<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1997
REGISTRATION NO. 333-22345
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KAYNAR TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3452 33-0591091
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
500 N. STATE COLLEGE BLVD.
ORANGE, CALIFORNIA 92868
(714) 712-4900
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
MR. DAVID A. WERNER
EXECUTIVE VICE PRESIDENT
KAYNAR TECHNOLOGIES INC.
500 N. STATE COLLEGE BLVD.
ORANGE, CALIFORNIA 92868
(714) 712-4900
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
C. JAMES LEVIN, ESQ. JOHN R. LIGHT, ESQ.
O'MELVENY & MYERS LLP LATHAM & WATKINS
400 SOUTH HOPE STREET 633 WEST FIFTH STREET
LOS ANGELES, CALIFORNIA 90071-2899 LOS ANGELES, CALIFORNIA 90071-2007
(213) 669-6000 (213) 485-1234
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- --------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- --------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
2,000,000 SHARES
[LOGO]
[LOGO]
COMMON STOCK
----------------
Of the 2,000,000 shares of Common Stock offered hereby (the "Offering"),
1,800,000 shares are being sold by Kaynar Technologies Inc. (together with its
consolidated subsidiaries, the "Company") and 200,000 shares are being sold by
the Selling Stockholder (as defined herein). Prior to the completion of the
Offering, the Selling Stockholder owns approximately 79.5% of the outstanding
shares of the Company on a fully-converted basis due to its holdings of the
Company's Series C Convertible Preferred Stock. Proceeds of the Offering will be
used, among other things, to repay approximately $18 million in debt owed by the
Company to the Selling Stockholder. See "Principal Stockholders and Selling
Stockholder." The Company will not receive any proceeds from the sale of shares
by the Selling Stockholder.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. The Common Stock
has been approved for quotation on the Nasdaq National Market under the symbol
"KTIC."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholder
<S> <C> <C> <C> <C>
Per Share.......................... $14.50 $1.015 $13.485 $13.485
Total(3)........................... $29,000,000 $2,030,000 $24,273,000 $2,697,000
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $675,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock on the same terms as set forth
above, solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Stockholder will be $33,350,000,
$2,334,500, $28,318,500 and $2,697,000, respectively. See "Underwriting."
---------------------
The shares of Common Stock offered by this Prospectus are offered severally
by the Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery of
the shares of Common Stock will be made at the offices of Lehman Brothers Inc.,
New York, New York on or about May 9, 1997.
---------------------
LEHMAN BROTHERS PAINEWEBBER INCORPORATED
May 6, 1997
<PAGE>
[IMAGE MATERIAL: PICTURES OF VARIOUS END-PRODUCTS USING THE COMPANY'S PRODUCTS:
BOEING 747;
BOEING 777; AIRCRAFT JET TURBINE ENGINE; AIRBUS A340; FRENCH HIGH-SPEED TGV
RAILWAY
LOCOMOTIVE; LOCKHEED F-117 STEALTH FIGHTER; M-1 ABRAMS MAIN BATTLE TANK.]
[IMAGE MATERIAL: PICTURES OF VARIOUS AIRCRAFT AND AUTOMOBILE ASSEMBLY
FACILITIES; PICTURES OF VARIOUS
PRODUCTS OF THE COMPANY'S KAYNAR, K-FAST, MICRODOT, AND RECOIL BUSINESS UNITS.]
Certain persons participating in this Offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the Common Stock. Such
transactions may include the purchase of shares of Common Stock following the
pricing of the Offering to cover a syndicate short position in the Common Stock
or for the purpose of maintaining the price of the Common Stock and the
imposition of penalty bids. For a description of these activities, see
"Underwriting."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, AND NOTES THERETO, APPEARING ELSEWHERE IN
THE PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THE PROSPECTUS
(I) ASSUMES THAT IMMEDIATELY PRIOR TO THE OFFERING, KAYNAR TECHNOLOGIES INC.
(THE "OPERATING COMPANY") WILL BE MERGED WITH AND INTO ITS PARENT, KAYNAR
HOLDINGS INC. (SOMETIMES REFERRED TO HEREIN AS "HOLDINGS"), WHICH, AS THE
CORPORATION SURVIVING THE MERGER, WILL BE RENAMED KAYNAR TECHNOLOGIES INC. (SEE
"THE REORGANIZATION" FOR MORE INFORMATION REGARDING THE MERGER), (II) REFLECTS
THE CONVERSION OF ALL OUTSTANDING SHARES OF HOLDINGS' CAPITAL STOCK INTO
ADDITIONAL SHARES OF COMMON STOCK OR SHARES OF SERIES C PREFERRED STOCK AS
DESCRIBED IN "THE REORGANIZATION" AND (III) ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. UNLESS OTHERWISE INDICATED, THE
TERM "COMPANY" AS USED HEREIN SHALL MEAN HOLDINGS, AS THE CORPORATION SURVIVING
THE MERGER, TOGETHER WITH EACH OF HOLDINGS' CONSOLIDATED SUBSIDIARIES.
THE COMPANY
The Company is a leading manufacturer of specialty fasteners, fastening
systems and related components primarily used by original equipment
manufacturers ("OEMs") and their subcontractors in the production of commercial
aircraft and defense products. In addition, the Company also manufactures other
specialty fasteners and related products for sale in the automotive, electronic
and other industrial markets, and their associated after-markets. The Company
designs and manufactures a substantial majority of its fasteners to its
customers' specifications and in a wide range of specialty metals, alloys and
composites.
The Company supplies products to virtually all major airframe and aircraft
engine OEMs, including Boeing Co. ("Boeing"), General Electric Company ("GE"),
the Pratt & Whitney Aircraft business of United Technologies Corporation ("Pratt
& Whitney"), Airbus Industries ("Airbus"), Lockheed Martin Corporation
("Lockheed Martin"), McDonnell Douglas Corporation ("McDonnell Douglas") and
Rolls Royce PLC ("Rolls Royce"), as well as to a global network of distributors.
Direct sales to Boeing, GE and Pratt & Whitney, the Company's three largest OEM
customers, accounted for approximately 18%, 12%, and 8% of the Company's 1996
net sales, respectively.
Since the beginning of the commercial aircraft industry's recovery in 1994,
the Company has experienced significant increases in sales and profitability.
During this period, the Company's net sales have increased nearly 80%, from
$55.1 million in 1994 to $99.0 million in 1996, and its operating income has
increased approximately 160%, from $5.0 million in 1994 to $12.8 million in
1996. The Company's backlog of orders deliverable within 12 months has also
increased during this period, from approximately $21 million as of January 3,
1994 to approximately $60 million as of December 31, 1996.
The Company offers a broad line of fasteners, fastening systems and related
components. The Company's Kaynar and Microdot business units manufacture
precision, self-locking, internally threaded nuts and inserts and precision,
threaded studs. Kaynar and Microdot fasteners are engineered for a variety of
harsh, demanding environments and often require high tensile strength,
toughness, durability, corrosion resistance and resistance to metal fatigue and
creep. Kaynar's fasteners, which include wrenchable nuts, anchor nuts, gang
channels, shank nuts, barrel nuts, clinch nuts and stake nuts, are used in
airframe construction to fasten together various aircraft components, including
the fuselage, wings and horizontal and vertical stabilizers. These fasteners
also serve a similar function in the construction of aircraft jet and turboprop
engines and related components. Recoil, acquired by the Company in August 1996,
manufactures helically-wound wire thread inserts and thread repair kits, which
are similar in design to certain Microdot products, but are sold to the
automotive, electronic and other industrial markets, and their associated
after-markets. The Company's K-Fast business unit produces and markets tools
that are leased or sold to OEMs and are designed to allow operators to install
the Company's and other manufacturers' fasteners rapidly and in restricted and
hard-to-reach areas, while still maintaining precision torque control.
The Company's goal is to sustain long-term, profitable growth by (i)
enhancing its position as a leading supplier of specialty fasteners to the
commercial aircraft and defense industries, (ii) expanding the array of fastener
products and services it offers to current customers, (iii) continuing to focus
on higher
3
<PAGE>
value-added specialty products, (iv) leveraging its core capabilities in
engineering, materials technology, manufacturing and business processes to
develop additional business with both new and existing customers, (v) increasing
its international marketing and penetration of foreign markets and (vi) pursuing
selected opportunities for acquisitions and strategic alliances.
The Company believes that it possesses a number of competitive strengths.
First, the Company has established itself as a market leader in the engineering
and manufacture of precision, self-locking internally threaded nuts and inserts
and precision, threaded studs used in the commercial aircraft and defense
industries. Products made by the Company have been "designed into" nearly all
major airframes and aircraft engines manufactured in the U.S. and Europe.
Second, cross-functional design and engineering teams and manufacturing
expertise allow the Company to respond rapidly to customer requirements. Third,
while many OEMs have significantly reduced the number of qualified suppliers of
a particular part to a core group of only two or three, the Company continues to
be a qualified supplier to virtually all major airframe and aircraft engine
OEMs. Fourth, the Company is a "source delegation supplier" to many of its
customers, including Boeing, GE and Pratt & Whitney. A source delegation
supplier's products are designed, shipped and installed without the OEM
undertaking further testing that it might otherwise perform before installation.
Fifth, the Company has benefited from ongoing programs designed to improve
operating efficiency and customer service, while maintaining or improving
quality control.
INDUSTRY OVERVIEW AND TRENDS. The Company's primary market for fasteners,
the commercial aircraft industry, is experiencing a strong increase in demand
from airlines ordering new and replacement aircraft. During the early 1990's,
most airlines significantly decreased their aircraft purchase orders due to
reduced profitability and excess capacity. Since that time, however, a
rebounding world economy and increased passenger air traffic have returned many
airlines to profitability, resulting in renewed demand for new and replacement
aircraft. In 1996, for example, Boeing and Airbus, the two largest commercial
aircraft manufacturers, reported increases in announced aircraft orders of 107%
and 208% over 1995, respectively. Increased demand for new and replacement
aircraft has led to an increase in the demand for fasteners and fastening
systems, such as those manufactured by the Company.
While there can be no assurance that demand for new and replacement aircraft
will not be adversely affected by business cycle fluctuations or declines in
airline profitability, the Company believes that long-term industry trends are
favorable. For example, in its 1997 Current Market Outlook report, Boeing
projects that during the period from 1996 to 2006, world air travel will grow by
nearly 75%. Boeing also projects that during this period domestic and
international airlines will lease or purchase over 7,000 new aircraft, thereby
increasing the worldwide commercial fleet from approximately 11,500 aircraft at
the end of 1996 to approximately 17,000 aircraft (net of retirements) at the end
of 2006. In addition, as airlines seek to serve a growing number of air
travelers with existing restrictions on arrival and departure slots, airport
gates and ramp capacity, commercial aircraft OEMs are experiencing increased
orders for heavier, widebodied aircraft of intermediate size. Widebodied
aircraft generally require a greater number of fasteners than smaller aircraft.
RECENT ACQUISITIONS. The Company acquired one business and one additional
product line in 1996. In August 1996, the Company purchased the businesses of
Recoil Pty Ltd, an Australian corporation (the acquired businesses are
collectively referred to herein as "Recoil"). For a description of the Recoil
business unit see "Business--Products and Services--Industrial Products and
Services." In the period from the Company's purchase of Recoil to December 31,
1996, and for the twelve months ended on that date, Recoil's net sales were $3.9
million and $9.9 million, respectively. In February 1996, the Company purchased
the KELOX product line from the Fastening Systems division of Emhart Fastening
Teknologies. The KELOX product line complements various Microdot inserts.
COMPANY ORGANIZATION. The Company was formed in 1993 for the purpose of
acquiring substantially all of the assets of the Aerospace Fastening Systems
Group ("AFSG") of Microdot Inc., a Delaware corporation that commenced a
voluntary bankruptcy proceeding on June 10, 1993 ("Old Microdot"). The
acquisition was structured as a management buyout financed substantially by the
General Electric Capital
4
<PAGE>
Corporation ("GECC" or the "Selling Stockholder"). See "The Company" for
additional information regarding the AFSG acquisition.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...... 1,800,000 shares
Common Stock offered by the Selling
Stockholder............................ 200,000 shares
Total Common Stock offered........... 2,000,000 shares
Common Stock and Common Stock equivalents
to be outstanding after the
Offering(1)............................ 8,600,000 shares
Use of proceeds.......................... Proceeds to the Company will be used to repay
certain indebtedness and for working capital and
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol............ KTIC
</TABLE>
- ------------------------
(1) Includes 5,206,000 shares of Series C Convertible Preferred Stock (the
"Series C Preferred Stock") owned by the Selling Stockholder. The Series C
Preferred Stock is convertible into shares of Common Stock at a one-to-one
conversion rate, subject to adjustment in certain circumstances. See
"Description of Capital Stock--Series C Preferred Stock."
