve months'
notice. Dr. Weber receives an annual base salary of DM 246,000, which will be
increased to DM 280,000 effective as of January 1, 1997, and an annual bonus as
determined by the stockholder's committee of Krebsoge. The bonus is based on the
operating performance of Krebsoge and the personal efforts of Dr. Weber. Under
the terms of the agreement, Dr. Weber may not engage in any competitive business
while he is employed by Krebsoge and for a period of two years thereafter. Dr.
Weber also entered into employment agreements with two subsidiaries of Krebsoge,
Sintermetallwerk Krebsoge GmbH and Metallwerk Unter-

51
<PAGE> 54

franken GmbH, where he also serves as a managing director. He does not receive
additional compensation for his services under these agreements.

Dr. Volker Arnhold. Pursuant to an employment agreement with the Company,
Dr. Arnhold directs the Research and Development and the Quality Management
Departments of Krebsoge until December 31, 1997, subject to an automatic
one-year extension unless either party terminates the employment agreement upon
twelve months' notice. Dr. Arnhold receives an annual base salary of DM 183,600
plus an annual bonus as determined by the stockholder's committee of Krebsoge.
The bonus is based on the performance of Krebsoge and the personal efforts of
Dr. Arnhold. Under the terms of the agreement, Dr. Arnhold may not engage in any
competitive business while he is employed by Krebsoge or for a period of two
years thereafter. Dr. Arnhold also serves as a managing director of two
subsidiaries of Krebsoge, Pressmetall Krebsoge GmbH and Metallwerk Langensalza
GmbH. He does not receive additional compensation for his services for the
subsidiaries.

STOCK OPTION HOLDINGS

The following table sets forth information with respect to the Named
Executive Officers concerning the unexercisable stock options held as of
December 20, 1996. There were no stock options exercised during the last fiscal
year of the Company. Sinter granted additional stock options to certain
employees, including three Named Executive Officers, in September 1996. See
"Executive Compensation -- 1994 Key Employee Stock Incentive Plan."

AGGREGATED FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
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 $736,661/$758,339
Donald L. LeVault.................... 16,667/28,333 $283,339/$261,661
Michael T. Kestner................... 16,667/33,333 $283,339/$291,661
Richard A. McLean.................... 1,333/2,667 $22,661/$23,339
</TABLE>

52
<PAGE> 55

PRINCIPAL STOCKHOLDERS

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND OTHER EXECUTIVES

The following table sets forth information, as of December 20, 1996,
regarding the beneficial ownership of Class A Common Stock and Class B Common
Stock by (i) those persons known to the Company to be the beneficial owners of
more than 5% of the outstanding shares of Class A Common Stock and Class B
Common Stock, (ii) each of the Company's directors and the Named Executive
Officers and (iii) all directors and executive officers as a group.

<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK (1)(2) COMMON STOCK (1)
---------------------- ----------------------
DIRECTORS, EXECUTIVE OFFICERS NUMBER OF PERCENT NUMBER OF PERCENT
AND 5% STOCKHOLDERS SHARES OF CLASS SHARES OF CLASS
- ------------------------------------------------ --------- -------- --------- --------
<S> <C> <C> <C> <C>
Stockholders Agreement Group (3)(4)............. 1,756,684 35.1% 2,543,381 100.0%
c/o Sinter Metals, Inc.
50 Public Square, Suite 3200
Cleveland, Ohio 44113
Citicorp Venture Capital Ltd. (4)............... 903,325 18.0 2,543,381 100.0
399 Park Avenue, 14th Floor
New York, New York 10043
Joseph W. Carreras.............................. 528,585 10.6 -- --
50 Public Square, Suite 3200
Cleveland, Ohio 44113
Skyline Asset Management, L.P. (6).............. 380,400 7.6 -- --
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
Wellington Management Company (7)............... 303,500 6.1 -- --
75 State Street
Boston, Massachusetts 02109
T. Rowe Price Associates, Inc. (8).............. 287,200 5.7 -- --
100 E. Pratt Street
Baltimore, Maryland 21202
Cumberland Associates (5)....................... 250,000 5.0 -- --
1114 Avenue of the Americas
New York, New York 10036
Donald L. LeVault............................... 219,380 4.2 -- --
E. Joseph Hochreiter............................ 30,323 * -- --
Ronald G. Campbell.............................. 11,000 * -- --
David Y. Howe................................... 1,200 * -- --
Mary Lynn Putney................................ 3,250 * -- --
William H. Roj.................................. 1,000 * -- --
Charles E. Volpe................................ 5,000 * -- --
Michael T. Kestner.............................. 29,441 * -- --
Richard A. McLean............................... 105,394 2.1 -- --
All Directors and executive officers as a group 829,179 16.6 -- --
(8 persons)...................................
</TABLE>

- ---------------

* Less than one percent.

(1) The Class A Common Stock is the only voting security of the Company and
entitles the holder thereof to one vote per share. The Class B Common Stock
is nonvoting and is convertible on a one-for-one basis into Class A Common
Stock at the option of each holder thereof.

53
<PAGE> 56

(2) Includes with respect to each of the following individuals and groups the
following number of shares of Common Stock which may be acquired upon
exercise of options within 60 days of December 20, 1996: Stockholders
Agreement Group (61,333 shares); Joseph W. Carreras (43,333); Donald L.
LeVault (16,667 shares); Michael T. Kestner (16,667 shares); Ronald G.
Campbell (3,333); Richard A. McLean (1,333 shares); and all directors and
executive officers as a group (76,667 shares).

(3) The Company, Citicorp, and Messrs. Carreras, LeVault and McLean have entered
into a stockholders' agreement relating to the shares of Common Stock owned
by each of them (the "Stockholders' Agreement"). See "Principal
Stockholders -- Stockholders' Agreement." As a result, the parties to the
Stockholders' Agreement may be deemed to have acquired beneficial ownership
of all the shares of Common Stock subject to the Stockholders' Agreement, an
aggregate of 4,269,099 shares, as a "group" as defined under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Each of the parties
to the Stockholders' Agreement disclaims any beneficial ownership with
respect to shares of Common Stock held by the other parties to the
Stockholders' Agreement. The number of shares of Common Stock shown for each
of the parties to the Stockholders' Agreement named separately in the table
does not include shares that may be deemed to be beneficially owned by such
individuals solely as a result of the Stockholders' Agreement.

(4) Assuming the conversion of each share of Class B Common Stock held by CVC
into one share of Class A Common Stock in accordance with Rule 13d-3(d)
under the Exchange Act, CVC would beneficially own 3,446,706 shares of Class
A Common Stock, which represents approximately 45.7% of the outstanding
Class A Common Stock. CVC is subject to certain banking regulations that
limit the amount of the Company's voting securities it can hold.

(5) Cumberland Associates ("Cumberland') reported sole voting power with respect
to 207,500 shares of Class A Common Stock and shared voting power with
respect to 42,500 shares of Class A Common Stock. In addition, Cumberland
reported sole dispositive power with respect to 207,500 of such shares and
shared dispositive power with respect to 42,500 of such shares. This
information was obtained by the Company from Cumberland's Schedule 13D filed
with the Commission in October 31, 1996.

(6) Skyline Asset Management, L.P. ("Skyline") reported, as of December 31,
1995, shared voting and dispositive power with respect to these shares of
Class A Common Stock, which are held by Skyline as investment advisor to
certain client accounts over which Skyline exercises discretion. This
information was obtained by the Company from Skyline's Schedule 13G filed
with the Commission in February 1996.

(7) Wellington Management Company ("Wellington") reported, as of December 31,
1995, shared voting power with respect to 78,000 shares of Class A Common
Stock and shared dispositive power with respect to 303,500 shares of Class A
Common Stock. Wellington is an investment advisor, and the 303,500 shares of
Class A Common Stock are held by numerous investment clients. This
information was obtained by the Company from Wellington's Schedule 13F filed
with the Commission in September 30, 1996.

(8) These securities are owned by various individual and institutional investors
including T. Rowe Price Small Cap Value Fund, Inc. (which owns 287,200
shares, representing 3.8% of the shares outstanding), which T. Rowe Price
Associates, Inc. ("Price Associates") serves as investment advisor with
power to direct investments and/or sole power to vote the securities. For
purposes of the reporting requirements of the Exchange Act, Price Associates
is deemed to be a beneficial owner of such securities; however, Price
Associates expressly disclaims that it is, in fact, the beneficial owner of
such securities. This information was obtained by the Company from Price
Associate's Schedule 13F filed with the Commission in February 1996.

STOCKHOLDERS' AGREEMENT

The Company, CVC, and Messrs. Carreras, LeVault and McLean entered into the
Stockholders' Agreement on October 18, 1994. The Stockholders' Agreement
provides that each of the parties thereto will not vote their respective shares
of Class A Common Stock in favor of any proposal to change the number of members
of the Board of Directors from its current size of seven persons. In addition,
the Stockholders' Agreement provides that each of the parties will vote their
respective shares of Class A Common Stock in favor of the election of Directors
for (i) one individual designated by CVC, provided that CVC continues to

54
<PAGE> 57

own 10% or more of the Company's outstanding Common Stock, (ii) an additional
individual designated by CVC, provided that CVC continues to own at least 25% of
the Company's outstanding Common Stock, (iii) Messrs. Carreras and LeVault, so
long as each serves as an officer of the Company, and (iv) three Directors (two
of whom will not be affiliates or employees of the Company) nominated by the
Directors then in office. Further, the Company granted the parties thereto
certain "piggyback" registration rights to participate in future registrations
of equity securities of the Company. The parties have agreed, however, not to
otherwise effect any public or private sale of the Company's equity securities
during or following any public offerings by the Company upon the written request
of the Company for a period determined by the Company. The Stockholders'
Agreement provides that the Company will pay all expenses incurred in connection
with any such registrations other than any underwriting discounts and
commissions with respect to the shares sold for such stockholder's account and
for the costs for any counsel retained by such stockholder. Under the
Stockholders' Agreement, holders of approximately 4.3 million shares of Common
Stock have been granted "piggyback" registration rights. The holders of such
"piggyback" registration rights have agreed to waive such rights with respect to
the Offering.

CERTAIN TRANSACTIONS

In July 1996, Sinter acquired SinterForm. Prior to and subsequent to this
acquisition, SinterForm engaged Locke Bros. to act as a sales representative on
its behalf. Ted A. Mueller, a partner in Locke Bros., is the brother-in-law of
Michael T. Kestner, the Company's Vice President and Chief Financial Officer.
Total commissions to be paid to Locke Bros. by SinterForm are anticipated to
aggregate approximately $120,000 for 1996, of which $50,000 was paid subsequent
to Sinter's acquisition of SinterForm.

On December 16, 1996, the Company purchased substantially all of the assets
of the Powder Metal Forge Unit of Delco Remy America, Inc. for an aggregate
purchase price of $7.5 million. At the closing, the Company paid $5.0 million in
cash and issued a $2.5 million promissory note payable on the earlier of June
1998 and the date on which certain of the acquired assets are relocated to a
newly-constructed facility in Emporium, Pennsylvania and such facility commences
operations. CVC, which owns approximately 46% of the Company's Common Stock,
owns approximately 85% of the outstanding stock of Delco Remy America, Inc.

On December 19, 1996, the Company and a syndicate of banks, including
Citibank, N.A., London ("Citibank"), Citicorp, USA, Inc. ("Citicorp USA"),
Salomon Brothers Holding Company Inc. ("SBHC"), and Salomon Brothers Inc
("SBI"), entered into the New Credit Facility. CVC, an affiliate of Citibank and
Citicorp, owns approximately 46% of the outstanding shares of the Company's
Common Stock. Salomon Brothers Inc, which is acting as an underwriter of the
Offering, acted as arranger and syndication agent with respect to the New Credit
Facility and received a fee of $5.5 million from the Company in consideration of
such services. Citibank, Citicorp and SBHC are lenders under the New Credit
Facility and, respectively, provided loans and/or commitments to the Company. As
lenders under the Revolving Facility and German Revolving Facility, Citicorp and
Citibank received, on a pro rata basis with all other lenders under such
facilities, facility fees and letter of credit participation fees under the New
Credit Facility. The net proceeds of the Offering will be applied to prepay
$14.2 million of the Tranche A facility and $40.4 million of the Tranche B
facility. As a result, Citicorp USA will receive approximately $1.8 million as a
result of the prepayment of the Tranche A facility and SBHC will receive
approximately $3.5 million as a result of the prepayment of the Tranche B
facility.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 20,000,000 shares of
Class A Common Stock, par value $.001 per share; 5,000,000 shares of Class B
Common Stock, par value $.001 per share; and 5,000,000 shares of preferred
stock, par value $.001 per share (the "Serial Preferred Stock"). Upon completion
of the Offering, the Company will have 7,209,747 shares of Class A Common Stock
issued and outstanding; 2,543,381 shares of Class B Common Stock issued and
outstanding and no shares of Serial Preferred Stock issued and outstanding.

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<PAGE> 58

COMMON STOCK

The rights of holders of Class A Common Stock and Class B Common Stock are
identical except for voting and convertibility. The holders of Common Stock are
entitled to receive dividends when, if and as declared from time to time by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock will be entitled to receive ratably the net assets of
the Company available after the payment of all debts and other liabilities and
subject to the prior rights of any holders of any outstanding Serial Preferred
Stock. The shares of Common Stock have no preemptive rights or conversion rights
(except as described herein) and are not subject to further calls or assessments
by the Company. There are no redemption or sinking fund provisions applicable to
the Common Stock. The holders of Class A Common Stock are entitled to one vote
per share on all matters to be voted upon by the stockholders. The holders of
Class B Common Stock are not entitled to vote, except as required by law. The
holders of Class A Common Stock do not have the right to vote cumulatively in
the election of Directors. Subject to certain limitations, the Class B Common
Stock is convertible on a one-for-one basis into Class A Common Stock at the
option of the holder thereof. The outstanding shares of Common Stock are, and
the shares of Class A Common Stock being offered hereby will be upon payment
therefor, fully paid and nonassessable. The rights, preferences and privileges
of the holders of Common Stock are subject to the rights of the holders of
shares of any Serial Preferred Stock.

SERIAL PREFERRED STOCK

Under the Certificate, the Board of Directors are authorized, without
further action by the stockholders, to issue, from time to time, Serial
Preferred Stock in one or more series and to fix or alter the voting powers,
designations, preferences and relative, participating, optional or other special
rights, if any, and qualifications, limitations or restrictions thereof,
including, without limitation, dividend rights and whether dividends are
cumulative, conversion rights, if any, rights and terms of redemption, including
sinking fund provisions, if any, redemption price and liquidation preferences of
any unissued shares or wholly unissued series of Serial Preferred Stock. In
addition, the Board of Directors may establish the number of shares constituting
any such class or series and the designation thereof, and increase or decrease
the number of shares any such series subsequent to the issuance of shares of
such series, but not below the number of shares of such series. The issuance of
Serial Preferred Stock may adversely effect the voting rights and other rights
of the holders of Common Stock. The Company currently has no shares of Serial
Preferred Stock outstanding and has no present plans to issue any Serial
Preferred Stock.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

Under the Company's Certificate, upon completion of the Offering, there
will be approximately 15.2 million shares of Common Stock and approximately 5
million shares of Serial Preferred Stock available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital or to facilitate corporate acquisitions.

One of the effects of the existence of unissued and unreserved Common Stock
and Serial Preferred Stock may be to enable the Board of Directors to issue
shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of the Company's management. Such additional shares also could be
used to dilute the stock ownership of persons seeking to obtain control of the
Company.

The Board of Directors is authorized without any further action by the
stockholders to determine the rights, preferences, privileges and restrictions
of the unissued Serial Preferred Stock. The purpose of authorizing the Board of
Directors to determine such rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The Board of Directors
may issue Serial Preferred Stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock,

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<PAGE> 59

and which could, among other things, have the effect of delaying or deferring a
change in control of the Company.

The Company does not currently have any plans to issue additional shares of
Common Stock or Serial Preferred Stock other than shares of Common Stock which
may be issued upon the exercise of options which have been granted or which may
be granted in the future to the Company's employees or in conversion for other
shares of Common Stock.

CERTAIN CHARTER PROVISIONS AND DELAWARE LAW

The Company's Certificate and By-Laws, as amended, provide, in general,
that (i) stockholder action can be taken only at an annual or special meeting of
stockholders and not by written consent in lieu of a meeting; (ii) special
meetings of the stockholders may be called only by the Chairman of the Board,
the President or the Secretary of the Company, by a majority of the total number
of directors of the Company (assuming no vacancies) or by the holders of a
majority of the Company's voting stock; and (iii) the provisions of Section 203
of the Delaware General Corporation Law (as described below) are made part of
the Company's Certificate. The By-Laws also require that stockholders desiring
to bring any business, including nominations for directors, before an annual
meeting of stockholders deliver written notice thereof to the Secretary of the
Company not later than 60 days in advance of the meeting of stockholders;
provided, however, that in the event that the date of the meeting is not
publicly announced by the Company by press release or inclusion in a report
filed with the Commission or furnished to stockholders more than 75 days prior
to the meeting, notice by the stockholder to be timely must be delivered to the
Secretary of the Company not later than the close of business on the tenth day
following the day on which such announcement of the date of the meeting was so
communicated. The ByLaws further require that the notice by the stockholder set
forth a description of the business to be brought before the meeting and the
reasons for conducting such business at the meeting and certain information
concerning the stockholder proposing such business and the beneficial owner, if
any, on whose behalf the proposal is made, including their names and addresses,
the class and number of shares of the Company that are owned beneficially and of
record by each of them, and any material interest of either of them in the
business proposed to be brought before the meeting.

Under applicable provisions of Delaware law, the approval of a Delaware
corporation's board of directors, in addition to stockholder approval, is
required to adopt any amendment to the corporation's certificate of
incorporation, but a corporation's by-laws may be amended either by action of
its stockholders or, if the corporation's certificate of incorporation so
provides, its board of directors. The Company's Certificate and ByLaws provide
that the provisions summarized above may not be amended by the stockholders, nor
may any provision inconsistent therewith be adopted by the stockholders, without
the affirmative vote of the holders of at least 80% of the Company's voting
stock, voting together as a single class.

Under Section 203 of the Delaware General Corporation Law, certain
"business combinations" between a Delaware corporation, whose stock generally is
publicly traded or held of record by more than 2,000 stockholders, and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
business combination was approved by the board of directors of the corporation
before the other party to the business combination became an interested
stockholder, (ii) upon consummation of the transaction that made it an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers or
held in employee benefit plans in which the employees do not have a confidential
right to tender or vote stock held by the plan); or (iii) the business
combination was approved by the board of directors of the corporation and
ratified by holders of 66 2/3% of the voting stock which the interested
stockholder did not own. The three-year prohibition also does not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of certain extraordinary transactions involving
the corporation and a person who had not been an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of a majority of the corporation's directors.

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<PAGE> 60

The term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an "interested stockholder,"
transactions with an "interested stockholder" involving the assets or stock of
the corporation or its majority-owned subsidiaries and transactions which
increase an interested stockholder's percentage ownership of stock. The term
"interested stockholder" is defined generally as any stockholder who becomes the
beneficial owner of 15% or more of a Delaware corporation's voting stock.

It is possible that these provisions and the ability of the Board of
Directors to issue Serial Preferred Stock or additional shares of Common Stock
will discourage other persons from making a tender offer for or acquisitions of
substantial amounts of the Company's Common Stock, or may delay changes in
control or management of the Company.

DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY

The Company's Certificate provides that Directors and officers, or each
person who is or was serving or who had agreed to serve at the request of the
Board of Directors or an officer of the Company as an employee or agent of the
Company or as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including the heirs,
executors, administrators or estate of such person), shall be indemnified by the
Company to the fullest extent permitted by the Delaware General Corporation Law
or any other applicable laws as presently or hereafter in effect. The Company is
authorized under the Certificate to enter into one or more agreements with any
person which provide for indemnification greater or different than that provided
under the Certificate.

In addition, the Certificate provides that, to the fullest extent permitted
by the Delaware General Corporation Law or any other applicable laws presently
or hereafter in effect, no director of the Company will be personally liable to
the Company or its stockholders for or with respect to any acts or omissions in
the performance of his or her duties as a director of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Class A Common Stock is Chemical
Mellon Shareholder Services, New York, New York.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 7,209,747 shares of
Class A Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option) and 2,543,381 shares of Class B Common Stock outstanding.
Of these shares, 4,750,000 shares of Class A Common Stock will be freely
tradeable without further restriction or further registration under the
Securities Act. The remaining 2,459,747 shares of Class A Common Stock and all
of the shares of Class B Common Stock and any shares acquired in the Offering by
an "affiliate" of the Company (an "Affiliate") as the term is defined in Rule
144 under the Securities Act ("Rule 144"), are "restricted securities" as
defined in Rule 144, and may only be sold in the public market if such shares
are registered under the Securities Act or sold in accordance with Rule 144 or
another exemption from registration under the Securities Act.

