<PAGE>
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 000-22519
KAYNAR TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0591091
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 N. STATE COLLEGE BOULEVARD, ORANGE, CALIFORNIA 92868
(Address of principal executive offices) (Zip Code)
(714) 712-4900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 5, 1997, the Registrant had 5,206,000 shares of Series C
Convertible Preferred Stock, $.01 par value, outstanding and 3,694,000 shares of
Common Stock, $.01 par value, outstanding.
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<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
Form 10-Q - Kaynar Technologies Inc.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Statements of Income
for the three months and six months ended June 29, 1997 (Unaudited)
and the three months and six months ended June 30, 1996 (Unaudited) 1
Condensed Consolidated Balance Sheets at
June 29, 1997 (Unaudited) and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows for
the six months ended June 29, 1997 (Unaudited)
and June 30, 1996 (Unaudited) 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. Managements' Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - Other Information
ITEM 6. Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE>
Page 1
Form 10-Q-Kaynar Technologies Inc.
Kaynar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands except earnings per share data)
<TABLE>
Quarter Ended Six Months Ended
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
------------- ------------- ------------- -------------
Unaudited Unaudited Unaudited Unaudited
<S> <C> <C> <C> <C>
Net sales, including $3,487 and $3,050 for the quarters ended
June 29, 1997 and June 30, 1996 respectively, and $7,158
and $6,003 for the six month periods ended June 29, 1997
and June 30, 1996, respectively, to a related party $37,250 $23,228 $69,452 $43,890
Cost of sales 26,214 17,178 49,183 32,370
------- ------- ------- -------
Gross profit 11,036 6,050 20,269 11,520
------- ------- ------- -------
Selling, general and administrative expenses 5,082 2,994 9,422 5,779
------- ------- ------- -------
Operating income 5,954 3,056 10,847 5,741
Interest expense, net 1,063 846 2,328 1,669
------- ------- ------- -------
Income before provision for income taxes 4,891 2,210 8,519 4,072
Provision for income taxes 1,958 884 3,417 1,629
------- ------- ------- -------
Net income $2,933 $1,326 $5,102 $2,443
------- ------- ------- -------
------- ------- ------- -------
Earnings per share of common stock and common stock
equivalents outstanding $0.36 $0.19 $0.68 $0.36
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of shares of common stock and
common stock equivalents outstanding 8,147 6,800 7,481 6,800
------- ------- ------- -------
------- ------- ------- -------
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
Page 2
Form 10-Q - Kaynar Technologies Inc.
Kaynar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets - Assets
(in thousands of dollars)
June 29, December 31,
1997 1996
--------- --------
Unaudited
Current assets:
Cash $1,914 $909
Marketable Securities 1,033 0
Accounts receivable, including $2,587 and $1,987
in 1997 and 1996, respectively, from a related
party, net of allowance for doubtful accounts
of $293 and $235 in 1997 and 1996, respectively 21,840 15,392
Inventories 30,904 29,901
Prepaid expenses and other current assets 465 709
--------- --------
Total current assets 56,156 46,911
--------- --------
Property, plant and equipment, at cost 32,187 24,160
Less - accumulated depreciation and amortization (6,981) (5,451)
--------- --------
25,206 18,709
--------- --------
Intangible assets, net of accumulated amortization
of $348 and $167 in 1997 and 1996, respectively 7,233 7,815
Other assets 162 254
--------- --------
$88,757 $73,689
--------- --------
--------- --------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
Page 3
Form 10-Q - Kaynar Technologies Inc.
Kaynar Technologies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets - Liabilities and Stockholders' Equity
(in thousands of dollars)
June 29, December 31,
1997 1996
--------- ---------
Unaudited
Current liabilities:
Revolving line-of-credit, to a related party $470 $746
Current portion of long-term debt 963 1,457
Current portion of capital lease obligations 258 133
Accounts payable 6,272 6,105
Accrued payroll and related expenses 5,296 5,330
Other accrued expenses 4,410 2,664
Deferred income taxes 288 288
--------- --------
Total current liabilities 17,957 16,723
--------- --------
Long-term debt, primarily to a related party 26,610 45,176
Capital lease obligations 616 332
Deferred income taxes 861 832
--------- --------
Total long-term liabilities 28,087 46,340
--------- --------
Commitments and contingencies
Stockholders' equity:
Series C Convertible Preferred stock, $0.01 par
value; Authorized--10,000,000 shares; issued and
outstanding--5,206,000 shares 52 52
Common stock, $0.01 par value; Authorized--
20,000,000 shares; issued and outstanding--
3,694,000 shares and 1,594,000 shares at
June 29, 1997 and December 31, 1996, respectively 37 16
Additional paid-in capital 29,020 1,432
Retained earnings 13,906 8,838
Currency translation adjustment (302) 288
--------- --------
Total stockholders' equity 42,713 10,626
--------- --------
$88,757 $73,689
--------- --------
--------- --------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
Page 4
Form 10-Q - Kaynar Technologies Inc.
Kaynar Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands of dollars)
Six Months Ended
June 29, June 30,
1997 1996
--------- ---------
Unaudited Unaudited
Cash flows from operating activities:
Net income $5,102 $2,443
Adjustments to reconcile net income to net
cash provided by operating activities - -
Depreciation and Amortization 1,774 1,079
Loss on sale of property, plant and equipment 127 58
Changes in operating assets and liabilities--
Increase in accounts receivable (6,510) (2,973)
Increase in inventories (1,008) (3,840)
Decrease in prepaid expenses 225 10
Decrease (Increase) in other assets 281 (98)
Increase in accounts payable 130 1,502
Increase in accrued expenses 1,701 1,386
--------- ---------
Net cash provided by (used in) operating activities 1,822 (433)
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (7,881) (2,915)
Proceeds from sales of property, plant and equipment 83 26
Purchases of marketable securities (1,033) 0
Decrease (Increase) in intangible assets 90 (268)
--------- ---------
Net cash used in investing activities (8,741) (3,157)
--------- ---------
Cash flows from financing activities:
Net (payments) borrowings on line-of-credit,
from a related party (276) 3,259
Borrowings on long-term debt, primarily
from a related party 276 755
Payments on long-term debt, primarily to
a related party (19,565) (400)
Principal payments on capital lease obligations (100) 10
Net proceeds from issuance of common stock 27,610 0
--------- ---------
Net cash provided by financing activities 7,945 3,624
--------- ---------
Effect of exchange rate changes on cash (21) (1)
--------- ---------
Net increase in cash 1,005 33
Cash, beginning of period 909 52
--------- ---------
Cash, end of period $1,914 $85
--------- ---------
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $2,549 $1,532
--------- ---------
--------- ---------
Income taxes $3,799 $1,686
--------- ---------
--------- ---------
Noncash financing activities:
Capital lease obligations assumed for the
purchase of equipment $507 $355
--------- ---------
--------- ---------
Borrowings on long-term debt for preferred
stock dividends $58 $48
--------- ---------
--------- ---------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
Page 5
Form 10-Q - Kaynar Technologies Inc.
Kaynar Technologies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 29, 1997
(Amounts in thousands, except for earnings per share)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying consolidated
condensed financial statements have been prepared on the same basis as the
consolidated financial statements for the year ended December 31, 1996.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Registration
Statement on Form S-1 dated May 6, 1997 for the year ended December 31, 1996.
The condensed consolidated financial statements include the accounts
of the Company and all of its subsidiaries after eliminating all significant
intercompany transactions and reflect all normal recurring adjustments which
are, in the opinion of management, necessary to present a fair statement of
the results for the interim periods reported. The results of operations for
the three months ended June 29, 1997 are not necessarily indicative of the
results to be expected for the full year.
The Company's fiscal quarters are on a 13 week basis. The second
quarter of 1997 ended on June 29, 1997 (the Sunday nearest to June 30, 1997).
Last year's second quarter ended on June 30, 1996.
(2) MARKETABLE SECURITIES
The Company invests excess cash in a money market fund that invests in
short term (maturities of 397 days or less) direct obligations of the U.S.
Treasury and repurchase agreements secured by such obligations.
(3) INVENTORIES
Inventories are stated at the lower of cost (FIFO) or market and
include the cost of material, labor and factory overhead. Inventories
consist of the following at June 29, 1997 and December 31, 1996:
1997 1996
------- -------
Finished goods $8,537 $8,781
Components 4,804 4,628
Work in progress 9,994 9,151
Raw materials 2,616 2,790
Supplies and small tools 4,953 4,551
------- -------
$30,904 $29,901
------- -------
------- -------
(4) EARNINGS PER SHARE
Earnings per common share and common share equivalent are computed on
the basis of the weighted average number of common shares outstanding. The
outstanding Series C Convertible Preferred Stock are common share equivalents.
<PAGE>
Page 6
Form 10-Q - Kaynar Technologies Inc.
(5) ACQUISITION
The Company acquired an Australian corporation (Recoil) in mid August
1996. The acquisition has been accounted for in accordance with the purchase
method of accounting. The Company's condensed consolidated financial
statements include Recoil's results of operations from the effective
acquisition date.
The following unaudited pro forma consolidated statement of income
information presents the results of the Company's operations for the quarter
and six months ended June 30, 1996, as though the acquisition of Recoil had
occurred as of the beginning of that period:
Qtr Ended Six Months Ended
June 30, June 30,
1996 1996
--------- ---------
Net Sales $25,700 $48,750
--------- ---------
--------- ---------
Net Income $1,491 $2,840
--------- ---------
--------- ---------
Earnings per Share $0.22 $0.42
--------- ---------
--------- ---------
The pro forma results have been prepared for comparative purposes
only and are not necessarily indicative of the actual results of operations
had the acquisition taken place at the beginning of the fiscal period or the
results that may occur in the future. Furthermore, the pro forma results do
not give effect to cost savings or incremental costs which may occur as a
result of the integration and consolidation of Recoil. The pro forma results
include additional interest on borrowed funds and additional amortization of
goodwill resulting from the acquisition.