RISK FACTORS
Prior to making an investment in the Common Stock offered hereby,
prospective purchasers of the Common Stock should take into account the specific
considerations set forth in "Risk Factors" as well as other information set
forth in the Prospectus.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The summary consolidated financial and operating information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto, and other financial information included elsewhere
in the Prospectus. The Company was incorporated in October 1993 and began
operations on January 3, 1994 when it acquired substantially all of the assets
of AFSG. See "The Company--Formation of the Company." The summary consolidated
financial and operating information for the years ended December 31, 1994, 1995
and 1996 is derived from the Consolidated Financial Statements of the Company
that have been audited by Arthur Andersen LLP, independent public accountants.
The summary consolidated financial and operating information of AFSG for the
years ended December 31, 1992 and 1993 is derived from the unaudited financial
statements of AFSG, the Company's predecessor for financial reporting purposes,
and, in the opinion of the Company's management, reflects all adjustments
necessary to present the financial results of AFSG fairly and on a basis
consistent with the Company's financial statements. The information for AFSG is
presented to "Operating income" because the borrowing arrangements and tax
position of Old Microdot are not meaningful to the Company. The unaudited
summary consolidated financial and operating information for AFSG is provided
for informational purposes only.
<TABLE>
<CAPTION>
AFSG COMPANY
-------------------- -------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996(1)
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales....................................................... $ 52,510 $ 46,378 $ 55,117 $ 68,781 $ 99,023
Cost of sales................................................... 38,975 35,933 41,117 51,940 72,924
--------- --------- --------- --------- ---------
Gross profit.................................................. 13,535 10,445 14,000 16,841 26,099
Selling, general and administrative expenses(2)................. 8,194 8,239 9,048 10,018 13,263
--------- --------- --------- --------- ---------
Operating income.............................................. 5,341 2,206 4,952 6,823 12,836
Interest expense, net........................................... 2,304 2,935 4,011
--------- --------- ---------
Income before income taxes.................................... 2,648 3,888 8,825
Provision for income taxes...................................... 1,129 1,577 3,530
--------- --------- ---------
Net income.................................................... $ 1,519 $ 2,311 $ 5,295
--------- --------- ---------
--------- --------- ---------
Earnings per share(3)........................................... $ 0.22 $ 0.34 $ 0.78
--------- --------- ---------
--------- --------- ---------
Weighted average number of shares outstanding(3)................ 6,800 6,800 6,800
--------- --------- ---------
--------- --------- ---------
PRO FORMA INCOME STATEMENT DATA(4):
Pro forma earnings per share, as adjusted....................... $ 0.78
---------
---------
Pro forma shares used in computing pro forma earnings per share,
as adjusted................................................... 8,173
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
AS
ACTUAL ADJUSTED(5)
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital......................................................................... $ 30,188 $ 40,942
Total assets............................................................................ 73,689 83,697
Total long-term debt, excluding capital leases.......................................... 46,633 33,789
Stockholders' equity.................................................................... 10,626 34,224
</TABLE>
- ------------------------
(1) The Company acquired one business and one additional product line in 1996.
In August 1996, the Company purchased its Recoil business unit for
approximately $12.2 million and the assumption of certain liabilities. See
"Business--Products and Services--Industrial Products and Services." The
6
<PAGE>
Recoil acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results of Recoil have been
included in the Company's results of operations since mid-August 1996. In
February 1996, the Company purchased the KELOX product line from the
Fastening Systems division of Emhart Fastening Teknologies for $441,000 in
cash.
(2) Selling, general and administrative expenses of AFSG represent direct
expenses and do not include an allocation of corporate overhead or expenses
related to certain functions performed on a corporate-wide basis by Old
Microdot, such as risk management services, tax reporting and similar
corporate administrative functions.
(3) Earnings per share are computed based on the weighted average number of
shares of Common Stock and Common Stock equivalents outstanding. The
outstanding shares of Series C Preferred Stock are included as Common Stock
equivalents on an "as-if-converted" basis. See "Description of Capital
Stock--Series C Preferred Stock."
(4) Pro forma income statement data reflect the historical results for the year
ended December 31, 1996, adjusted to reflect (i) the sale of 1,373,000
shares of Common Stock offered by the Company hereby at an initial public
offering price of $14.50 per share and (ii) the application of approximately
$18 million of the net proceeds to the reduction of certain indebtedness of
the Company as if such debt reduction occurred at January 1, 1996. The pro
forma results do not reflect 427,000 shares of Common Stock attributable to
estimated proceeds in excess of the amount to be used to repay debt owed to
the Selling Stockholder.
(5) As adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock
offered by the Company hereby at an initial public offering price of $14.50
per share and (ii) the application of approximately $13.6 million of the net
proceeds to the reduction of certain indebtedness of the Company as if such
debt reduction occurred at December 31, 1996. The Company anticipates that
as of the date of the Offering, it will have increased its borrowings under
its revolving line-of-credit to approximately $4.9 million. Accordingly, the
total amount of the net proceeds that will be applied to the reduction of
certain indebtedness of the Company will approximate $18 million. See "Use
of Proceeds."
7
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SPECIFIC FACTORS SET
FORTH BELOW AS WELL AS THE OTHER INFORMATION INCLUDED ELSEWHERE IN THE
PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. CERTAIN
STATEMENTS IN THE PROSPECTUS ARE FORWARD-LOOKING IN NATURE AND, ACCORDINGLY,
WHETHER THEY PROVE TO BE ACCURATE IS SUBJECT TO MANY RISKS AND UNCERTAINTIES.
THE ACTUAL RESULTS THAT THE COMPANY ACHIEVES MAY DIFFER MATERIALLY FROM ANY
FORWARD-LOOKING STATEMENTS CONTAINED IN THE PROSPECTUS. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES, INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW AND THOSE CONTAINED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THE PROSPECTUS.
COMMERCIAL AIRCRAFT INDUSTRY CYCLICALITY
The primary market for the Company's products is the commercial aircraft
industry. Historically, demand from this industry has been subject to cyclical
fluctuations, with orders from original equipment manufacturers ("OEMs") and
other customers for the Company's products typically increasing or decreasing in
advance of corresponding changes in the deliveries of new aircraft. The demand
for new aircraft historically has been closely related to the financial
performance of the airlines, which in turn has been closely related to general
economic conditions and changes in business cycles. In the early 1990s,
decreases in air passenger traffic, coupled with deliveries of previously
purchased aircraft, created excess capacity for the airlines. Accordingly,
airlines and aircraft leasing companies deferred or cancelled their purchases of
new aircraft. These deferrals and cancellations adversely affected the volume
and price of orders placed for products used to manufacture commercial aircraft
and aircraft engine components, including the fasteners and fastening systems
manufactured by the Company. Although (i) the U.S. airline industry reported
profits in 1994, 1995 and 1996, (ii) excess capacity has been reduced and (iii)
orders for new aircraft to be produced by major aircraft manufacturers have
increased, there can be no assurance that this improved operating performance
will continue or that deliveries of commercial aircraft will not decline in the
future. Changes in the commercial aircraft market resulting in a reduction in
the rate of future aircraft deliveries, including cancellations or deferrals of
scheduled deliveries, could have a material adverse effect on the Company.
CUSTOMER CONCENTRATION AND INDUSTRY CONSOLIDATION
A significant portion of the Company's business is dependent upon a limited
number of large manufacturers of commercial aircraft and defense products.
Direct sales to Boeing Co. ("Boeing"), General Electric Company ("GE") and the
Pratt & Whitney Aircraft business of United Technologies Corporation ("Pratt &
Whitney"), for example, accounted for approximately 18%, 12% and 8% of the
Company's 1996 net sales, respectively. In addition, the Company believes that a
significant portion of the products that it sells to independent distributors
and other customers is ultimately resold to these three OEMs, as well as other
major commercial aircraft and defense product manufacturers. The commercial
aircraft and defense industries are also currently undergoing a process of
consolidation, as evidenced most recently by the pending merger of Boeing and
McDonnell Douglas Corporation ("McDonnell Douglas"). Such continuing
consolidation may lead to further concentration in the number of airframe and
aircraft engine OEMs that purchase the Company's products. The loss of one or
more significant customers would have a material adverse effect on the Company.
In addition, because of the relatively small number of customers for certain of
the Company's products, such customers may be able to influence the Company's
prices and other terms of sale.
LOSS OF QUALIFIED SUPPLIER STATUS
The Company works directly with its customers to design and manufacture
products based on the customers' own specifications. See "Business--Engineering
and Product Development." Once a fastener has been "designed into" a particular
airframe or engine component, the OEM will generally designate the Company as a
qualified supplier and rely on the Company to provide the fastener for the
entire production cycle of the airframe or engine, which could last a decade or
more. From time to time, other suppliers of
8
<PAGE>
fasteners to the aerospace industry have lost their qualified supplier status
with one or more OEMs by reason of, among other things, problems with product
quality, manufacturing processes or documentation. Although the Company has no
reason to believe that it will lose its qualified supplier status with respect
to any product or customer, there can be no assurance that such an event will
not occur. If a significant customer were to terminate the Company's qualified
supplier status with respect to one or more parts, it could have a material
adverse effect on the Company.
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of the Offering, General Electric Capital Corporation
(together with its affiliates, "GECC" or the "Selling Stockholder") will
beneficially own 5,206,000 shares of the Company's Series C Convertible
Preferred Stock, par value $.01 per share (the "Series C Preferred Stock"),
which will constitute all issued and outstanding Series C Preferred Stock at
that time. As long as the outstanding Series C Preferred Stock represents 25% or
more of the Company's Fully Diluted Shares (as defined below), the Series C
Preferred Stock is entitled to vote as a separate class on certain matters
affecting the Company, including, among other things, (i) the creation of any
other class or series of preferred stock, (ii) any issuance of authorized shares
of any class of capital stock, (iii) any merger or consolidation resulting in
shares of Common Stock or Series C Preferred Stock being converted into other
securities or the right to receive cash or other property and (iv) any
amendments to the Company's Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") and Amended and Restated By-laws (the
"By-laws") that adversely affect the holders of the Series C Preferred Stock.
See "Description of Capital Stock--Series C Preferred Stock." "Fully Diluted
Shares" means, at any given time, the sum of (i) the outstanding Common Stock
and (ii) the shares of Common Stock issuable upon conversion or exercise of all
outstanding convertible securities, options and warrants convertible into, or
exercisable for, Common Stock at that time or within sixty days thereafter. In
addition, as long as the outstanding Series C Preferred Stock represents 40% or
more of the Fully Diluted Shares, the holder thereof will have the right,
pursuant to a Stockholders Agreement, dated May 6, 1997, among the Company and
its existing stockholders (the "New Stockholders Agreement"), to designate two
individuals that the Company will nominate for election to the Board of
Directors each year. As long as the Series C Preferred Stock represents 25% or
more (but less than 40%) of the Fully Diluted Shares, the holder thereof will
have the right to designate one individual that the Company will nominate for
election to the Board of Directors each year.
The Selling Stockholder, in its sole discretion and at any time, may convert
each share of Series C Preferred Stock into one share of Common Stock, subject
to certain adjustments. In addition, upon any transfer of Series C Preferred
Stock by the Selling Stockholder to a non-affiliate, the Series C Preferred
Stock will automatically convert into Common Stock at a one-to-one conversion
ratio, subject to certain adjustments. If all of the Series C Preferred Stock
currently outstanding were converted into Common Stock, the Selling Stockholder
would beneficially own approximately 60.5% of the Common Stock upon consummation
of the Offering, assuming the Underwriters' over-allotment option is not
exercised, or approximately 58.5% assuming full exercise of the Underwriters'
over-allotment option.
As a result of (i) the special voting rights granted to the Series C
Preferred Stock, (ii) the rights granted to the Selling Stockholder under the
New Stockholders Agreement and (iii) the possibility that the Selling
Stockholder could convert its Series C Preferred Stock into Common Stock at any
time, the Selling Stockholder may be able to exercise substantial influence over
many matters affecting the Company, including the composition of the Board of
Directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of either causing or delaying or
preventing a change in control of the Company. See "Description of Capital
Stock--Certain Anti-Takeover Effects."