In general, under Rule 144, a person (or group of persons whose shares are
aggregated) who has beneficially owned restricted securities for at least two
years, including persons who may be deemed "affiliates" of the Company, will be
entitled to sell within any three month period, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of the Class A
Common Stock (approximately 7,209,747 shares immediately after the Offering) or
(ii) the average weekly reported volume of trading of the Class A Common Stock
on the NYSE during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under the Rule 144 are also subject to certain
requirements pertaining to the manner of such sales, notices of such sales and
the availability of current public information concerning the Company. A person
who has not been an "affiliate" of the Company for the 90 days preceding a sale
and who has beneficially owned restricted securities for at least three years
will be entitled to sell such restricted securities in the public market without
restriction. Restricted securities properly sold in reliance

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<PAGE> 61

upon Rule 144 are thereafter freely tradeable without restrictions or
registration under the Securities Act, unless thereafter held by an "affiliate"
of the Company.

In addition, under the Stockholders' Agreement, the Company has granted
certain "piggyback" registration rights to holders of approximately 4.3 million
shares of Common Stock. The Stockholders' Agreement generally provides the
parties thereto with a limited right to cause the Company to use its best
efforts to register in connection with an offering of its equity securities,
subsequent to the Company's initial public offering in October 1994, under the
Securities Act the shares of Common Stock owned by each such person. The Company
will pay all expenses in connection with the preparation and filing of the
registration statement. The selling stockholder is responsible for payment of
any underwriting discounts or commissions with respect to shares sold for its
account. The parties to the Stockholders Agreement have agreed to waive their
respective "piggyback" registration rights with respect to the Offering.

The Company is unable to estimate the amount, timing or nature of future
sales of outstanding Class A Common Stock or Class B Common Stock. Although the
shares of Class A Common Stock offered hereby will trade separately from the
shares of Class B Common Stock, sales of substantial amounts of either Class A
or Class B Common Stock in the public market may have an adverse effect on the
market price of the Class A Common Stock. The Company and its executive
officers, directors and principal stockholders, including the parties to the
Stockholders' Agreement, have agreed that for a period of 90 days after the date
of this Prospectus they will not, without the prior written consent of the
representatives of the Underwriters, offer, sell, contract to sell or otherwise
dispose of any shares of Class A Common Stock, or any securities convertible
into or exercisable or exchangeable for Common Stock, except pursuant to the
Underwriting Agreement. See "Underwriters."

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<PAGE> 62

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF CLASS A COMMON STOCK

The following discussion concerns the material United States federal income
and estate tax consequences of the ownership and disposition of shares of Class
A Common Stock applicable to Non-U.S. Holders of such shares of Class A Common
Stock. In general a "Non-U.S. Holder" is any holder other than (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in the United States or under the law of the United States or any
State or (iii) an estate or trust whose income is includible in gross income for
United States federal income tax purposes regardless of its source. The
discussion is based on current law, which is subject to change retroactively or
prospectively, and is for general information only. The discussion does not
address all aspects of federal income and estate taxation and does not address
any aspects of state, local or non-U.S. tax laws. The discussion does not
consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder (including the fact that in the case of a Non-U.S. Holder that
is a partnership, the United States tax consequences of holding and disposing of
shares of Class A Common Stock may be affected by certain determinations made at
the partner level). Accordingly, prospective investors are urged to consult
their tax advisors regarding the United States federal, state, local and
non-U.S. income and other tax consequences of holding and disposing of shares of
Class A Common Stock.

Dividends. Dividends, if any (see "Dividend Policy"), paid to a Non-U.S.
Holder generally will be subject to United States withholding tax at a 30% rate
(or a lower rate as may be prescribed by an applicable tax treaty) unless the
dividends are effectively connected with a trade or business of the Non-U.S.
Holder within the United States. Dividends effectively connected with a trade or
business will generally not be subject to withholding (if the Non-U.S. Holder
properly files an executed United States Internal Revenue Service ("IRS") Form
4224 with the payor of the dividend) and generally will be subject to United
States federal income tax on a net income basis at regular graduated rates. In
the case of a Non-U.S. Holder which is a corporation, such effectively connected
income also may be subject to the branch profits tax (which is generally imposed
on a foreign corporation on the repatriation from the United States of
effectively connected earnings and profits). The branch profits tax may not
apply if the recipient is a qualified resident of certain countries with which
the United States has an income tax treaty. To determine the applicability of a
tax treaty providing for a lower rate of withholding dividends paid to a
stockholder's address of record in a foreign country are presumed, under the
current IRS positions to be paid to a resident of that country, unless the payor
has knowledge that such presumption is not warranted or an applicable tax treaty
(or United States Treasury Regulations thereunder) requires some other method
for determining a Non-U.S. Holder's residence. However, recently proposed U.S.
Treasury Regulations, if adopted, would modify the forms and procedures for this
certification.

Sale of Class A Common Stock. Generally, a Non-U.S. Holder will not be
subject to United States federal income tax on any gain realized upon the
disposition of such holder's shares of Class A Common Stock unless (i) the gain
is effectively connected with a trade or business carried on by the Non-U.S.
Holder with the United States (in which case the branch profits tax may apply);
(ii) the Non-U.S. Holder is an individual who holds the shares of Class A Common
Stock as a capital asset and is present in the United States for 183 days or
more in the taxable year of the disposition and to whom such gain is United
States source; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain former United States citizens
or residents; or (iv) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes (which the Company does not believe
that it is or is likely to become) at any time during the five-year period
ending on the date of disposition (or such shorter period that such shares were
held) and, subject to certain exceptions, the Non-U.S. Holder held, directly or
indirectly, more than five percent of the Common Stock.

Estate Tax. Shares of Class A Common Stock owned or treated as owned by an
individual who is not a citizen or resident (as specifically defined for United
States federal estate tax purposes) of the United States at the time of death
may be subject to United States federal estate tax.

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<PAGE> 63

BACKUP WITHHOLDING AND INFORMATION REPORTING

Dividends. The Company must report annually to the IRS and to each
Non-U.S. Holder the amount of dividends paid to and the tax withheld, if any,
with respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced by an applicable tax treaty.
Copies of these information returns may also be available under the provisions
of a specific treaty or agreement with the tax authorities in the country in
which the Non-U.S. Holder resides. Dividends that are subject to United States
withholding tax at the 30% statutory rate or at a reduced tax treaty rate and
dividends that are effectively connected with the conduct of a trade or business
in the United States (if certain certification and disclosure requirements are
met) are exempt from backup withholding of U.S. federal income tax. In general,
backup withholding at a rate of 31% and information reporting will apply to
other dividends paid on shares of Class A Common Stock to holders that are not
"exempt recipients" and fail to provide in the manner required certain
identifying information (such as the holder's name, address and taxpayer
identification number). Generally, individuals are not exempt recipients,
whereas corporations and certain other entities generally are exempt recipients.

Dispositions of Class A Common Stock. The payment of the proceeds from the
disposition of shares of Class A Common Stock through the United States office
of a broker will be subject to information reporting and backup withholding
unless the holder, under penalties of perjury, certifies, among other things,
its status as a Non-U.S. Holder, or otherwise establishes an exemption.
Generally, the payment of the proceeds from the disposition of shares of Class A
Common Stock to or through a non-U.S. office of a broker will not be subject to
backup withholding and will not be subject to information reporting. In the case
of the payment of proceeds from the disposition of shares of Class A Common
Stock through a non-U.S. office of a broker that is a U.S. person or a
"U.S.-related person," existing regulations require information reporting (but
not backup withholding) on the payment unless the broker receives a statement
from the owner, signed under penalties of perjury, certifying, among other
things, its status as a Non-U.S. Holder, or the broker has documentary evidence
in its files that the owner is a Non-U.S. Holder and the broker has no actual
knowledge to the contrary. For tax purpose, a "U.S.-related person" is (i) a
"controlled foreign corporation" for United States federal income tax purposes
or (ii) a foreign person 50% or more of whose gross income from all sources for
the three year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
United States trade or business.

Any amount withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's United
States federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the IRS. Non-U.S. Holders
should consult their tax advisors regarding the application of these rules to
their particular situations, the availability of an exemption therefrom and the
procedures for obtaining such an exemption, if available.

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UNDERWRITERS

Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the U.S. Underwriters named below, for whom
Morgan Stanley & Co. Incorporated and Salomon Brothers Inc are serving as U.S.
Representatives, have severally agreed to purchase and the International
Underwriters named below, for whom Morgan Stanley & Co. International Limited
and Salomon Brothers International Limited are serving as International
Representatives (collectively with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase the respective number of
shares of Class A Common Stock that in the aggregate equal the number of shares
set forth opposite the names of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
------------------------------------------------------------------------ ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.....................................
Salomon Brothers Inc..................................................
---------
Subtotal......................................................
---------
International Underwriters:
Morgan Stanley & Co. International Limited............................
Salomon Brothers International Limited................................
---------
Subtotal......................................................
---------
Total....................................................... 2,200,000
=========
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Class A Common Stock offered hereby are subject to the approval of
certain legal matters by their counsel and to certain other conditions,
including the conditions that no stop order suspending the effectiveness of the
Registration Statement is in effect and no proceedings for such purpose are
pending before or threatened by the Commission and that there has been no
material adverse change or any development involving a prospective material
adverse change in the earnings, results of operations or financial condition of
the Company, taken as a whole, from that set forth in the Registration
Statement. The Underwriters are obligated to take and pay for all of the shares
of Class A Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions set
forth below, (i) it is not purchasing any U.S. Shares (as defined below) for the
account of anyone other than a United States or Canadian Person (as defined
below) and (ii) it has not offered or sold, and will not offer or sell, directly
or indirectly, any U.S. Shares or distribute any Prospectus relating to the U.S.
Shares (as defined below) outside the United States or Canada or to anyone other
than a United States or Canadian Person. Pursuant to the Agreement Between U.S.
and International Underwriters, each International Underwriter has represented
and agreed that, with certain exceptions set forth below, (a) it is not
purchasing any International Shares (as defined below) for the account of any
United States or Canadian Person and (b) it has not offered or sold, and will
not offer or sell, directly or indirectly, any International Shares or
distribute any prospectus relating to the International Shares within the United
States or Canada or to any United States or Canadian Person. The foregoing
limitations do

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<PAGE> 65

not apply to stabilization transactions or to certain other transactions
specified in the Agreement Between U.S. and International Underwriters. As used
herein, "United States or Canadian Person" means any national or resident of the
United States or Canada or any corporation, pension, profit-sharing or other
trust or other entity organized under the laws of the United States or Canada or
of any political subdivision thereof (other than a branch located outside of the
United States and Canada of any United States or Canadian Person) and includes
any United States or Canadian branch of a person who is not otherwise a United
States or Canadian Person, and "United States" means the United States of
America, its territories, its possessions and all areas subject to its
jurisdiction. All shares of Class A Common Stock to be offered by the U.S.
Underwriters and International Underwriters under the Underwriting Agreement are
referred to herein as the "U.S. Shares" and the "International Shares,"
respectively.

Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and the International
Underwriters of any number of shares of Class A Common Stock to be purchased
pursuant to the Underwriting Agreement as may be mutually agreed. The per share
price and currency settlement of any shares of Class A Common Stock so sold
shall be the public offering price range set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Class A Common Stock, directly or
indirectly, in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of such shares
in Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province or territory of Canada in which such offer is
made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of Class A Common Stock a notice stating in
substance that, by purchasing such shares, such dealer represents and agrees
that it has not offered or sold, and will not offer or sell, directly or
indirectly, any of such shares in Canada in contravention of the securities laws
of Canada or any province or territory thereof and that any offer of shares of
Class A Common Stock in Canada will be made only pursuant to an exemption from
the requirement to file a prospectus in the province or territory of Canada in
which such offer is made, and that such dealer will deliver to any other dealer
to whom it sells any of such shares a notice to the foregoing effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented that (i) it has not offered or sold
and will not offer or sell any shares of Class A Common Stock to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to such shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of such shares, if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995, or is a person to whom such document
may otherwise lawfully be issued or passed on.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered or
sold, and will not offer or sell, directly or indirectly, in Japan or to or for
the account of any resident thereof, any shares of Class A Common Stock acquired
in connection with the Offering, except for offers or sales of Japanese
International Underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law of Japan. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of such shares of Class A Common Stock a notice stating in substance
that such dealer may not offer or sell any of such shares, directly or
indirectly, in Japan or to or for the account of any resident thereof, except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law of Japan, and that such dealer will send to any other dealer to
whom it sells any of such shares a notice to the foregoing effect.

63
<PAGE> 66

The Underwriters propose to offer part of the shares of Common Stock
offered hereby directly to the public at the public offering price set forth in
the cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering
price. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to other Underwriters or to certain other
dealers. After the initial offering of the shares of Common Stock, the offering
price and other selling terms may from time to time be varied by the
Representatives.

Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional 330,000 shares of Common Stock at
the public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, incurred in
the sale of the shares of Common Stock offered hereby. To the extent such option
is exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such U.S. Underwriters' name in the
preceding table bears to the total number of shares of Common Stock offered
hereby to the U.S. Underwriters.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers and directors and certain stockholders of the
Company have agreed not to sell or otherwise dispose of Common Stock or
convertible securities of the Company for a period of 90 days after the date of
this Prospectus without the prior consent of Morgan Stanley & Co. Incorporated.
The Company has agreed in the Underwriting Agreement that they will not,
directly or indirectly, without the prior written consent of Morgan Stanley &
Co. Incorporated, offer, pledge for a period of 90 days from the date of this
Prospectus, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock, except under
certain circumstances.

The rules of the National Association of Securities Dealers, Inc. (the
"NASD") provide that no NASD member shall participate in a public offering of an
issuer's securities where more than 10% of the net offering proceeds are
intended to be paid to members participating in the distribution of the
offering, or entities associated or affiliated with such members, unless a
"qualified independent underwriter" shall have been engaged on the terms
provided in such rules. Salomon Brothers Inc's affiliate, SBHC, provided loans
to the Company pursuant to the New Credit Facility aggregating $27.5 million, of
which approximately $3.5 million will be repaid with the proceeds of the
Offering. See "Use of Proceeds" and "Certain Transactions."

In view of such use of the proceeds of the Offering, the Offering is being
conducted in accordance with the rules of the NASD and Morgan Stanley & Co.,
Incorporated is acting as "qualified independent underwriter" within the meaning
of such rules. In connection therewith, Morgan Stanley & Co, Incorporated has
participated in the preparation of the Registration Statement of which this
Prospectus forms a part. It has exercised its usual standards of "due diligence"
with respect thereto and has recommended the maximum price at which the Class A
Common Stock may be offered.

LEGAL MATTERS

The validity of the shares of Class A Common Stock offered hereby will be
passed upon by Jones, Day, Reavis & Pogue, Cleveland, Ohio. Certain legal
matters will be passed upon for the Underwriters by Katten Muchin & Zavis,
Chicago, Illinois.

64
<PAGE> 67

EXPERTS

The audited financial statements of Sinter as of December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995 included
in this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

The consolidated financial statements of PMH as of December 31, 1995 and
November 22, 1996 and for the two years ended December 31, 1995 and the period
January 1, 1996 through November 22, 1996 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the Registration Statement and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.

The consolidated financial statements of Krebsoge as of December 31, 1995
and for the year then ended included in this Prospectus have been so included in
reliance on the report of Price Waterhouse GmbH, independent auditors, given on
the authority of said firm as experts in auditing and accounting.

The consolidated financial statements of Krebsoge as of December 31, 1994
and for the two years in the period ending December 31, 1994 included in this
Prospectus have been audited by BDO Grunewalder Treuhard GmbH, independent
auditors, as stated in their reports appearing in this Registration Statement
and have been included in reliance upon the reports of such firm given their
authority as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Citicorp Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade, Suite 1300 New York, New York 10048. Copies of such materials
may also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a World Wide Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants,
such as the Company, that submit electronic filings to the Commission. The
Company's Class A Common Stock is listed on the New York Stock Exchange, and
reports, proxy and information statements and other information concerning the
Company may also be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.

The Company has filed with the Commission a Registration Statement under
the Securities Act of 1933, as amended, with respect to the Class A Common Stock
offered hereby (the "Registration Statement"). This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Reference is made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the
Class A Common Stock offered hereby. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete; and with respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved and each such
statement shall be deemed qualified in its entirety by such reference.

65
<PAGE> 68

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
SINTER METALS, INC. AND SUBSIDIARIES
Report of Independent Public Accountants..................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995................. F-3
Consolidated Statements of Operations for the years ended December 1993, 1994
and 1995.................................................................. F-5
Consolidated Statements of Changes in Stockholders Equity for the years ended
December 31, 1993, 1994 and 1995.......................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995............................................................. F-7
Notes to Consolidated Financial Statements................................... F-8
KREBSOGE SINTERHOLDING GMBH (GERMAN GAAP)
Report of Independent Auditors............................................... F-15
Report of Independent Auditors............................................... F-16
Consolidated Balance Sheets as of December 31, 1994 and 1995................. F-17
Consolidated Statements of Income for the years ended December 31, 1993, 1994
and 1995.................................................................. F-18
Consolidated Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995............................................................. F-19
Notes to the Consolidated Financial Statements............................... F-20
POWDER METAL HOLDING, INC. AND SUBSIDIARIES
Independent Auditors' Report................................................. F-43
Consolidated Balance Sheets as of December 31, 1995 and November 22, 1996.... F-44
Consolidated Statements of Income for the years ended December 31, 1994 and
1995 and the period January 1, 1996 through November 22, 1996............. F-45
Consolidated Statements of Shareholders' Deficit for the years ended December
31, 1994 and 1995 and the period January 1, 1996 through November 22,
1996...................................................................... F-46
Consolidated Statements of Cash Flows for the years ended December 31, 1994
and 1995 and the period January 1, 1996 through November 22, 1996......... F-47
Notes to Consolidated Financial Statements................................... F-48
</TABLE>

F-1
<PAGE> 69

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
of Sinter Metals, Inc.:

We have audited the accompanying consolidated balance sheets of Sinter
Metals, Inc.(a Delaware corporation) and Subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sinter Metals, Inc. and
Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Cleveland, Ohio,
February 7, 1996 (except with
respect to the matters discussed
in Note 3 and Note 12, as to which the
date is December 19, 1996).