(6) INCOME TAXES
Income taxes are provided using the estimated effective tax rates for
the years ended December 31, 1996 and December 31, 1997.
(7) INITIAL PUBLIC OFFERING OF COMMON STOCK
In May 1997, the Company completed a public sale of 2.1 million
shares of common stock at an offering price of $14.50 per share. The net
proceeds approximated $27.6 million.
<PAGE>
Page 7
Form 10-Q - Kaynar Technologies Inc.
Kaynar Technologies Inc. and Subsidiaries
Managements' Discussion and Analysis
Of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements contained in Management's Discussion and Analysis
of Financial Condition and Results of Operation, particularly in the three
paragraphs entitled "Liquidity and Capital Resources," and elsewhere in this
quarterly report on Form 10-Q are forward-looking statements. Statements in
this quarterly report on Form 10-Q which address activities, events or
developments that the Company expects or anticipates will or may occur in the
future, including such things as expansion and growth of the Company's
business and operations and other such matters are forward-looking
statements. These forward-looking statements are subject to risks and
uncertainties, including those identified as "Risk Factors" in the Company's
Pre-Effective Amendment No. 6 to the Registration Statement on Form S-1 filed
May 6, 1997. The foregoing should not be construed as an exhaustive list of
all factors which could cause actual results to differ materially from those
expressed in forward-looking statements made by the Company. Actual results
may materially differ from the anticipated results described in these
statements.
Summary
The following table sets forth certain items from the Company's
Condensed Consolidated Statements of Income for the periods indicated and
presents the results of operations as a percentage of net sales:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 70.4% 74.0% 70.8% 73.8%
-------- -------- -------- --------
Gross profit 29.6% 26.0% 29.2% 26.2%
Selling, general and administrative expenses 13.6% 12.9% 13.6% 13.2%
-------- -------- -------- --------
Operating income 16.0% 13.1% 15.6% 13.0%
Interest expense, net 2.9% 3.6% 3.4% 3.8%
Provision for income taxes 5.3% 3.8% 4.9% 3.7%
-------- -------- -------- --------
Net income 7.8% 5.7% 7.3% 5.5%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Quarter Ended June 29, 1997 Compared to Quarter Ended June 30, 1996
Net Sales. Net sales increased 61 percent or $14.1 million, to
$37.3 million in the second quarter of 1997 from $23.2 million in the second
quarter of 1996. This growth was primarily the result of increased customer
demand, which occurred as commercial aircraft build rates increased. In
addition, net sales growth was enhanced by the expansion of existing product
lines, the development of variations of existing products and the
introduction of new products. The Company's acquisition of Recoil accounted
for approximately $3.3 million of the increase in net sales over the
comparable quarter.
Gross Profit. Gross profit improved from $6.1 million for the
second quarter in 1996 to $11.0 million during the same period in 1997. As a
percentage of sales, gross profit improved from 26.0 percent to 29.6 percent.
This improvement in gross profit margin was primarily due to the increase in
sales volume (which resulted in a greater absorption of fixed costs) and
improved productivity.
<PAGE>
Page 8
Form 10-Q - Kaynar Technologies Inc.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses of $5.1 million, were 70 percent higher than last
year's similar period, and were up 0.7 percent as a percentage of sales. The
$2.1 million increase in these expenses was attributable primarily to (i)
additional employee costs needed to to support the increased sales volume and
(ii) the selling, general and administrative expenses of Recoil, which due to
the nature of its business, tends to have higher selling, general and
administrative expenses as a percentage of net sales than the Company's other
business units.
Interest Expense. Interest expense increased 30 percent to $1.1
million, up from $846,000 for the same quarter in the preceding year, but
decreased as a percentage of sales from 3.6 percent for the second quarter in
1996 compared to 2.9 percent for the second quarter in 1997. Interest
expense was up in 1997 as a result of working capital requirements, capital
expenditures and the Recoil acquisition. However, the interest expense was
limited by the Company's prepayment of approximately $24.6 million of debt in
the second quarter of 1997 with proceeds received from the Company's initial
public offering.
Net Income. Net income for the second quarter of 1997 increased to
$2.9 million or 36 cents per share compared to $1.3 million or 19 cents per
share for the same period in 1996.
Six Months Ended June 29, 1997 Compared to the Six Months Ended June 30, 1996
Net Sales. Net sales increased 58.2 percent or $25.6 million, to
$69.5 million in the first six months of 1997 from $43.9 million in same
period of 1996. This growth was primarily the result of increased customer
demand, which occurred as commercial aircraft build rates increased. In
addition, net sales growth was enhanced by the expansion of existing product
lines, the development of variations of existing products and the
introduction of new products. The company's acquisition of Recoil and its
purchase of the KELOX product line accounted for approximately $6.9 million
of the increase in net sales over the six month period.
Gross Profit. Gross profit improved from $11.5 million for the
first six months in 1996 to $20.3 million during the same period in 1997. As
a percentage of sales, gross profit improved from 26.2 percent to 29.2
percent. This improvement in gross profit margin was primarily due to the
increase in sales volume (which resulted in a greater absorption of fixed
costs) and improved productivity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses of $9.4 million, were 63 percent higher than last
year's similar period, and were up 0.4 percent as a percentage of sales. The
$3.6 million increase in these expenses was attributable primarily to (i)
additional employee costs needed to to support the increased sales volume and
(ii) the selling, general and administrative expenses of Recoil, which due to
the nature of its business, tends to have higher selling, general and
administrative expenses as a percentage of net sales than the Company's other
business units.
Interest Expense. Interest expense increased 35 percent to $2.3
million, up from $1.7 million for the same six months in the preceding year,
but decreased as a percentage of sales from 3.8 percent for the first six
months in 1996 compared to 3.4 percent for the first six months in 1997.
Interest expense was up in 1997 as a result of working capital requirements,
capital expenditures and the Recoil acquisition. However, the interest
expense was limited by the Company's prepayment of approximately $24.6
million of debt in the second quarter of 1997 with proceeds received from the
Company's initial public offering.
Net Income. Net income for the first six months of 1997 increased
to $5.1 million or 68 cents per share compared to $2.4 million or 36 cents
per share for the same period in 1996.
<PAGE>
Page 9
Form 10-Q - Kaynar Technologies Inc.
Liquidity and Capital Resources
The Company generally relies upon internally generated cash flows and amounts
that may be available under its Revolving Line of Credit to satisfy working
capital needs and to fund capital expenditures. Cash provided by operations
in the first six months was $1.8 million compared to cash used of $400,000 in
the prior year. A higher net income and a decrease in the rate of investment
in inventories, offset by a greater increase in accounts receivable and a
decrease in the rate of increase in accounts payable were the primary reasons
for the increase in cash provided by operations relative to the same period
for the prior year. To support increased sales volume, improve productivity,
and provide installation tooling for lease to customers, capital expenditures
increased to $7.9 million in the first six months of 1997 as compared to $2.9
million in the same period of the preceding year.
In May 1997, the Company received net proceeds of approximately $27.6 million
from the sale of 2.1 million shares of common stock, from its initial public
offering.
The Company believes that the net proceeds from the initial public offering
(of which $24.6 million was used to pay down debt), internally generated cash
flow and amounts that may be available under the revolving line of credit,
which was increased from a potential maximum of $15 million to $21 million,
will provide adequate funds to meet its working capital needs, planned
capital expenditures and debt service obligations. However, the Company's
ability to fund its operations, make planned capital expenditures and make
scheduled payments on, and refinance its indebtedness, depends on its future
operating performance and cash flow. Future operating performance and cash
flow are, in turn, subject to prevailing economic conditions and to
financial, business and other factors affecting the Company, some of which
are beyond the Company's control.
<PAGE>
Page 10
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Number Description
------ ------------
2.2 Recapitalization Agreement with General Electric Capital
Corporation ("GECC"), dated May 5, 1997.
10.2(c) Amendment and Limited Waiver with GECC, dated April 30,
1997.
10.2(d) Third Amendment and Limited Waiver with GECC, dated June
25, 1997.
10.6(b) Amendment to Lease with West L.A. Properties dated August
21, 1996.
27 Financial Data Schedule.
99.6 Indemnification and Contribution Agreement with GECC,
dated May 5, 1997.
(b) Reports of Form 8-K.
No reports on Form 8-K were filed during the quarter covered by this
report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KAYNAR TECHNOLOGIES INC.
/s/ D.A. Werner
Date: August 5, 1997 ----------------------------
By: David A. Werner
Title: Executive Vice President
/s/ Robert M. Nelson
Date: August 5, 1997 ----------------------------
By: Robert M. Nelson
Title: Controller (Chief Accounting Officer)
S-1
<PAGE>
EXHIBIT INDEX
Number Description
------ ------------
2.2 Recapitalization Agreement with General Electric Capital
Corporation ("GECC"), dated May 5, 1997.
10.2(c) Amendment and Limited Waiver with GECC, dated April 30,
1997.
10.2(d) Third Amendment and Limited Waiver with GECC, dated June
25, 1997.
10.6(b) Amendment to Lease with West L.A. Properties dated August
21, 1996.