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a significant degree on the efforts of
the Company's senior management. The Company's operations may be adversely
affected if one or more members of senior management ceases to be active in the
Company. The Company currently has employment agreements
9
<PAGE>
with Jordan A. Law, Chief Executive Officer; David A. Werner, Executive Vice
President; Robert L. Beers, Senior Vice President, Marketing and Business
Development; LeRoy A. Dack, Division President, Kaynar; Joseph M. Varholick,
Division President, Microdot; Kenneth D. Jones, Group Chief Executive Officer,
Recoil; and Imre Berecz, Vice President, Product Research and Development, and
Managing Director, K.T.I. Femipari KFT. See "Management--Employment Contracts
and Termination of Employment and Change-In-Control Arrangements."
AVAILABILITY AND COST OF RAW MATERIALS
Commercial deposits of certain metals, such as titanium and nickel, that are
required for the manufacture of several of the Company's products are only found
in certain parts of the world. The availability and prices of these metals may
be influenced by private or governmental cartels, changes in world politics,
unstable governments in exporting nations or inflation. Similarly, supplies of
steel and other, less exotic metals used by the Company may also be subject to
variation in availability and pricing. Shortages of, and price increases for,
certain raw materials used by the Company have occurred in the past and may
occur in the future. Although to date the Company has been able to obtain such
supplies of all necessary raw materials, there can be no assurance that the
Company will always be able to obtain adequate supplies at reasonable prices.
Future shortages or price fluctuations in raw materials could have a material
adverse effect on the Company. If, for example, demand for titanium products in
other industries continues to increase, it is possible that supplies of titanium
could become limited or that prices could increase substantially, or both. As a
result, the Company's material costs could rise accordingly. If the Company is
unable to recover its increased costs through product price increases, it could
have a material adverse effect on the Company. See "Business--Manufacturing and
Raw Materials."
COMPETITION
Numerous companies manufacture fasteners, fastening systems and related
components that compete with the Company's products. Certain of these
competitors have greater financial resources than the Company. There can be no
assurance that competitive pressures in any of the markets to which the Company
supplies products will not have a material adverse effect on the Company. See
"Business-- Competition."
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES
The Company's facilities and manufacturing processes are engaged in
activities regulated by extensive federal, state and local environmental and
worker safety and health laws and regulations, including those relating to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous wastes and the remediation of contamination caused by the release of
hazardous substances. The Company uses significant quantities of substances that
are considered hazardous or toxic under such laws and regulations. The Company's
operations thus pose a risk of accidental releases of, and worker exposure to,
hazardous or toxic substances.
The Company also faces risks that governmental environmental requirements
may become more stringent in the future and that the Company may be subject to
legal proceedings brought by private parties or governmental agencies with
respect to environmental matters. For example, the degreasing operations at the
Company's manufacturing facilities currently use perchloroethylene, a toxic
solvent that has been subject to increasing regulation. Although the Company
believes that it is in material compliance with all applicable environmental
laws and regulations, including those relating to perchloroethylene, there can
be no assurance that the Company will remain in compliance or that the failure
to comply with such laws and regulations will not result in liabilities that are
material to the Company.
The Company is currently seeking to have a maximum usage restriction removed
from an environmental permit for its cadmium-plating line. The Company was
previously granted a variance to exceed this restriction. There can be no
assurance, however, that this restriction will be removed or that another
10
<PAGE>
variance from the restriction will be granted. If the restriction is not removed
and another variance is not granted, it could have a material adverse effect on
the Company. See "Business--Environmental Matters."
BENEFITS TO SELLING STOCKHOLDER
The existing stockholders of the Company will receive certain benefits from
the sale of the Common Stock offered hereby. The Offering will establish a
public market for the Common Stock and provide increased liquidity to the
existing stockholders for the shares of Common Stock and Series C Preferred
Stock (which is convertible into Common Stock) that they will own after the
Offering, subject to certain limitations. See "Shares Eligible For Future Sale."
The Company intends to use approximately $18 million of the net proceeds from
the Offering to repay certain indebtedness owed to the Selling Stockholder. See
"Use of Proceeds." The Selling Stockholder will sell 200,000 shares of Common
Stock in the Offering and will receive $2.7 million in net proceeds, based upon
an initial public offering price of $14.50 per share, after deducting the
Selling Stockholder's proportionate share of the estimated underwriting
discounts and commissions.
REDUCED GOVERNMENT PURCHASES; GOVERNMENT REGULATION
The Company is a direct supplier and subcontractor to several manufacturers
of airframes and engines used by the defense industry. Direct sales to the U.S.
government constituted approximately 6% of the Company's 1996 net sales. Many of
the Company's other customers are also government contractors and subcontractors
who may use the Company's fasteners for military applications. As a result,
future reductions in defense budgets or military aircraft procurement could
adversely affect the Company. See "Business--Industry Overview and
Trends--Defense Market." In particular, the government could seek to terminate
any of its contracts with the Company or with any of the airframe and engine
manufacturers to which the Company supplies fasteners. Direct purchase orders
from the government are typically for spare or repair needs. In such cases,
funding is generally available at the time the purchase order is placed, and the
products are delivered on an "as soon as possible" time frame.
In addition, as a supplier and subcontractor to the U.S. government, the
Company is directly and indirectly subject to various federal rules, regulations
and orders applicable to government contracts. Although the Company believes
that is in material compliance with all such laws, any future violation could
result in civil liability, cancellation or suspension of existing contracts or
ineligibility for future contracts or subcontracts funded in whole or in part
with federal funds. A reduction in governmental purchases of the Company's
products, or a violation by the Company of any laws applicable to government
contracts, could have a material adverse effect on the Company.
PRODUCT LIABILITY; CLAIMS EXPOSURE
The Company's products may expose it to liabilities resulting from the
failure of an airframe or aircraft engine manufactured with fasteners supplied
by the Company. While the Company maintains liability insurance to protect it
from such liabilities, and while no material claims have ever been made against
the Company, no assurance can be given that claims will not arise in the future
or that such insurance coverage will be adequate. Additionally, there can be no
assurance that insurance coverage can be maintained in the future at an
acceptable cost. Any such liability not covered by insurance, or for which third
party indemnification is not available, could have a material adverse effect on
the Company.
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF
STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price will be determined by negotiation between the Company and the
Representatives (as defined in "Underwriting") based upon several factors. The
market price of the Common Stock may be volatile and could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the
11
<PAGE>
Company or its competitors, changes in financial estimates by securities
analysts, or other events or factors beyond the Company's control, including
events affecting the commercial aircraft and defense industries generally. These
broad market fluctuations may adversely affect the market price of the Common
Stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price for the Common
Stock. The Company, its executive officers and directors and the Selling
Stockholder, who will beneficially own 6,600,000 shares of Common Stock in the
aggregate following the Offering (including 5,206,000 shares receivable upon
conversion of all outstanding Series C Preferred Stock), have agreed not to
offer, sell, contract to sell, or otherwise dispose of, any shares of Common
Stock or any other capital stock of the Company, for a period of 180 days, after
the date of the Prospectus without prior written consent of Lehman Brothers Inc.
Upon the expiration of this period, however, the 6,600,000 shares of Common
Stock (including 5,206,000 shares receivable upon conversion of all outstanding
Series C Preferred Stock) held by the current holders may be eligible for sale
in the public market, subject to compliance with the volume, holding period and
other applicable limitations of Rule 144 ("Rule 144") promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), or pursuant to a
registration statement meeting the requirements of the Securities Act. Also upon
the expiration of this period, the Selling Stockholder will have certain rights,
pursuant to the New Stockholders Agreement, to require the Company to register
the shares of Common Stock into which the Series C Preferred Stock may be
converted. See "Description of Capital Stock -- The New Stockholders Agreement."
In addition, the shares of Common Stock sold in the Offering will be freely
tradeable without restriction under the Securities Act, except for any shares
purchased by an "affiliate" of the Company (as that term is defined under the
rules and regulations of the Securities Act), which shares will be subject to
the resale limitations of Rule 144. See "Shares Eligible for Future Sale" and
"Description of Capital Stock."
DILUTION
At an initial public offering price of $14.50 per share, investors
participating in the Offering will incur an immediate dilution of $11.43 per
share in the net tangible book value of the Common Stock, determined as of
December 31, 1996. See "Dilution."
12
<PAGE>
THE COMPANY
The Company is a leading manufacturer of specialty fasteners, fastening
systems and related components primarily used by OEMs and their subcontractors
in the production of commercial aircraft and defense products. In addition, the
Company also manufactures other specialty fasteners and related products for
sale in the automotive, electronic and other industrial markets, and their
associated after-markets. The Company supplies products to virtually all major
airframe and aircraft engine OEMs, including Boeing, GE, Pratt & Whitney, Airbus
Industries ("Airbus"), Lockheed Martin Corporation ("Lockheed Martin"),
McDonnell Douglas and Rolls Royce PLC ("Rolls Royce"), as well as to a global
network of distributors.
The Company offers a broad line of fasteners, fastening systems and related
components. The Company's Kaynar and Microdot business units manufacture
precision, self-locking, internally threaded nuts and inserts and precision,
threaded studs. Kaynar and Microdot fasteners are engineered for a variety of
harsh, demanding environments and often require high tensile strength,
toughness, durability, corrosion resistance and resistance to metal fatigue and
creep. Kaynar's fasteners, which include wrenchable nuts, anchor nuts, gang
channels, shank nuts, barrel nuts, clinch nuts and stake nuts, are used in
airframe construction to fasten together various aircraft components, including
the fuselage, wings and horizontal and vertical stabilizers. These fasteners
also serve a similar function in the construction of aircraft jet and turboprop
engines and related components. Recoil, acquired by the Company in August 1996,
manufactures helically-wound wire thread inserts and thread repair kits, which
are similar in design to certain Microdot products, but are sold to the
automotive, electronic and other industrial markets, and their associated
after-markets. The Company's K-Fast business unit produces and markets tools
that are leased or sold to OEMs and are designed to allow operators to install
the Company's and other manufacturers' fasteners rapidly and in restricted and
hard-to-reach areas, while still maintaining precision torque control.
The principal executive offices of the Company are located at 500 N. State
College Blvd., Orange, California 92868, and its telephone number is (714)
712-4900.
FORMATION OF THE COMPANY. As described below in "The Reorganization,"
Kaynar Technologies Inc. ("Operating Company") is merging with and into the
Company immediately prior to the Offering. Operating Company, which was
originally called MKQ Acquisition Corp., was formed as a Delaware corporation on
October 22, 1993, for the purpose of acquiring substantially all of the assets
of the Aerospace Fastening Systems Group ("AFSG") of Microdot Inc., a Delaware
corporation that commenced a voluntary bankruptcy proceeding under Chapter 11 of
the U.S. Bankruptcy Code on June 10, 1993 ("Old Microdot"). The Company, which
was known as Kaynar Holdings Inc. prior to the Reorganization, was also
incorporated in Delaware on October 22, 1993 to serve as the parent company of
Operating Company.
GECC was a creditor of Old Microdot and provided the Company and Operating
Company with financing for the AFSG asset acquisition, which was completed on
January 3, 1994. As consideration for the AFSG assets, GECC claims against Old
Microdot in the amount of $25.4 million were cancelled, and Operating Company
assumed certain of Old Microdot's liabilities. The Company and Operating Company
also paid approximately $1.2 million in cash to Old Microdot's British affiliate
for selected assets. As part of the acquisition financing, GECC purchased all of
the issued and outstanding shares of Series A Convertible Preferred Stock, par
value $.01 per share, of the Company ("Series A Preferred Stock") and all of the
issued and outstanding shares of Series B Preferred Stock, par value $.01 per
share, of the Company ("Series B Preferred Stock"). Members of the Company's
management purchased the remaining equity interests in the Company. See
"Principal Stockholders and Selling Stockholder." The Company intends to use the
proceeds of the Offering to discharge certain debt owed to GECC. See "Use of
Proceeds."
THE REORGANIZATION
In order to facilitate the Offering, immediately prior to the effectiveness
of the Offering, Operating Company is merging with and into the Company, with
the Company as the surviving corporation (the "Reorganization"). Immediately
following the Reorganization, the surviving corporation will be renamed
13
<PAGE>
"Kaynar Technologies Inc." Unless otherwise indicated, the term "Company" as
used herein shall mean the corporation surviving the merger, together with each
of its consolidated subsidiaries. In connection with the Reorganization, (i)
each outstanding share of Common Stock, par value $.01 per share, of Operating
Company will be cancelled and Operating Company will cease to exist, (ii) each
outstanding share of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") will be exchanged for 68 shares of Common Stock, (iii) each
outstanding share of Series A Preferred Stock will be exchanged for 9.953 shares
of Common Stock and 58.047 shares of Series C Preferred Stock and (iv) each
outstanding share of Series B Preferred Stock will be exchanged for 68 shares of
Series C Preferred Stock. For further descriptions of the Common Stock and
Series C Preferred Stock, see "Description of Capital Stock."