F-2
<PAGE> 70

SINTER METALS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 78 $ 1,462 $ 1,752
Accounts receivable, net of allowance of $111, $100 and
$100 (unaudited), respectively........................ 9,077 11,129 14,611
Inventories.............................................. 7,069 10,194 13,751
Other current assets..................................... 340 643 775
------- ------- -------
Total current assets............................. 16,564 23,428 30,889
------- ------- -------
PROPERTY, PLANT AND EQUIPMENT:
Land..................................................... 264 586 788
Buildings and building improvements...................... 3,675 6,251 7,465
Machinery and equipment.................................. 28,773 32,757 36,835
Construction in progress................................. 284 1,113 5,619
------- ------- -------
32,996 40,707 50,707
Less accumulated depreciation......................... (8,188) (12,024) (15,664)
------- ------- -------
Total property, plant and equipment.............. 24,808 28,683 35,043
------- ------- -------
OTHER ASSETS:
Restricted cash.......................................... -- -- 5,856
Intangible assets, net................................... 11,963 12,977 17,773
Other assets............................................. -- 132 552
------- ------- -------
Total other assets............................... 11,963 13,109 24,181
------- ------- -------
TOTAL ASSETS............................................... $53,335 $65,220 $90,113
======= ======= =======
</TABLE>

F-3
<PAGE> 71

SINTER METALS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt..................... $ 28 $ 267 $ 154
Accounts payable......................................... 7,592 7,068 10,055
Accrued payroll and vacation............................. 1,195 1,241 2,353
Accrued benefits......................................... 2,805 3,080 3,602
Other accrued expenses................................... 1,204 1,996 1,862
Income taxes payable..................................... 1,610 648 1,498
------- ------- -------
Total current liabilities........................ 14,434 14,300 19,524
------- ------- -------
LONG-TERM OBLIGATIONS:
Term loans............................................... 136 2,291 9,316
Borrowings under revolving credit agreement.............. 2,600 2,141 6,505
Other liabilities........................................ 938 1,000 810
Deferred income taxes.................................... 2,983 4,026 5,379
------- ------- -------
Total long-term obligations...................... 6,657 9,458 22,010
------- ------- -------
Total liabilities................................ 21,091 23,758 41,534
------- ------- -------
STOCKHOLDERS' EQUITY:
Common stock
Class A, par value $.001 per share -- Authorized,
20,000,000 shares; issued and outstanding,
4,762,646, 5,004,747 and 5,009,747 (unaudited)
shares, respectively................................ 5 5 5
Class B, par value $.001 per share -- Authorized,
5,000,000 shares; issued and outstanding, 2,685,482,
2,543,381 and 2,543,381 (unaudited) shares,
respectively........................................ 2 2 2
Additional paid-in capital............................... 26,838 27,838 27,925
Cumulative translation adjustments....................... -- 331 373
Retained earnings........................................ 5,399 13,286 20,274
------- ------- -------
Total stockholders' equity....................... 32,244 41,462 48,579
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $53,335 $65,220 $90,113
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 72

SINTER METALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
NET SALES......................................... $68,584 $82,479 $94,310 $69,392 $83,068
COST OF SALES..................................... 54,061 64,765 73,245 53,930 64,205
------- ------- ------- ------- -------
Gross profit.................................... 14,523 17,714 21,065 15,462 18,863
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...... 6,442 8,212 7,698 5,476 7,322
AMORTIZATION OF INTANGIBLE ASSETS................. 308 302 332 242 300
------- ------- ------- ------- -------
Income from operations.......................... 7,773 9,200 13,035 9,744 11,241
INTEREST EXPENSE.................................. 5,107 1,956 287 220 288
OTHER EXPENSE, NET................................ 11 166 111 109 (60)
------- ------- ------- ------- -------
Income before income taxes and extraordinary
charge....................................... 2,655 7,078 12,637 9,415 11,013
PROVISION FOR INCOME TAXES........................ 2,370 2,900 4,750 3,600 4,025
------- ------- ------- ------- -------
Net income before extraordinary charge.......... 285 4,178 7,887 5,815 6,988
EXTRAORDINARY CHARGE, net of tax.................. -- (580) -- -- --
------- ------- ------- ------- -------
Net income...................................... 285 3,598 7,887 5,815 6,988
PREFERRED DIVIDENDS............................... (242) (202) -- -- --
------- ------- ------- ------- -------
NET INCOME APPLICABLE TO COMMON STOCK............. $ 43 $ 3,396 $ 7,887 $ 5,815 $ 6,988
======= ======= ======= ======= =======
PER SHARE DATA
Income before extraordinary charge.............. $ .01 $ .72 $ 1.05 $ .78 $ .93
Extraordinary charge, net of tax................ -- (.11) -- -- --
------- ------- ------- ------- -------
Net income...................................... $ .01 $ .61 $ 1.05 $ .78 $ .93
======= ======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING........ 5,099 5,533 7,500 7,483 7,549
======= ======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 73

SINTER METALS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
----------------- PAID-IN RETAINED TRANSLATION
CLASS A CLASS B CAPITAL EARNINGS ADJUSTMENTS TOTAL
------- ------- ---------- -------- ----------- -------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992.......... $ -- $ 4 $ 3,074 $ 1,960 $ -- $ 5,038
Issuance of 24,526 shares of Class A
and 309,134 shares of Class B
common stock at $.70 per share... 232 232
Employee notes receivable related to
purchase of stock................ (31) (31)
Issuance of 60,805 shares of Class B
common stock under the stock
award plan valued at $5.21 per
share............................ 317 317
Net income.......................... 285 285
Preferred stock dividends payable
($8 per share)................... (242) (242)
-------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1993.......... -- 4 3,592 2,003 -- 5,599
Issuance of 1,804,000 shares of
Class A common stock at $10 per
share, net....................... 2 14,760 14,762
Issuance of 303,725 shares of Class
A common stock under the stock
award plan valued at $10 per
share............................ 3,036 3,036
Conversion of 1,764,761 shares of
Class B common stock to Class
A................................ 2 (2)
Issuance of 541,986 shares of Class
A common stock upon conversion of
preferred stock and subordinated
notes............................ 1 5,419 5,420
Repayment of employee loans......... 31 31
Preferred stock dividends payable
($6.60 per share)................ (202) (202)
Net income.......................... 3,598 3,598
-------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1994.......... 5 2 26,838 5,399 -- 32,244
Issuance of 100,000 shares of Class
A common stock at $10 per
share............................ 1,000 1,000
Net income.......................... 7,887 7,887
1995 translation adjustments........ 331 331
-------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995.......... 5 2 27,838 13,286 331 41,462
Issuance of 5,000 shares of Class A
common stock at 17.40 per share
(unaudited)...................... 87 87
Net income (unaudited).............. 6,988 6,988
1996 translation adjustments
(unaudited)...................... 42 42
-------- -------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1996
(UNAUDITED)......................... $ 5 $ 2 $ 27,925 $ 20,274 $ 373 $48,579
======== ======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE> 74

SINTER METALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 285 $ 3,598 $ 7,887 $ 5,815 $ 6,988
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 3,256 3,759 4,272 2,915 3,930
Increase in value of capital appreciation rights...... 2,908 -- -- -- --
Extraordinary charge on early extinguishment of
debt................................................ -- 580 -- -- --
Deferred income taxes................................. (146) (1,188) 868 487 464
Compensation expense under the stock award plan....... 916 2,435 -- -- --
Other................................................. -- 251 134 330 (228)
Cash provided (used) by working capital items, net of
acquisition:
Accounts receivable, net.............................. (1,001) (967) (670) (1,950) (2,205)
Inventories........................................... (1,383) (738) (1,477) (1,717) (2,126)
Other current assets.................................. (32) (30) (196) (162) (24)
Accounts payable...................................... 1,142 1,390 (975) (1,056) 1,799
Accrued payroll and benefits.......................... 1,407 420 321 -- --
Other accrued expenses................................ (105) 255 (473) 523 1,160
Accrued taxes......................................... 704 463 (962) (205) 850
-------- -------- -------- ------- --------
- - -
Net cash provided by operating activities........ 7,951 10,228 8,729 4,980 10,608
-------- -------- -------- ------- --------
- - -
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.............. (4,198) (4,160) (4,301) (2,727) (6,023)
Acquisition of business, net of cash acquired........... (200) (3,070) (4,043) (4,043) (9,802)
Restricted cash......................................... -- -- -- -- (5,856)
-------- -------- -------- ------- --------
- - -
Net cash used by investing activities............ (4,398) (7,230) (8,344) (6,770) (21,681)
-------- -------- -------- ------- --------
- - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Term debt borrowings (repayments), net.................. (5,735) (14,500) 458 138 6,912
(Decrease) increase in borrowings under revolving credit
line, net............................................. 3,186 (586) (459) 1,466 4,364
Preferred stock and subordinated notes issuance
(repurchase).......................................... 1,598 (2,238) -- -- --
Issuance of common stock, net........................... 232 14,762 1,000 1,000 87
Repurchase of capital appreciation rights............... (3,687) -- -- -- --
Payment of preferred stock dividend..................... (242) (444) -- -- --
-------- -------- -------- ------- --------
- - -
Net cash provided (used) by financing
activities..................................... (4,648) (3,006) 999 2,604 11,363
-------- -------- -------- ------- --------
- - -
Net increase (decrease) in cash.................. (1,095) (8) 1,384 814 290
Cash, beginning of period................................. 1,181 86 78 78 1,462
-------- -------- -------- ------- --------
- - -
Cash, end of period....................................... $ 86 $ 78 $ 1,462 $ 892 $ 1,752
====== ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest.............................. $ 1,830 $ 2,134 $ 333 $ 177 $ 276
====== ======= ======= ======= ========
Cash payments for income taxes.......................... $ 1,809 $ 3,291 $ 5,091 $ 3,372 $ 2,556
====== ======= ======= ======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE> 75

SINTER METALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1993, 1994 AND 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

1. ORGANIZATION:

The Company's principal business consists of the design, engineering and
production of precision pressed metal components for use primarily in the
automotive, home appliance, lawn and garden and power tool industries. The
Company manufactures over 1,000 different components such as gears, bearings and
sprockets, for use in engines, transmissions and other drive mechanisms.

In October 1994, the Company successfully completed an initial public
offering of its Class A Common Stock raising net proceeds of approximately $14.7
million after consideration of transaction expenses. The Company used the net
proceeds from the initial public offering together with borrowings of
approximately $2.0 million under the Company's revolving credit facility to
repay all of its then outstanding senior indebtedness, to repay a portion of its
subordinated indebtedness and to redeem a portion of its preferred stock. The
balance of the preferred stock and subordinated indebtedness was converted to
shares of Class A Common Stock.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The accompanying consolidated financial statements reflect the application
of the following significant accounting policies:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, PPMI, Midwest and Kolsva Sinterteknik. All
significant intercompany transactions and accounts have been eliminated in the
accompanying consolidated financial statements. Effective January 1, 1996, all
of the Company's domestic operating subsidiaries, including PPMI and Midwest,
were merged into Sinter Metals.

Cash Equivalents

The Company considers all short-term investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are stated at
cost, which approximates fair market value.

Inventories

Inventories are valued at the lower of cost, as determined principally on
the LIFO (last-in, first-out) method, or market for both book and tax purposes.
Inventory cost includes material, labor and overhead.

Accounts Receivable

Revenues are principally generated from the automotive, lawn and garden and
power tool industries. The Company grants credit to customers based upon
management's assessment of their creditworthiness. The automotive, lawn and
garden, and power tool industries account for 61.0%, 8.1% and 7.1%,
respectively, of accounts receivable at December 31, 1995. Additionally,
accounts receivable from the Company's five largest customers aggregated
approximately $4,960,000 as of December 31, 1995.

Property, Plant and Equipment

Additions to property, plant and equipment are stated at cost. Expenditures
for replacements are capitalized, and repairs and maintenance costs are expensed
as incurred. When assets are sold or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
included in income.

F-8
<PAGE> 76

SINTER METALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Depreciation is computed, for financial reporting purposes, using the
straight-line method over estimated useful lives, which are as follows:

<TABLE>
<S> <C>
Buildings and building improvements................................. 15-30 years
Machinery and equipment............................................. 5-10 years
</TABLE>

Depreciation expense was $2,606,000, $3,175,000 and $3,940,000 for the
three years ended December 31, 1993, 1994 and 1995, respectively.

Intangible Assets

Intangible assets consist primarily of goodwill, which represents the
excess of cost over net assets acquired and is being amortized on a
straight-line basis primarily over 40 years.

Income Taxes

Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, which requires the use of an asset and liability
method of accounting for current and expected future tax consequences of events
that have been recognized in the financial statements or tax returns.

No provision is made for U.S. income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in foreign
operations.

Share Information

Per share computations are based upon the weighted average common shares
outstanding of 5,099,000 in 1993, 5,533,000 in 1994 and 7,500,000 in 1995, which
include the dilutive effects of shares issued or to be issued within one year
prior to the initial public offering totaling 650,815 shares and 253,104 shares,
in 1993 and 1994, respectively.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from the estimates.

Reclassifications

Certain balances in 1994 and 1993 have been reclassified to conform to the
current year presentation.

3. INVESTMENT IN PMH:

As part of its business strategy, in 1993 in simultaneous transactions, the
Company purchased a 30% interest in Powder Metal Holding, Inc. (PMH), a
nonoperating holding company, that owns 100% of ICM/Krebsoge (ICM/K) (a domestic
manufacturer of pressed metal products) and repurchased the Capital Appreciation
Right (CAR) held by a creditor of PMH.

The combined consideration of $3,887,000 was allocated for financial
reporting purposes as $200,000 to the investment and $3,687,000 to the buyout.

The Company also entered into a conditional merger agreement (the
Conditional Agreement) and a shareholders' agreement (the Shareholders'
Agreement) with PMH. ICM/K has operating facilities located

F-9
<PAGE> 77

SINTER METALS, INC.

in Indiana, Ohio and Canada. The most recent audited financial statements
indicate PMH had total assets of $59,094,000, net sales of $101,671,000 and net
income of $2,172,000 as of and for the period January 1, 1996 through November
22, 1996.

While PMH returned to profitability in 1994, 1995 and 1996, the net worth
of PMH remains a negative $26,331,000 at November 22, 1996. Accordingly, the
Company wrote off its recorded investment in PMH in 1994 and has not recognized
its pro rata share of PMH's 1994, 1995 and 1996 net income.

Each party's obligation to consummate the merger under the Conditional
Agreement is subject to a number of conditions including ICM/K and the Company
meeting certain financial and operating targets as of and for the year ended
December 31, 1995. While the Company has met the prescribed operating targets,
ICM/K has not. Accordingly, the Conditional Agreement which expires on April 30,
1996 may expire before a merger can be consummated.

The Shareholders' Agreement gives the Company a right of first refusal on
the sale of the balance of PMH stock. If the Company continues to maintain its
stock position in PMH it may, after December 31, 1998, sell its position to PMH
based on a prescribed formula that is dependent upon the performance of PMH for
the twelve months preceding such sale. The Shareholders' Agreement also requires
unanimous consent of the shareholders for most major corporate actions,
including but not limited to the following, (i) any merger, consolidation or
reorganization of PMH, (ii) the disposition of any property in excess of $1
million, (iii) capital contributions in excess of $2 million and (iv) the
approval of executive compensation.

In addition to providing board representation for the Company, the
Shareholders' Agreement also provides that at any time on or before the merger
has been consummated, the Board of Directors of PMH may require its stockholders
to purchase an additional pro rata number of its shares in order to permit PMH
to make a capital contribution to ICM/K. The Company's pro rata maximum share of
this capital call is $600,000.

4. INVENTORIES:

The major components of inventories are as follows (dollars in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------ -------
<S> <C> <C>
Raw materials..................................................... $2,099 $ 2,945
Work-in-process................................................... 2,334 4,481
Finished goods.................................................... 2,624 3,105
------ ------
7,057 10,531
LIFO reserve...................................................... 12 (337)
------ -------
$7,069 $10,194
====== =======
</TABLE>

5. INTANGIBLE ASSETS:

Goodwill of $12,891,000 and $14,228,000 at December 31, 1994 and 1995
represents costs in excess of net assets acquired and is amortized on a
straight-line basis over a 40-year period. Accumulated amortization related to
goodwill aggregated $928,000 and $1,251,000, respectively. At each balance sheet
date, the Company evaluates the realizability of goodwill based upon
expectations of undiscounted cash flows and operating income of the related
business unit. Based upon its most recent analysis, the Company believes that no
impairment of goodwill exists at December 31, 1995 and the amortization period
remains appropriate.

F-10
<PAGE> 78

SINTER METALS, INC.

6. LONG-TERM DEBT:

Long-term debt consisted of the following (dollars in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
---- ------
<S> <C> <C>
Term loan............................................................ $ -- $2,231
Equipment loans...................................................... 164 327
----- ------
Total term loans..................................................... 164 2,558
Less current portion of long-term debt............................... (28) (267)
----- ------
Long-term debt -- noncurrent......................................... $136 $2,291
==== ======
</TABLE>

Concurrent with the Company's initial public offering, the Company entered
into a new revolving line of credit aggregating $22.5 million. The revolving
line of credit was subsequently amended and expanded in January 1996 (the New
Revolver). The New Revolver is a $30 million unsecured facility and matures in
January 1999. The New Revolver contains various affirmative and negative
covenants customary for unsecured revolving credit financing, and bears interest
at optional rates as defined. The rate was 6.875% at December 31, 1995. The
Company had $2.1 million and $2.6 million outstanding under the revolving credit
facilities as of December 31, 1995 and 1994, respectively. Based on the
borrowing rates currently available to the Company for bank loans with similar
terms and average maturities, the fair value of long-term debt was substantially
the same as its carrying value at December 31, 1995 and 1994.

The term loan was assumed in conjunction with the Company's acquisition of
Kolsva Sinterteknik. The debt is secured by a blanket lien on the assets in
Sweden. The interest rate on the term loan is fixed at 10.5% and is scheduled to
mature on September 30, 1998. Contractual terms of the debt preclude prepayment.
The Company has deemed the value of the debt to be the fair value based on the
restrictive nature and terms of the debt.

The Company's prior credit agreement, which included a term loan and
revolving credit facility, and a portion of the Company's 12% subordinated notes
were retired utilizing the net proceeds from the Company's initial public
offering in October 1994. The balance of the subordinated notes and certain
shares of preferred stock were converted to Class A Common Stock. In conjunction
with the repayments, the unamortized loan discount and deferred financing costs
aggregating $580,000 were charged off and recognized, in the accompanying 1994
statement of operations, as an extraordinary charge.

7. EMPLOYEE BENEFIT PLANS:

Profit Sharing Plan

The Company sponsors a defined contribution and profit sharing plan with
contributions based on years of service and level of compensation. The expense
pertaining to this plan was approximately $896,000, $890,000 and $818,000 during
1995, 1994 and 1993, respectively.

The Company does not provide any postretirement or postemployment benefits
other than those to be received from such defined contribution plan.

Management Incentive Stock Plan

At December 31, 1991, the Company adopted a management incentive stock plan
for certain eligible employees. The Company reserved 405,038 shares of Class B
Common Stock to be issued over the five years of the plan. The Company achieved
the equity measurement requiring the maximum award level for 1993, and 60,805
shares were awarded. Concurrent with the Company's initial public offering, the
balance of the shares,

F-11
<PAGE> 79

SINTER METALS, INC.

aggregating 303,725 shares, were issued and the plan was terminated.
Compensation expense related to the plan aggregated $916,000 and $2,435,000 for
1993 and 1994, respectively.

1994 Key Employee Stock Incentive Plan

Concurrent with the Company's initial public offering, the Company
established the Key Employee Stock Incentive Plan. Under this plan, the Company
may grant options to officers and other key employees to purchase an aggregate
of 474,505 shares of Class A Common Stock. During 1995 and 1994, the Company
granted stock options to purchase an aggregate of 11,000 and 149,000 shares at
exercise prices from $10.13 to $10.63 and $10.00 per share, the fair market
values of such shares at the dates of grant. These options vest ratably over a
three year period. At December 31, 1995, 50,000 options were exercisable and no
options were exercised or forfeited during the period.

8. INCOME TAXES:

The provision for income tax expense includes current and deferred taxes as
follows (dollars in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
United States Federal
Current................................................... $1,855 $3,271 $3,367
Deferred.................................................. (117) (950) 352
State....................................................... 632 579 877
Foreign..................................................... -- -- 154
------- ------- ------
Total....................................................... $2,370 $2,900 $4,750
====== ====== ======
</TABLE>

The provision for income taxes differs from the amounts computed by
applying the federal statutory rate as follows (dollars in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Income tax at federal statutory rate........................ $ 903 $2,407 $4,297
State tax, net.............................................. 186 425 579
Foreign income rate differential............................ -- -- (75)
Nondeductible interest charge to income..................... 1,163 -- --
Other, net.................................................. 118 68 (51)
------ ------ ------
Provision for income taxes.................................. $2,370 $2,900 $4,750
====== ====== ======
</TABLE>

Components of deferred taxes consist of the following (dollars in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------- -------
<S> <C> <C>
Accelerated depreciation......................................... $(4,894) $(5,063)
Inventory........................................................ (458) (458)
-------- --------
Total tax deferred liabilities................................... (5,352) (5,521)
Accrued expenses not deductible until paid....................... 2,518 1,680
Other............................................................ (149) (185)
-------- --------
Total tax deferred assets........................................ 2,369 1,495
-------- --------
Net deferred tax liabilities..................................... $(2,983) $(4,026)
======== ========
</TABLE>

F-12
<PAGE> 80

SINTER METALS, INC.

9. COMMITMENTS AND CONTINGENCIES:

The Company is involved in various matters relating to contingencies and
other commitments, the principal items of which are as follows:

Environmental Matters

The Company is subject to various federal, state and local environmental
laws and regulations primarily involving its property ownership and plant
operations. The Company has made, and will continue to make, expenditures to
comply with such environmental regulations. The Company monitors and reviews its
procedures and policies for compliance with environmental laws.

Based upon present laws and regulations and the Company's experience to
date, the cost of compliance with environmental laws has not had, and is not
expected to have, a material adverse effect on the Company's financial condition
or results of operations. Future changes in laws and regulations could give rise
to additional environmental costs in future periods.

Litigation

In the ordinary course of business, the Company is involved in various
identified legal proceedings, including workers' compensation and personal
injury claims and product liability disputes. The Company has established a
reserve that it believes is adequate to address its exposure for these items.
Management is of the opinion that the ultimate resolution of these matters will
not have a material adverse effect on the results of operations or financial
position of the Company.

10. STOCKHOLDERS' EQUITY:

The holders of Class A Common Stock have the right to vote on all matters
to be voted on by the stockholders of the Company. No holder of Class B Common
Stock has voting rights. Each share of Class B Common Stock is convertible into
a share of Class A Common Stock on a share-for-share basis at the option of the
holder thereof.

Concurrent with the Company's initial public offering, the Company
increased the number of shares of authorized capital to 20,000,000 shares of
Class A Common Stock and 5,000,000 shares of Class B Common Stock. In addition,
the Company authorized 5,000,000 shares of preferred stock, none of which are
issued and outstanding. The Company also effected a stock split of 14.385 shares
to 1 and changed the par value of Common Stock to $.001 per share. The Company's
stockholders' equity amounts and per share amounts in the accompanying
consolidated financial statements have been retroactively adjusted for these
changes.

11. ACQUISITIONS:

Kolsva Sinterteknik AB

Effective June 26, 1995, the Company purchased the stock of Kolsva
Sinterteknik for a combination of $3.8 million in cash and 100,000 shares of the
Company's Class A Common Stock. The cash portion of the transaction was financed
through the Company's revolving credit facility. As a part of the transaction,
the Company assumed long-term debt of Sinterteknik aggregating approximately
$1.9 million.