27 Financial Data Schedule.
99.6 Indemnification and Contribution Agreement with GECC,
dated May 5, 1997.
<PAGE>
RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT (this "Agreement") dated as of May 5,
1997 among Kaynar Holdings Inc. ("Parent"), Kaynar Technologies Inc. ("Opco")
and General Electric Capital Corporation (the "Preferred Stockholder") relates
to (i) the Certificate of Designation of Series A Convertible Preferred Stock of
Parent, (ii) the Certificate of Designation of Series B Convertible Preferred
Stock of Parent and (iii) the PIK Dividend Note Agreement dated as of January 3,
1994 (the "PIK Dividend Note Agreement") among Parent, the Preferred Stockholder
and the other Holders (as defined therein). Unless otherwise defined herein,
capitalized terms are used herein with the meanings ascribed to them in the PIK
Dividend Note Agreement.
RECITALS
WHEREAS, Parent and Opco have proposed a recapitalization pursuant
to which (A) the Certificate of Incorporation and Bylaws of Parent shall be
amended and restated in the forms attached hereto as Exhibits 1 and 2,
respectively, (B) each outstanding share of Common Stock shall be split into
68 shares of Common Stock, (C) each outstanding share of Series A Preferred
Stock shall be exchanged for 9.953 shares of Common Stock and 58.057 shares
of Series C Convertible Preferred Stock, par value $0.01 per share, having
the terms set forth in the Restated Certificate of Incorporation referred to
herein (the "Series C Preferred Stock") and (D) each outstanding share of
Series B Preferred Stock shall be exchanged for 68 shares of Series C
Convertible Preferred Stock (the actions described in clauses (A) through (D)
are referred to herein as the "Recapitalization");
WHEREAS, Parent and Opco have further proposed a merger pursuant to
which (A) Opco shall merge with and into Parent on the terms set forth in the
Agreement and Plan of Merger attached hereto as Exhibit 4, (B) Parent, as the
surviving entity, shall assume all liabilities of Opco and (C) Parent shall
change its name to "Kaynar Technologies Inc." (the actions described in
clauses (A) through (C) are referred to herein as the "Merger"; the merged
entities are referred to herein as "KTI"); and
WHEREAS, Parent and Opco have further proposed that KTI sell in a
public offering up to 2,100,000 shares of Common Stock (the "Offering"), as
described in the Prospectus dated April 11, 1997 filed with the Securities
and Exchange Commission as part of Registration Statement No. 333-22345 (the
"Registration Statement");
NOW, THEREFORE, in consideration of the foregoing premises (all of
which are incorporated herein as a part of this Agreement) and for other good
and valuable consideration, the
<PAGE>
receipt and sufficiency of which is hereby acknowledged, the Preferred
Stockholder agrees as follows:
1. CONSENT TO RECAPITALIZATION, MERGER AND OFFERING. Subject to the
terms and conditions set forth herein, the Preferred Stockholder hereby, as of
the Effective Date, consents to the Recapitalization, the Merger and the
Offering.
2. WAIVER OF CERTAIN COVENANTS AND NOTICE REQUIREMENTS. Subject to
the terms and conditions set forth herein, the Preferred Stockholder agrees to
waive:
(a) The provisions of Section 8.11 of the PIK Dividend Note Agreement
in respect (and solely in respect) of the Offering;
(b) The provisions of Sections 7.01 and 8.09 of the PIK Dividend Note
Agreement and Section 4 of each of the Certificates of Designation in
respect (and solely in respect) of the Merger; and
(c) The provisions of Section 8.12 of the PIK Dividend Note Agreement
in respect (and solely in respect) of the Recapitalization.
3. EFFECTIVE DATE. This Agreement shall become effective upon the
date (the "Effective Date"), which shall be no later than May 30, 1997, by which
all of the following conditions shall have been simultaneously satisfied:
(a) the Board of Directors of Parent shall have approved and
authorized the Recapitalization, the Merger and the Offering and adopted
(i) the Amended and Restated Certificate of Incorporation of Parent in the
form of Exhibit 1 hereto (the "Restated Certificate of Incorporation"),
(ii) the Amended and Restated Bylaws of Parent in the form of Exhibit 2
hereto, (iii) the Certificate of Merger in the form of Exhibit 3 hereto
(the "Merger Certificate"), (iv) the Agreement and Plan of Merger in the
form of Exhibit 4 hereto (the "Merger Agreement"), (v) the Stockholders
Agreement in the form of Exhibit 5 hereto (the "Stockholders Agreement"),
(vi) the 1997 Stock Incentive Plan in the form of Exhibit 6 hereto, (vii)
the forms of employment agreements attached as Exhibit 7 hereto, (viii) the
Underwriting Agreement in the form of Exhibit 8 hereto (the "Underwriting
Agreement") and (ix) the Indemnification and Contribution Agreement in the
form of Exhibit 9 hereto (the "Indemnification Agreement");
(b) the Management Investors shall have approved and authorized the
Recapitalization, the Merger and the Offering and each of the documents
referred to in clauses (i), (iv) and (vi) of Section 3(a) hereof;
<PAGE>
(c) the Board of Directors of Opco shall have approved and authorized
the Merger and adopted the Merger Agreement;
(d) the Management Investors shall have executed and delivered to the
Preferred Stockholder the Stockholders Agreement;
(e) the two nominees of the Preferred Stockholder shall have been
elected to the Board of Directors of Parent and shall have been appointed
to each of the Audit and Compensation Committees thereof;
(f) Parent and Lehman Brothers Inc. (as representative of the
underwriters) shall have executed and delivered to the Preferred
Stockholder counterparts of the Underwriting Agreement;
(g) Parent shall have executed and delivered the Indemnification
Agreement to the Preferred Stockholder; and
(h) Parent shall have delivered to the Preferred Stockholder a
certificate of an executive officer of KTI stating that the conditions
described in this Section 3 have been satisfied.
4. CONDITIONS SUBSEQUENT. The consents set forth in Section 1
hereof and the waivers set forth in Section 2 hereof shall cease to be effective
unless the First Delivery Date (as defined in the Underwriting Agreement) shall
have occurred on or before May 30, 1997 and the following shall have occurred on
or before the First Delivery Date:
(a) the Preferred Stockholder shall have received payment in full in
cash of all Obligations then due and payable under the PIK Dividend Note
Agreement and the Notes;
(b) the Restated Certificate of Incorporation and the Merger
Agreement shall have been executed by each of the parties thereto and filed
with the Secretary of State of the State of Delaware, and the Merger shall
be effective;
(c) Parent shall have entered into employment agreements in the form
of Exhibit 7 hereto with each of the Management Investors (other than
Joseph F. Blomberg) who is an employee of Parent;
(d) O'Melveny & Myers LLP, counsel to Parent, Opco and KTI, shall
have delivered to the Preferred Stockholder an opinion in form and
substance satisfactory to the Preferred Stockholder and its counsel stating
that (i) the Preferred Stockholder is entitled to rely on the opinion
delivered pursuant to Section 9(e) of the Underwriting Agreement as though
the opinion were addressed to the Preferred
<PAGE>
Stockholder, (ii) the Stockholders Agreement has been duly authorized by
KTI and is legal, valid, binding and enforceable against KTI in accordance
with its terms and (iii) the shares of Series C Preferred Stock delivered
to the Preferred Stockholder have been duly authorized and validly issued
and are fully paid and non-assessable;
(e) Arthur Andersen LLP shall have delivered to the Preferred
Stockholder a letter in form and substance satisfactory to the Preferred
Stockholder and its counsel regarding procedures performed by Arthur
Andersen LLP in connection with the preparation of the Registration
Statement; and
(f) all of the documents and agreements referred to in Section 3(a)
shall be in full force and effect, and there shall not have been any
amendments, modifications or supplements thereto which have not been
approved in writing by the Preferred Stockholder.
5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
6. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, Opco, Parent and the Preferred Stockholder have
caused this Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
KAYNAR HOLDINGS INC.
By: /s/ David A. Werner
----------------------------
Name: David A. Werner
Title: Vice President
KAYNAR TECHNOLOGIES INC.
By: /s/ David A. Werner
----------------------------
Name: David A. Werner
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Peter C. Keenoy
----------------------------
Name: Peter C. Keenoy
Title: Authorized Signatory
<PAGE>
EXHIBITS
Exhibit 1 - Amended and Restated Certificate of Incorporation of Parent
Exhibit 2 - Amended and Restated Bylaws of Parent
Exhibit 3 - Certificate of Merger
Exhibit 4 - Agreement and Plan of Merger between Opco and Parent
Exhibit 5 - Stockholders Agreement among KTI, the Preferred Stockholder
and the Management Investors
Exhibit 6 - 1997 Stock Incentive Plan of Parent
Exhibit 7 - Forms of Employment Agreements
Exhibit 8 - Underwriting Agreement among KTI, the Preferred Stockholder
and the underwriters named therein
Exhibit 9 - Indemnification and Contribution Agreement
between KTI and the Preferred Stockholder
<PAGE>
AMENDMENT AND LIMITED WAIVER
THIS AMENDMENT AND LIMITED WAIVER (this "Waiver"), dated as of April
30, 1997 among Kaynar Holdings Inc. ("Parent"), Kaynar Technologies Inc.