Subsequent to the Reorganization and immediately prior to the Offering, GECC
will own 200,000 shares of Common Stock and all 5,206,000 issued and outstanding
shares of Series C Preferred Stock, which is convertible into Common Stock at a
one-to-one conversion rate, subject to adjustment in certain circumstances. GECC
will sell all of its 200,000 shares of Common Stock in the Offering.
For the purposes of the Prospectus, all discussion of the Company and its
ownership, business and operations and the number of shares of Common Stock
outstanding, except as otherwise indicated, are discussed on a pro forma basis,
giving effect to the Offering and the transactions described above.
USE OF PROCEEDS
At an initial public offering price of $14.50 per share, the net proceeds to
the Company from the sale of the Common Stock offered hereby will be $23.6
million ($27.6 million if the Underwriters' over-allotment option is exercised
in full), after deducting estimated underwriting discounts and commissions and
expenses. The Company will not receive any proceeds from the sale of shares by
the Selling Stockholder.
The Company intends to use approximately $7.0 million, $6.0 million and $4.9
million of the net proceeds from the Offering to discharge its obligations to
GECC under fixed rate loans, variable rate loans and a revolving credit
facility, respectively. At December 31, 1996, this indebtedness bore interest at
a weighted average interest rate of 10.4%. Amounts owed under the fixed rate and
variable rate loans are due and payable on January 3, 1999, which is the same
date that the revolving credit facility expires. Amounts repaid under the
revolving credit facility may be reborrowed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Certain Transactions." The remainder of the net proceeds will be
used for general corporate purposes, including capital expenditures and working
capital. A portion of the net proceeds may also be used to acquire other
companies or divisions of other companies. The Company, however, currently has
no agreements, commitments or understandings with respect to any acquisitions,
nor can there be any assurance that the Company will make any such acquisition
in the future.
Pending any of these uses, the Company intends to invest the net proceeds of
the Offering in short-term, investment grade, interest-bearing securities,
certificates of deposit or direct or guaranteed obligations of the United
States.
DIVIDEND POLICY
The Company currently intends to retain earnings, if any, to support the
development of its business and does not anticipate paying cash dividends on the
Common Stock for the foreseeable future. Payment of future dividends, if any,
will be at the discretion of the Company's Board of Directors after taking into
account various factors, including the Company's earnings, financial condition,
operating results and current and anticipated cash needs, as well as such other
conditions as the Board of Directors may deem relevant. Furthermore, the payment
of dividends will be subject to the terms of the Company's outstanding financing
arrangements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, the capitalization
of the Company (i) giving effect to the Reorganization as if it had occurred on
that date and (ii) as adjusted to reflect the Offering and use of proceeds
therefrom. The table should be read in conjunction with "Selected Consolidated
Financial and Operating Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Revolving line-of-credit............................................................... $ 746 $ --
Long-term debt, including current portion:
Variable rate loans.................................................................. 38,225 32,225
Fixed rate loans..................................................................... 8,408 1,564
Capital lease obligations............................................................ 465 465
--------- -------
Total long-term debt............................................................... 47,098 34,254
--------- -------
Stockholders' equity:
Series C Convertible Preferred Stock, $.01 par value per share; 10,000,000 shares
authorized, and 5,206,000 shares issued and outstanding actual and as adjusted..... 52 52
Common Stock, $.01 par value per share; 20,000,000 shares authorized, 1,594,000
shares issued and outstanding actual and 3,394,000 shares issued and outstanding as
adjusted........................................................................... 16 34
Additional paid-in capital........................................................... 1,432 25,012
Retained earnings.................................................................... 8,838 8,838
Currency translation adjustment...................................................... 288 288
--------- -------
Total stockholders' equity......................................................... 10,626 34,224
--------- -------
Total capitalization............................................................. $ 57,724 $ 68,478
--------- -------
--------- -------
</TABLE>
- ------------------------
(1) As adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock
offered by the Company hereby at an initial public offering price of $14.50
per share and (ii) the application of approximately $13.6 million of the net
proceeds to the reduction of certain indebtedness of the Company as if such
debt reduction occurred at December 31, 1996. The Company anticipates that
as of the date of the Offering, it will have increased its borrowings under
its revolving line-of-credit to approximately $4.9 million. Accordingly, the
total amount of the net proceeds that will be applied to the reduction of
certain indebtedness of the Company will approximate $18 million. See "Use
of Proceeds."
DILUTION
The net tangible book value of the Company at December 31, 1996 was
approximately $2.8 million, or $0.41 per share of Common Stock (after giving
effect to the Reorganization), assuming the conversion by the Selling
Stockholder of all shares of Series C Preferred Stock into shares of Common
Stock as of such date. After giving effect to the Offering and the application
of the estimated net proceeds from the Offering (with an initial public offering
price of $14.50 per share), the Company's net tangible book value at December
31, 1996 would have been $26.4 million, or $3.07 per share. "Net tangible book
value per share" is equal to the Company's total tangible assets less its total
liabilities, divided by the total number of shares of Common Stock and Common
Stock equivalents outstanding. This represents an immediate increase in net
tangible book value of $2.66 per share to existing stockholders and an immediate
dilution in
15
<PAGE>
net tangible book value of $11.43 per share to new investors purchasing shares
of Common Stock in the Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share of Common Stock...... $ 14.50
Net tangible book value per share at December 31, 1996... $ 0.41
Increase in net tangible book value per share
attributable to new investors.......................... $ 2.66
---------
Net tangible book value per share after the Offering......... $ 3.07
---------
Dilution per share to new investors.......................... $ 11.43
---------
</TABLE>
The following table summarizes (assuming the conversion of all shares of
Series C Preferred Stock into shares of Common Stock), as of December 31, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share by the existing
stockholders and by new investors (at an initial public offering price of $14.50
per share and before deducting estimated underwriting discounts and commissions
and expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION(1)
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 6,800,000(2) 79.1% $ 1,500,000 5.4% $ 0.22
New investors....................................... 1,800,000 20.9 26,100,000 94.6 14.50
---------- ----- ------------- -----
Total........................................... 8,600,000 100.0% $ 27,600,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Assuming the Underwriters' over-allotment option is exercised in full, sales
of Common Stock by the Company in the Offering will reduce the number of
shares of Common Stock and Common Stock equivalents held by existing
stockholders to 76.4% of the total shares of Common Stock and Common Stock
equivalents to be outstanding after the Offering, and will increase the
number of shares held by new investors to 23.6% of the total number of
shares of Common Stock and Common Stock equivalents to be outstanding after
the Offering. See "Principal Stockholders and Selling Stockholder."
(2) Includes 5,206,000 shares of Series C Preferred Stock, which are convertible
into shares of Common Stock at a one-to-one conversion rate, subject to
adjustment in certain circumstances. See "Description of Capital
Stock--Series C Preferred Stock."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The selected consolidated financial and operating information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto, and other financial information included elsewhere
in the Prospectus. The Company was incorporated in October 1993 and began
operations on January 3, 1994 when it acquired substantially all of the assets
of AFSG. See "The Company--Formation of the Company." The selected consolidated
financial and operating information for the years ended December 31, 1994, 1995
and 1996 is derived from the Consolidated Financial Statements of the Company
that have been audited by Arthur Andersen LLP, independent public accountants.
The selected consolidated financial and operating information of AFSG for the
years ended December 31, 1992 and 1993 is derived from the unaudited financial
statements of AFSG, the Company's predecessor for financial reporting purposes,
and, in the opinion of the Company's management, reflects all adjustments
necessary to present the financial results of AFSG fairly and on a basis
consistent with the Company's financial statements. The information for AFSG is
presented to "Operating income" because the borrowing arrangements and the tax
position of Old Microdot are not meaningful to the Company. The unaudited
selected consolidated financial and operating information for AFSG is provided
for informational purposes only.
<TABLE>
<CAPTION>
AFSG COMPANY
-------------------- -------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996(1)
--------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................ $ 52,510 $ 46,378 $ 55,117 $ 68,781 $ 99,023
Cost of sales............................................ 38,975 35,933 41,117 51,940 72,924
--------- --------- --------- --------- ---------
Gross profit........................................... 13,535 10,445 14,000 16,841 26,099
Selling, general and administrative expenses (2)......... 8,194 8,239 9,048 10,018 13,263
--------- --------- --------- --------- ---------
Operating income....................................... 5,341 2,206 4,952 6,823 12,836
Interest expense, net.................................... 2,304 2,935 4,011
--------- --------- ---------
Income before income taxes............................. 2,648 3,888 8,825
Provision for income taxes............................... 1,129 1,577 3,530
--------- --------- ---------
Net income............................................. $ 1,519 $ 2,311 $ 5,295
--------- --------- ---------
--------- --------- ---------
Earnings per share (3)................................... $ 0.22 $ 0.34 $ 0.78
--------- --------- ---------
--------- --------- ---------
Weighted average number of shares
outstanding (3)........................................ 6,800 6,800 6,800
PRO FORMA INCOME STATEMENT DATA (4):
Pro forma earnings per share, as adjusted................ $ 0.78
---------
---------
Pro forma shares used in computing pro forma earnings per
share, as adjusted..................................... 8,173
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
DECEMBER 31, ----------------------
-------------------- AS
1994 1995 ACTUAL ADJUSTED(5)
--------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................................... $ 15,563 $ 18,991 $ 30,188 $ 40,942
Total assets...................................................... 35,051 43,336 73,689 83,697
Total long-term debt, excluding capital leases.................... 23,176 25,148 46,633 33,789
Stockholders' equity.............................................. 2,944 5,157 10,626 34,224
</TABLE>
- ------------------------
(1) The Company acquired one business and one additional product line in 1996.
In August 1996, the Company purchased its Recoil business unit for
approximately $12.2 million and the assumption of certain liabilities. See
"Business--Products and Services--Industrial Products and Services." The
Recoil acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results of Recoil have been
included in the Company's results of operations since mid-August 1996. In
February 1996, the Company purchased the KELOX product line from the
Fastening Systems division of Emhart Fastening Teknologies for $441,000 in
cash.
(2) Selling, general and administrative expenses of AFSG represent direct
expenses and do not include an allocation of corporate overhead or expenses
related to certain functions performed on a corporate-wide basis by Old
Microdot, such as risk management services, tax reporting and similar
corporate administrative functions.
(3) Earnings per share are computed based on the weighted average number of
shares of Common Stock and Common Stock equivalents outstanding. The
outstanding shares of Series C Preferred Stock are included as Common Stock
equivalents on an "as-if-converted" basis. See "Description of Capital
Stock--Series C Preferred Stock."
(4) Pro forma income statement data reflect the historical results for the year
ended December 31, 1996, adjusted to reflect (i) the sale of 1,373,000
shares of Common Stock offered by the Company hereby at an initial public
offering price of $14.50 per share and (ii) the application of approximately
$18 million of the net proceeds to the reduction of certain indebtedness of
the Company as if such debt reduction occurred at January 1, 1996. The pro
forma results do not reflect 427,000 shares of Common Stock attributable to
estimated proceeds in excess of the amount to be used to repay debt owed to
the Selling Stockholder.
(5) As adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock
offered by the Company hereby at an initial public offering price of $14.50
per share and (ii) the application of approximately $13.6 million of the net
proceeds to the reduction of certain indebtedness of the Company as if such
debt reduction occurred at December 31, 1996. The Company anticipates that
as of the date of the Offering, it will have increased its borrowings under
its revolving line-of-credit to approximately $4.9 million. Accordingly, the
total amount of the net proceeds that will be applied to the reduction of
certain indebtedness of the Company will approximate $18 million. See "Use
of Proceeds."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading manufacturer of specialty fasteners, fastening
systems and related components primarily used by OEMs and their subcontractors
in the production of commercial aircraft and defense products. In addition, the
Company also manufactures other specialty fasteners and related products for
sale in the automotive, electronic and other industrial markets, and their
associated after-markets. The Company designs and manufactures a substantial
majority of its fasteners to its customers' specifications and in a wide range
of specialty metals, alloys and composites.
The Company supplies products to virtually all major airframe and aircraft
engine OEMs, including Boeing, GE, Pratt & Whitney, Airbus, Lockheed Martin,
McDonnell Douglas and Rolls Royce, as well as to a global network of
distributors. In 1996, approximately 65% of the Company's net sales were made
directly to OEMs and subcontractors. Direct sales to Boeing, GE and Pratt &
Whitney, the Company's three largest OEM customers, accounted for approximately
18%, 12% and 8% of the Company's 1996 net sales, respectively. The remaining 35%
of the Company's 1996 net sales were made to a global network of thirty-five
independent distributors, who sell the Company's products to OEMs,
subcontractors and other customers. Often, the OEMs will determine whether the
Company sells a product directly to the OEM or through an independent
distributor. See "Business--Sales and Marketing."