Midwest Sintered Products Corporation

Effective July 29, 1994, the Company purchased the stock of Midwest
Sintered Products Corporation for consideration totaling approximately $3.1
million. The transaction was financed through borrowings from the Company's
revolving credit facility.

F-13
<PAGE> 81

SINTER METALS, INC.

Both transactions were recorded utilizing the purchase method of accounting
and, accordingly, the gross purchase price has been allocated to the tangible
and intangible assets acquired and liabilities assumed, based upon their
estimated fair value at the date of acquisition.

Proforma financial operating results as if both acquisitions had been
completed on January 1, 1994, are as follows (dollars in thousands, except per
share data):

<TABLE>
<CAPTION>
1994 1995
------- -------
(UNAUDITED)
<S> <C> <C>
Net sales........................................................ $94,203 $99,032
Net income before extraordinary charge........................... 4,979 8,299
Net income applicable to common stock............................ 4,197 8,299
Net income per common share...................................... $ .76 $ 1.10
</TABLE>

12. SUBSEQUENT EVENT:

On December 19, 1996, the Company acquired the remaining 70% interest in
PMH and approximately 98.2% of the outstanding capital stock of Krebsoge, a
German entity, for aggregate cash consideration of $215 million, subject to
certain closing and post-closing adjustments. In order to fund the acquisitions,
including repayment of certain indebtedness of PMH and Krebsoge, and to
refinance the Company's indebtedness, the Company entered into a new $275
million credit facility.

13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

A summary of the unaudited quarterly results of operations for the years
ended December 31, 1995 and 1994 are as follows (dollars in thousands except
share data):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................................. $24,624 $22,104 $22,664 $24,918
Gross profit.............................................. 5,556 4,843 5,063 5,603
Income from operations.................................... 3,573 3,108 3,063 3,291
Net income................................................ 2,112 1,870 1,833 2,072
Share data:
Net income.............................................. $ .28 $ .25 $ .24 $ .27
Weighted average shares outstanding..................... 7,448 7,454 7,548 7,548
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................................. $20,832 $20,142 $20,274 $21,231
Gross profit.............................................. 4,885 4,398 4,078 4,354
Income from operations.................................... 3,188 2,929 2,365 718
Income before extraordinary charge........................ 1,508 1,362 1,023 285
Extraordinary charge...................................... -- -- -- 580
Net income (loss)......................................... 1,508 1,362 1,023 (295)
Share data:
Income before extraordinary charge...................... .28 .26 .19 .04
Extraordinary charge.................................... -- -- -- (.09)
Net income (loss)....................................... $ .28 $ .26 $ .19 $ (.05)
Weighted average shares outstanding..................... 5,102 5,102 5,102 6,811
</TABLE>

F-14
<PAGE> 82

REPORT OF INDEPENDENT AUDITORS

To the Board of Management and
Shareholders of Krebsoge Sinterholding GmbH

We have audited the consolidated balance sheet of Krebsoge Sinterholding
GmbH as of December 31, 1995, and the related statements of income and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards in Germany, which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Krebsoge Sinterholding GmbH as of December 31, 1995, and the consolidated
results of its operations and cash flows for the year then ended in conformity
with generally accepted accounting principles in Germany.

Generally accepted accounting principles in Germany vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected the result of operations for the year ended December
31, 1995, and shareholders' equity as of December 31, 1995 to the extent
summarized in Note 26 to the consolidated financial statements.

The consolidated financial statements of Krebsoge Sinterholding GmbH for
the years ended December 31, 1994 and 1993 were audited by other independent
auditors whose report dated February 17, 1995 and December 12, 1996 expressed an
unqualified opinion on those statements.

Dusseldorf,
February 16, 1996, except Note 26, Reconciliation with US GAAP and Note 27,
Subsequent Event, as to which the date is December 12, 1996

Price Waterhouse GmbH
Wirtschaftsprufungsgesellschaft

Dr. H. Schmick
Wirtschaftsprufer

F-15
<PAGE> 83

REPORT OF INDEPENDENT AUDITORS

To the Board of Management and
Shareholders of Krebsoge Sinterholding GmbH

We have audited the consolidated balance sheets of Krebsoge Sinterholding
GmbH as of December 31, 1993 and 1994, and the related statements of income and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with generally accepted auditing
standards in Germany, which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Krebsoge Sinterholding GmbH as of December 31, 1993 and 1994, and the
consolidated results of its operations and cash flows for the years then ended
in conformity with generally accepted accounting principles in Germany.

Generally accepted accounting principles in Germany vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected the result of operations for the year ended December
31, 1994, and shareholders' equity as of December 31, 1994 to the extent
summarized in Note 26 to the consolidated financial statements.

Dusseldorf,
February 17, 1995, except Note 26, Reconciliation with US GAAP and Note 27,
Subsequent Event, as to which the date is December 12, 1996

BDO GRUNEWALDER TREUHAND GMBH
Wirtschaftsprufungsgesellschaft

<TABLE>
<S> <C>
Dr. F. Nehles Dr. G. Kaulen
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>

F-16
<PAGE> 84

KREBSOGE SINTERHOLDING GMBH

CONSOLIDATED BALANCE SHEETS
(in thousands of DM)

<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
NOTE 1994 1995
-------- --------
<S> <C> <C> <C>
ASSETS
Non-Current Assets
Intangible assets......................................... 2 1,711 1,706
Property, plant and equipment............................. 3 48,685 55,754
Financial assets.......................................... 4 1,122 485
-------- --------
Total noncurrent assets................................. 51,518 57,945
-------- --------
Current Assets
Inventories............................................... 5 20,572 31,371
Receivables and other assets.............................. 6 23,958 30,300
Cash...................................................... 4,184 3,038
-------- --------
Total current assets................................. 48,714 64,709
-------- --------
Prepaid expenses............................................. 7 714 652
Cumulative loss in excess of equity.......................... 8 66,274 54,905
-------- --------
Total assets and cumulative loss in excess
of equity.......................................... 167,220 178,211
-------- --------
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' Equity
Subscribed capital........................................ 30,000 33,700
Capital reserve........................................... 10,000 10,000
Cumulative translation adjustment......................... (216) (329)
Accumulated loss brought forward.......................... (106,058) (98,276)
Cumulative loss in excess of equity....................... 66,274 54,905
-------- --------
Total shareholders' equity........................... 8 -- --
-------- --------
Accruals
Accruals for pensions..................................... 9 6,798 15,124
Tax accruals.............................................. 10 1,666 2,949
Other accruals............................................ 11 5,254 10,508
-------- --------
Total accruals....................................... 13,718 28,581
-------- --------
Liabilities
Liabilities to banks...................................... 74,421 68,801
Payments received on account of orders.................... -- 567
Trade payables............................................ 6,999 9,739
Liabilities on bills accepted and drawn................... 2,016 2,070
Payable to affiliated enterprises......................... 55,500 53,672
Payable to associated enterprises......................... 813 634
Other liabilities......................................... 13,449 13,903
-------- --------
Total liabilities.................................... 12 153,198 149,386
-------- --------
Deferred income........................................... 13 304 244
-------- --------
Total shareholders' equity and liabilities........... 167,220 178,211
======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-17
<PAGE> 85

KREBSOGE SINTERHOLDING GMBH

CONSOLIDATED STATEMENTS OF INCOME
(in thousands of DM)

<TABLE>
<CAPTION>
YEAR ENDED AT DECEMBER 31,
----------------------------------
NOTE 1993 1994 1995
-------- -------- --------
<S> <C> <C> <C> <C>
Net sales........................................... 16 164,836 178,936 224,798
Increase (decrease) in inventories of finished
products
and work in progress.............................. (2,023) (733) 1,614
Other self-manufactured items capitalized........... 1,415 1,420 1,448
-------- -------- --------
Total output................................. 164,228 179,623 227,860
Other operating income.............................. 17 4,041 3,028 4,231
Cost of materials................................... 18 (46,428) (50,819) (67,738)
Personnel expenses.................................. 19 (78,384) (79,366) (105,448)
Depreciation and amortization....................... (13,897) (12,207) (12,092)
Other operating expenses............................ 20 (19,749) (21,272) (29,937)
Financial income (expense).......................... 21 (13,727) (10,127) (8,862)
-------- -------- --------
Result from ordinary business activities..... (3,916) 8,860 8,014
Extraordinary income (expense)...................... 22 (466) (1,850) 1,700
-------- -------- --------
(4,382) 7,010 9,714
Taxes on income..................................... 23 (17) (2,340) (1,627)
Other taxes......................................... (296) (254) (305)
-------- -------- --------
Consolidated net income (loss)............... (4,695) 4,416 7,782
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-18
<PAGE> 86

KREBSOGE SINTERHOLDING GMBH

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of DM)

<TABLE>
<CAPTION>
YEAR ENDED AT DECEMBER 31,
------------------------------------
1993 1994 1995
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... (4,695) 4,416 7,782
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization..................... 13,897 12,207 12,242
(Gain) loss on sale of fixed assets............... (1,302) (24) 20
(Gain) loss from waiver/reversal of waiver of
liability
to affiliated enterprise....................... (1,850) 1,850 --
(Increase) decrease in receivables and other
assets......................................... 325 (2,488) 4,310
(Increase) decrease in inventories................ 3,016 1,049 (2,385)
(Increase) decrease in prepaid expenses........... (64) 243 62
Less gain due to merger........................... -- -- (2,700)
Increase (decrease) in accruals for pensions...... 398 262 191
Increase (decrease) in total liabilities.......... (1,096) 1,834 (7,345)
Increase (decrease) in accruals................... (463) 1,859 2,889
Other............................................. (431) (33) 12
-------- --------- ---------
Total adjustments.............................. 12,430 16,759 7,296
-------- --------- ---------
Cash provided by operating activities.................... 7,735 21,175 15,078
-------- --------- ---------
Cash flows from investing activities:
Repayment of financial assets.......................... 414 301 967
Proceeds from sales of tangible and intangible
assets.............................................. 1,427 44 133
Capital expenditures................................... (6,638) (7,942) (12,092)
-------- --------- ---------
Cash used by investing activities........................ (4,797) (7,597) (10,992)
-------- --------- ---------
Cash flows from financing activities:
Acquisition of financial assets........................ -- -- (420)
Cash from merger....................................... -- -- 572
Net repayment of financial liabilities to banks........ (6,505) (8,567) (5,272)
Increase (decrease) in liabilities to affiliated
enterprises......................................... 5,000 (3,150) --
-------- --------- ---------
Cash used by financing activities........................ (1,505) (11,717) (5,120)
Effect of foreign exchange rate changes.................. (100) 199 (112)
-------- --------- ---------
Net increase (decrease) in cash.......................... 1,333 2,060 (1,146)
Cash at beginning of the year............................ 791 2,124 4,184
-------- --------- ---------
Cash at year-end......................................... 2,124 4,184 3,038
======== ========= =========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-19
<PAGE> 87

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF DM)

(1) SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of Krebsoge Sinterholding GmbH ("KSH"
or "the Company") have been prepared in accordance with the German Commercial
Code ("HGB") which represents generally accepted accounting principles in
Germany ("German GAAP") using the significant accounting policies described
hereunder. German GAAP varies in certain significant respects from generally
accepted accounting principles in the United States ("US GAAP"). See Note 26 for
a discussion of the significant differences between German GAAP and US GAAP. The
accounting principles and valuation methods of the group have been consistently
applied.

Nature of Operations

The Company is engaged in designing, engineering and manufacturing
precision pressed powder metal components for use in the automotive, machine,
power tool and home appliance industries.

Organization

The Company is owned by MAAG Holding AG (87.24%), SGL Carbon AG (10.98%),
and Dr. Lothar Albano Muller (1.28%). SGL Carbon AG acquired its interest in the
Company by exchanging its 100% interest in Ringsdorff Sinter GmbH, Bonn, with
effect from April 1, 1995.

Consolidation Principles

The following subsidiary companies, in addition to KSH, have been included
in the group accounts applying the full consolidation method:

<TABLE>
<CAPTION>
PERCENTAGE
HOLDING
NAME AND LOCATION OF SUBSIDIARY (%)
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Sintermetallwerk Krebsoge GmbH, Radevormwald/Germany.............................. 100
Metallwerk Unterfranken GmbH, Bad Bruckenau/Germany............................... 100
Pressmetall Krebsoge GmbH, Radevormwald/Germany................................... 100
Sintermetallwerk Lubeck GmbH, Lubeck/Germany...................................... 100
Metallwerk Langensalza GmbH, Bad Langensalza/Germany.............................. 100
Krebsoge USA, Inc., Wilmington/USA................................................ 100
Newmet Krebsoge, Inc., Terryville/USA............................................. 100
</TABLE>

Results of operations for 1995 include the results of the former Ringsdorff
Sinter GmbH, Bonn, from the effective date, April 1, 1995 to December 31, 1995.
Ringsdorff Sinter GmbH was merged with KSH on April 1, 1995.

The 63% participation in Danyang Kaifuda Filters Co., Ltd., Jiangsu
Province/China, was not consolidated due to materiality considerations but
accounted for under the cost method.

The Company's 50% investment in PEAK Werkstoff GmbH, Velbert, is accounted
for as an associated enterprise according to the equity method.

The 26% participation in Sintered Metal Components (Pty.) Limited,
Bellville/South Africa, is accounted for according to the cost method due to
materiality considerations.

Capital consolidation for full consolidated subsidiaries has been performed
following the book value method under German GAAP. Under this method, the
purchase consideration for an acquisition is allocated

F-20
<PAGE> 88

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

to the assets and liabilities acquired based on their book values. Any resulting
excess of the purchase consideration over the parent's interest in the book
value of net assets acquired is allocated to assets, liabilities or capitalized
as goodwill. In accordance with a transition rule of sec. 27 Implementation Law
for German Commercial Code ("EGHGB" in the case of Sintermetall Krebsoge GmbH
(SMK) and Pressmetall Krebsoge GmbH (PMK)) the excess of the acquisition costs
for shares over the book value of net assets was allocated exclusively to
goodwill rather than to any hidden reserves in net assets. Goodwill is amortized
over four years in accordance with sec. 309 No. 1 HGB in the case of SMK and
PMK, except for the American and all other subsidiaries, which is amortized over
its prospective 15 years useful life. See note 26 regarding German GAAP and U.S.
GAAP reconciliation.

Intra-group receivables and payables as well as revenues, income and
expense of transactions between consolidated entities have been eliminated.

Intangible Assets

Intangible assets consist mainly of purchased computer software and
goodwill. Purchased computer software is stated at cost and amortized over 3 to
5 years using the straight-line method. The treatment of goodwill is as
described above.

Property Plant and Equipment

Property plant and equipment is valued at acquisition or manufacturing
costs less accumulated depreciation. Taxable government grants have been
deducted from the purchase price of the assets, for which they were given.
Non-taxable government grants were taken to income in the year of the investment
for which they were received.

Depreciation is provided using the accelerated and straight-line method
generally over the following estimated useful lives: Buildings from 40 to 50
years, machinery from 2 to 20 years; furniture and equipment from 2 to 12 years.
Depreciation on additions during the first and second half of the year are
calculated using full or half-year rates, respectively.

Financial Assets

Financial assets are stated at lower of cost or market. Amortization is
provided as necessary for a permanent impairment of the value of assets.

Inventories

Raw materials and manufacturing supplies are stated at the lower of cost or
market, determined on a weighted average method. Work in progress and finished
products are valued at the lower of manufacturing cost or net realizable value,
and comprise direct material and labor and applicable manufacturing overheads
including depreciation charges.

Receivables and Other Assets

Accounts receivable are presented net of allowances for doubtful accounts.
Allowances include a provision for general risks inherent in trade receivables.
Generally, the Company does not require collateral on sales.

F-21
<PAGE> 89

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

Cash and Cash Equivalents

Cash equivalents represent short-term investments with a maturity of three
months or less when purchased.

Prepaid Expenses

Prepaid expenses consist mainly to loan premiums which are amortized over
the term of the loan.

Pension Obligations

Accruals and provisions for pensions are actuarially determined and based
on discounted amounts.

Liabilities and Other Accruals

Liabilities are presented at their repayment amounts. Other accruals,
including those for product warranty risks and losses on sales, are provided.

Revenue Recognition

Revenue is recognized when title passes or services are rendered, net of
discounts and rebates granted.

Research and Development

The Company engages in product development and incurs costs in this regard
which are expensed. These expenses totalled 4,367 for 1995, and 3,835 and 4,858
in 1994 and 1993.

Foreign Currency Translation

The balance sheets of the American subsidiary have been translated at year
end to Deutsche Mark using exchange rates at the balance sheet date except for
equity which has been translated using historical rates. The income statements
have been translated at the average exchange rates for the years. Translation
adjustments have been recorded as a separate component of equity.

Foreign Currency Transactions

Foreign currency receivables and payables are recorded at historical rates
unless using the exchange rate at the fiscal year-end would result in an
unrealized foreign currency exchange loss. This results in unrealized losses
being recognized currently and unrealized gains being recognized when realized.

Earnings Per Share

The Company is a limited liability company under German law. Earnings per
share is not calculated due to the fact that a limited liability company
expresses ownership as a percentage of the subscribed capital.

Total Cost Method of Presentation

The statements of income have been presented using the total cost (or type
of expenditure) method of presentation which is the most common German GAAP
method in use. In this format, production and all other expenses incurred during
the period are classified by type of expense. Sales for the period and the net
increase (decrease) in inventories of finished products and work in progress and
other work capitalized is classified as Total Output.

F-22
<PAGE> 90

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

Use of Estimates

The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

(2) INTANGIBLE ASSETS

<TABLE>
<CAPTION>
INTELLECTUAL
PROPERTY AND
(SIMILAR
RIGHTS*) GOODWILL TOTAL
---------------- -------- --------
<S> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1994.................................. 3,848 111,117 114,965
Additions................................................... 493 -- 493
Reclassifications........................................... 3 -- 3
Disposals................................................... (40) -- (40)
Currency translation........................................ (11) -- (11)
------- -------- --------
Balance at December 31, 1994................................ 4,293 111,117 115,410
Additions due to merger..................................... 91 -- 91
Additions................................................... 375 -- 375
Reclassifications........................................... 1 -- 1
Disposals................................................... (664) -- (664)
Currency translation........................................ (8) -- (8)
------- -------- --------
Balance at December 31, 1995................................ 4,088 111,117 115,205
------- -------- --------
ACCUMULATED AMORTIZATION
at December 31, 1994........................................ (2,879) (110,820) (113,699)
------- -------- --------
at December 31, 1995........................................ (2,657) (110,842) (113,499)
------- -------- --------
AMORTIZATION FOR THE YEAR
ended December 31, 1993..................................... 387 23 410
=========== ======== ========
ended December 31, 1994..................................... 529 23 552
=========== ======== ========
ended December 31, 1995..................................... 385 23 408
=========== ======== ========
NET BOOK VALUE
at December 31, 1994........................................ 1,414 297 1,711
=========== ======== ========
at December 31, 1995........................................ 1,431 275 1,706
=========== ======== ========
</TABLE>

- ------------------

* Industrial and similar rights and assets and licences in such rights and
assets

F-23
<PAGE> 91

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

Intellectual property and similar rights are comprised of the following:

<TABLE>
<CAPTION>
AT DECEMBER
31,
-------------
1994 1995
----- -----
<S> <C> <C>
Software............................................................. 740 850
Licences and intellectual property................................... 607 524
Other................................................................ 67 57
----- -----
1,414 1,431
===== =====
</TABLE>

Software relates to purchased software. Licences and intellectual property
consist of 41 (prior year 21) purchased patent rights and 483 (prior year 586)
purchased technical production know how.