("Opco") and General Electric Capital Corporation (the "Lender") relates to:
(i) the Term Loan Agreement dated as of January 3, 1994 between
Parent and the Lender, as amended and restated as of August 12,
1996 (as so amended and restated, the "Parent Loan Agreement");
(ii) the Credit Agreement dated as of January 3, 1994 between Opco and
the Lender, as amended and restated as of August 12, 1996 and as
further amended as of December 17, 1996 (as so amended and
restated, the "Opco Credit Agreement");
(iii) the Pledge Agreement dated as of January 3, 1994 executed by
Parent in favor of the Lender with respect to the capital stock
of Kaynar Technologies Inc. ("Opco"), as supplemented as of
August 12, 1996 (as so supplemented, the "Parent Pledge
Agreement"); and
(iv) the Security Agreement dated as of January 3, 1994 executed by
Opco in favor of the Lender, pursuant to which Opco grants Lender
a first priority security interest in substantially all of Opco's
personal property, as amended and supplemented as of August 12,
1996 (as so amended and supplemented, the "Security Agreement").
Unless otherwise defined herein, capitalized terms are used herein with the
meanings ascribed to them in the Parent Loan Agreement.
RECITALS
WHEREAS, Parent and Opco have requested the Lender's consent to the
following transactions:
(A) the amendment and restatement of the Certificate of Incorporation
and By-Laws of Parent to provide, among other things, for (1) a
stock split pursuant to which each share of Common Stock of
Parent will be split into 68 shares of Common Stock, (2) the
merger exchange of each share of Series A Preferred Stock into
9.953 shares of Common Stock and 58.047 shares of Series C
Convertible
<PAGE>
Preferred Stock, par value $0.01 per share, of Parent
(the "Series C Preferred Stock") and (3) the merger exchange of
each share of Series B Preferred Stock for 68 shares of Series C
Preferred Stock (collectively, the "Recapitalization");
(B) the merger of Opco with and into Parent, with Parent, as the
surviving entity, assuming all liabilities of Opco and being
renamed "Kaynar Technologies Inc." (the "Merger"; the merged
entities are referred to herein as "KTI"); and
(C) the sale by KTI in a public offering of up to 2,100,000 shares of
Common Stock (the "Offering"), with the proceeds thereof to be
applied, among other things, to repay indebtedness under the
Parent Loan Agreement and the Opco Credit Agreement, as described
herein and in the Prospectus dated April 11, 1997 (the
"Prospectus").
NOW, THEREFORE, in consideration of the foregoing premises (all of
which are incorporated herein as a part of this Waiver) and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Lender agrees as follows:
1. LIMITED WAIVER UNDER PARENT LOAN AGREEMENT, OPCO CREDIT
AGREEMENT AND SECURITY AGREEMENT. Subject to the terms and conditions set
forth herein, the Lender agrees to waive:
(a) The provisions of Sections 3.01(b)(i)(C) and 8.16 of the Parent
Loan Agreement and Section 3.01(b)(iii) of the Opco Credit Agreement in
respect (and solely in respect) of the application of proceeds of the
Offering as set forth herein and in the Prospectus;
(b) The provisions of Sections 7.01 and 8.09 of each of the Parent
Loan Agreement and the Opco Credit Agreement and Section 4(d) of the
Security Agreement in respect (and solely in respect) of the Merger; and
(c) The provisions of Section 8.13 of each of the Parent Loan
Agreement and the Opco Credit Agreement in respect (and solely in respect)
of the Recapitalization.
2. AMENDMENTS TO PARENT LOAN AGREEMENT AND OPCO CREDIT AGREEMENT.
Subject to the terms and conditions set forth herein, the Parent Loan Agreement
and the Opco Credit Agreement
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<PAGE>
are hereby amended as of the Waiver Effective Date (as defined in Section
4(a) hereof) as follows:
(a) The definitions of "Preferred Stock" and "Shareholder Agreement"
in Section 1.01 of the Parent Loan Agreement shall be amended and restated
in their entirety to read as follows:
"PREFERRED STOCK" means the Series C Preferred Stock.
"SHAREHOLDER AGREEMENT" means that certain Stockholders Agreement
among the Borrower, the Lender and the Management Investors in
substantially the form delivered to the Lender pursuant to Section
4(a) of the Waiver, as the same may be amended, supplemented or
modified from time to time.
(b) The following new definition of "Series C Preferred Stock" shall
be added to Section 1.01 of the Parent Loan Agreement in proper
alphabetical order:
"SERIES C PREFERRED STOCK" means the Series C Preferred Stock,
par value $0.01 per share, of the Borrower.
(c) The following new definitions of "Stock Incentive Plan" and
"Waiver" shall be added to Sections 1.01 of both the Parent Loan Agreement
and the Opco Credit Agreement in proper alphabetical order:
"STOCK INCENTIVE PLAN" means the 1997 Stock Incentive Plan of the
Borrower in the form delivered to the Lender pursuant to Section 4(a)
of the Waiver.
"WAIVER" means the Amendment and Limited Waiver dated as of April
30, 1997 among the Borrower, Opco and the Lender.
(d) Each reference in the Parent Loan Agreement and the other Loan
Documents to "Kaynar Holdings Inc.", "Kaynar Technologies Inc.", "Borrower"
and "Opco" shall be deemed to be a reference to KTI.
(e) Each reference in the Opco Credit Agreement and the other Opco
Loan Documents to "Kaynar Holdings Inc.", "Kaynar Technologies Inc.",
"Borrower" and "Parent" shall be deemed to be a reference to KTI.
(f) Schedule 5.01-D of each of the Parent Loan Agreement and the Opco
Credit Agreement shall be replaced by
3
<PAGE>
the new Schedule 5.01-D, as delivered to the Lender pursuant to
Section 5(d) hereof.
(g) Clauses (viii), (ix) and (xi) of Section 8.01 of the Parent Loan
Agreement shall be replaced by the words "[Intentionally omitted}".
(h) A new clause (v) shall be added to Section 8.05 of each of the
Parent Loan Agreement and the Opco Credit Agreement, to read as follows:
(v) Accommodation Obligations of the Borrower to the
Underwriters and the Selling Stockholder under (and, in each case, as
defined in) the Underwriting Agreement in the form delivered to the
Lender pursuant to Section 4(a) of the Waiver.
(i) Clauses (ii), (iii) and (iv) of Section 8.06 of the Parent Loan
Agreement and clause (ii) of Section 8.06 of the Opco Credit Agreement
shall be deleted and replaced with a new clause (ii), to read as follows:
(ii) the grant of Awards to Eligible Persons under (and, in each
case, as defined in) the Stock Incentive Plan.
(j) A new clause (vi) shall be added to the last sentence of Section
8.08 of each of the Parent Loan Agreement and the Opco Credit Agreement to
read as follows:
or (vi) the grant of Awards to Eligible Persons under (and, in each
case, as defined in) the Stock Incentive Plan, PROVIDED that no Event
of Default or Potential Event of Default results therefrom.
(k) Section 8.12 of each of the Parent Loan Agreement and the Opco
Credit Agreement shall be amended and restated in its entirety to read as
follows:
8.12 ISSUANCE OF CAPITAL STOCK. Neither the Borrower nor
any of its Subsidiaries shall issue any Capital Stock to any Person
except for (i) the Capital Stock issued by such Persons as of the
Amendment and Restatement Effective Date, (ii) Common Stock issued by
the Borrower upon conversion of shares of Preferred Stock in
accordance with the certificate of designation for the Series C
Preferred Stock, (iii) Common Stock issued by the Borrower pursuant to
the Offering (as defined in the Waiver) and (iv) Common Stock issued
by the Borrower upon the exercise of Awards granted to
4
<PAGE>
Eligible Persons under (and, in each case, as defined in) the Stock
Incentive Plan.
3. TERMINATION OF PARENT PLEDGE AGREEMENT; RELEASE OF PLEDGED
COLLATERAL. On the date on which the Merger Agreement is filed with the
Secretary of State of the State of Delaware and the Merger becomes effective,
the Parent Pledge Agreement shall be terminated, and the Lender shall deliver
to KTI the Pledged Collateral (as defined in the Parent Pledge Agreement).
4. WAIVER EFFECTIVE DATE. This Waiver shall become effective
upon the date (the "Waiver Effective Date") on or before May 30, 1997 on
which the following conditions shall have been simultaneously satisfied:
(a) the Lender shall have received the following, each dated as of
the Waiver Effective Date and each in form and substance satisfactory to
the Lender:
(i) counterparts of this Waiver signed by Opco and Parent;
(ii) a certificate of the chief financial officer of Opco and
Parent certifying that all conditions precedent to the effectiveness
of this Waiver have been satisfied and that, after giving effect to
this Waiver and the transactions permitted herein, no Event of Default
or Potential Event of Default has occurred or is continuing;
(iii) copies, certified as to accuracy and completeness by the
Secretary of Parent, of (A) the Amended and Restated Certificate of
Incorporation of KTI (the "Restated Certificate of Incorporation"),
(B) the Amended and Restated By-Laws of KTI, (C) the Shareholders
Agreement, (D) the Stock Incentive Plan, (E) the Underwriting
Agreement with respect to the Offering, (F) the Agreement and Plan of
Merger with respect to the Merger and (F) the Certificate of Merger
with respect to the Merger (the "Merger Certificate"); and
(iv) a certificate of the Secretary of Opco and Parent
certifying the resolutions of the board of directors of Opco and
Parent approving and authorizing the Recapitalization, the Merger and
the Offering and the execution, delivery and performance of this
Waiver;
(b) after giving effect to this Waiver, no Event of Default or
Potential Event of Default under either the Parent Loan Agreement or the
Opco Credit Agreement shall
5
<PAGE>
have occurred and be continuing, and the representations and warranties
in the Loan Documents and the Opco Loan Documents shall be true and
correct in all material respects on and as of the Waiver Effective
Date, as if then made (other than representations and warranties
which expressly speak as of a different date, which shall be true
and correct in all material respects as of that date).