The Company generates a portion of its net sales from international
customers. The Company's direct net sales to foreign customers represented
approximately 9%, 10% and 14% of net sales for 1994, 1995 and 1996,
respectively. Although most of the Company's international sales are invoiced in
United States dollars, a portion is invoiced in foreign currencies. The Company
does not actively manage its foreign currency exposure and foreign currency
fluctuations may result in quarterly variations in the Company's net sales. The
Company has historically mitigated the impact of exchange rate fluctuations by
adjusting the prices of its products. There can be no assurance, however, that
the Company will be able to mitigate future exchange rate fluctuations through
the adjustment of product prices.
The Company acquired one business and one additional product line in 1996.
In August 1996, the Company purchased its Recoil business for approximately
$12.2 million and the assumption of certain liabilities. See "Business--Products
and Services--Industrial Products and Services." The Recoil acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
operating results of Recoil have been included in the Company's results of
operations since mid-August 1996. In February 1996, the Company purchased the
KELOX product line from the Fastening Systems division of Emhart Fastening
Teknologies for $441,000 in cash. The KELOX product line complements various
Microdot inserts.
In the last three years, the Company's financial objectives have focused on
increasing sales and profitability. The Company's financial results over this
period reflect a high degree of leverage resulting from debt incurred to finance
the AFSG acquisition in January 1994 and to finance internal growth and
subsequent acquisitions. Using the net proceeds of the Offering, the Company
intends to reduce its leverage by retiring approximately $18 million of debt,
thereby reducing annual interest expense by approximately $1.8 million. See "Use
of Proceeds."
19
<PAGE>
RESULTS OF OPERATIONS
The following table is derived from the Company's Consolidated Statements of
Income for the periods indicated and presents the results of operations as a
percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales............................................................ 100.0% 100.0% 100.0%
Cost of sales........................................................ 74.6 75.5 73.6
--------- --------- ---------
Gross profit....................................................... 25.4 24.5 26.4
Selling, general and administrative expenses......................... 16.4 14.6 13.4
--------- --------- ---------
Operating income................................................... 9.0 9.9 13.0
Interest expense, net................................................ 4.2 4.2 4.1
Provision for income taxes........................................... 2.0 2.3 3.6
--------- --------- ---------
Net income......................................................... 2.8% 3.4% 5.3%
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased 43.9%, or $30.2 million, to $99.0 million in
1996 from $68.8 million in 1995. 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 $5 million of the
increase in net sales.
GROSS PROFIT. Gross profit increased 55.4% to $26.1 million or 26.4% of net
sales in 1996 from $16.8 million or 24.5% of net sales in 1995. This improvement
in gross profit margin was primarily due to the increase in sales volume, which
resulted in a greater absorption of fixed costs. Capital expenditures during the
past three years for more efficient production equipment also contributed to the
improvement in gross profit margin. In addition, gross profit margin in 1996
benefited from increased sales of Recoil and Microdot inserts and studs, which
are generally higher margin products, and improved materials utilization.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 33.0% to $13.3 million in 1996 from $10.0
million in 1995. As a percentage of net sales, however, selling, general and
administrative expenses decreased to 13.4% in 1996 from 14.6% in 1995. This
decrease was primarily attributable to increased sales volumes. The $3.3 million
increase in the absolute dollar amount of such expenses, however, was
attributable primarily to (i) additional employee costs needed 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 Kaynar and Microdot business units.
INTEREST EXPENSE. The Company's average outstanding borrowings increased to
$38.2 million in 1996 from $28.3 million in 1995. This increase related
primarily to (i) increased working capital requirements to support the Company's
growth, (ii) capital expenditures and (iii) the Recoil acquisition. The weighted
average interest rate on these borrowings in 1996 was 10.2% (compared to 10.3%
in 1995), resulting in a 37.9% increase in net interest expense, from $2.9
million in 1995 to $4.0 million in 1996.
NET INCOME. The Company recorded net income of $5.3 million in 1996, or
$0.78 per share, compared to $2.3 million, or $0.34 per share, in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales increased 24.8%, or $13.7 million, to $68.8 million in
1995 from $55.1 million in 1994. This growth was primarily the result of an
increase in customer demand, which occurred as
20
<PAGE>
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.
GROSS PROFIT. Gross profit increased 20.0% to $16.8 million or 24.5% of net
sales in 1995 from $14.0 million or 25.4% of net sales in 1994. The decrease in
gross profit as a percentage of net sales was the result of increased personnel
costs incurred to increase capacity and increases in the cost of raw materials.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 11.1% to $10.0 million in 1995 from $9.0
million in 1994. As a percentage of net sales, however, selling, general and
administrative expenses decreased to 14.6% in 1995 from 16.4% in 1994. This
decrease was primarily attributable to increased sales volumes.
INTEREST EXPENSE. The Company's average outstanding borrowings increased to
$28.3 million in 1995 from $26.0 million in 1994. This increase related
primarily to (i) increased working capital requirements to support the Company's
growth and (ii) capital expenditures. The weighted average interest rate on
these borrowings in 1995 was 10.3% (compared to 8.9% in 1994), resulting in a
26.1% increase in net interest expense, from $2.3 million in 1994 to $2.9
million in 1995.
NET INCOME. The Company recorded net income of $2.3 million for 1995, or
$0.34 per share, compared to $1.5 million, or $0.22 per share, in 1994.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly financial
information for the eight fiscal quarters of the two years ended December 31,
1996 and such data expressed as a percentage of net sales for such periods. This
information is derived from, and should be read in connection with, the
Company's Consolidated Financial Statements and the Notes thereto appearing
elsewhere in the Prospectus. In the opinion of management, these results contain
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the unaudited quarterly results of operations set forth
herein. The Company's results of operations for any previous fiscal quarter of
any year may not be comparable with its results of operations for the same
quarter of any other year and are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
(UNAUDITED)
APRIL 2, JULY 2, OCT. 1, DEC. 31, MAR. 31, JUNE 30, SEPT. 29,
1995 1995 1995 1995 1996 1996 1996
----------- --------- --------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $ 14,626 $ 17,704 $ 18,041 $ 18,410 $ 20,662 $ 23,228 $ 26,013
Cost of sales...................... 11,478 13,197 13,821 13,444 15,192 17,178 19,440
----------- --------- --------- ----------- ----------- ----------- -----------
Gross profit..................... 3,148 4,507 4,220 4,966 5,470 6,050 6,573
Selling, general and administrative
expenses.......................... 2,279 2,509 2,626 2,604 2,785 2,994 3,503
----------- --------- --------- ----------- ----------- ----------- -----------
Operating income................. 869 1,998 1,594 2,362 2,685 3,056 3,070
Interest expense, net.............. 684 726 751 774 823 846 1,082
Provision for income taxes(1)...... 75 516 342 644 745 884 795
----------- --------- --------- ----------- ----------- ----------- -----------
Net income....................... $ 110 $ 756 $ 501 $ 944 $ 1,117 $ 1,326 $ 1,193
----------- --------- --------- ----------- ----------- ----------- -----------
----------- --------- --------- ----------- ----------- ----------- -----------
<CAPTION>
DEC. 31,
1996
-----------
<S> <C>
INCOME STATEMENT DATA:
Net sales.......................... $ 29,120
Cost of sales...................... 21,114
-----------
Gross profit..................... 8,006
Selling, general and administrative
expenses.......................... 3,981
-----------
Operating income................. 4,025
Interest expense, net.............. 1,260
Provision for income taxes(1)...... 1,106
-----------
Net income....................... $ 1,659
-----------
-----------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
(UNAUDITED)
APRIL 2, JULY 2, OCT. 1, DEC. 31, MAR. 31, JUNE 30, SEPT. 29,
1995 1995 1995 1995 1996 1996 1996
----------- --------- --------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
AS A PERCENTAGE OF NET SALES:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 78.5 74.5 76.6 73.0 73.5 74.0 74.7
----------- --------- --------- ----------- ----------- ----------- -----------
Gross profit................... 21.5 25.5 23.4 27.0 26.5 26.0 25.3
Selling, general and administrative
expenses.......................... 15.6 14.2 14.6 14.2 13.5 12.9 13.5
----------- --------- --------- ----------- ----------- ----------- -----------
Operating income................. 5.9 11.3 8.8 12.8 13.0 13.1 11.8
Interest expense, net.............. 4.7 4.1 4.2 4.2 4.0 3.6 4.1
Provision for income taxes......... 0.5 2.9 1.9 3.5 3.6 3.8 3.1
----------- --------- --------- ----------- ----------- ----------- -----------
Net income....................... 0.7% 4.3% 2.7% 5.1% 5.4% 5.7% 4.6%
----------- --------- --------- ----------- ----------- ----------- -----------
----------- --------- --------- ----------- ----------- ----------- -----------
<CAPTION>
DEC. 31,
1996
-----------
AS A PERCENTAGE OF NET SALES:
<S> <C>
Net sales.......................... 100.0%
Cost of sales...................... 72.5
-----------
Gross profit................... 27.5
Selling, general and administrative
expenses.......................... 13.7
-----------
Operating income................. 13.8
Interest expense, net.............. 4.3
Provision for income taxes......... 3.8
-----------
Net income....................... 5.7%
-----------
-----------
</TABLE>
The Company's net sales have increased in each of the eight fiscal quarters
ended December 31, 1996 primarily due to increases in 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 addition of new products. While the
cost of sales has fluctuated, cost of sales as a percentage of net sales has
generally declined over this period due to decreased unit costs associated with
increased production. Selling, general and administrative expenses have
generally increased over this period, but have generally decreased as a
percentage of net sales, primarily as a result of increased sales volume.
The Company's financial results have fluctuated from fiscal quarter to
fiscal quarter and may continue to do so in the future. These variations have
been due to a number of factors, including customer requirements, the timing of
shipments, changes in the type and mix of products being sold, changes in
manufacturing capacity, variations in the utilization of manufacturing capacity
and variations in the number of working days in a given fiscal quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements consist primarily of working capital
needs, capital expenditures and scheduled payments of interest on its
indebtedness to GECC. The Company's working capital requirements have increased
as a result of higher accounts receivable and higher inventory levels needed to
support its growth in net sales. The Company's working capital was $30.2 million
as of December 31, 1996, compared to $19.0 million as of December 31, 1995 and
$15.6 million as of December 31, 1994.
In December 1996, the Company amended its Credit Agreement with GECC (the
"Credit Agreement") to provide for a $15.0 million revolving line-of-credit (the
"Revolver"), the availability of which is limited by the lesser of a specified
portion of qualified accounts receivable and $15.0 million. The Credit Agreement
contains significant financial and operating covenants, including limitations on
the Company's ability to incur additional indebtedness and restrictions on the
payment of dividends. The Company currently is in compliance with all such
financial ratios and covenants. At December 31, 1996, borrowings under the
Revolver, which bear interest at the prime rate plus 1.5% (which was 9.75% as of
December 31, 1996), totaled $746,000, and the amount available for borrowing
thereunder was approximately $10 million. The Company anticipates that prior to
the consummation of the Offering, it will have increased its borrowings under
the Revolver to a total of approximately $4.9 million, principally to pay
accrued, Company-wide annual employee bonuses and to fund working capital needs
in connection with increases in net sales. The Company intends to use a portion
of the net proceeds of the Offering to repay all amounts owed under the
Revolver. See "Use of Proceeds." The Credit Agreement expires on January 3,
1999.
From time to time, GECC has also made certain variable rate loans to the
Company for use in connection with the AFSG and Recoil acquisitions and for
working capital purposes and capital expenditures (collectively, the "Variable
Rate Loans"). At December 31, 1996, the aggregate outstanding principal
22
<PAGE>
under the Variable Rate Loans was $38.2 million. Interest on these loans is
payable monthly at a rate equal to the prime rate plus 1.5% (which was 9.75% as
of December 31, 1996). The Variable Rate Loans, which are subject to the same
financial and operating covenants as the Revolver, are due and payable on
January 3, 1999. The Company intends to use approximately $6.0 million of the
net proceeds of the Offering to repay these loans. See "Use of Proceeds."
In January 1994, in connection with the capitalization of the Company and
the payment of dividends on the Series A and Series B Preferred Stock, the
Company borrowed certain other amounts from GECC which accrued interest at the
rate of 9.5% for the period from January 3, 1994 to December 31, 1995 and will
accrue interest at the rate of 11.5% from January 1, 1996 until the loan is paid
in full (collectively, the "Fixed Rate Loans"). Interest on the Fixed Rate Loans
is payable quarterly and may be deferred and added to the outstanding principal
balance. At December 31, 1996, approximately $6.8 million in principal and
interest was outstanding under the Fixed Rate Loans, all of which will be repaid
in full using the net proceeds of the Offering. See "Use of Proceeds." The Fixed
Rate Loans are due and payable on January 3, 1999.