The Goodwill results from the consolidation and refers to the following
entities:

<TABLE>
<CAPTION>
ACQUISITION ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
----------- ----------- --------
<S> <C> <C> <C>
Sintermetallwerk Krebsoge GmbH................. 108,792 108,792 --
Pressmetall Krebsoge GmbH...................... 1,982 1,982 --
Krebsoge USA, Inc.............................. 343 68 275
------- ------- ---
Total Goodwill at December 31, 1995....... 111,117 110,842 275
======= ======= ===
</TABLE>

F-24
<PAGE> 92

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

(3) PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
OTHER ADVANCE
TECHNICAL EQUIPMENT, PAYMENTS
EQUIPMENT FACTORY AND AND
LAND AND AND OFFICE CONSTRUCTION
BUILDINGS MACHINES EQUIPMENT IN PROGRESS TOTAL
--------- --------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1994.................. 45,399 125,291 45,209 813 216,712
Additions................................... 538 3,728 1,674 1,509 7,449
Reclassifications........................... 98 (87) 616 (630) (3)
Disposals................................... (17) (2,062) (1,851) (3) (3,933)
Currency translation........................ (295) (376) (43) -- (714)
--------- --------- ----------- ------------ --------
Balance at December 31, 1994................ 45,723 126,494 45,605 1,689 219,511
Additions due to merger..................... 0 14,556 2,204 4 16,764
Additions................................... 1,046 6,212 2,230 2,439 11,927
Reclassifications........................... 587 198 683 (1,469) (1)
Disposals................................... 0 (1,520) (1,928) (91) (3,539)
Currency translation........................ (198) (257) (28) -- (483)
Write-ups................................... 12 12 -- -- 24
--------- --------- ----------- ------------ --------
Balance at December 31, 1995................ 47,170 145,695 48,766 2,572 244,203
--------- --------- ----------- ------------ --------
ACCUMULATED DEPRECIATION
at December 31, 1994........................ (22,604) (110,035) (38,187) -- (170,826)
======= ======== ======== ========= ========
at December 31, 1995........................ (23,666) (123,331) (41,452) -- (188,449)
======= ======== ======== ========= ========
DEPRECIATION FOR THE YEAR
ended December 31, 1993..................... 1,660 8,023 3,804 -- 13,487
======= ======== ======== ========= ========
ended December 31, 1994..................... 1,085 6,965 3,605 -- 11,655
======= ======== ======== ========= ========
ended December 31, 1995..................... 1,110 7,032 3,542 -- 11,684
======= ======== ======== ========= ========
NET BOOK VALUE
at December 31, 1994........................ 23,119 16,459 7,418 1,689 48,685
======= ======== ======== ========= ========
at December 31, 1995........................ 23,504 22,364 7,314 2,572 55,754
======= ======== ======== ========= ========
</TABLE>

F-25
<PAGE> 93

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

(4) FINANCIAL ASSETS

<TABLE>
<CAPTION>
INVESTMENTS IN
NON INVESTMENTS IN LOANS TO THE
CONSOLIDATED ASSOCIATED ASSOCIATED OTHER OTHER
GROUP-COMPANIES ENTERPRISES ENTERPRISES INVESTMENTS LOANS TOTAL
--------------- -------------- ------------ ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1994....... -- 650 1,250 11 14 1,925
Additions........................ -- -- -- -- -- --
Reclassifications................ -- -- -- -- -- --
Disposals........................ -- -- (300) -- (1) (301)
Currency translation............. -- -- -- -- -- --
--
--- ------ ------ ----- -----
Balance at December 31, 1994..... -- 650 950 11 13 1,624
Additions due to merger.......... -- -- -- -- 61 61
Additions........................ 420 -- -- -- -- 420
Reclassifications................ -- -- -- -- -- --
Disposals........................ -- -- (950) -- (18) (968)
Currency translation............. -- -- -- -- -- --
--
--- ------ ------ ----- -----
Balance at December 31, 1995..... 420 650 -- 11 56 1,137
--- ------ ------ -- ----- -----
ACCUMULATED AMORTIZATION
at December 31, 1994............. -- (500) -- -- (2) (502)
--
--- ------ ------ ----- -----
at December 31, 1995............. -- (650) -- -- (2) (652)
--
--- ------ ------ ----- -----
AMORTIZATION FOR THE YEAR
ended December 31,1 993.......... -- -- -- -- -- --
=== ====== ====== == ===== =====
ended December 31, 1994.......... -- -- -- -- -- --
=== ====== ====== == ===== =====
ended December 31, 1995.......... -- 150 -- -- -- 150
=== ====== ====== == ===== =====
NET BOOK VALUE
at December 31, 1994............. -- 150 950 11 11 1,122
=== ====== ====== == ===== =====
at December 31, 1995............. 420 -- -- 11 54 485
=== ====== ====== == ===== =====
</TABLE>

The investment in non-consolidated group companies relates to a 63%
participation in Danyang Kaifuda Filters Co., Ltd., Jiangsu Province/China,
according to a partnership agreement with Danyang Feida Industrial General
Corporation, Jiangsu Province/China. Total equity as of December 31, 1995
amounts to TDM 897, and the loss for the year amounts to TDM 38.

Investment in associated enterprises relate to the participations held by
Sintermetallwerk Krebsoge GmbH, Radevormwald, in the following companies:

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-------------------- AT DECEMBER 31,
(LOSS) ---------------
EQUITY INCOME 1994 1995
------ ------- ---- ----
<S> <C> <C> <C> <C>
Sintered Metal Components (Pty.), Limited
Bellville/South Africa (26%)........... 2,385 570 -- --
PEAK Werkstoff GmbH, Velbert (50%)....... 300 (1,269) 150 --
---- ----
150 --
==== ====
</TABLE>

F-26
<PAGE> 94

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

The participation in PEAK Werkstoff GmbH was written off in full in the
amount of 150 in 1995 due to the permanent loss situation of the Company. Bank
loans of PEAK Werkstoff GmbH amount to 2,200 as of December 31, 1995.

Loans to the associated enterprises relate to a loan granted by
Sintermetallwerk Krebsoge GmbH to PEAK Werkstoff GmbH, Velbert. The loan was
repaid in full in 1995.

(5) INVENTORIES

<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Raw materials.................................................. 5,968 8,051
Work in progress............................................... 9,347 13,441
Finished goods and merchandise................................. 5,257 9,879
------- -------
20,572 31,371
======= =======
</TABLE>

(6) RECEIVABLES AND OTHER ASSETS

<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Trade receivables.............................................. 22,498 28,626
Less allowance for doubtful accounts........................... (600) (893)
------- -------
Trade receivables, net......................................... 21,898 27,733
Receivables from affiliated enterprises........................ 119 97
Receivables from associated enterprises........................ 264 57
Receivables from shareholders.................................. -- 171
Other assets................................................... 1 ,677 2,242
------- -------
23,958 30,300
======= =======
</TABLE>

Receivables from affiliated enterprises are composed as follows and relate
to trade:

<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1994 1995
---- ----
<S> <C> <C>
MAAG France S.A., Courbevoie/France.................................. -- 97
MAAG Overseas International N.V., Curacao/Netherland Antilles........ 118 --
MAAG Holding AG, Zurich/Switzerland.................................. 1 --
---- ----
119 97
==== ====
</TABLE>

Receivables from associated enterprises relate to equity investments and
are composed as follows:

<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1994 1995
---- ----
<S> <C> <C>
PEAK Werkstoff GmbH, Velbert......................................... 264 57
==== ====
</TABLE>

The receivables relate to trade in the amount of 57 (prior year 182). In
1994 the receivable contained an amount of 82 of interest relating to the loan
included in financial assets amounting to 950. This loan and related interest
was repaid in full in 1995.

F-27
<PAGE> 95

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

Receivables from shareholders are composed as follows:

<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1994 1995
---- ----
<S> <C> <C>
SGL Carbon AG, Wiesbaden............................................. -- 171
==== ====
</TABLE>

The receivables relate to trade tax for the former Ringsdorff Sinter GmbH,
Bonn, in the first quarter 1995, which is still the responsibility of the
seller.

Other Assets are composed as follows:

<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1994 1995
----- -----
<S> <C> <C>
Receivables from fiscal authorities.................................. 289 837
Cash surrender value of life insurance contracts..................... 677 702
Prepayments.......................................................... -- 347
Overpayments......................................................... 364 148
Other................................................................ 347 208
----- -----
1,677 2,242
===== =====
</TABLE>

Life insurance contracts are provided to cover a portion of the pension
obligations for key employees.

(7) PREPAID EXPENSES

The loan origination costs included in prepaid expenses amounts to 523
(prior year 597). The remaining balance relates to other accrued items such as
insurance.

(8) SHAREHOLDERS' EQUITY/CUMULATIVE LOSS IN EXCESS OF EQUITY

<TABLE>
<CAPTION>
CUMULATIVE ACCUMULATED CUMULATIVE
SHARE CAPITAL REVENUE TRANSLATION LOSS BROUGHT LOSS IN EXCESS
CAPITAL RESERVES RESERVES ADJUSTMENT FORWARD OF EQUITY TOTAL
------- -------- -------- ---------- ------------ -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993......... 30,000 10,000 11 (182) (105,790) 65,961 --
Income of the year................. -- -- -- (4,695) 4,695 --
Currency translation............... -- -- -- 155 -- (155) --
------- -------- -------- ---------- ------------ ------- -----
BALANCE AT JANUARY 1, 1994......... 30,000 10,000 11 (27) (110,485) 70,501 --
Release of revenue reserves........ -- -- (11) -- 11 -- --
Income of the year................. -- -- -- -- 4,416 (4,416) --
Currency translation............... -- -- -- (189) -- 189 --
------- -------- -------- ---------- ------------ ------- -----
BALANCE AT DECEMBER 31, 1994....... 30,000 10,000 -- (216) (106,058) 66,274 --
Income of the year................. -- -- -- -- 7,782 (7,782) --
Currency translation............... -- -- -- (113) -- 113 --
Capital increase................... 3,700 -- -- -- -- (3,700) --
------- -------- -------- ---------- ------------ ------- -----
Balance of December 31, 1995....... 33,700 10,000 -- (329) (98,276) 54,905 --
====== ======= ======= ========= ========== =========== ====
</TABLE>

The cumulative loss in excess of equity is a result of the excess of the
purchase price over the net equity in the amount of 110,774 relating to the
purchase in 1986 of the investment of Sintermetallwerk Krebsoge GmbH and
Pressmetall Krebsoge GmbH which was treated as goodwill and amortized over four
years.

F-28
<PAGE> 96

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

(9) ACCRUALS FOR PENSIONS

The Company operates a range of defined benefit pension plans for members
of the board of management, leading officers and employees which are based on
individually fixed DM amounts. The pension plans are unfunded and the
obligations from the plans are accrued for in the consolidated financial
statements. The accrual is determined based on the legal discount rate of 6%
using the entry age actuarial cost method. The plans are underaccrued by 525
(prior year 525) for German GAAP purposes.

(10) TAX ACCRUALS

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Trade tax.......................................................... 1,026 2,223
Corporate income tax............................................... 602 658
Net assets tax..................................................... 36 68
Other taxes........................................................ 2 --
------ ------
Tax accruals....................................................... 1,666 2,949
====== ======
</TABLE>

(11) OTHER ACCRUALS

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Vacation pay....................................................... 1,677 2,956
Severance and other salary payable................................. 50 1,578
Salary bonus....................................................... -- 1,407
Product warranties................................................. 967 1,177
Workman's compensation............................................. 438 722
Outstanding invoices............................................... 548 698
Estimated future losses on sales................................... 455 536
Deferred maintenance accrual....................................... 382 520
Audit fees......................................................... 263 287
Unemployment insurance............................................. -- 190
Commissions........................................................ 186 93
Interest........................................................... 101 167
Other.............................................................. 187 177
------ ------
5,254 10,508
====== ======
</TABLE>

Severance and other salary payable includes a charge for the period of
1,000 for a general manager of one of the groups companies.

F-29
<PAGE> 97

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

(12) LIABILITIES

<TABLE>
<CAPTION>
OF WHICH DUE
--------------------------------------
WITHIN IN ONE TO AFTER
TOTAL ONE YEAR FIVE YEARS FIVE YEARS
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1994
Liabilities to banks.............................. 74,421 52,689 15,571 6,161
Trade payables.................................... 6,999 6,970 29 --
Liabilities on bills accepted and drawn........... 2,016 2,016 -- --
Payable to affiliated enterprises................. 55,500 55,500 -- --
Payable to associated enterprises................. 813 813 -- --
Other liabilities................................. 13,449 12,887 270 292
------- -------- ---------- ----------
TOTAL LIABILITIES.......................... 153,198 130,875 15,870 6,453
======= ======= ======== ========
AT DECEMBER 31, 1995
Liabilities to banks.............................. 68,801 49,778 13,976 5,047
Payments received on account of orders............ 567 567 -- --
Trade payables.................................... 9,739 9,719 20 --
Liabilities on bills accepted and drawn........... 2,070 2,070 -- --
Payable to affiliated enterprises................. 53,672 53,672 -- --
Payable to associated enterprises................. 634 634 -- --
Other liabilities................................. 13,903 13,345 272 286
------- -------- ---------- ----------
TOTAL LIABILITIES.......................... 149,386 129,785 14,268 5,333
======= ======= ======== ========
</TABLE>

Of total liabilities to banks (all DM denominated) 62,141(prior year
71,682) are secured by liens on land and buildings, investments in subsidiaries,
technical equipment and subordination of receivables from subsidiaries; 9,609 of
the total relates to current overdrafts. Average interest rate was 5.92% for the
year 1995. Loan fees were capitalized as prepaid expenses and are amortized over
the term of the loan. The Company has a line of credit amounting to 101,534.

Payable to affiliated enterprises are composed as follows:

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
MAAG Overseas International N.V., Curacao/Netherland Antilles,
loans............................................................ 53,613 53,613
MAAG France S.A., Courbevoie/France................................ 37 59
MAAG Holding AG, Zurich/Switzerland, loan.......................... 1,850 --
------ ------
55,500 53,672
====== ======
</TABLE>

The loans from MAAG Overseas International N.V. are cancellable by MAAG
and, if so, would then become payable upon demand at the earliest at December
31, 1996 with three months notice and are as follows:

F-30
<PAGE> 98

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

Interest is LIBOR plus 0.25%, but at least 5%.

Payables to associated enterprises in the amount of 634 (prior year 813)
relate to the assumption of the loss of the equity subsidiary PEAK Werkstoff
GmbH, Velbert, in 1995.

Other liabilities consist of:

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Loans from former shareholders (inclusive of accrued interest)..... 5,358 4,847
Loan from a shareholder (inclusive of accrued interest)............ 1,274 1,274
Taxes.............................................................. 2,590 2,394
Social costs....................................................... 1,534 2,159
Wages.............................................................. 1,577 1,618
Loan from Albano-Muller Unterstutzungskasse e.V.................... 629 627
Commissions payable................................................ -- 336
Government grants at risk.......................................... 182 151
Other.............................................................. 305 497
------ ------
13,449 13,903
====== ======
</TABLE>

The loans from former shareholders relate to outstanding debt in respect to
MAAG Holding AG's purchase of the company in 1986. The loan from a shareholder
relates to the loan granted from Dr. Lothar Albano-Muller, chairman of the
Krebsoge Sinterholding GmbH's Board of Management. The interest rate applicable
to the loans from former shareholders and loan from a shareholder is LIBOR plus
0.25% (at least 5%). The loans are renewed automatically on quarterly basis.

The other liabilities contain a loan from the Albano-Muller
Unterstutzungskasse e.V. in the amount of 627 (prior year 629). The Company
transfers amounts to the staff benevolent fund to provide for pension and other
financial assistance liabilities. The transferred amounts are transferred back
to the Company. This loan is repaid back by direct payments made by the Company
to the employees whose rights to pension or other financial benefits are
provided by the fund. The interest rate is the German Federal Reserve Bank's
discount rate (2.5% at December 31, 1995) plus 1%.

(13) DEFERRED INCOME

Deferred income refers to a payment in the amount of 750 received in 1983
from the Wupperverband electrical utility as compensation for non-compliance of
a contract according to which the Wupperverband had to provide electric energy
to the Company for several years under market price. The amount is being
released over 25 years. Current year income effect is 30.

F-31
<PAGE> 99

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

(14) COMMITMENTS

The Company also leases certain facilities and machinery and equipment
under operating leases. Rent and minimum operating lease commitments in excess
of one year are as follows after December 31, 1995:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1996........................................................ 3,154
1997........................................................ 2,191
1998........................................................ 1,964
1999........................................................ 1,690
2000........................................................ 1,514
------
10,513
======
</TABLE>

Rent expense was 1,610, 1,510, and 1,649, in 1993, 1994 and 1995.

(15) CONTINGENCIES

In the normal course of business the Company has guaranteed approximately
1,700 of loans.

Financial contingencies relate to the issuance and transfer of bills of
exchange in the amount of 367 (1993: 256).

(16) SEGMENT SALES

Geographic composition

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net sales:
Germany.............................................. 115,734 126,396 151,941
Other countries...................................... 51,213 56,309 74,660
------- ------- -------
166,947 182,705 226,601
Less discounts....................................... (2,111) (3,769) (1,803)
------- ------- -------
164,836 178,936 224,798
======= ======= =======
</TABLE>

Sales to one customer represented 17.6%, 13.9% and 11% of total net sales
in 1993, 1994, and 1995, respectively.

F-32
<PAGE> 100

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

(17) OTHER OPERATING INCOME

Other operating income is comprised of the following:

<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Income from release of provisions.......................... 226 158 1,783
Governments grants......................................... 1,139 1,220 920
Revenue from licenses...................................... 86 422 473
Cafeteria sales............................................ 179 127 152
Investment allowances...................................... 31 28 148
Reduction in allowances for doubtful accounts.............. 123 257 98
Exchange rate gain......................................... 222 71 55
Gain of disposal of fixed assets........................... 1,302 24 --
Credit notes............................................... -- 370 12
Release of untaxed special reserves........................ 405 -- --
Other...................................................... 328 351 590
----- ----- -----
4,041 3,028 4,231
===== ===== =====
</TABLE>

(18) COST OF MATERIALS

<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Raw materials, consumables, supplies
and merchandise....................................... 41,383 44,536 55,319
Purchased services...................................... 5,045 6,283 12,419
------ ------ ------
46,428 50,819 67,738
====== ====== ======
</TABLE>

(19) PERSONNEL EXPENSES/EMPLOYMENT

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Wages and salaries..................................... 65,514 66,328 88,234
Social security and pension expense (of which for
pensions 1,042 (1994: 810)........................... 12,870 13,038 17,214
------ ------ -------
78,384 79,366 105,448
====== ====== =======
Employment (weighted average number of employees)
</TABLE>

<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Wage earners............................................... 815 787 1,007
Salaried employees......................................... 316 294 367
----- ----- -----
1,131 1,081 1,374
===== ===== =====
</TABLE>

F-33
<PAGE> 101

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

(20) OTHER OPERATING EXPENSES

Other operating expenses are comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Maintenance............................................. 3,664 4,555 6,925
Commissions............................................. 2,227 2,908 3,275
Freight expenses........................................ 1,531 1,615 2,713
Professional fees....................................... 1,533 1,729 2,516
Rent and leasing........................................ 1,610 1,510 1,649
Insurance............................................... 988 1,105 1,174
External services....................................... -- -- 1,069
Waste removal........................................... 442 772 1,050
Office supplies, literature............................. 357 293 968
Travel expenses......................................... 589 829 850
Advertising............................................. 100 398 620
Telephone postage....................................... 499 561 558
Additional personnel costs.............................. 696 487 540
Exchange rate loss...................................... 227 250 257
Additions to accruals................................... 281 264 333
Additions to allowances for doubtful accounts........... 501 147 192
Other................................................... 4,504 3,849 5,248
------ ------ ------
19,749 21,272 29,937
====== ====== ======
</TABLE>

(21) FINANCIAL INCOME (EXPENSE), NET

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1993 1994 1995
------- ------- ------
<S> <C> <C> <C>
Income from long-term loans........................... 122 82 11
Other interest and similar income..................... 7 310 50
Assumption of loss from associated enterprises........ (1,259) (963) (634)
Write-down of investment due to impairment............ -- -- (150)
Interest and similar expenses......................... (12,597) (9,556) (8,139)
------- ------- ------
(13,727) (10,127) (8,862)
======= ======= ======
</TABLE>

Assumption of loss from associated enterprises relates to 50% net loss for
the year of the equity investment PEAK Werkstoff GmbH, Velbert.

The write-down of investment due to permanent impairment also relates to
the 50% equity investment in PEAK Werkstoff GmbH, Velbert.

F-34
<PAGE> 102

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

(22) EXTRAORDINARY INCOME (EXPENSE)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Extraordinary income.................................... 1,850 -- 2,700
Extraordinary expense................................... (2,316) (1,850) (1,000)
------ ------ ------
(466) (1,850) 1,700
====== ====== ======
</TABLE>

As of April 4, 1995 Krebsoge Sinterholding GmbH (KSH) acquired the shares
of Ringsdorff Sinter GmbH, Bonn, effective April 1, 1995 from SGL Carbon AG in
exchange for issuance of 11% shares in KSH (nominal value 3,700). As of November
14, 1995 Ringsdorff Sinter GmbH was merged with KSH retroactively effective as
of April 1, 1995. The nominal value of the shares issued (3,700) under the book
value of assets and liabilities (6,400) was recorded as an extraordinary gain of
2,700 for German GAAP purposes. This gain is non-taxable.

The 1,850 extraordinary expense relates to a receivable from MAAG Holding
AG which was forgiven in 1993 and recognized as extraordinary income, upon
conditions that if the business improved to a certain point the Company would
have to pay the amount back. This happened in 1994 and the Company recognized
the expense. Both aspects of this transaction were non-taxable.

Extraordinary expenses in 1993 relate to social plans in connection with
the reduction of personnel.