5. CONDITIONS SUBSEQUENT. The waivers set forth in Section 1
hereof and the amendments set forth in Section 2 hereof shall cease to be
effective unless the Offering shall have been consummated on or before May
30, 1997 and the following shall have occurred on or before the date on which
the Offering is consummated:
(a) the Lender shall have received payment in full in cash of (i) all
Obligations then due and payable under the Parent Loan Agreement, (ii)
Indebtedness in the principal amount of $2,000,000 under the RCL Loan
Agreement and (iii) at least $2,000,000 in principal amount of the
Revolving Loan (as defined in the Opco Credit Agreement);
(b) the Preferred Stockholder shall have received payment in full in
cash of all Obligations then due and payable under the PIK Dividend Note
Agreement and the Notes (as defined in the PIK Dividend Note Agreement);
(c) the Restated Certificate of Incorporation and the Merger
Agreement shall have been filed with the Secretary of State of the State of
Delaware, and the Merger shall be effective; and
(d) the Lender shall have received the following documents, each in
form and substance satisfactory to the Lender and its counsel:
(i) an opinion of O'Melveny & Myers LLP, counsel to Parent, Opco
and KTI, with respect to the Merger, the Recapitalization, the
Offering and this Waiver.
(ii) a reaffirmation and assumption of the Loan Documents and
the Opco Loan Documents (as amended hereby) executed by KTI;
(iii) a revised Schedule 5.01-D to each of the Parent Loan
Agreement and the Opco Credit Agreement; and
(iv) a certificate of the Secretary of KTI certifying the names
and true signatures of the
6
<PAGE>
incumbent officers of KTI authorized to sign the Loan Documents and
the Opco Loan Documents.
6. REPRESENTATIONS AND WARRANTIES.
(a) Parent hereby represents and warrants to the Lender that, as of
the Waiver Effective Date and after giving effect to this Waiver:
(i) all of the representations and warranties of Parent contained in
the Parent Loan Agreement and the other Loan Documents are true and correct
in all material respects on and as of the Waiver Effective Date, as if then
made (other than representations and warranties which expressly speak as of
a different date, which shall be true and correct in all material respects
as of that date); and
(ii) no Potential Event of Default or Event of Default has occurred
or is continuing or will result after giving effect to this Waiver.
(b) Opco hereby represents and warrants to the Lender that, as of the
Waiver Effective Date and after giving effect to this Waiver:
(i) all of the representations and warranties of Opco contained in
the Opco Credit Agreement and the other Opco Loan Documents are true and
correct in all material respects on and as of the Waiver Effective Date, as
if then made (other than representations and warranties which expressly
speak as of a different date, which shall be true and correct in all
material respects as of that date); and
(ii) no Potential Event of Default or Event of Default (in each case,
as defined in the Opco Credit Agreement) has occurred or is continuing or
will result after giving effect to this Waiver.
7. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the Waiver Effective Date, each reference in the Parent
Loan Agreement and the Opco Credit Agreement to "this Agreement",
"hereunder", "hereof" or words of like import, and each reference in the
other Loan Documents to the Credit Agreement, shall mean and be a reference
to the Parent Loan Agreement and the Opco Credit Agreement, respectively, as
amended hereby.
(b) This Waiver shall be limited solely to the matters expressly
set forth herein and shall not (i) constitute an amendment of any other term
or condition of the Parent Loan
7
<PAGE>
Agreement, the Opco Credit Agreement or any other Loan Document or Opco Loan
Document, (ii) prejudice any right or rights which the Lender or Lender
Parties may now have or may have in the future under or in connection with
the Parent Loan Agreement, the Opco Credit Agreement or any other Loan
Document or Opco Loan Document, (iii) require the Lender to agree to a
similar transaction on a future occasion or (iv) create any rights herein to
another Person or other beneficiary or otherwise, except to the extent
specifically provided herein.
(c) Except to the extent specifically consented to herein, the
respective provisions of the Parent Loan Agreement, the Opco Credit Agreement
and the other Loan Documents and Opco Loan Documents shall not be amended,
modified, impaired or otherwise affected hereby, and such documents and the
Obligations under each of them are hereby confirmed in full force and effect.
8. MISCELLANEOUS. This Waiver is a Loan Document and an Opco Loan
Document. The headings herein are for convenience of reference only and shall
not alter or otherwise affect the meaning hereof.
9. COUNTERPARTS. This Waiver may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
10. GOVERNING LAW. THIS WAIVER SHALL BE INTERPRETED, AND THE RIGHTS
AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAW OF
THE STATE OF NEW YORK.
8
<PAGE>
IN WITNESS WHEREOF, Opco, Parent and the Lender have caused this
Waiver to be executed by their respective officers thereunto duly authorized as
of the date first above written.
KAYNAR HOLDINGS INC.
By: /s/ David A. Werner
------------------------------
Name: David A. Werner
Title: Vice President
KAYNAR TECHNOLOGIES INC.
By: /s/ David A. Werner
------------------------------
Name: David A. Werner
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Peter C. Keenoy
------------------------------
Name: Peter C. Keenoy
Title: Authorized Signatory
9
<PAGE>
[EXECUTION COPY]
THIRD AMENDMENT AND LIMITED WAIVER
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT AND LIMITED WAIVER TO AMENDED AND RESTATED
CREDIT AGREEMENT dated as of June 25, 1997 (this "THIRD AMENDMENT") is
entered into between Kaynar Technologies Inc., a Delaware corporation (the
"BORROWER") and General Electric Capital Corporation, a New York corporation
(the "LENDER") and relates to that certain Amended and Restated Credit
Agreement dated as of August 12, 1996, between the Borrower and the Lender
(as previously amended as of December 17, 1996 and April 30, 1997 and as
further supplemented or otherwise modified from time to time through the date
hereof, the "CREDIT AGREEMENT").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have entered into the Credit
Agreement;
WHEREAS, the Borrower has requested that the Lender amend the
Credit Agreement (i) to revise the amortization schedule for the repayment of
the Term Loan (after giving effect to a $6,000,000 prepayment thereof made in
connection herewith), (ii) to increase the Revolving Credit Commitment from
$15,000,000 to $21,000,000, (iii) to include 50% of the value of "Eligible
Inventory" (as defined below) in the calculation of the Borrowing Base, (iv)
to increase the maximum amount of permitted Capital Expenditures for Fiscal
Year 1997 to $13,000,000 and (v) to effect other amendments, all as more
fully described herein; and
WHEREAS, the Borrower has also requested that the Lender waive
certain provisions of the Credit Agreement and the Defaults and Events of
Default resulting therefrom, as more fully described herein;
NOW, THEREFORE, in consideration of the above premises, the
Borrower and the Lender agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined
herein have the meanings assigned to them in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Effective Date"
(as defined in SECTION 5 below), the Credit Agreement is hereby amended as
follows:
<PAGE>
2.1 AMENDMENTS TO SECTION 1.01. Section 1.01 of the
Credit Agreement is amended as follows:
(a) The definition of "Borrowing Base" is hereby amended to
amend and restate clause (b) thereof to read as follows:
(b) an amount equal to 85% of Eligible Accounts, PLUS 50% of
the book value of Borrower's Eligible Inventory valued on a
first-in, first-out basis (at the lower of cost or market),
MINUS reserves as the Lender may deem necessary or appropriate
in its reasonable credit judgment.
(b) The definition of "Cash Equivalents" is hereby amended
and restated in its entirety to read as follows:
"CASH EQUIVALENTS" means (i) marketable direct
obligations issued or unconditionally guaranteed by the United
States government and backed by the full faith and credit of the
United States government; (ii) shares of an open-end investment
company registered pursuant to the Investment Company Act of 1940,
as amended, and operated as a money-market fund in accordance with
Rule 2a-7 issued thereunder; and (iii) domestic and eurodollar
certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank
organized under the laws of the United States, any state thereof,
the District of Columbia, any foreign bank, or its branches or
agencies (fully protected against currency fluctuations), which, at
the time of acquisition, are rated A-1 (or better) by Standard &
Poor's Corporation or Prime-1 (or better) by Moody's Investors
Services, Inc.; PROVIDED, that the maturities of such Cash
Equivalents shall not exceed one year.
(c) The following definition of "Eligible Inventory" is added
in proper alphabetical order:
"ELIGIBLE INVENTORY" means that Inventory of the Borrower
that strictly complies with all of the Borrower's representations
and warranties to the Lender with respect to Inventory, and that
are and at all times shall continue to be acceptable to the Lender
in all respects, PROVIDED, HOWEVER, that standards of eligibility
may be fixed and revised from time to time by the Lender in its
reasonable credit judgment. Without limiting the foregoing, the
Lender does not
2
<PAGE>
CURRENTLY intend to treat the following as Eligible Inventory:
(a) Inventory that is not owned by Borrower free and
clear of all Liens and rights of any other Person (including
the rights of a purchaser that has made progress payments and
the rights of a surety that has issued a bond to assure
Borrower's performance with respect to that Inventory), except
the Liens in favor of Lender;
(b) Inventory that is (i) not located on premises owned
or leased by Borrower in the District of Columbia or any state
of the United States of America or (ii) is stored with a
bailee, warehouseman or similar Person, unless Lender has
given its prior consent thereto and unless (x) a satisfactory
bailee letter or landlord waiver has been delivered to Lender,
or (y) reserves satisfactory to Lender have been established
with respect thereto, or (iii) located at any site if the
aggregate book value of Inventory at any such location is less
than $100,000;
(c) Inventory that is placed on consignment, is in
transit or is otherwise not located on premises owned or
leased by Borrower;
(d) Inventory that is covered by a negotiable document
of title, unless such document and evidence of acceptable
insurance covering such Inventory have been delivered to
Lender;
(e) Inventory that in Lender's reasonable determination
is excess, obsolete, unsalable, shopworn, seconds, damaged or
unfit for sale;
(f) Inventory that consists of items other than (i)
finished goods or (ii) raw materials consisting of sheet
metal, wire coil and bar stock;
(g) Inventory that consists of goods which have been
returned by the buyer for reason of defectiveness or are of a
type which cannot be resold at the same price;
(h) Inventory that is not of a type held for sale in the
ordinary course of Borrower's business;
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<PAGE>
(i) Inventory as to which Lender's Lien is not a first
priority perfected Lien;
(j) Inventory which consists of Contaminants or goods
that can be transported or sold only with licenses that are
not readily available;
(k) Inventory that is not covered by casualty insurance
acceptable to Lender;
(l) Inventory with respect to which all or a portion of
the value thereof is attributable to "freight-in" charges, to
the extent of such attributable value; or
(m) Inventory that is otherwise unacceptable to Lender
in its reasonable credit judgment.