For the year ended December 31, 1996, net cash provided by operating
activities was $4.3 million, as compared to net cash used in operating
activities of $150,000 for the year ended December 31, 1995 and net cash
provided by operating activities of $1.7 million for the year ended December 31,
1994. The primary sources of cash from operations during 1996 included net
income of $5.3 million, non-cash charges for depreciation and amortization of
$2.6 million, an increase in accrued expenses of $3.2 million (which was
primarily attributable to accrued, Company-wide annual employee bonuses) and an
increase in accounts payable of $2.4 million, offset by increases in accounts
receivable and inventories of $2.5 million and $6.9 million, respectively. The
primary sources of cash from operations during 1995 included net income of $2.3
million, non-cash charges for depreciation and amortization of $1.8 million, an
increase in accounts payable of $1.1 million and an increase in accrued expenses
of $1.1 million (which was primarily attributable to accrued, Company-wide
annual employee bonuses), offset by increases in accounts receivable and
inventories of $3.5 million and $3.4 million, respectively.
The Company's capital expenditures were $2.4 million, $3.3 million and $6.9
million in 1994, 1995 and 1996, respectively. In 1996, the Company also used
$12.6 million in cash in connection with the Recoil acquisition and the purchase
of the KELOX product line. The Company's net cash provided by financing
activities in 1996 was $16.7 million, consisting entirely of net borrowings on
long-term debt, as compared to borrowings of $3.1 million in 1995 and $542,000
in 1994.
The Company expects to spend approximately $8.0 million for capital
expenditures in 1997. These capital expenditures will relate principally to
equipment purchases intended to expand capacity and enhance operating efficiency
at the Company's existing facilities.
The Company believes that the net proceeds from the Offering, internally
generated cash flow and amounts that may be available under the Revolver 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.
RECENT DEVELOPMENTS
The Company recently completed its quarter ended March 31, 1997. For the
quarter, the Company had net sales, operating income and net income of $32.2
million, $4.9 million and $2.2 million, respectively, representing increases of
$11.5 million, $2.2 million and $1.1 million, respectively, over results for the
same period in 1996. The increase in net sales was primarily due to increased
customer demand. In the opinion of management, these results contain all
adjustments necessary for a fair presentation of the unaudited quarterly results
of operations.
23
<PAGE>
BUSINESS
GENERAL
The Company is a leading manufacturer of specialty fasteners, fastening
systems and related components primarily used by OEMs and their subcontractors
in the production of commercial aircraft and defense products. In addition, the
Company also manufactures other specialty fasteners and related products for
sale in the automotive, electronic and other industrial markets, and their
associated after-markets. The Company designs and manufactures a substantial
majority of its fasteners to its customers' specifications and in a wide range
of specialty metals, alloys and composites.
The Company's Kaynar and Microdot business units manufacture precision,
self-locking, internally threaded nuts and inserts and precision, threaded
studs. Kaynar and Microdot fasteners are engineered for a variety of harsh,
demanding environments and often require high tensile strength, toughness,
durability, corrosion resistance and resistance to metal fatigue and creep.
Kaynar's fasteners, which include wrenchable nuts, anchor nuts, gang channels,
shank nuts, barrel nuts, clinch nuts and stake nuts, are used in airframe
construction to fasten together various aircraft components, including the
fuselage, wings and horizontal and vertical stabilizers. These fasteners also
serve a similar function in the construction of aircraft jet and turboprop
engines and related components. Recoil, acquired by the Company in August 1996,
manufactures helically-wound wire thread inserts and thread repair kits, which
are similar in design to certain Microdot products, but are sold to the
automotive, electronic and other industrial markets, and their associated
after-markets. The Company's K-Fast business unit produces and markets tools
that are leased or sold to OEMs and are designed to allow operators to install
the Company's and other manufacturers' fasteners rapidly and in restricted and
hard-to-reach areas, while still maintaining precision torque control.
The Company's goal is to achieve long-term, profitable growth by (i)
enhancing its position as a leading supplier of specialty fasteners to the
commercial aircraft and defense industries, (ii) expanding the array of fastener
products and services it offers to current customers, (iii) continuing to focus
on higher value-added specialty products, (iv) leveraging its core capabilities
in engineering, materials technology, manufacturing and business processes to
develop additional business with both new and existing customers, (v) increasing
its international marketing and penetration of foreign markets and (vi) pursuing
selected opportunities for acquisitions and strategic alliances.
INDUSTRY OVERVIEW AND TRENDS
COMMERCIAL AIRCRAFT MARKET
The Company's primary market for fasteners, the worldwide commercial
aircraft industry, is experiencing a strong increase in demand from airlines
ordering new and replacement aircraft. Many airlines, particularly U.S.
carriers, incurred substantial losses during the early 1990s. Factors which led
to these losses included (i) a slowdown in world economic growth, (ii) a decline
in air passenger traffic and (iii) the delivery of a record number of previously
purchased aircraft to the airlines, all of which created excess aircraft
capacity. This excess capacity, coupled with the weakened financial condition of
many airlines, significantly impacted their purchases of new and replacement
aircraft. Beginning in 1994, a rebound in the world economy and an increase in
air passenger traffic helped many airlines restore and increase their
profitability. As a result, the airlines have also increased their purchases of
new and replacement aircraft, contributing to a significant recovery in the
worldwide commercial aircraft industry. In 1996, for example, Boeing and Airbus,
the two largest commercial aircraft manufacturers, reported increases in
announced aircraft orders of 107% and 208% over 1995 levels, respectively.
Increased demand for new and replacement aircraft has led to an increase in the
demand for fasteners and fastening systems, such as those manufactured by the
Company.
While there can be no assurance that demand for new and replacement aircraft
will not be adversely affected by business cycle fluctuations or declines in
airline profitability, the Company believes that long-term industry trends are
favorable. For example, in its 1997 Current Market Outlook report, Boeing
24
<PAGE>
projects that during the period from 1996 to 2006, world air travel will grow by
nearly 75%. Boeing also projects that during this period domestic and
international airlines will lease or purchase over 7,000 new aircraft, thereby
increasing the worldwide commercial fleet from approximately 11,500 aircraft at
the end of 1996 to approximately 17,000 aircraft (net of retirements) at the end
of 2006. In addition, as airlines seek to serve a growing number of air
travelers with existing restrictions on arrival and departure slots, airport
gates and ramp capacity, commercial aircraft OEMs are experiencing increased
orders for heavier, widebodied aircraft of intermediate size. Widebodied
aircraft generally require a greater number of fasteners than smaller aircraft.
DEFENSE MARKET
The Company also directly and indirectly supplies fasteners and related
components to manufacturers of airframes, aircraft engines, missiles and other
products used for defense. Since the late 1980s, decreasing levels of defense
procurement spending have reduced the size of the defense market, with contracts
often reflecting lower build rates and extended production schedules. The U.S.
military budget, in particular, has focused principally on operations and
maintenance funding for the existing force structure rather than on procurement
of new equipment. Due in part to these budget constraints, the defense industry
has been consolidating, thereby reducing the overall number of customers
available to the Company and other suppliers.
The Company's products are primarily utilized on military aircraft,
including fighters and transport aircraft. Although the number of fighter
aircraft expected to be produced is likely to decrease through the year 2000,
this decrease may be offset in part by increased production of military
transport aircraft such as the C-130J and the C-17. In addition, a number of
fighter and other aircraft programs may be implemented to modernize the air
forces of the industrialized western nations and their allies. Such programs
that are either under development or contemplated include the F/A-18E/F (an
advanced variant of the existing F/A-18 fighter bomber), the F-22 (the
next-generation advanced fighter) and the EFA (European Fighter Aircraft). The
first two programs are in preliminary production stages in the United States.
The military programs of the United Kingdom, Germany, Italy and Spain have
committed to the EFA, which is scheduled to begin production in 2000. In
addition, although there can be no assurance that the proposed fiscal 1998 U.S.
military budget will be adopted as proposed, the budget proposed by the
President projects an increase in procurement spending for aircraft. There can
be no assurance, however, that the production of military transport aircraft
will increase, that proposed aircraft programs under development or contemplated
will be completed or that any projected increase in U.S. defense procurement
spending will result in increased demand for the Company's products.
PRODUCTS AND SERVICES
The Company's fasteners, fastening systems and related components may be
divided into two general categories: those used exclusively in the manufacture
of commercial aircraft and defense products (see "--Commercial Aircraft and
Defense Products") and those with applications in other industries (see
"--Industrial Products and Services"). Within these two broad categories, the
Company's products may also be grouped by business unit. The Company's Kaynar
and Microdot business units manufacture fasteners and related products that are
sold principally to the commercial aircraft and defense industries. The
Company's recently-acquired Recoil business manufactures thread insert systems
used in a broad range of markets, including high performance automotive and
electronic components. The Company's K-Fast business unit produces, sells,
leases and services a complete line of installation tools and tooling systems
for the Kaynar, Microdot and Recoil product lines, as well as for fasteners and
inserts produced by other manufacturers.
COMMERCIAL AIRCRAFT AND DEFENSE PRODUCTS
A substantial portion of the Company's net sales are made to the commercial
aircraft and defense industries. Of the Company's net sales in 1996,
approximately 40% were made to airframe OEMs and their subcontractors, and
approximately 21% were made to producers of aircraft engines. In addition, the
25
<PAGE>
Company sold approximately 31% of its production to independent distributors,
who in turn are believed to have sold many of such products to commercial
aircraft and defense OEMs and subcontractors.
KAYNAR PRODUCTS
Kaynar is a leading producer of precision, self-locking internally threaded
nuts used in the manufacture of commercial aircraft and defense aerospace
products. In 1996, sales of Kaynar products accounted for approximately 78% of
the Company's net sales.
The Kaynar product line is designed principally for use in harsh, demanding
environments and includes wrenchable nuts, K-Fast nuts, anchor nuts, gang
channels, shank nuts, barrel nuts, clinch nuts and stake nuts. Wrenchable nuts,
which offer versatility in airframe construction, are designed for high-strength
and vibration resistance and to ensure precision torquing of fastener
assemblies. K-Fast nuts, which are lightweight, wrenchable nuts in various
configurations, permit high-speed application using K-Fast installation tools.
Anchor nuts, which may be riveted, welded or bonded to a structure, are
especially useful in blind locations or in locations where an attached nut
facilitates maintenance. Gang channel nut assemblies, which may be produced in
either straight or radiused versions, are designed for applications that require
multiple anchor-type nuts. Shank nuts, which are highly temperature resistant,
are designed for jet and rocket engine flange assemblies, such as exhaust
manifolds, afterburners and turbine flanges. Barrel nuts are high strength,
self-locking nuts used in locations where wrenching space is not available.
Clinch nuts and stake nuts are designed for blind applications where hexagonal
nuts would be inaccessible for wrenching, or where conditions prevent the
installation of an anchor nut.
Kaynar produces fasteners in a wide variety of materials to accommodate each
customer's specifications, from lightweight aluminum or titanium nuts for
airframes, to high-strength, high-temperature tolerant engine nuts manufactured
from materials such as A-286, Waspaloy-Registered Trademark-,
Hastelloy-Registered Trademark- and Inconel-Registered Trademark-. Kaynar also
produces the commercial aircraft and defense industries' broadest line of
lightweight, non-metallic composite fasteners, which may be configured as
wrenchable nuts, anchor nuts, gang channels or barrel nuts. These composite
fasteners are used primarily for military aircraft and are designed to reduce
radar visibility, enhance resistance to lightning strikes and provide galvanic
corrosion protection. Kaynar offers a variety of coatings and finishes for its
fasteners, including anodizing, cadmium plating, silver plating, aluminum
plating, solid film lubricants and water-based cetyl and solvent-free
lubricants.
MICRODOT PRODUCTS
Microdot, which accounted for approximately 14% of the Company's 1996 net
sales, designs, engineers and manufactures threaded inserts and studs used
principally in the commercial aircraft and defense industries.
Microdot's threaded inserts, which are made of high-grade steel and other
high-strength metals, are designed to be installed into softer metals, plastics
and composite materials to create bolt-ready holes having strong internal
threads within the softer parent material. Once a bolt is threaded into the
installed insert, the overall strength of the fastening assembly is
substantially enhanced. The Company's customers may also use Microdot inserts
for thread repairs. When the existing internal threads on an airframe or engine
component become stripped or are otherwise damaged, the customer will retap the
hole and insert a Microdot insert, thereby recreating the internal threads.