(23) TAXES ON INCOME

The provision for income taxes follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
Municipal trade tax on income............................... 2 1,934 1,813
Foreign income tax.......................................... 26 44 26
Solidarity tax.............................................. -- -- (8)
Corporate income tax........................................ (11) 362 (204)
---- ----- -----
17 2,340 1,627
==== ===== =====
</TABLE>

A reconciliation of income taxes determined using the statutory federal
German rate of 45% (50% in 1993) to actual income taxes provided is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Corporate rate at German federal statutory rate........ (2,340) 3,040 4,411
Municipal trade taxes, net of federal tax benefit...... 1 1,064 1,177
Non-taxable extraordinary gain......................... (925) -- (1,215)
Net operating loss utilization......................... -- (2,968)) (2,596)
Net operating loss carryforward........................ 2,961 452 --
Nondeductible extraordinary loss....................... -- 833 --
Nondeductible expenses................................. 40 (41) 36
Other.................................................. 280 (40) (186)
------ ------ -------
Provision for income taxes............................. 17 2,340 1,627
====== ====== =======
Effective rate......................................... -- 35% 18%
====== ====== =======
</TABLE>

F-35
<PAGE> 103

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

German Corporation tax law applies the imputation system to the income
taxation of a corporation and its shareholders. Upon distribution of retained
earnings in the form of a dividend, shareholders receive an income tax credit
for taxes previously paid by the corporation.

In general, corporate income is initially subject to a federal tax rate of
45% (50% in 1993). Upon distribution of retained earnings to shareholders, the
corporate tax rate is adjusted to 30% (36% in 1993) by receiving a refund from
the government for taxes previously paid on income in excess of these rates (the
distributed earnings rate).

In addition, corporate income is subject to a municipal tax on income
varying in rates from 15% to 20% depending on municipality. Municipal tax on
income is deductible for corporate income tax purposes.

Corporate income tax loss carry forwards used in 1995 of 5,038 of former
Ringsdorff Sinter GmbH are challenged by revenue agents with an unpredictable
outcome. There are additional tax loss carry forwards of 10,830 of the former
Ringsdorff Sinter GmbH which will be challenged as well. The net operating loss
carryovers have an indefinite carryover period.

(24) RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Interest expense on loans/amounts due parent............... 4,375 3,091 2,763
Management fees............................................ 1,075 1,270 1,601
Sales...................................................... -- -- 492
Purchases.................................................. -- -- 227
</TABLE>

Other related party transactions consist of the interest paid for the loans
from shareholders and former shareholders of 263 for 1995, and 361 in 1994.

Management fees are included in professional fees in Note 20 Other
Operating Expense. For further information on related party transactions refer
to Notes 6 and 12.

(25) INFORMATION ABOUT FINANCIAL INSTRUMENTS

The following information is presented in accordance with SFAS No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentration of Credit Risk", and SFAS No.
107, "Disclosures about Fair Value of Financial Instruments". These statements
require the disclosure of off-balance-sheet instruments and estimated fair
values for all financial instruments.

The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business as a means of hedging its currency rate
exposure in regards to foreign currency trade receivables. Management does not
anticipate any material adverse affect on its financial position resulting from
its involvement in these instruments. The following is a summary of contract or
notional principal amounts outstanding at December 31, 1995 and 1994.

<TABLE>
<CAPTION>
NOTIONAL PRINCIPAL
AMOUNT
-------------------
1994 1995
----- -----
<S> <C> <C>
Forward foreign exchange contracts............................. -- 2,879
===== =====
</TABLE>

These instruments are executed with creditworthy financial institutions,
and all foreign currency contracts are denominated in currencies of major
industrial countries.

F-36
<PAGE> 104

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

The fair value of forward exchange contracts was estimated based on
exchange rates at December 31, 1995. The estimated fair values of the Company's
financial instruments at December 31, 1995 follow:

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
<S> <C> <C>
Forward foreign exchange contracts................................ 2,879 2,878
====== =====
</TABLE>

Gains and losses are recorded currently.

(26) RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY AS DETERMINED USING
U.S. GAAP

German GAAP varies in certain significant respects from generally accepted
accounting principles in the United States (U.S. GAAP). Application of U.S. GAAP
would have affected net income (loss) for the years ended December 31, 1994 and
1995 to the extent quantified below, as well as shareholders' equity (deficit)
at December 31, 1994 and 1995.

RECONCILIATION OF NET INCOME TO U.S. GAAP

The following is a reconciliation of the significant adjustments necessary
to reconcile net income (loss) in accordance with U.S. GAAP to the amounts
determined under German GAAP, for the years ended December 31, 1994 and 1995.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Net income as reported in the consolidated profit and loss account under
German GAAP............................................................ 4,416 7,782
Amortization of step-up -- MAAG purchase of KSH.......................... (10,848) (10,848)
Amortization of step-up -- former Ringsdorff Sinter GmbH................. -- (220)
Elimination of extraordinary gains on purchase of Ringsdorff............. -- (2,700)
Pensions and similar obligations......................................... (32) (753)
Non-taxable investment allowances........................................ 307 190
Reserves not required for U.S. GAAP...................................... 399 370
Anniversary payments..................................................... 13 (204)
Depreciation............................................................. (82) (580)
Deferred taxes on U.S./German differences
Pensions and similar obligations....................................... 14 324
Reserves not required for U.S. GAAP.................................... (172) (159)
Anniversary payments................................................... (6) 88
Depreciation........................................................... 35 249
Net operating loss carryforwards....................................... (2,605) (275)
Amortization of step-up of buildings................................... 167 167
Extraordinary item..................................................... 1,016 --
------- -------
Net loss in accordance with U.S. GAAP.................................... (7,378) (6,569)
======= =======
</TABLE>

F-37
<PAGE> 105

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

INCOME STATEMENT PRESENTATION UNDER U.S. GAAP

Certain items in the type of expense profit and loss account would be
classified differently under U.S. GAAP. These items include reversals for
accrued expenses and allowances to doubtful accounts that would generally be
recorded as reductions to the original expense line items under U.S. GAAP rather
than as income.

The extraordinary expenses reported under German GAAP would be classified
as an expense charged to income from ordinary business activities under U.S.
GAAP.

The following is a presentation of certain income statement information in
accordance with U.S. GAAP.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Results from ordinary activities........................................... (3,487) (5,336)
Loss before income taxes................................................... (3,487) (5,336)
Income taxes............................................................... 3,891 1,233
------ ------
Net loss in accordance with U.S. GAAP...................................... (7,378) (6,569)
====== ======
</TABLE>

RECONCILIATION OF SHAREHOLDERS' DEFICIT TO U.S. GAAP

The following is a reconciliation of the significant adjustments necessary
to reconcile shareholders' equity (deficit) in accordance with U.S. GAAP to the
amounts determined under German GAAP, as of December 31, 1994 and 1995:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Shareholders' equity (deficit) as reported in the consolidated balance
sheet under German GAAP................................................ -- --
Cumulative loss in excess of equity -- 1 January......................... (66,274) (54,905)
Amortization of step-up -- MAAG purchase of KSH.......................... 53,861 43,013
Amortization of step-up -- Ringsdorff.................................... -- 2,710
Elimination of extraordinary gain on purchase of Ringsdorff.............. -- (2,700)
Pensions and similar obligations......................................... (841) (1,594)
Non-taxable investment allowances........................................ (1,689) (1,499)
Reserves not required for U.S. GAAP...................................... 1,278 1,648
Anniversary payments..................................................... (893) (1,097)
Accumulated depreciation................................................. 25,727 25,147
Deferred taxes on U.S./German differences
Pensions and similar obligations....................................... 362 685
Reserves not required for U.S. GAAP.................................... (550) (709)
Anniversary payments................................................... 384 472
Depreciation........................................................... (11,063) (10,813)
Net operating loss carryforwards....................................... 1,879 1,604
Step-up of buildings................................................... (3,335) (3,167)
------- -------
Shareholders' deficit in accordance with U.S. GAAP....................... (1,154) (1,206)
======= =======
</TABLE>

F-38
<PAGE> 106

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

RECONCILIATION OF CHANGES IN SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Shareholders' equity (deficit), beginning of year........................ 6,413 (1,154)
Net loss in accordance with U.S. GAAP.................................... (7,378) (6,569)
Increase in share capital................................................ -- 3,700
Increase in capital attributable to the purchase of Ringsdorff Sinter
GmbH................................................................... -- 2,930
Difference from currency translation..................................... (188) (113)
------- -------
Shareholders' deficit.................................................... (1,154) (1,206)
======= =======
</TABLE>

BALANCE SHEET PRESENTATION UNDER U.S. GAAP

Under U.S. GAAP, all receivables due after one year and all liabilities
payable after one year are classified as non-current.

German GAAP does not require presentation of a classified balance sheet.
Summarized balance sheet information measured and classified in accordance with
U.S. GAAP is as follows:

<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. 4,184 3,038
Other current assets................................................... 45,244 62,323
------- -------
Total current assets........................................... 49,428 65,361
Noncurrent assets........................................................ 131,106 126,114
------- -------
Total assets................................................... 180,534 191,475
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... 22,685 26,913
Short-term debt and current portion of long-term debt.................. 108,190 102,872
Accruals............................................................... 6,920 13,457
------- -------
Total current liabilities...................................... 137,795 143,242
Noncurrent liabilities:
Long-term debt......................................................... 21,732 19,601
Other noncurrent liabilities........................................... 22,161 29,838
------- -------
Total long-term liabilities.................................... 43,893 49,439
Shareholders' deficit:
Shareholders' deficit.................................................. (1,154) (1,206)
------- -------
Total liabilities and shareholders' equity..................... 180,534 191,475
======= =======
</TABLE>

A brief explanation of the most significant differences follows.

F-39
<PAGE> 107

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

(a) Cumulative loss in excess of equity

Under German GAAP, the cumulative loss in excess of net equity is reflected
as an asset. This is not permitted in U.S. GAAP, as this amount resides in
equity.

(b) Amortization of step-up -- MAAG purchase of KSH

The acquisition of 74% and 24% of KSH by MAAG Holding AG on September 22,
1986 and August 19, 1993, respectively, did not impact the financial statements
for German GAAP purposes. For U.S. GAAP purposes the purchase price paid by MAAG
has been allocated to the fair value of the assets and liabilities acquired. The
excess of the price paid by MAAG over the fair value of the assets and
liabilities acquired has been allocated to goodwill and is being amortized over
10 years.

As of April 1, 1995 Krebsoge Sinterholding GmbH (KSH) acquired the shares
of Ringsdorff Sinter GmbH, Bonn from SGL Carbon AG in exchange for issuance of
11% of the outstanding shares in KSH with a nominal value 3,700. Under German
GAAP a nontaxable extraordinary gain of 2,700 was recorded for the excess of the
net equity of 6,400 of the acquired company over the nominal value of the
consideration given. U.S. GAAP requires the acquiring company to record an
acquisition on the basis of the fair value of the consideration given (8,950) or
the fair value of the acquired net assets whichever is more readily
determinable. The excess of the purchase price over net book value is allocated
to machinery and equipment and is amortized over ten years.

(d) Pensions and similar obligations

The pension obligations of KSH are provided for by a range of defined
benefit pensions plans. The amount of the accrual was calculated in accordance
with German GAAP and tax legislation, which does not take into account future
pay raises or inflation and uses the discount rate according to the legislation.
Under U.S. GAAP the accrual has been calculated by an actuary applying the
principles of SFAS 87.

For 1994 and 1995, the assumed discount rate and post-retirement pension
increases used in calculating the projected benefit obligation were 7.5% and
6.5%, respectively, and 2.5%.

The Company adopted SFAS 87, Employers Accounting for Pensions effective
December 31, 1992 because it was not feasible to apply the statement
retroactively to the year ended December 31, 1989, the applicable adoption date
specified in the standard. The portion of the transition obligation applicable
to periods prior to 1992 was not considered material.

(e) Non-taxable investment allowances

Under German GAAP tax free investment allowances are accounted for under
the flow-through method (taken to income) of which treatment is not consistent
under U.S. GAAP.

(f) Reserves not required for U.S. GAAP

(i) Deferred maintenance accrual

As required by German GAAP, the costs of maintenance performed within three
months following the year end have been accrued as liabilities at year end.
Under U.S. GAAP, the cost of maintenance is recognized in the periods incurred.

F-40
<PAGE> 108

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

(ii) Estimated losses on future contracts

As required by German GAAP, the expected loss to be incurred on future
delivery contracts have been accrued as liabilities at year end. Such loss
considers all internal costs, including indirect selling and administrative.
Under U.S. GAAP, allocation of indirect costs for purposes of determining
inventoriable costs is not permitted.

(iii) Allowance for doubtful accounts

Under German GAAP, an allowance for doubtful accounts has been accrued in
the amount of 3% of outstanding receivables less VAT. Under U.S. GAAP an
allowance of 2% would be more appropriate as this more clearly approximates past
experience.

(iv) Warranty expense

Under German GAAP, an accrual for warranty expense has been provided in the
amount of 0.5% of sales. Under U.S. GAAP an accrual of 0.25% would be more
appropriate as this more closely approximates past experience.

(g) Anniversary payments

Under German GAAP, the Company expensed anniversary payments for long-term
service to the company as incurred. Under U.S. GAAP these costs are accrued
based on vesting.

(h) Deferred taxes

Under German GAAP, deferred tax assets are generally provided for temporary
differences using the partial liability method. Deferred taxes are not provided
for differences that are not expected to reverse in the foreseeable future, nor
are they recognized for the effects of NOLs.

Under U.S. GAAP, deferred taxes are provided for all temporary differences
between the financial reporting and tax bases of assets and liabilities that
will reverse during future taxable periods, including deferred tax assets
relating to NOLs. Deferred taxes are also provided for the income tax effects of
differences between U.S. GAAP and German GAAP. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.

(i) Depreciation

Under German GAAP, accelerated methods of depreciation as well as straight
line depreciation are used. Estimates of the difference between accelerated
methods of depreciation were prepared by the company based on certain
assumptions of average useful lives. Assumed average useful lives were as
follows:

<TABLE>
<S> <C>
Land and buildings......................................... 40 years
Machinery and equipment.................................... 10 years
Office equipment........................................... 5 years
</TABLE>

(j) Special reserves for tax purposes

Under German GAAP, special reserves for tax purposes are recorded to defer
income in accordance with the German tax code. Under U.S. GAAP the special
reserves are not recorded and deferred tax is provided according to SFAS 109
"Accounting for Income Taxes."

F-41
<PAGE> 109

KREBSOGE SINTERHOLDING GMBH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS OF DM)

OTHER MATTERS

a) Unrealized exchange gains

Under German GAAP, unrealized exchange gains are not recognized. Under U.S.
GAAP, unrealized exchange gains were not of a material amount.

(27) SUBSEQUENT EVENT

On October 7, 1996, Sinter Metals Inc. (SMI) signed a definitive purchase
agreement with MAAG Holding AG to purchase the Company for U.S. $150 million
(exchange rate DM 1.50 = U.S. $1.00), less net indebtedness of roughly DM 120
million.

These financial statements are prepared using the historical cost basis,
and do not reflect any purchase accounting or other decisions taken or to be
taken by SMI in connection with the purchase of the Company.

(28) KREBSOGE SINTERHOLDING GMBH'S BOARD OF MANAGEMENT

Dr.-Ing. Lothar Albano-Muller, Schwelm (Chairman)

Dipl.- Wirtsch.-Ing. Eckhard Hirschfeld, Remscheid-Lennep (until December
31, 1995)

Total remuneration of the management was 797 (1994: 777).

F-42
<PAGE> 110

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Powder Metal Holding, Inc.:

We have audited the accompanying consolidated balance sheets of Powder Metal
Holding, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
November 22, 1996, and and the related consolidated statements of income,
shareholders' deficit and cash flows for the years ended December 31, 1994 and
1995 and for the period January 1, 1996 through November 22, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of November 22, 1996
and December 31, 1995, and the results of its operations and its cash flows for
the period January 1, 1996 through November 22, 1996, and the years ended
December 31, 1994 and 1995, in conformity with generally accepted accounting
principles.

As discussed in Note 2, effective January 1, 1995, the Company changed its
method of recognizing actuarial gains and losses related to its postretirement
benefit plans.

DELOITTE & TOUCHE LLP
Detroit, Michigan
December 19, 1996

F-43
<PAGE> 111

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1995 AND NOVEMBER 22, 1996

(In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 22,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $ 918 $ 905
Receivables:
Trade (net of allowance for doubtful accounts of $796 and
$384, respectively).................................... 13,256 15,758
Related party receivable (Note 2)........................ 444
Other (Note 2)........................................... 1,272 901
Inventories (Notes 2 and 3)................................. 9,114 7,930
Prepaid and other (Note 2).................................. 1,339 1,899
------- -------
Total current assets................................ 25,899 27,837
PROPERTY, PLANT AND EQUIPMENT, NET (Notes 2 and 4)............ 29,683 31,086
OTHER ASSETS (Note 2)......................................... 482 21
ASSETS HELD FOR DISPOSITION (Note 8).......................... 212
------- -------
TOTAL ASSETS (Note 6)......................................... $ 56,276 $ 58,944
======= =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt (Note 6).................. $ 51,204 $ 51,592
Current portion of capital lease obligations (Note 7)....... 49 60
Accounts payable............................................ 9,479 11,139
Accrued liabilities (Note 5)................................ 4,890 5,274
------- -------
Total current liabilities........................... 65,622 68,065
LONG-TERM DEBT (Note 6)....................................... 2,600 2,600
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Note 11)......... 2,728 2,925
PENSIONS (Note 10)............................................ 1,433 1,128
LONG-TERM CAPITAL LEASE OBLIGATIONS (Note 7).................. 159 95
DEBT AND ACCRUED INTEREST FORGIVEN BY LENDER, NET (Note 2).... 12,816 10,462
------- -------
Total liabilities................................... 85,358 85,275
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' DEFICIT:
Class A common stock, par value $.01 per share; authorized
200,000 shares, issued and outstanding 10,000 shares
Class B common stock, par value $.01 per share; authorized
100,000 shares, issued and outstanding 6,334 shares
Additional paid-in capital.................................. 49,649 49,649
Accumulated deficit......................................... (79,607) (77,435)
Minimum pension liability adjustment (Note 10).............. (1,031) (461)
Accumulated translation adjustment.......................... 1,907 1,916
------- -------
Total shareholders' deficit......................... (29,082) (26,331)
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT................... $ 56,276 $ 58,944
======= =======
</TABLE>

See notes to consolidated financial statements.

F-44
<PAGE> 112

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 1994 AND 1995, AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

(In Thousands)

<TABLE>
<CAPTION>
JANUARY 1,
1996
DECEMBER 31, THROUGH
--------------------- NOVEMBER 22,
1994 1995 1996
-------- -------- ------------
<S> <C> <C> <C>
SALES (Notes 2 and 8).................................. $107,803 $106,473 $101,671
COST OF GOODS SOLD (Note 8)............................ (95,348) (92,263) (90,730)
--------- --------- ---------
GROSS MARGIN (Note 8).................................. 12,455 14,210 10,941
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note
8)................................................... (8,760) (7,677) (6,167)
RESTRUCTURING (Note 8)................................. 3,307 5,260
--------- --------- ---------
INCOME FROM OPERATIONS................................. 7,002 11,793 4,774
OTHER EXPENSES:
Interest (Note 6).................................... (1,602) (3,133) (2,314)
Other................................................ (6) (115) (250)
--------- --------- ---------
Total other expenses......................... (1,608) (3,248) (2,564)
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.................................... 5,394 8,545 2,210
INCOME TAX (EXPENSE) CREDIT (Note 12).................. 253 (38)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 2)........ 770
--------- --------- ---------
NET INCOME............................................. $ 5,394 $ 9,568 $ 2,172
========= ========= =========
</TABLE>

See notes to consolidated financial statements.

F-45
<PAGE> 113

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

(In Thousands)

<TABLE>
<CAPTION>
UNREALIZED
ACCUMULATED
FOREIGN MINIMUM
CLASS A CLASS B ADDITIONAL CURRENCY PENSION
COMMON COMMON PAID-IN ACCUMULATED TRANSLATION LIABILITY
STOCK STOCK CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT TOTAL
------- ------- ---------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994............ -- -- $ 49,649 $ (94,569) None $ (170) $(45,090)
Net income........................ 5,394 5,394
Minimum pension liability
adjustment (Note 10)............ (119) (119)
---- ---- ------- --------- ------ -------- ---------
BALANCE, DECEMBER 31, 1994.......... -- -- 49,649 (89,175) None (289) (39,815)
Net income........................ 9,568 9,568
Reversal of recognition of
unrecognized accumulated foreign
currency translation adjustment
(Note 8)........................ 1,907 1,907
Minimum pension liability
adjustment (Note 10)............ (742) (742)
---- ---- ------- --------- ------ -------- ---------
BALANCE, DECEMBER 31, 1995.......... -- -- 49,649 (79,607) 1,907 (1,031) (29,082)
Net income........................ 2,172 2,172
Minimum pension liability
adjustment (Note 10)............ 570 570
Accumulated translation
adjustment...................... 9 9
---- ---- ------- --------- ------ -------- ---------
BALANCE, NOVEMBER 22, 1996.......... -- -- $ 49,649 $ (77,435) $ 1,916 $ (461) $(26,331)
==== ==== ======= ========= ====== ======== =========
</TABLE>

See notes to consolidated financial statements.