(d) The following definition of "New Third Amendment" is
added in proper alphabetical order:
"NEW THIRD AMENDMENT" means the Third Amendment and
Limited Waiver to Amended and Restated Credit Agreement dated as of
June 25, 1997, between the Borrower and the Lender.
(e) The following definition of "New Third Amendment Effective
Date" is added in proper alphabetical order:
"NEW THIRD AMENDMENT EFFECTIVE DATE" means the "Effective
Date" under (and as defined in) the New Third Amendment.
(f) The definition of "Revolving Credit Commitment" is hereby
amended and restated in its entirety to read as follows:
"REVOLVING CREDIT COMMITMENT" means the obligation of the
Lender to make Revolving Loans and to issue, or cause to be issued,
Letters of Credit pursuant to the terms and conditions of this
Agreement (and, for the applicable period, the Existing Credit
Agreement), in an aggregate amount (including all Letter of Credit
Obligations and the principal amount of all Revolving Loans) which
shall not exceed (i) from the Initial Closing Date through and
including December 31, 1994, $6,500,000, (ii) from January 1, 1995
until the Third Amendment Effective Date, $5,000,000, (iii) from
the Third Amendment Effective Date until the New
4
<PAGE>
First Amendment Effective Date, $9,500,000, (iv) from the New First
Amendment Effective Date until the New Third Amendment Effective
Date, $15,000,000, and (v) from the New Third Amendment Effective
Date until the Revolving Credit Termination Date, $21,000,0000, as
permanently reduced from time to time pursuant to SECTION 3.01.
2.2 AMENDMENTS TO SECTION 2.01(d)(i). Section 2.01(d)(i) of
the Credit Agreement is hereby amended to amend and restate the amortization
table set forth therein as follows:
PAYMENT DATE PRINCIPAL INSTALLMENT
July 1, 1997 $ 100,000
October 1, 1997 $ 100,000
January 1, 1998 $ 100,000
April 1, 1998 $ 100,000
July 1, 1998 $ 100,000
October 1, 1998 $ 100,000
2.3 AMENDMENT TO SECTION 2.02(e)(i). Section 2.02(e)(i) is
hereby amended by deleting the second and third sentences thereof in their
entirety and substituting the following sentences in lieu thereof:
On the Third Amendment Effective Date, the Borrower executed and
delivered to the Lender a substitute promissory note in the form of
EXHIBIT J attached hereto and made a part hereof, evidencing the
then existing Revolving Credit Commitment. On the New First
Amendment Effective Date, the Borrower executed and delivered to
the Lender a second substitute promissory note in the form of
EXHIBIT J-A attached hereto and made a part hereof, evidencing the
then existing Revolving Credit Commitment. On the New Third
Amendment Effective Date, the Borrower shall execute and deliver to
the Lender a third substitute promissory note, in substantially the
form of EXHIBIT J-B attached hereto and made a part hereof,
evidencing the Revolving Loans and the Revolving Credit Commitment
(the "Revolving Credit Note").
2.4 AMENDMENT TO SECTION 5.01. Section 5.01 of the Credit
Agreement is hereby amended by adding the following representation and
warranty as subsection (bb) thereof:
(bb) ELIGIBLE INVENTORY. From and after the New Third
Amendment Effective Date, all Eligible Inventory is, as of the date
as of which any Revolving
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Loan is made or requested or any Letter of Credit is issued hereunder
or a Borrowing Base Certificate is delivered, is of good and
merchantable quality, free from material defects.
2.5 AMENDMENTS TO SECTION 8.01. Section 8.01 of the Credit
Agreement is hereby amended as follows:
(a) to delete the word "and" at the end of clause (x) thereof
in its entirety;
(b) to delete the period (".") at the end of clause (xi)
thereof in its entirety and to substitute in lieu thereof "; and"; and
(c) to add the following new clause (xii):
(xii) Indebtedness arising from the intercompany loan
from the Borrower to RCL of $2,000,000 as evidenced by the
promissory note dated as of May 9, 1997, PROVIDED that such
promissory note has been delivered to the Lender pursuant to
the Security Agreement, together with an endorsement in blank
relating thereto.
2.6 AMENDMENTS TO SECTION 8.04. Section 8.04 of the Credit
Agreement is hereby amended:
(a) to delete the reference to "SECTION 8.01(vii)" in clause
(vi) thereof in its entirety and to substitute in lieu thereof
"SECTIONS 8.01(vii) AND (xii)".
(b) to delete the reference to "$600,000" in clause (viii)
thereof in its entirety and to substitute in lieu thereof "$1,500,000".
2.7 AMENDMENT TO SECTION 9.05. Section 9.05 of the Credit
Agreement is hereby amended by deleting in its entirety the reference to
"$7,500,000" as the Maximum Amount for Fiscal Year 1997 and inserting in lieu
thereof "$13,000,000".
2.8 AMENDMENT TO SECTION 11.06(b). Section 11.06(b) of the
Credit Agreement is hereby amended by deleting the address of the Borrower
and substituting the following in lieu thereof:
Kaynar Technologies Inc.
500 North State College Boulevard
Orange, California 92868
Attention: David A. Werner
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Telecopier No. (714) 712-4909
2.9 AMENDMENTS TO EXHIBITS. A new Exhibit J-B is hereby
added to the Credit Agreement in the form of ANNEX A attached hereto and made
a part hereof.
3. LIMITED WAIVER. As of the Effective Date, the Lender hereby
waives (a) the provisions of Section 3.01(b)(ii) of the Credit Agreement in
respect of (and solely in respect of) the requirement that the Borrower make
a mandatory prepayment under such Section based on the amount of Excess Cash
Flow for Fiscal year 1996 and any Default or Event of Default under Section
10.01(a) of the Credit Agreement resulting from the Borrower's failure to
make such prepayment within the time period specified in Section 3.01(b)(ii)
of the Credit Agreement, (b) the provisions of Section 8.01 of the Credit
Agreement in respect of (and solely in respect of) the Borrower's having made
a loan to RCL in a principal amount of $2,000,000 evidenced by the promissory
note dated as of May 9, 1997 and any Default or Event of Default under
Section 10.01(b) of the Credit Agreement resulting therefrom,(c) the
provisions of Section 8.04 of the Credit Agreement in respect of (and solely
in respect of) the Borrower's having Investments, funded by proceeds from its
initial public offering, in a money market mutual fund, and any Default or
Event of Default under Section 10.01(b) of the Credit Agreement resulting
therefrom and (d) the Defaults and Events of Default under Section 10.01(e)
of the Credit Agreement resulting from "Defaults" and "Events of Default"
under (and as defined in) the RCL Loan Agreement, as set forth in the waiver
letter of even date herewith from the Lender to RCL.
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Lender that, as of the Effective Date and
after giving effect to this Third Amendment:
(a) All of the representations and warranties of the Borrower
contained in this Third Amendment, the Credit Agreement and the other
Loan Documents are true and correct in all material respects on and as
of the Effective Date, as if then made (other than representations and
warranties which expressly speak as of a different date, which shall be
true and correct in all material respects as of that date);
(b) No Potential Event of Default or Event of Default has occurred
or is continuing or will result after giving effect to this Third
Amendment; and
(c) The Borrower has not voluntarily, by operation of law or
otherwise, assigned, conveyed, transferred or encumbered, either
directly or indirectly, in whole or in
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part, any right to or interest in any of the "Released Claims" (as defined
in SECTION 6 below) purported to be released by this Third Amendment.