Microdot's K-Sert-Registered Trademark- Inserts include keys that are driven
down through the threads of parent material, mechanically locking the insert in
place to prevent rotation due to vibration and to resist torque-out. Microdot
also produces Perma-Thread-Registered Trademark- Inserts and thin-wall inserts.
Perma-Thread Inserts are helically-coiled inserts, precision formed from diamond
shaped stainless steel wire wound into strong permanent thread. The Perma-Thread
Inserts compress as they are inserted into an internally threaded hole to create
a strong permanent thread inside the hole. Thin-wall inserts are designed for
situations that require a smaller lightweight fastener but also demand a high
degree of thread protection and fastening integrity.
26
<PAGE>
In addition, Microdot produces K-Sert Studs, which are also made from steel
and other high-strength metals. The keyed end of the stud is designed to be
installed into parent material using a process similar to the insertion of
K-Sert Inserts. The other end of the stud is threaded and protrudes from the
parent material so that other components may be securely attached to the parent
airframe or engine component. Like K-Sert Inserts, K-Sert Studs include locking
keys that prevent rotation and provide resistance to torque-out.
INDUSTRIAL PRODUCTS AND SERVICES
The products designed and manufactured by the Company's recently acquired
Recoil business unit have applications in a variety of industries, including the
automotive and electronics markets. The Company's K-Fast products primarily
serve the commercial aircraft and defense industries, but are also used in other
industrial markets. Recoil, which the Company acquired in August 1996, and
K-Fast each accounted for approximately 4% of the Company's 1996 net sales. For
the four-month period ended December 31, 1996, Recoil accounted for
approximately 8% of the Company's net sales.
RECOIL PRODUCTS
Recoil produces helically-wound wire thread inserts that increase the
strength of a fastening assembly and assist in the reduction of thread wear,
which is particularly important in cases where components are assembled and
disassembled frequently or where vibrations are severe. Although Recoil inserts
are similar in design to Microdot's Perma-Thread Inserts, Recoil serves a
different customer base and sells a greater percentage of its products for use
in thread repair, rather than original installation. Recoil inserts are used in
the automotive, electronic and other industrial markets, and their associated
after-markets.
In addition to threaded inserts, Recoil also supplies both standard and
customized thread repair kits, high speed steel taps and various electric and
pneumatic, manual and semi-automatic insertion tools and related accessories.
Recoil's distributors market thread repair kits to the public using
custom-designed point-of-sale displays. Principal uses for the thread repair
kits include automotive repair and the maintenance and repair of heavy
machinery.
Recoil products are designed and manufactured in stainless steel and a wide
variety of other materials to meet customer specifications, including
Inconel-Registered Trademark- for high temperature applications and phosphorous
bronze for low permeability. Recoil inserts are often coated with finishes such
as cadmium and silver to prevent corrosion, and dry film lubricants to prevent
galling and binding.
K-FAST PRODUCTS AND SERVICES
K-Fast tools are primarily designed to install Kaynar, Microdot and Recoil
fasteners and inserts, but can also be used to attach other wrenchable nuts,
bolts and inserts. K-Fast tools allow customers to install fasteners rapidly and
in restricted and hard-to-reach areas, while still maintaining precision torque
control. K-Fast tools, which may be incorporated into a customer's automatic and
semi-automatic application operations, also permit precise re-torquing of
fasteners that have already been installed. K-Fast tools are ergonomically
designed to reduce noise and operator fatigue. The Company outsources the
production of motors for the K-Fast tools.
Many OEMs lease K-Fast tools from the Company instead of purchasing them.
The Company also services tools purchased or leased by its customers and trains
its customers to use the tools. The Company currently has eleven service
engineers located throughout North America and Europe, who are able to provide
customers with on-site service of, and training for, K-Fast tools. The Company
intends to continue to pursue opportunities on the service side of its tooling
and tooling systems business.
KEY COMPETITIVE STRENGTHS
MARKET LEADER. The Company believes that it is the leading manufacturer of
precision, self-locking internally threaded nuts sold to the commercial aircraft
and defense aerospace industries, and a leading
27
<PAGE>
manufacturer of other specialty fasteners, fastening systems and related
components used in the manufacture of commercial aircraft and defense products.
The Company also believes it offers customers one of the broadest arrays of
fasteners, fastening systems and related services. Once a fastener manufactured
by the Company has been "designed into" a particular airframe or engine
component, the OEM will generally rely on the Company to provide the fastener
for the entire production cycle of the airframe or engine, which could last a
decade or more. This relationship with OEMs further enhances the Company's
position as a market leader.
RAPID CUSTOMER RESPONSE. The Company's product design and engineering
capabilities and its manufacturing expertise give it the ability to respond
rapidly to customer demands for new products and product modifications. Once a
customer submits specifications for a product, the Company utilizes its
forty-three person engineering and product design group to meet the customer's
demands and expectations for product development and manufacturing, installation
tooling development and application engineering. The Company's engineering and
product design personnel are organized into cross-functional design teams to
enhance the Company's responsiveness. Often customers will place multiple orders
for short runs of different products. The Company has the expertise in complex
manufacturing processes necessary to fill such orders within the timeframes
required by its customers.
CORE SUPPLIER. Many OEMs have reduced the number of suppliers for
particular parts to a core group of two or three who have the size, expertise
and capacity to meet the OEMs' needs. Such reductions allow an OEM to (i) reduce
purchasing costs, (ii) streamline purchasing decisions, (iii) maintain greater
control over quality and (iv) develop close supplier relationships.
Participating in this trend, the Company continues to be a qualified supplier to
virtually all major airframe and aircraft engine OEMs on the parts it designs
and manufactures. In addition, the Company has never lost its qualified supplier
status with respect to any product. The Company believes that as the OEMs have
undertaken these reductions, the Company has often achieved incremental
increases in its business.
SOURCE DELEGATION SUPPLIER. The Company's experience and its strong,
long-term relationships with OEMs, coupled with its customer-driven approach to
quality control, engineering and production, have allowed it to qualify as a
"source delegation supplier" to many of its customers, including Boeing, GE and
Pratt & Whitney. See "--Customers." A source delegation supplier's products are
designed, shipped and installed without the OEM undertaking further testing that
it might otherwise perform before installation. An OEM will only designate a
supplier as a source delegation supplier after the OEM has undertaken a rigorous
review of both the supplier's products and its manufacturing processes. This
review process often takes several years.
EFFICIENCY AND QUALITY CONTROL. The Company has implemented a series of
programs designed to improve operating efficiency while at the same time
maintaining or improving quality control. As a result, the Company believes that
since 1994 it has, among other things, significantly reduced its (i) new product
design times, (ii) average lead times on production and (iii) rates of past due
orders. Continuous improvement teams, re-engineering teams, Kaizen events (a
self-directed process improvement program) and an incentive bonus plan that
rewards all employees, other than Recoil personnel, based upon the return on
capital employed by the Company's business units are among the quality
improvement tools currently used by the Company in its efforts to reduce costs
and improve customer service. The Company has also recently begun implementing
an automated statistical process control ("SPC") system that will replace its
current manual system for recording statistical information at each stage of the
production process. The automated SPC system, which is already running in
certain areas of the Company's business, should be fully operational by
mid-1997.
COMPANY STRATEGY
The Company's goal is to sustain long-term profitable growth by focusing on
the following areas:
MAINTAINING KEY COMPETITIVE STRENGTHS. The Company intends to maintain and
further develop its key competitive strengths, including its leading position in
the market for specialty fasteners and fastening
28
<PAGE>
systems used in the manufacture of commercial aircraft and defense products. See
"--Key Competitive Strengths."
EXPANDING FASTENER PRODUCTS AND SERVICES. The Company will continue to
introduce new fastener products and services to the commercial aircraft, defense
and other industrial markets. The Company also plans to continue augmenting its
existing array of products and services by qualifying new fasteners and
fastening systems, introducing new packaged thread repair kits in the automotive
after-market and expanding its installation tooling products and repair
services.
FOCUSING ON HIGHER VALUE-ADDED PRODUCTS. Kaynar and Microdot, the Company's
two largest business units, manufacture nuts, inserts and studs that are
engineered for a variety of harsh, demanding environments and often require high
tensile strength, toughness, durability, corrosion resistance and resistance to
metal fatigue and creep. To meet these demands, the Company employs higher
value-added manufacturing processes than would be required if the fasteners were
designed for less demanding environments. These processes include manufacturing
expertise in a wide range of specialty metals, alloys and composites. The
Company intends to continue to focus on engineering and manufacturing such
specialty products.
LEVERAGING CORE CAPABILITIES. The Company intends to grow by leveraging its
core capabilities in engineering, materials technology, manufacturing and
business processes. The Company believes that with these capabilities, it can
develop new business opportunities with current customers, beyond existing
fastener applications. The Company will also use its core capabilities as a
basis for moving into related markets that it does not currently address.
INCREASING INTERNATIONAL MARKETING. The commercial aircraft industry is
becoming increasingly international, as component and sub-assembly manufacturers
overseas obtain significant contracts from major airframe and aircraft engine
OEMs. The Company plans to continue to increase its international presence to
capitalize on opportunities for growth in the expanding international commercial
aircraft market. The Company's strategy includes continued penetration into
foreign markets. The Company, for example, has recently placed an on-site sales
engineer in Beijing, China and a direct salesperson in Mexico City, Mexico. See
"--Sales and Marketing."
GROWING THOUGH ACQUISITIONS AND STRATEGIC ALLIANCES. The Company
selectively reviews opportunities to acquire other companies, assets and product
lines that add to or complement its existing products and services. The Company
successfully completed the Recoil acquisition and the purchase of the KELOX
product line in 1996 and believes that other potentially complementary
acquisitions may be possible as consolidation continues in the commercial
aircraft and defense industries. The Company, however, currently has no
agreements, commitments or understandings with respect to any acquisitions, nor
can there be any assurance that the Company will make any such acquisitions in
the future.
CUSTOMERS
In 1996, approximately 65% of the Company's net sales were made directly to
OEMs and subcontractors. Direct sales to Boeing, GE and Pratt & Whitney, the
Company's three largest OEM customers, accounted for approximately 18%, 12% and
8% of the Company's 1996 net sales, respectively. The remaining 35% of the
Company's 1996 net sales were made to a global network of thirty-five
independent distributors, who sell the Company's products to OEMs,
subcontractors and other customers. See "--Sales and Marketing."
The Company is currently a "source delegation supplier" of certain products
to the following OEMs: Boeing, GE, Pratt & Whitney, Lockheed Martin, McDonnell
Douglas, Air Supply (a unit of AlliedSignal Inc.), Ultra Electronics Ltd. and
Williams International Co. A source delegation supplier's products are designed,
shipped and installed without the OEM undertaking further testing that it might
otherwise perform before installation. See "--Key Competitive Strengths--Source
Delegation Supplier." In addition to its source delegation designations, the
Company is also a qualified supplier under the preferred supplier programs of
most other major airframe and aircraft engine OEMs and subcontractors, including
Allison
29
<PAGE>
Engine Co., Loral Vought Systems Corp., Northrop Grumman Corp., Rocketdyne (a
unit of Rockwell International Corp.), Rohr Inc. and Rolls Royce.
BACKLOG
The Company's backlog at December 31, 1996 was approximately $65.5 million,
approximately 92% of which is scheduled to be delivered during 1997. The
Company's total backlog as of December 31, 1995 was approximately $41.2 million.
The following chart shows the quarterly backlog orders believed by
management to be deliverable within the twelve months following each quarter
end:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
QUARTER ENDED TWELVE MONTH BACKLOG
<S> <C>
3-1994 $ 21,957
6 $ 23,794
9 $ 23,940
12 $ 24,421
3-1995 $ 28,940
6 $ 34,187
9 $ 33,524
12 $ 35,843
3-1996 $ 40,792
6 $ 44,997
9 $ 53,925
12 $ 60,189
</TABLE>
ENGINEERING AND PRODUCT DEVELOPMENT
The Company employs approximately 43 engineers and designers. At Kaynar and
Microdot, these employees are assigned to cross-functional design teams, which
work together to develop new products and improve existing products. Each design
team includes personnel from the following functional areas: production design,
tool design, manufacturing engineering and production engineering. The use of
design teams is intended to reduce the overall time needed to bring products to
market.