F-46
<PAGE> 114

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

(In Thousands)

<TABLE>
<CAPTION>
JANUARY 1,
1996
DECEMBER 31, THROUGH
----------------- NOVEMBER 22,
1994 1995 1996
------ ------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $5,394 $9,568 $2,172
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization......................... 5,622 5,622 5,812
Amortization of debt and accrued interest forgiven
(Note 2)............................................ (2,568) (2,568) (2,354)
Loss provision credit on restructuring (Note 8)....... (3,307) (5,260)
Loss (gain) on disposal of property, plant and
equipment........................................... (32) (169) (80)
Exchange (gain) loss on foreign currency transactions
(Note 2)............................................ 522 (107) (66)
Pension expense, net of cash contributions (Note
10)................................................. (298) (435) 268
Provision for postretirement benefits other than
pensions (Note 11).................................. 495 440 824
Cumulative effect of accounting change (Note 2)....... (770)
Changes in assets and liabilities that provided (used)
cash:
Receivables......................................... (1,625) (752) (2,093)
Inventories (Notes 2 and 3)......................... (2,431) (166) 1,232
Prepaid and other (Note 2).......................... (26) (99) (1,000)
Accounts payable.................................... 2,676 (2,264) 1,632
Accrued and other liabilities -- net................ 2,221 (224) (156)
Accrual for disposition of foreign operation (Note
8)............................................... (3,753) (1,133)
Other assets........................................ (468) 23 611
------- ------- -------
Net cash provided by operating activities........ 2,422 1,706 6,802
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................ (5,158) (3,195) (7,050)
Proceeds from disposal of property, plant and
equipment............................................. 92 528 80
------- ------- -------
Net cash used in investing activities............ (5,066) (2,667) (6,970)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) under line of credit (Note
6).................................................... 2,170 2,646 (1,721)
Proceeds from issuance of notes payable to related
party................................................. 2,000
Principal payments:
Long-term debt........................................ (1,000)
Capital lease obligations (Note 7).................... (71) (41) (40)
------- ------- -------
Net cash provided by financing activities........ 2,099 1,605 239
------- ------- -------
EFFECT OF CHANGE IN FOREIGN CURRENCY EXCHANGE RATES ON
CASH..................................................... (94) (83) (84)
------- ------- -------
NET INCREASE (DECREASE) IN CASH............................ (639) 561 (13)
CASH, BEGINNING OF PERIOD.................................. 996 357 918
------- ------- -------
CASH, END OF PERIOD........................................ $ 357 $ 918 $ 905
======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-47
<PAGE> 115

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

1. BASIS OF PRESENTATION

Powder Metal Holding, Inc. ("PMH"), a Delaware corporation, was formed in
1989 as a wholly-owned subsidiary of MAAG Holding AG ("MAAG") based in Zurich,
Switzerland. In November 1993 the role of PMH within MAAG's North American
operations was modified and limited to that of a holding company whose sole
business purpose became the 100% ownership of the shares of ICM/Krebsoge, Inc.,
a Delaware corporation, and its 100% owned Canadian subsidiary, ICM/Krebsoge
Canada, Ltd. PMH conducts no other business and has no other assets than the
shares of ICM/Krebsoge. PMH and ICM/Krebsoge, Inc. collectively (the "Company")
maintain operating facilities in the U.S. and Canada for the manufacture of
metal parts for the automotive industry using powder metal technology.

In November, 1993 Sinter Metals, Inc. ("SMI") acquired a 30% equity
interest in PMH.

On October 7, 1996 MAAG and SMI entered into a Powder Metal Stock Purchase
Agreement (the "Agreement") whereby SMI would purchase in December 1996 all of
MAAG's shares in PMH and substantially all of the shares in MAAG's German powder
metal parts manufacturing subsidiary, Krebsoge Sinterholding GmbH. The purchase
price for MAAG's shares in PMH was set at $65 million, less all indebtedness and
subject to certain further limited adjustments upon closing (Note 14.).

2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation -- The consolidated financial statements
include the accounts of PMH and its wholly owned entity, ICM/Krebsoge, Inc. All
material amounts and balances have been eliminated in consolidation.

Operations -- The Company manufactures metal parts, mainly for the
automotive industry, using powdered metal technology. The Company maintains U.S.
operating facilities in Ohio, Indiana, and corporate headquarters in Michigan.
The Company's Canadian subsidiary, ICM/Krebsoge Canada, Ltd., has operating
facilities in St. Thomas, Ontario. In 1993, a plan was adopted to dispose of
ICM/Krebsoge Canada, Ltd. However, in 1995, the Company's management reversed
their decision to dispose of ICM/Krebsoge Canada, Ltd. Refer to Note 8 regarding
these Canadian operations. At December 31, 1995 and November 22, 1996,
ICM/Krebsoge Canada, Ltd.'s assets were approximately $12.4 million and $11.3
million, respectively. Sales of ICM/Krebsoge Canada, Ltd. were approximately
$23.4 million, $19.4 million and $15.4 for the years ended December 31, 1994 and
1995, and the period January 1, 1996 through November 22, 1996, respectively.
The net loss of ICM/Krebsoge Canada, Ltd. was approximately $5.1 million, $1.5
million and $1.4 million for the years ended December 31, 1994 and 1995, and the
period January 1, 1996 through November 22, 1996.

F-48
<PAGE> 116

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

Major Customers -- Sales to the Company's four major customers for the
years ended December 31, 1994 and 1995, and the period January 1, 1996 through
November 22, 1996, are as follows (in thousands):

<TABLE>
<CAPTION>
JANUARY 1,
1996
DECEMBER 31, THROUGH
--------------------- NOVEMBER 22,
1994 1995 1996
-------- -------- ------------
<S> <C> <C> <C>
Chrysler Corporation............................ $ 24,303 $ 20,349 $ 20,575
Ford Motor Company.............................. 54,305 53,635 52,192
New Venture Gear................................ 12,153 13,484 13,247
General Motors Corporation...................... 7,670 11,782 9,995
Others.......................................... 9,372 7,223 5,662
-------- -------- --------
Total................................. $107,803 $106,473 $101,671
======== ======== ========
</TABLE>

Supplemental Cash Flows Disclosures -- Cash paid during the years ended
December 31, 1994 and 1995, and the period January 1, 1996 through November 22,
1996 was $2.9 million, $4.1 million and $4.5 million, respectively, for interest
(net of $227,000, $110,000 and $342,000, capitalized during the years ended
December 31, 1994 and 1995, and the period January 1, 1996 through November 22,
1996, respectively).

Concentrations of Credit Risk -- Financial instruments which subject the
Company to concentrations of credit risk consist principally of trade
receivables. Automobile manufacturers comprise a significant portion of the
Company's business customer base. The Company's four major automotive customers
accounted for approximately 90% of trade receivables at December 31, 1995 and
November 22, 1996. Although the Company's exposure to credit risk associated
with nonpayment by automotive manufacturers is affected by conditions or
occurrences within the automotive industry, trade receivables from the
automotive manufacturers were current at November 22, 1996.

Revenue Recognition -- The Company generally recognizes sales when products
are shipped to customers. An allowance for sales returns is accrued based on
historical experience.

Financial Instruments included in the consolidated balance sheets are
recorded at cost and such amounts approximate fair value.

Other Receivables -- Included in other receivables at December 31, 1995 and
November 22, 1996 is approximately $163,000 and $138,000, respectively, relating
to billed customer tooling costs.

Related Party Receivable -- Included in related party receivables is
$444,000 related to a receivable from MAAG for expenditures related to the
transfer of interest.

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

Accounting Changes -- Effective January 1, 1995, the Company changed its
method of recognizing actuarial gains and losses related to its U.S. union and
nonunion postretirement plans from the defer and amortize method prescribed in
Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," to a method of
immediately recognizing the gains or losses at the measurement date if the
accumulated net gain or loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market-related value of plan assets.
The cumulative effect of this change as of January 1, 1995 was approximately
$1.2 million or approximately $.8 million after-

F-49
<PAGE> 117

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

tax (Note 12). On a pro forma basis, the Company's reported net income for 1994
would have been $6.027 million, if this accounting method had been elected in
1993 when the Company adopted SFAS No. 106.

Prepaid and Other Assets -- Included in prepaid and other assets at
December 31, 1995 and November 22, 1996 are unbilled tooling costs of $776,000
and $930,000, respectively, associated with the development of tooling to be
used in the manufacturing of new products.

Property, Plant and Equipment are stated at cost or, in the case of assets
under capital leases (Note 7), at the present value of future lease payments.
Depreciation is computed using the straight-line method over the useful lives of
the related assets, which range from 5 to 40 years. Amortization of leasehold
improvements and capital lease equipment is computed using the straight-line
method over the shorter of the lease term or the useful lives of the related
assets. Depreciation and amortization expense for the years ended December 31,
1994 and 1995 and the period January 1, 1996 through November 22, 1996 was
approximately $5.6 million, $5.6 million and $5.8 million, respectively.

Other Assets -- Included in the other assets balance at December 31, 1995
is a deposit of approximately $384,000 towards the purchase of machinery and
equipment which was delivered in 1996.

Foreign Currency Translation -- The accounts of the Company's Canadian
subsidiary are translated into U.S. dollars in the accompanying consolidated
financial statements. Exchange transaction losses/(gains) included in
consolidated operating results for the years ended December 31, 1994 and 1995
and the period ended November 22, 1996 were approximately $.5 million, $(.1)
million and $.1 million, respectively.

Debt and Accrued Interest Forgiven by Lender -- In 1993, the Company
amended and restated a loan agreement (the "Loan and Security Agreement") with
Heller Financial Inc. ("Heller"). As a result of the restated agreement, Heller
forgave unpaid principal and accrued interest of $17.9 million and converted
additional debt into the new Term Loans A and B and a revolving loan facility.
No gain was recognized for the $17.9 million, which was forgiven, as the total
gross future cash flows from the new Term Loans A and B exceeded the carrying
amount of the old loans. Accordingly, the $17.9 million is being recognized over
the seven year term of the restructured debt as a reduction of future interest
expense. Amortization of debt and interest forgiven by the lender for the years
ended December 31, 1994 and 1995 and the period January 1, 1996 through November
22, 1996 was approximately $2.6 million each period (Note 6).

Reclassifications -- Certain reclassifications have been made to the 1994
and 1995 consolidated financial statements to conform to the 1996 presentations.

Use of Estimates in the Preparation of the Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

F-50
<PAGE> 118

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

3. INVENTORIES

Inventories consist of the following at December 31, 1995 and November 22,
1996 (in thousands):

<TABLE>
<CAPTION>
DECEMBER NOVEMBER
31, 22,
1995 1996
----------- -----------
<S> <C> <C>
Raw materials............................................. $ 1,450 $ 1,020
Work-in-process........................................... 5,958 5,231
Finished goods............................................ 1,706 1,679
------- -------
Total inventory................................. $ 9,114 $ 7,930
======= =======
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following at December 31,
1995 and November 22, 1996 (in thousands):

<TABLE>
<CAPTION>
DECEMBER NOVEMBER
31, 22,
1995 1996
----------- -----------
<S> <C> <C>
Land and land improvements.................................. $ 992 $ 873
Buildings and leasehold improvements........................ 10,252 10,446
Machinery and equipment (including capital lease equipment
of $309 in 1995 and 1996)................................. 48,823 53,482
Furniture and fixtures...................................... 3,775 3,853
Office equipment............................................ 296 297
Company vehicles............................................ 159 162
Construction-in-progress.................................... 1,898 5,968
------- -------
Total............................................. 66,195 75,081
Less accumulated depreciation and amortization.............. 36,512 43,995
------- -------
Property and equipment -- net............................... $29,683 $31,086
======= =======
</TABLE>

5. ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31, 1995 and
November 22, 1996 (in thousands):

<TABLE>
<CAPTION>
DECEMBER NOVEMBER
31, 22,
1995 1996
----------- -----------
<S> <C> <C>
Salaries, wages, vacation, related benefits and taxes..... $ 2,269 $ 2,787
Other taxes, interest and bank charges.................... 997 1,011
Environmental............................................. 262 102
Bonuses (Note 9).......................................... 600 347
Other..................................................... 762 1,027
------- -------
Total accrued liabilities....................... $ 4,890 $ 5,274
======= =======
</TABLE>

F-51
<PAGE> 119

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

6. LONG-TERM DEBT

As discussed in Note 2, the Company entered into the Loan and Security
Agreement, as amended, with Heller in 1989. On November 19, 1993, the Company
amended the Loan and Security Agreement with Heller. Borrowings under the Loan
and Security Agreement are collateralized by substantially all assets of the
Company.

The Agreement between MAAG and SMI (Note 1) describes that on the date of
the transfer of interest, all Heller loans will be repaid (Note 14).

Descriptions and outstanding balances of each loan at December 31, 1995 and
November 22, 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
HELLER
Term Loan A -- Payable in 21 quarterly installments, with final
payment due October 1, 2000. Interest is payable monthly at
prime, plus 1.5% per annum. The effective interest rates for
the year ended December 31, 1995 and the period January 1, 1996
through November 22, 1996 were approximately 1.0% (Note 2)..... $29,000 $26,875
Term Loan B -- Due October 1, 2000. Effective January 1, 1996,
interest is payable monthly at prime, plus 1.75% per annum. The
effective interest rates for the year ended December 31, 1995
and the period January 1, 1996 through November 22, 1996 were
approximately 1.0% (Note 2).................................... 12,177 12,286
Revolving Loan -- Heller may issue or guarantee letters of credit
or make advances to the Company up to approximately $17
million. Such outstanding letters of credit totaled
approximately $1.1 million at December 31, 1995 and November
22, 1996. Interest is equal to the base rate, as defined, plus
1.5% per annum. The effective interest rate for the year ended
December 31, 1995 and the period January 1, 1996 through
November 22, 1996 were approximately 8.4% and 9.1%,
respectively................................................... 10,027 10,431
OTHER NOTES PAYABLE
Industrial Revenue Bonds bearing interest at 6.72% per annum and
due in 2000, collateralized by a letter of credit drawn on
MAAG........................................................... 2,600 2,600
MAAG Subordinated Note with interest payable quarterly at prime,
plus 2% per annum; due on October 1, 2000. The effective rate
for the period January 1, 1996 through November 22, 1996 was
10%............................................................ 2,000
------- -------
Total.................................................. 53,804 54,192
Less current portion............................................. 51,204 51,592
------- -------
Long-term debt................................................... $ 2,600 $ 2,600
======= =======
</TABLE>

The Loan and Security Agreement requires the Company to maintain a minimum
earnings before interest debt amortization and taxes (EBIDAT, as defined) and a
minimum fixed charge coverage ratio as of various dates. The Loan and Security
Agreement restricts defined mergers and investments in any corporation, person
or entity, payments of dividends, transactions with affiliates, subordinated
indebtedness, additional liens on Company assets, the amount of capital
expenditures, aggregate restructuring charges and expenditures and

F-52
<PAGE> 120

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

various other transactions. Noncompliance with such restrictions or requirements
allow Heller to demand immediate payment of the debt. As of November 22, 1996,
the Company was in violation of the Loan and Security Agreement covenants. As a
result of this, the debt obligations with Heller have been classified as current
liabilities.

In addition to the principal payments required above, the Company is
required to make additional principal payments to Heller from the sale proceeds
of any property or equity interest in the Company, and insurance proceeds from
property loss or damage.

The Company is also required to make additional principal payments based on
a percentage of excess cash flow, as defined in the Loan and Security Agreement.

In 1996, MAAG issued to PMH a subordinated note with a face value of $2
million. Interest expense related to this note was $115,000 for the period
January 1, 1996 to November 22, 1996. This note will also be repaid as a result
of the transfer of interest. Refer to Note 14.

The following summarizes the future annual maturities of the Company's debt
obligations at November 22, 1996 (in thousands):

<TABLE>
<S> <C>
1997....................... $51,592
2000....................... 2,600
-------
Total...................... $54,192
=======
</TABLE>

7. CAPITAL AND OPERATING LEASE OBLIGATIONS

Equipment under capital leases, which expire in 1999, had a net book value
of approximately $211,000 and $168,000 at December 31, 1995 and November 22,
1996, respectively. The amortization expense relating to such assets for the
years ended December 31, 1994 and 1995 and the period January 1, 1996 through
November 22, 1996 is approximately $32,000, $40,000 and $44,000, respectively.

The Company leases other equipment and office facilities under
noncancelable operating leases which are in effect through 2000. Rent expense
for the years ended December 31, 1994 and 1995 and the period January 1, 1996
through November 22, 1996 is approximately $501,000, $696,000 and $505,000,
respectively.

Future minimum lease payments as of November 22, 1996 under noncancelable
capital and operating leases are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year Ending December 31:
1997............................................................ $ 95 $ 1,147
1998............................................................ 68 927
1999............................................................ 35 851
2000............................................................ 814
---- ------
Total minimum lease payments............................ 198 3,739
Less amount representing interest............................... (43)
---- ------
Present value of minimum lease payments........................... $ 155 $ 3,739
==== ======
</TABLE>

During 1995, the Company entered into an agreement for the sale and
leaseback of machinery and equipment. Under this agreement, the Company sold
machinery and equipment with a net book value of

F-53
<PAGE> 121

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

approximately $314,000 and leased the same machinery and equipment back, after
rebuild, under an operating lease. The historical cost and the accumulated
depreciation of the machinery and equipment of approximately $534,000 and
$220,000, respectively, have been removed from the appropriate balance sheet
accounts. Simultaneously, the Company entered into a lease agreement for new
machinery and equipment. The lease has also been classified as an operating
lease in accordance with SFAS No. 13, "Accounting for Leases." Payments under
the five-year lease agreements are approximately $1.5 million for the first year
and $.8 million annually thereafter, which commenced in October 1996.

8. DISPOSITION OF FOREIGN OPERATION

In 1993, the Company's management announced a decision to dispose of
ICM/Krebsoge Canada, Ltd. operations in order to curtail the large operating
losses stemming from that facility. Management's plan called for production of
certain products to be relocated to the Company's U.S. operating facilities.

A provision for plant disposal costs totaling approximately $20.1 million
was recorded in the consolidated statement of income for the year ended December
31, 1993. The provision included noncash and cash charges as follows (in
millions):

<TABLE>
<S> <C>
Noncash charges:
Estimated losses from the disposal of part of a line of business.......... $ 1.5
Writedown of property, plant and equipment to net realizable value........ 4.7
Inventory writedown....................................................... 0.3
Recognized foreign currency translation credit adjustment................. (1.9)
-----
Total noncash charges....................................................... $ 4.6
=====
Cash charges:
Equipment relocation...................................................... $ 2.9
Employee separation....................................................... 2.7
Estimated losses from disposal of a part of a line of business............ 2.4
Transition team........................................................... 2.0
Pension funding obligation................................................ 1.4
Other..................................................................... 4.1
-----
Total cash charges.......................................................... $15.5
=====
</TABLE>

In 1993, cash restructuring expenditures of approximately $3.4 million were
charged against the accrual for disposition of foreign operation leaving a
remaining accrual balance at December 31, 1993 of approximately $13.6 million.
In 1994, cash restructuring expenditures of approximately $6.0 million and
noncash restructuring costs of approximately $1.7 million were charged against
the accrual for disposition of foreign operation leaving a remaining accrual
balance at December 31, 1994 of approximately $5.9 million. In addition, the
Company recognized an additional noncash restructuring charge in 1994 of
approximately $.5 million related to the writedown of machinery and equipment to
its net realizable value. In 1995, cash restructuring expenditures of
approximately $1.1 million and noncash restructuring costs of approximately $.8
million were charged against the accrual for disposition of foreign operation
leaving a remaining balance of $4.0 million at December 31, 1995.

On December 31, 1995, the Company's management reversed their decision to
dispose of ICM/Krebsoge Canada, Ltd. due to unforeseen additional costs,
difficulties related to equipment logistics, a high risk of a supply
interruption to significant customers and capacity constraints that would result
from transferring several

F-54
<PAGE> 122

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

of the remaining product lines at St. Thomas to the Company's U.S. facilities as
originally planned. As a result of this decision, the Company has reversed the
remaining accrual of $4.0 million for the disposition of foreign operation with
a corresponding credit to restructuring provision as follows (in millions):

<TABLE>
<S> <C>
Equipment relocation................................................... $(1.0)
Employee separation.................................................... (1.1)
Pension funding obligation............................................. (1.0)
Other.................................................................. (0.9)
-----
Total.................................................................. $(4.0)
=====
</TABLE>

At December 31, 1995, the Company also reversed $3.2 million of the $4.7
million noncash charge included in 1993 restructuring provision for the
writedown of property, plant and equipment to net realizable value and the $1.9
million noncash credit included in the 1993 restructuring provision related to
the unrecognized foreign currency accumulated translation adjustment. As a
result of these reversals, property, plant and equipment -- net, and the
accumulated translation adjustment component of shareholders' equity have
increased approximately $3.2 million and $1.9 million, respectively. The noncash
charge and noncash credit previously recorded in 1993 were reversed as the
Company now intends to retain these assets and is not substantially liquidating
or disposing of its investment in ICM/Krebsoge Canada, Ltd. Management believes
the carrying value of these assets is recoverable from their use in the
Company's operations.