5. EFFECTIVE DATE. This Third Amendment shall become effective
as of the date first written above (the "EFFECTIVE DATE") upon the
satisfaction of each of the following conditions:
(a) the Lender shall have received each of the following documents,
in each case in form and substance satisfactory to the Lender:
(i) counterparts hereof executed by the Borrower and the
Lender;
(ii) a Revolving Credit Note substantially in the form of
EXHIBIT J-B to the Credit Agreement (as added by this Third
Amendment), duly executed by the Borrower;
(iii) a certificate of the chief financial officer of the
Borrower certifying that all conditions precedent to the effectiveness
of this Third Amendment have been satisfied;
(iv) a certificate of the Secretary or Assistant Secretary
of the Borrower dated the Effective Date certifying (A) the names
and true signatures of the incumbent officers of the Borrower
authorized to sign this Third Amendment and the other Transaction
Documents executed in connection with this Third Amendment to which
it is a party, (B) that the By-laws of the Borrower have not been
amended or otherwise modified since the date of the most recent
certification thereof by the Secretary or Assistant Secretary of
the Borrower delivered to the Lender and remain in full force and
effect as of the Effective Date, (C) that the Articles of
Incorporation of the Borrower have not been amended or otherwise
modified since the date of the most recent certification thereof by
the Secretary of State of Delaware delivered to the Lender and
remain in full force and effect as of the Effective Date and (D)
the resolutions of the Borrower's board of directors approving and
authorizing the execution, delivery and performance of this Third
Amendment and the other Transaction Documents executed in
connection with this Third Amendment to which the Borrower is a
party; and
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<PAGE>
(v) such additional documentation as the Lender may
reasonably request;
(b) the Borrower shall have made a prepayment on the Term Loan in
a principal amount of not less than $6,000,000.00;
(c) no law, regulation, order, judgment or decree of any
Governmental Authority shall, and the Lender shall not have received any
notice that litigation is pending or threatened which is likely to,
enjoin, prohibit or restrain the consummation of the transactions
contemplated by this Third Amendment, except for such laws, regulations,
orders or decrees, or pending or threatened litigation that in the
aggregate could not reasonably be expected to result in a Material
Adverse Effect;
(d) all of the representations and warranties of the Borrower
contained in this Third Amendment, the Credit Agreement and the other
Loan Documents shall be true and correct in all material respects on and
as of the Effective Date, as if then made (other than representations
and warranties which expressly speak as of a different date, which shall
be true and correct in all material respects as of that date);
(e) all corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Third Amendment shall be satisfactory in all
respects in form and substance to the Lender; and
(f) no Event of Default or Potential Event of Default shall have
occurred and be continuing on the Effective Date or will result after
giving effect to this Third Amendment.
6. OUTSTANDING INDEBTEDNESS. The Borrower hereby acknowledges
and agrees that as of May 23, 1997 the aggregate outstanding principal amount
of the Revolving Loans under the Credit Agreement was $127,952.54 and that
the aggregate outstanding principal amount of the Term Loan under the Credit
Agreement was $27,725,000 and that such principal amounts are payable
pursuant to the Credit Agreement, as amended hereby, without offset,
withholding, counterclaim or deduction of any kind. The Borrower, for itself
and on behalf of its officers and directors, and its respective predecessors,
successors and assigns (collectively, the "RELEASORS"), hereby waives,
releases and forever discharges the Lender, and its parent corporation,
Subsidiaries and Affiliates, officers, directors, shareholders employees,
attorneys, agents and servants, and its respective
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predecessors, successors, heirs and assigns (collectively, the "LENDER
PARTIES"), from any and all claims of every type, kind, nature, description
or character, known and unknown, whensoever arising out of any actions or
omissions of the Lender Parties, except all such claims of Affiliates of
Lender arising out of sales of inventory in the ordinary course of business,
occurring any time up to and including the date hereof, which in any way
arise out of, are connected with or relate to the Credit Agreement or any
other Loan Documents (the "RELEASED CLAIMS") and agrees not to bring any
action in any judicial, administrative or other proceeding against the Lender
Parties, alleging any such Released Claim or otherwise in connection with any
such Released Claim.
7. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the Effective Date, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import,
and each reference in the other Loan Documents to the Credit Agreement, shall
mean and be a reference to the Credit Agreement as amended hereby.
(b) This Third Amendment shall be limited solely to the matters
expressly set forth herein and shall not (i) constitute an amendment of any
other term or condition of the Credit Agreement or any other Loan Document,
(ii) prejudice any right or rights which the Lender or Lender Parties may now
have or may have in the future under or in connection with the Credit
Agreement or any other Loan Document, (iii) require the Lender to agree to a
similar transaction on a future occasion, (iv) be deemed or construed as an
admission of liability with respect to the Released Claims or otherwise by
the Lender Parties or (v) create any rights herein to another Person or other
beneficiary or otherwise, except to the extent specifically provided herein.
(c) Except to the extent specifically consented to herein, the
respective provisions of the Credit Agreement and the other Loan Documents
shall not be amended, modified, impaired or otherwise affected hereby, and
such documents and the Obligations under each of them are hereby confirmed in
full force and effect.
8. MISCELLANEOUS. This Third Amendment is a Loan Document. The
headings herein are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof.
9. COUNTERPARTS. This Third Amendment may be executed in any
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
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<PAGE>
10. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE INTERPRETED, AND
THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Third Amendment to be executed by their respective officers thereunto duly
authorized as of the date first above written.
KAYNAR TECHNOLOGIES INC.
By: /s/ David A. Werner
-------------------------------
Name: David A. Werner
Title: Executive Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Charles D. Chiodo
-------------------------------
Name: Charles D. Chiodo
Title: Authorized Signatory
11
<PAGE>
ANNEX A
TO
THIRD AMENDMENT AND LIMITED WAIVER
FORM OF AMENDED AND RESTATED REVOLVING CREDIT NOTE
Attached.
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AMENDMENT TO LEASE
West L.A. Properties, a California limited partnership (Lessor) and
Kaynar Technologies Inc. (Lessee) hereby amend the Lease between them dated
January 3, 1994, (the Lease) covering a portion of the premises commonly
known as 190 West Crowther, Placentia, California as follows:
1. TERM
The term of the Lease, now scheduled to end on December 31, 1998,
is extended to September 30, 2001. Paragraph 50 of the Lease, which granted
Lessee an option to extend the term of the Lease, is hereby deleted; Lessee
has no further option to extend.
2. RENT
Effective on October 1, 1996, the Base Rent shall be $14,000 per
month. The security deposit shall
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be reduced to $14,000 Lessor will apply the $1,200 excess it now holds to the
rent due on September 1, 1996. Rent shall continue to be payable on the
first day of each month. Effective on April 1, 1999, the Base Rent shall be
increased in accordance with the Cost of Living Adjustments provided for in
paragraph 49, of the Lease, except that the Base Month (the denominator in
the fraction) shall be August 1996 and the Comparison Month (the numerator in
the fraction) shall be February 1999.
3. TENANT IMPROVEMENTS
Lessee proposes to make certain Tenant Improvements in accordance
with plans and specifications that Lessee will promptly prepare and submit to
Lessor for its approval, which approval will not be unreasonably withheld or
delayed. Lessee will make those improvements in a good and workmanlike
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manner and in accordance with the requirements of paragraph 7.3 of the Lease.
Lessor will not require a lien and completion bond provided; (a) Lessor
approves the general contractor and its financial statement, and (b) Lessor
is given an opportunity to file and post an effective notice of
non-responsibility. Those improvements shall be subject to the provisions of
paragraph 7.4 of the Lease. Upon completion of those improvements in
accordance with the Lease requirements, Lessor will lend to Lessee an amount
(not to exceed $205,000) which Lessee demonstrates by books, records and
canceled checks to represent Lessee's out-of-pocket cost in connection with
those improvements. The loan shall be funded in increments of not less than
$50,000 prior to completion of improvements provided Lessee gives Lessor
evidence of (a) lien free completion of work of a value of not less than the
required draw; and (b) certification by the contractor that the work
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remaining to be done can be completed at a cost which will not exceed the
undrawn balance of the $205,000. Total incremental advances shall not exceed
$150,000. Any remaining loan shall be funded only after expiration of the
period during which mechanic's liens can be filed. Lessor's loan to Lessee
shall be represented by Lessee's promissory note (the Note) in the form
attached as Exhibit A. The Note shall be payable in equal installments of
principal and interest over the number of full months remaining between the
date of the Note and September 30, 2001. It is a condition precedent to
lessor's loan that Lessee not be in breach of any of its obligations under
the Lease. For this purpose, a breach is a default which shall have extended
beyond any notice and cure periods. A default in any payment under the Note
shall constitute
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a Breach under the provisions of paragraph 13 of the Lease.
Dated: August 21, 1996
LESSOR: WEST L.A. PROPERTIES, A
CALIFORNIA LIMITED PARTNERSHIP
By The Weil Family Trust
dated October 3, 1984,
General Partner
By /s/ Martin H. Weil
------------------------------
Martin H. Weil, Trustee
LESSEE: KAYNAR TECHNOLOGIES INC.
By /s/ D.A. Werner
------------------------------
David A. Werner, Vice
President
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<PAGE>
EXHIBIT A
Santa Monica, California
$__________ __________________, 1996
In installments as hereafter stated, for value received, the undersigned
promises to pay to West L.A. Properties, or order, at Santa Monica,
California, the principal sum of $___________, with interest from date of
advance(s) on unpaid principal at the rate of 10% per annum. This note is
executed pursuant to the provisions of a Lease (the Lease) between Maker as
Lessee and Payee as lessor. The Lease consists of the original lease dated
January 3, 1994, as amended on __________, 1996.
Principal and interest shall be payable in the sum of $_________ or more on
the first day of each month commencing on _________, 1996. The note will
become immediately due and payable on the first to occur of the following:
(a) any Default or Breach by the undersigned of any of its obligations under
the Lease as those obligations are defined in the Lease; or (b) September 30,
2001.
The maker(s) acknowledge(s) that late payment to payee will cause payee to
incur costs not contemplated by this loan. Such costs include, without
limitation, processing and accounting charges. Therefore, if any installment
is not received by payee when due, maker(s) will pay to payee an additional
sum of 6% of the overdue amount as a late charge. The parties agree that
this late charge represents a reasonable sum considering all the
circumstances existing on the date of this agreement and represents a fair
and reasonable estimate of the costs that payee will incur by reason of late
payment.
<PAGE>
The parties further agree that proof of actual damages would be costly or
inconvenient. Acceptance of any late charge will constitute a waiver of the
default with respect to the overdue amount and will not prevent payee from
exercising any of the other rights and remedies available to payee.
Should default be made in the payment of any installment of principal or
interest when due, then the whole sum of principal and interest shall become
immediately due and payable at the option of the holders of this note. The
undersigned further promise to pay all costs of collection, including
attorney's fees incurred in the collection of this note. Principal and
interest payable in lawful money of the United States.
Kaynar Technologies Inc.
By
------------------------------
<PAGE>
INDEMNIFICATION AND CONTRIBUTION AGREEMENT
THIS INDEMNIFICATION AND CONTRIBUTION AGREEMENT (this "Agreement")
is entered into as of the 5th day of May 1997 by and between General Electric
Capital Corporation, a New York corporation (the "Selling Stockholder"), and
Kaynar Holdings Inc., a Delaware corporation ("Holdings").
WHEREAS, Holdings proposes to merge its wholly-owned subsidiary, Kaynar
Technologies Inc., a Delaware corporation ("Kaynar"), into itself, with
Holdings as the surviving corporation, and immediately thereafter Holdings
proposes to change its name to Kaynar Technologies Inc. (the
"Reorganization"); and
WHEREAS, immediately following the Reorganization, Holdings proposes to
sell up to 2,100,000 shares of its Common Stock, par value $0.01 per share
(the "Shares"), to several underwriters pursuant to the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement") among
Holdings, the Selling Stockholder and Lehman Brothers Inc. and PaineWebber
Incorporated, as representatives of the underwriters named therein (the
"Underwriters");
NOW, THEREFORE, in consideration of the foregoing premises and of the
covenants set forth herein, the Selling Stockholder and Holdings hereby agree
as follows:
AGREEMENT
1. Holdings shall indemnify and hold harmless the Selling Stockholder,
its officers and employees and each person, if any, who controls the Selling
Stockholder within the meaning of the Securities Act of 1933, as amended (as
so amended, the "Securities Act") or the Securities Exchange Act of 1934, as
amended (as so amended, the "Exchange Act"), from and against any loss,
claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of the Shares), to which the Selling
Stockholder, or any officer, employee or controlling person of the Selling
Stockholder, may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Preliminary Prospectus dated April 11,
1997 (the "Preliminary Prospectus"), the Registration Statement on Form S-1
(Registration No. 333-22345) (the "Registration Statement") or in any
amendment or supplement thereto (other than any statement of a material fact
contained in the description of the financing arrangements included in the
circled material on the six pages of the Preliminary Prospectus attached
hereto as Exhibit A and any information furnished by the Underwriters and
described in
<PAGE>
Section 10(f) of the Underwriting Agreement) or (B) in any blue sky
application or other document prepared or executed by Holdings (or based upon
any written information furnished by Holdings) specifically for the purpose
of qualifying any or all of the Shares under the securities laws of any state
or other jurisdiction (any such application, document or information being
hereinafter called a "Blue Sky Application"), (ii) the omission or alleged
omission to state in the Preliminary Prospectus, the Registration Statement
or in any amendment or supplement thereto (other than any material fact
omitted from the description of the financing arrangements included in the
circled material on the six pages of the Preliminary Prospectus attached
hereto as Exhibit A and any information furnished by the Underwriters and
described in Section 10(f) of the Underwriting Agreement), or in any Blue Sky
Application, of a material fact required to be stated therein or necessary to
make the statements therein not misleading or (iii) any act or failure to act
or any alleged act or failure to act by the Selling Stockholder in connection
with, or relating in any manner to, the Shares or the offering contemplated
by the Preliminary Prospectus, and which is included as part of or referred
to in any loss, claim, damage, liability or action arising out of or based
upon matters covered by clause (i) or (ii) above (PROVIDED that Holdings
shall not be liable under this clause (iii) to the extent that it is
determined in a final judgment by a court of competent jurisdiction that such
loss, claim, damage, liability or action resulted directly from any such acts
or failures to act undertaken or omitted to be taken by the Selling
Stockholder through its gross negligence or willful misconduct), and shall
reimburse the Selling Stockholder and each officer, employee or controlling
person promptly upon demand for any legal or other expenses reasonably
incurred by the Selling Stockholder, officer, employee or controlling person
in connection with investigating or defending or preparing to defend against
any such loss, claim, damage, liability or action as such expenses are
incurred; PROVIDED, HOWEVER, that Holdings shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in the Preliminary Prospectus,
the Registration Statement or in any amendment or supplement thereto, or in
any Blue Sky Application, in reliance upon and in conformity with written
information concerning the Selling Stockholder furnished to Holdings by or on
behalf of the Selling Stockholder specifically for inclusion therein. The
foregoing indemnity agreement is in addition to any liability which Holdings
may otherwise have to the Selling Stockholder or to any officer, employee or
controlling person of the Selling Stockholder.
2. The Selling Stockholder agrees, subject to the limitations set
forth in Paragraph 6 hereof, to indemnify and hold harmless Holdings, its
officers and employees and each person, if any, who controls Holdings within
the meaning of the
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Securities Act or the Exchange Act, from and against any loss, claim, damage
or liability, joint or several, or any action in respect thereof (including,
but not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of the Shares), to which Holdings, or any officer,
employee or controlling person of Holdings, may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage or liability
or action arise out of, or is based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Prospectus,
the Registration Statement or in any amendment or supplement thereto or (ii)
the omission or alleged omission to state in the Preliminary Prospectus, the
Registration Statement or in any amendment or supplement thereto a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, the Preliminary Prospectus
or any amendment or supplement thereto, in conformity with information
provided in writing by the Selling Stockholder to Holdings specifically for
use therein and will reimburse Holdings and each such controlling person for
any legal or other expenses reasonably incurred by Holdings in connection
with investigating or defending any such loss, claim, damage, liability, or
action; PROVIDED, that the Selling Stockholder will not be liable in any such
case to the extent that (i) any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, the
Preliminary Prospectus or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished by Holdings
specifically for use therein or (ii) if such statement or omission was
contained or made in the Preliminary Prospectus and corrected in an amendment
or supplement thereto.
3. Promptly after receipt by an indemnified party under this Agreement
of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Agreement, notify the indemnifying party in
writing of the claim or the commencement of that action; PROVIDED, HOWEVER,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have under this Agreement except to the extent it
has been materially prejudiced by such failure and, PROVIDED FURTHER, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Agreement. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified indemnifying
party, to assume the defense
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<PAGE>
thereof with counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its election
to assume the defense of such claim or action, the indemnifying party shall
not be liable to the indemnified party under this Agreement for any legal or
other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment with respect to
any pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent
of the indemnifying party or if there be a final judgment of the plaintiff in
any such action, the indemnifying party agrees to indemnify and hold harmless
any indemnified party from and against any loss or liability by reason of
such settlement or judgment.
4. If the indemnification provided for in this Agreement shall for any
reason be unavailable to or insufficient to hold harmless an indemnified
party under Paragraphs 1 or 2 hereof in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the
relative benefits received by Holdings and the Selling Stockholder,
respectively, from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative faults of Holdings and
the Selling Stockholder, respectively, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action
in respect thereof, as well as any other relevant equitable considerations.
The relative benefits received by Holdings and the Selling Stockholder with
respect to such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Shares purchased under this
Agreement (before deducting expenses) received by each of Holdings and the
Selling Stockholder, bear to the total gross proceeds from the offering of
the Shares, in each case as set forth in the table on the cover page of the
final prospectus. The relative fault shall be determined by reference to
whether
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<PAGE>
the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
Holdings or the Selling Stockholder, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. Holdings and the Selling Stockholder
agree that it would not be just and equitable if contributions pursuant to
this Paragraph 4 were to be determined by PRO RATA allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Paragraph 4 shall be
deemed to include, for purposes of this Paragraph 4, any legal or other
expense reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
5. The Selling Shareholder confirms and Holdings acknowledges that the
circled material on the nine pages attached hereto as Exhibit B is a full,
complete and correct record of all the written information which the Selling
Stockholder has furnished to Holdings expressly for use in the Registration
Statement, the Preliminary Prospectus and any further amendments or
supplements thereto, filed with respect to the registration of the Shares
(including 300,000 Shares reserved for the underwriters' over-allotment
option).
6. Notwithstanding any of the provisions of this Agreement and the
Underwriting Agreement, the Selling Stockholder's liability to Holdings and
its officers, employees and controlling persons, together with the Selling
Stockholder's liability to the Underwriters and their respective officers,
employees and controlling persons under the Underwriting Agreement, shall not
exceed the net proceeds received by the Selling Stockholder from the sale of
the Shares being sold by the Selling Stockholder to the Underwriters, and in
no event shall Holdings have any right of contribution from the Selling
Stockholder for liability which Holdings may have to the Underwriters, their
officers, employees and controlling persons pursuant to the Underwriting
Agreement, except under the circumstances which give rise to liability by the
Selling Stockholder under Paragraph 2 hereof.
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<PAGE>
IN WITNESS WHEREOF, the Selling Stockholder and Holdings have
caused this Indemnification and Contribution Agreement to be executed by
their respective officers thereunto duly authorized as of the date first
above written.
KAYNAR HOLDINGS INC.
By: /s/ David A. Werner
-------------------------------
Name: David A. Werner
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Michael A. Gaudino
-------------------------------
Name:
Title: Authorized Signatory
S-1
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<PAGE>
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0
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