As a result of the reversals described in the two preceding paragraphs, the
Company recorded a net credit to the restructuring provision of approximately
$5.3 million for the year ended December 31, 1995.

Further, certain amounts in the Company's December 31, 1994 consolidated
statement of income have been reclassified to reflect management's decision to
retain ICM/Krebsoge Canada, Ltd., as follows -- $4.4 million of the $4.6 million
previously classified as assets held for disposition at December 31, 1994 has
been reclassified to property, plant and equipment -- net. The Company still
plans to dispose of the remaining balance of assets held for disposition.

9. RELATED PARTY TRANSACTIONS

PMH had recorded a bonus accrual of $600,000 as of December 31, 1995,
payable to International Consulting Management, Ltd., a corporation owned in
part by a director of the Company (Notes 5 and 13). PMH has a $444,000
receivable from MAAG at November 22, 1996 for expenditures incurred by PMH
related to the transfer of interest for which MAAG has agreed to reimburse PMH
(Note 2).

PMH has a note payable to MAAG of $2 million at November 22, 1996 (Note 6).

10. PENSIONS

The Company has four defined benefit pension plans covering substantially
all of its employees in the U.S. and Canada. The benefits are based on years of
service and the highest consecutive five-year average earnings prior to
retirement. The Company's policy is to fund the pension costs in accordance with
applicable regulatory guidelines.

The projected unit credit method is used to determine the funding
requirements of the plans. The tables below reconcile the funded status of the
Company's U.S. and Canadian defined benefit pension plans for

F-55
<PAGE> 123

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

which SFAS No. 87, "Employers' Accounting for Pensions," has been adopted with
amounts recognized in the consolidated balance sheets at December 31, 1995 and
November 22, 1996 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------
CANADIAN PLANS U.S. PLANS
------------------------- ---------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits......................... $ 748 $ 2,346 $ 3,729 $ 1,929
Nonvested benefits...................... 2 207 96
----------- ----------- ----------- -----------
Accumulated benefit obligations........... $ 748 $ 2,348 $ 3,936 $ 2,025
========= ========= ========= =========
Projected benefit obligations for services
provided to date........................ $ 840 $ 2,348 $ 5,639 $ 2,025
Plan assets at fair value................. 688 1,546 3,995 1,815
----------- ----------- ----------- -----------
Excess of projected benefit obligations
over plan assets........................ 152 802 1,644 210
Unrecognized prior service cost........... (190)
Unrecognized net loss..................... (169) (522) (1,375) (340)
Adjustment for unfunded pension
liability............................... 169 712 340
----------- ----------- ----------- -----------
Accrued pension cost recognized in
consolidated balance sheet.............. $ 152 $ 802 $ 269 $ 210
========= ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
NOVEMBER 22, 1996
------------------------------
CANADIAN PLANS U.S. PLANS
-------------- -----------
ACCUMULATED ACCUMULATED
BENEFITS BENEFITS
EXCEED EXCEED
ASSETS ASSETS
-------------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits......................................... $2,881 $ 5,971
Nonvested benefits...................................... 2 376
------ ------
Accumulated benefit obligations........................... $2,883 $ 6,347
====== ======
Projected benefit obligations for services provided to
date.................................................... $2,971 $ 7,858
Plan assets at fair value................................. 2,042 7,655
------ ------
Excess of projected benefit obligations over plan
assets.................................................. 929 203
Unrecognized prior service cost........................... (177)
Unrecognized net loss..................................... (462) (4)
Adjustment for unfunded pension liability................. 639
------ ------
Accrued pension cost recognized in consolidated balance
sheet................................................... $ 929 $ 199
====== ======
</TABLE>

The discount rate used in determining the actuarial present value of the
projected benefit obligations for the U.S. plans was 6.8% and 7.5% at December
31, 1995 and November 22, 1996, respectively. The discount rate used in
determining the actuarial present value of the projected benefit obligations for
the Canadian plans

F-56
<PAGE> 124

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

was 7.5% and 6.8% at December 31, 1995 and November 22, 1996. The rate of
increase in future compensation levels for applicable U.S. and Canadian
employees was 4% at December 31, 1995 and November 22, 1996. The expected
long-term rate of return on plan assets used in determining pension expense for
the U.S. and Canadian plans was 7.5% and 8.25% in 1995 and the period January 1,
1996 through November 22, 1996, respectively. The assumptions for the Canadian
plans were developed on a basis consistent with that for U.S. plans adjusted to
reflect prevailing economic conditions and interest rate environments.

The net periodic pension cost and total pension expense for the years ended
December 31, 1994 and 1995 and for the period January 1, 1996 through November
22, 1996 of U.S. plans and Canadian plans include the following components (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 NOVEMBER 22, 1996
------------------ -------------------- -------------------
CANADIAN U.S. CANADIAN U.S. CANADIAN U.S.
PLANS PLANS PLANS PLANS PLANS PLANS
-------- ----- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Service cost......................... $223 $ 838 $ 169 $ 868 $ 174 $1,074
Interest cost on projected benefit
obligation......................... 203 298 232 387 200 466
Return on assets -- actual........... (68) 45 (122) (1,006) (201) (488)
Net amortization and deferral........ 36 (256) 40 667 323 82
---- ----- ----- ------- ---- ------
Net periodic pension cost............ $394 $ 925 $ 319 $ 916 $ 496 $1,134
==== ===== ===== ======= ==== ======
</TABLE>

Plan assets consist principally of investments in bonds and debentures,
common stocks and cash. The Company also has a defined contribution 401(k) plan,
covering substantially all of its U.S. employees. No Company contributions were
made to the 401(k) plan in 1994, 1995 and the period January 1, 1996 through
November 22, 1996.

11. OTHER POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company maintains union and non-union benefit plans that provide
postretirement medical and life insurance to U.S. retirees and eligible
dependents. These benefits are funded as incurred from the general assets of the
Company. SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," requires that the cost of such benefits be recognized in the
financial statements during the period employees provide service to the Company.
The medical and life insurance costs for active employees during active service
are not covered by SFAS No. 106 and are charged directly to expense on a
pay-as-you-go basis. The Company's Canadian subsidiary also maintains a
postretirement plan, however, the postretirement cost of the Canadian plan is
not significant to the Company.

The components of non-pension postretirement benefit cost of the Company
for 1994, 1995 and the period January 1, 1996 through November 22, 1996 are set
forth below (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Benefits earned during the year/period........................ $384 $303 $377
Interest accrued on benefits attributed to prior year......... 137 137 170
Net amortization of actuarial (gain)/loss..................... (26) 277
---- ---- ----
Total non-pension postretirement benefit cost................. $495 $440 $824
==== ==== ====
</TABLE>

F-57
<PAGE> 125

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

As of January 1, 1995, the Company changed its method of recognizing
actuarial gains or losses from the defer and amortize method described in SFAS
No. 106 to the immediate recognition of such gains or losses, if the accumulated
net gain or loss exceeds 10% of the greater of the accumulated benefit
obligation or market-related value of plan assets (Note 2).

No retiree benefit payments were made during the years ended December 31,
1994 and 1995 and the period January 1, 1996 through November 22, 1996.

The table below displays the components of the Company's U.S.
postretirement benefit obligation as recognized in the consolidated balance
sheets at December 31, 1995 and November 22, 1996 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 22,
1995 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Current retirees......................................... $ 201 $ 288
Fully eligible active plan participants.................. 170 156
Other active plan participants........................... 2,357 2,472
------ ------
APBO....................................................... 2,728 2,916
Unrecognized net gain...................................... (9)
------ ------
U.S. obligation recognized in consolidated balance
sheets................................................... $2,728 $2,925
====== ======
</TABLE>

The following table summarizes the principal assumptions used in
determining the actuarial value of the APBO:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
---- ----
<S> <C> <C>
Weighted average discount rate........................................ 6.8 7.8%
Weighted average health care trend rate............................... 6.0 * 5.0
Ultimate sustained weighted average health care cost trend rate in
1997................................................................ 5.0 5.0
</TABLE>

- ---------------

* Rate decreases on a linear basis through 1997, to the ultimate weighted
average trend rate of 5.0%.

The following increase would result from a one percentage point increase in
the weighted average health care trend rates:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
APBO......................................................... $288,945 $453,438
Service and interest costs of postretirement expense......... 90,703 134,786
</TABLE>

12. UNITED STATES, FOREIGN AND OTHER INCOME TAXES -- DEFERRED AND PAYABLE

Deferred income tax assets and liabilities reflect the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and the bases of such assets and liabilities as measured by tax laws
and rates applicable to periods in which differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to

F-58
<PAGE> 126

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

be realized. Temporary differences and carryforwards which give rise to the
deferred tax asset at December 31, 1995 and November 22, 1996 are as follows (in
thousands):

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current deferred tax assets:
Pension and other employee benefits........................ $ 711 $ 602
Postretirement benefits other than pensions................ 752 1,036
Special provision for plant closing and other
restructuring........................................... 304
Other non-deductible reserves.............................. 523 580
-------- --------
Total current deferred tax asset................... 2,290 2,218
Noncurrent deferred tax assets (liabilities):
Net operating loss carryforwards........................... 15,206 16,847
Capital lease obligations.................................. (92) (94)
Depreciation............................................... (3,747) (2,811)
Minimum pension liability.................................. 361 164
Accumulated translation adjustment......................... (648) (654)
Alternative minimum tax credit carryforward................ 139 178
Other...................................................... 69
-------- --------
Total net noncurrent deferred tax asset............ 11,219 13,699
-------- --------
Total net deferred tax asset................................. 13,509 15,917
Less valuation allowance..................................... (13,509) (15,917)
-------- --------
Net deferred tax asset....................................... None None
======== ========
</TABLE>

The Company had U.S. federal net operating loss carryforwards for tax
purposes of approximately $31.8 million and $30.9 million at December 31, 1995
and November 22, 1996, respectively. These net operating loss carryforwards
expire on various dates between the years 2004 and 2007. The Company also had
approximately $12.3 million and $17.9 million of loss carryforwards for tax
purposes for ICM/Krebsoge Canada, Ltd. at December 31, 1995 and November 22,
1996, respectively. These loss carryforwards expire on various dates between the
years 2000 and 2001.

For the year ended December 31, 1995 and the period January 1, 1996 through
November 22, 1996, the Company paid income taxes of $220,750 and $38,000,
respectively. No income taxes were paid in 1994.

F-59
<PAGE> 127

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

The components of income tax expense are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Domestic:
Current..................................................... $ 1,308 $ (253) $ 518
Deferred.................................................... 1,615 991 247
Benefit of operating loss carryforwards..................... (1,308) (480)
Adjustment in valuation allowance........................... (1,615) (991) (247)
------- ------- -------
Total domestic...................................... None (253) 38
Foreign:
Current..................................................... 1,483
Deferred.................................................... (1,959) 3,024 (2,858)
Benefit of operating loss carryforwards..................... (1,483)
Adjustment in valuation allowance........................... 1,959 (3,024) 2,858
------- ------- -------
Total foreign....................................... None None None
------- ------- -------
Income tax (credit)........................................... None $ (253) $ 38
------- ------- -------
</TABLE>

The domestic and foreign components of income (loss) before income tax
expense are as follows (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
U.S........................................................... $ 6,724 $ 4,081 $ 3,619
Foreign....................................................... (1,330) 5,487 (1,409)
------- ------- -------
Income before income taxes.................................... $ 5,394 $ 9,568 $ 2,210
======= ======= =======
</TABLE>

The consolidated income tax benefit (exclusive of the tax effect related to
the cumulative effect of accounting changes) was different than the amount
computed using the U.S. statutory income tax rate for the reasons set forth in
the following table (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Expected tax at U.S. statutory income tax rate................ $ 1,834 $ 3,253 $ 751
Net effect of Canadian losses at rates other than 34%......... (20) 82 (21)
Amortization of debt and accrued interest forgiven by
lender...................................................... (873) (873) (800)
Alternative minimum tax....................................... 143 38
Nondeductible restructuring credit............................ 3,216
Change in valuation allowance................................. 344 (4,015) 2,611
Change in valuation allowance for tax effected components of
shareholders' deficit....................................... (287) (203)
Benefits of net operating loss carryforwards.................. (1,308) (1,483) (480)
Other items................................................... 23 (289) (1,858)
------- ------- -------
Income tax (credit)........................................... None $ (253) $ 38
======= ======= =======
</TABLE>

F-60
<PAGE> 128

POWDER METAL HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
PERIOD JANUARY 1, 1996 THROUGH NOVEMBER 22, 1996

13. COMMITMENTS AND CONTINGENCIES

Self-Insurance Program -- The Company is self-insured for health care
claims for active employees. The Company maintains excess insurance coverage for
claims exceeding $150,000 per individual. The Company accrues for incurred but
not reported claims based on the history of such claims. The Company paid claims
of $1.9 million, $2.6 million and $2.7 million for the years ended December 31,
1994 and 1995 and the period January 1, 1996 through November 22, 1996,
respectively.

Employment Agreements -- On October 1, 1996 ICM/Krebsoge, Inc. entered into
a Supplemental Executive Retirement Program ("SERP") and a two year
Non-Disclosure, Non-Solicitation Non-Competition and Severance Agreement (the
"Employment Agreements") with seven key employees. The Employment Agreements
provide that in the event of termination of employment within the contract term
for reasons other than cause or disability, then the salary and benefits for the
remainder of the contract term shall be paid.

Consulting Agreement -- On January 1, 1994, ICM/Krebsoge, Inc. entered into
a consulting agreement with International Consulting Management, Ltd., a
Delaware corporation. International Consulting Management, Ltd. is owned in part
by a director of the Company. The consulting agreement retained the services of
the director to act as President of ICM/Krebsoge, Inc. through December 31,
1996. In consideration of such services, ICM/Krebsoge, Inc. paid International
Consulting Management, Ltd. a monthly consulting fee of $30,000, plus expenses.

At December 31, 1995, the Company had recorded an accrued liability of
$600,000, related to an anticipated bonus (Notes 5 and 9). During 1996, it was
agreed among the involved parties that such bonus would not be paid and the
liability was reversed.

Claims, Legal Actions and Environmental Matters -- The Company is subject
to potential liability under various claims and legal actions which are pending
or may be asserted against them. Groundwater and soil contamination has been
identified at the St. Thomas, Ontario facility, although there have been no
environmental asserted claims against the Company. The sources of contamination
have not been positively identified and may be related to either past facility
operations or off-site origins. The ultimate liability of the Company under
these claim actions was not determinable at November 22, 1996.

14. SUBSEQUENT EVENT

On December 19, 1996, SMI acquired 70% of the shares of PMH for $65 million
less the principal amount of the indebtedness of PMH plus all accrued but unpaid
interest. As a result of the transaction, PMH became a wholly-owned entity of
SMI.

All obligations to Heller were repaid in connection with this transfer of
interest. This included Term Loan A, $26.9 million; Term Loan B, $12.3 million;
and the Revolving Loan, $10.0 million. In addition, the MAAG subordinated note
including principal and interest of $2.1 million was repaid.

F-61
<PAGE> 129

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is a list of the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the Class A Common
Stock being registered hereby, other than underwriting discounts and
commissions.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.......... $20,652.08
National Association of Securities Dealers, Inc. filing
fee........................................................ 7,331.00
Transfer Agent and Registrar's fees.......................... *
NYSE Supplemental listing application fee.................... *
Accounting fees and expenses................................. *
Printing costs............................................... *
Legal fees and expenses (not including Blue Sky)............. *
Blue Sky fees and expenses................................... *
Miscellaneous expenses....................................... *
----------
Total $ *
==========
</TABLE>

- ---------------

* To be disclosed by Amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Restated Certificate of Incorporation (Exhibit 3.1 to the
Registration Statement) provides for the indemnification of the Company's
Directors and officers against certain liabilities. Section 145 of the Delaware
General Corporation Law (Exhibit 99.1 to this Registration Statement) also
provides for indemnification of directors and officers of Delaware corporations
against certain liabilities. Reference is made to the Underwriting Agreement
(Exhibit 1.1 to this Registration Statement) which provides for indemnification
of the Company's Directors and officers by the Underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933 (the
"Securities Act").

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

No securities of the Company that were not registered under the Securities
Act have been issued or sold by the Company within the past three years, except
as follows:

On January 28, 1994 and October 26, 1994, the Company issued an aggregate
of 60,805 shares and 303,750 shares, respectively, of Class B Common Stock to
the members of the Company's senior management under the Company's Management
Incentive Stock Plan.

On June 26, 1995, the Company issued an aggregate of 100,000 shares of
Class A Common Stock to the previous owners of Sinterteknik as part of the
purchase price for such company. On July 18, 1996, the Company issued an
aggregate of 5,000 shares of Class A Common Stock to the previous owners of
SinterForm as part of the purchase price for such company.

All such transactions were effected in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act.

II-1
<PAGE> 130

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
**2.1 Powder Metal Holding Stock Purchase Agreement, dated as of October 7, 1996, by
and between MAAG Holding AG and Sinter Metals, Inc.
**2.2 Krebsoge Stock Purchase Agreement, dated as of October 11, 1996, by and
between MAAG Holding AG and Sinter Metals, Inc.
**3.1 Restated Certificate of Incorporation of the Company.
**3.2 Restated By-Laws of the Company.
**4.1 Specimen certificate for the Class A Common Stock, $.001 par value, of the
Company.
*4.2 Form of certificate for the Class B Common Stock, $.001 par value, of the
Company.
**4.3 Stockholders' Agreement, dated as of October 18, 1994, by and among the
Company, Citicorp Venture Capital, Ltd. and certain other stockholders of the
Company.
*5.1 Opinion of Jones, Day, Reavis & Pogue as to the validity of the securities
being offered.
**10.1 1994 Key Employee Stock Option Plan.
**10.2 Employment Agreement, dated as of January 1, 1992, by and between Pennsylvania
Pressed Metals, Inc. and Donald L. LeVault, as amended.
*10.3 Form of Nonqualified Stock Option Agreement (with an attached schedule
identifying the Named Executive Officers of the Company that have entered into
option agreements with the Company).
*+10.4 Purchase Agreement, dated as of September 30, 1996, by and between the Company
and Hoeganaes Corporation.
*+10.5 Purchase Agreement by and between the Company and Hoganas AB.
*+10.6 Purchase Agreement by and between the Company and Mannesmann AG.
*+10.7 Purchase Agreement by and between the Company and Quebec Metal Powder.
**10.8 Credit Agreement, dated as of December 19, 1996, by and between the Company,
Sinter Metals GmbH, the Lenders party thereto, NBD Bank, as Administrative
Agent and Collateral Agent, and Salomon Brothers Inc, as Syndication Agent.
**10.9 Deferred Compensation Plan for Nonemployee Directors.
**10.10 Deferred Compensation Plan.
**21.1 Subsidiaries of the Company.
*23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1).
**23.2 Consent of Arthur Andersen LLP.
**23.3 Consent of Deloitte & Touche LLP.
**23.4 Consent of Price Waterhouse GmbH.
**23.5 Consent of BDO Seidman GmbH.
**24.1 Powers of Attorney.
**99.1 Section 145 of the General Corporation Law of Delaware.
</TABLE>

- ---------------

* To be filed by Amendment.

** Previously filed.

+ At such time as the Registrant files this Exhibit with the Commission, the
Registrant intends to request confidential treatment with respect to certain
portions of this Exhibit.

II-2
<PAGE> 131

All other schedules have been omitted because they are not applicable, not
required or not material or the required information is included in the
financial statements and notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.

(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 132

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO,
ON JANUARY 3, 1997.

SINTER METALS, INC.

By: /s/ JOSEPH W. CARRERAS
Joseph W. Carreras
Chairman of the Board and
Chief Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JANUARY 3, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -----------------------------------
<S> <C> <C>
Chairman of the Board and
* Chief Executive Officer
Joseph W. Carreras (Principal Executive Officer)
Vice President, Chief Financial
* Officer and Secretary
Michael T. Kestner (Principal Financial Officer)
Controller
* (Principal Accounting Officer)
Ian B. Hessel
President and Director
*
Donald L. LeVault
Director
*
E. Joseph Hochreiter
Director
*
Mary Lynn Putney
_ Director
William H. Roj
Director
*
Charles E. Volpe
_ Director
David Y. Howe
</TABLE>

- ---------------

* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and filed with the
Securities and Exchange Commission on behalf of such officers and Directors.

/s/ JOSEPH W. CARRERAS
Joseph W. Carreras, Attorney-in-Fact

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