The development of a new fastener generally begins when a customer submits
specifications for the fastener to the Company. The design team then develops a
computer-generated or physical model of the fastener based on the specifications
and may work with the Company's research and development (R&D) group, which
includes skilled tool and die makers and a machine development group, to produce
a prototype of the product. Reliance on the Company's R&D personnel at this
stage of the development process allows the Company to thoroughly test a new
design and its requisite manufacturing process without interrupting the
manufacture of existing products at the Company's facilities. Concurrent with
the design and testing of a prototype, the design team also develops a plan for
manufacturing the fastener in the most cost-effective manner and undertakes the
steps necessary to implement that plan.
PATENTS
The Company currently holds a number of U.S. and international patents,
covering a variety of products and processes. Although the Company believes
patent protection to be valuable in certain circumstances, management does not
believe that the termination, expiration or infringement of one or
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<PAGE>
more of the Company's patents would have a material adverse effect on the
business or prospects of the Company.
The Company has not been involved in patent infringement litigation, and the
Company believes that its processes and products do not infringe on the
intellectual property rights of others; however, there can be no assurance that
an infringement claim will not be asserted against the Company in the future.
The Company has from time to time asserted infringement claims by notice to
third parties. Such claims, however, have been settled by the Company and have
not resulted in litigation.
MANUFACTURING AND RAW MATERIALS
Each of the Company's fasteners is manufactured using one of three general
methods of production: stamping, machining or forging. In each case, the
production process begins with the purchase of raw materials: sheet metal in the
case of stamping, bars in the case of machining and high grade wire in the case
of forging. The fastener is then formed using the applicable processes.
Subsequent steps in the production process include tapping, crimping, heat
treating, plating, coating, assembly and final inspection.
The Company manufactures fasteners for its commercial aircraft and defense
customers based on the customers' orders and specifications and, except for
certain Recoil products, the Company generally does not produce fasteners for
its own inventory. The Company has the expertise in complex manufacturing
processes necessary to produce products in multiple, short runs, which are often
requested by its customers. See "--Key Competitive Strengths--Rapid Customer
Response."
The Company purchases raw materials, which include the various metals,
composites and finishes used in production, from over twenty different
suppliers. The Company believes that these raw materials would be available at
competitive prices from various other suppliers as well. See "Risk Factors--
Availability and Cost of Raw Materials" for a discussion of the risks related to
the Company's supply of raw materials.
SALES AND MARKETING
The Company's sales force consists of approximately 24 salespeople located
throughout the world and 31 independent sales agents who work with the Company
on a commission basis. The sales force sells products directly to OEMs and
subcontractors and to a global network of 35 independent distributors, who, in
turn, sell to OEMs, subcontractors and other customers. Often, the OEMs will
determine whether the Company sells a product directly to the OEM or through an
independent distributor.
Each of the Company's four business units independently conducts sales and
marketing efforts. In certain cases, however, the business units collaborate in
cross-marketing efforts and, in some geographic regions, may use the same sales
representative or agent. Each business unit's sales force and its respective
officers are responsible for obtaining new customers and maintaining
relationships with existing customers.
EMPLOYEES
As of December 31, 1996, the Company employed 1,111 employees. Approximately
73% of these employees are engaged in manufacturing, 22% are engaged in
management, sales, marketing and general administration and 5% are engaged in
engineering and product development. None of the Company's employees is
represented by a union, and management considers its employee relations to be
good.
Each of the Company's employees (other than those in the Recoil business
unit) is eligible for an annual bonus based on the return on capital employed of
the particular business unit in which the employee works.
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<PAGE>
PROPERTIES
As of March 31, 1997, the Company had nine principal facilities, consisting
of an aggregate of approximately 282,500 square feet of space. The following
table describes the principal facilities and indicates the location, function,
approximate size and ownership of each:
<TABLE>
<CAPTION>
APPROX.
SQUARE
LOCATION FUNCTION FOOTAGE OWNERSHIP
- ------------------------------ --------------------------------- --------- -------------------------
<S> <C> <C> <C>
Fullerton, CA................. Kaynar Division headquarters: 200,000 Leased (expires
Administration, product October 31, 1999)
development, engineering,
manufacturing and distribution
Placentia, CA................. Microdot Division headquarters: 40,000 Leased (expires
Administration, product September 30, 2001)
development, engineering,
manufacturing and distribution
Oakleigh, VIC, Australia...... Recoil Pty headquarters: 24,000 Leased (expires
Administration, product August 1, 2000)
development, engineering,
manufacturing and distribution
Nemesuamos, Hungary........... K.T.I. Femipari KFT: 6,200 Owned
Manufacturing
Orange, CA.................... The Company headquarters: 4,600 Leased (expires
Administration April 1, 2003)
Carmel, IN.................... Recoil (U.S.): 4,300 Leased (expires
Sales and marketing of Recoil December 31, 1998)
products
Wolverhampton, U.K............ Recoil (Europe) Ltd.: 1,700 Leased (expires
Sales and marketing of Recoil December 25, 2001)
products
Lutterworth, U.K.............. Kaynar Technologies Ltd. 1,000 Leased (expires
headquarters: January 2, 2002)
Kaynar and K-Fast sales office
Aalst, Belgium................ Recoil Marketing BVBA: 700 Leased (expires
Sales and marketing of Recoil April 20, 2003)
products
</TABLE>
The Company currently anticipates that its 6,200 square foot manufacturing
facility in Nemesuamos, Hungary will be completed and operational by the end of
the second quarter of 1997. The Company purchased the property on which the
facility is being built in July 1996. When completed, the Hungarian facility
will be responsible for certain machining and forging operations on a limited
number of Kaynar and Microdot products. These products will be transported to
the Company's U.S. facilities for final fabrication.
The Company recently entered into a lease of office and administrative space
in Orange, California, to which the Company has relocated its executive offices
from Fullerton, California.
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<PAGE>
While the Company believes that its facilities are adequate to support its
operations for the foreseeable future, the Company regularly reviews its need
for additional facilities and could, in the future, lease or purchase one or
more additional facilities or seek to expand its existing facilities.
LEGAL PROCEEDINGS
During the ordinary course of business, the Company, from time to time, is
threatened with, or becomes a party to, legal actions and other proceedings.
Management is of the opinion that the outcome of currently known legal actions
and proceedings to which it is a party will not, singly or in the aggregate,
have a material adverse effect on the Company.
COMPETITION
The Company competes with a number of producers of aerospace fasteners and
fastening systems, including three publicly-held companies, SPS Technologies
Inc. ("SPS"), the Huck International Division of the Thiokol Corporation
("Thiokol") and The Fairchild Corporation ("Fairchild"), all of which have
greater financial resources than the Company. SPS manufactures high-strength
wrenchable nuts, gang channels, plate nuts and other products for certain of the
same customers as the Company, including Boeing, Pratt & Whitney and GE. Thiokol
produces fasteners and fastening systems that differ substantially from the
Company's products in design, but nevertheless often serve comparable functions
in airframe and engine construction. Fairchild produces threaded inserts and
studs that compete with the Microdot product lines, as well as various nuts used
by certain of the Company's customers, including GE. On February 27, 1997,
Fairchild acquired a controlling interest in Simmonds, S.A. ("Simmonds"), a
French corporation, which produces fasteners that compete with certain Kaynar
products, particularly metric nuts and gang channels sold to European airframe
and engine OEMs. Under the terms of the agreement, Fairchild acquired an 84.2%
ownership interest in Simmonds. Fairchild has also announced its intent to
tender immediately for the remaining ownership interests in Simmonds held by the
public. The Company also competes with several smaller, privately-owned
companies, which generally have lower sales volumes than the Company.
The Company believes that competition for sales of fasteners and fastener
systems to the commercial aircraft and defense industries is based on product
design and quality, turnaround time and responsiveness to customer
specifications, product availability and pricing. The Company believes that it
competes favorably with respect to each of these factors.
HeliCoil, a unit of Black & Decker Corp., is Recoil's primary competitor in
the industrial markets for threaded inserts. The Company believes that
competition for sales of threaded insets and thread repair kits to the markets
served by Recoil is based on turnaround time and responsiveness to customer
specifications, product availability and pricing. The Company believes that it
competes favorably with respect to each of these factors.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulation by various governmental agencies. Among other
matters, these regulatory authorities impose requirements that regulate the
generation, emission, discharge, management, transportation and disposal of
hazardous materials, pollutants and contaminants, govern public and private
response actions to hazardous or regulated substances that may be or have been
released into the environment, and require the Company to obtain and maintain
licenses and permits in connection with its operations. This extensive
regulatory framework imposes significant compliance burdens and risks on the
Company. Although management believes that the Company's operations and its
facilities are in material compliance with such laws and regulations, there can
be no assurance that future changes in such laws, regulations or interpretations
thereof or the nature of the Company's operations will not require the Company
to make significant additional capital expenditures to ensure compliance in the
future.
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<PAGE>
The Company anticipates that during the period from 1997 through 1998 it
will incur a one-time capital expenditure of between $1 million and $2 million
to reduce its reliance on degreasing operations that use perchloroethylene by
switching to aqueous-based solvents whenever possible. Although these new
operations will significantly reduce the Company's need to use perchloroethylene
as a degreasing agent, the Company's principal reason for undertaking this
expenditure is to increase manufacturing efficiency.
Although the Company has not been notified by any environmental authority
that its current degreasing operations are in violation of any applicable law or
regulation, perchloroethylene has been detected in the soil beneath the
Company's Fullerton, California facility. Environmental consultants retained by
the Company have determined that this was not caused by existing degreasing
operations. The Company anticipates that if remediation of the perchloroethylene
at this site is required, it could be accomplished at a cost of approximately
$200,000 over the course of two years. In connection with the AFSG acquisition
in January 1994, the Company established reserves that management believes are
sufficient to cover this possible remediation.
The Company is required to maintain air quality permits for the operation of
several of its plating lines. The permit required to run its cadmium-plating
system currently includes a maximum annual usage restriction that is
significantly below the Company's actual 1996 usage. In 1996, however, the
Company obtained a variance from the applicable environmental control authority
that permitted the Company to exceed the usage restriction. In 1997, the Company
intends to install a new automated cadmium-plating system that includes improved
emissions control features, which should result in removal of the usage
restriction. If the restriction is not removed prior to the installation of the
automated plating system, the Company expects that it will again be granted a
usage variance. There can be no assurance, however, that a usage variance will
be granted or that the failure to obtain a usage variance will not have a
material adverse effect on the Company.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the directors and
executive officers of the Company. Each director holds office until the next
annual meeting of stockholders, or until his successor has been elected and
qualified. Officers are appointed by the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE(*) PRINCIPAL POSITIONS WITH THE COMPANY
- ------------------------------------ ----------- --------------------------------------------------------------------
<S> <C> <C>
Jordan A. Law....................... 54 Chairman of the Board of Directors, President and Chief Executive
Officer
David A. Werner..................... 44 Executive Vice President, Secretary and Director
Robert L. Beers..................... 50 Senior Vice President, Marketing and Business Development
LeRoy A. Dack....................... 52 Division President, Kaynar
Joseph M. Varholick................. 45 Division President, Microdot
Kenneth D. Jones.................... 52 Group Chief Executive Officer, Recoil
Imre Berecz......................... 59 Vice President, Product Research and Development, and Managing
Director, K.T.I. Femipari KFT
Joseph F. Blomberg.................. 58 Director of Human Resources
Norman A. Barkeley.................. 66 Director
Burton J. Kloster, Jr............... 65 Director
Richard P. Strubel.................. 57 Director
</TABLE>
- ------------------------
* As of December 31, 1996.
JORDAN A. LAW has been Chairman of the Board of Directors, President and
Chief Executive Officer of the Company since October 1993. From July 1991 to
January 1994, Mr. Law served as President of AFSG.
DAVID A. WERNER has been Executive Vice President of the Company since
December 1996 and Secretary and a Director of the Company since October 1993.
From October 1993 to December 1996, Mr. Werner served as Vice President and
Treasurer of the Company. From July 1990 to January 1994, Mr. Werner was Vice
President and Chief Financial Officer of Old Microdot. Mr. Werner is also a
director of Lumber Yard Supply, a privately-held corporation. Mr. Werner is a
certified public accountant.
ROBERT L. BEERS has been Senior Vice President, Marketing and Business
Development, of the Company since December 1996. From January 1994 to December
1996, Mr. Beers served as Vice President, Sales and Marketing, of the Company.
From June 1991 to January 1994, Mr. Beers was Vice President, Sales and
Marketing, of AFSG.
LEROY A. DACK has been President of the Company's Kaynar business unit since
December 1996. From January 1994 to December 1996, Mr. Dack served as Vice
President and General Manager of the Kaynar business unit. From May 1991 to
January 1994, Mr. Dack was Vice President and General Manager of the Kaynar
division of Old Microdot.
JOSEPH M. VARHOLICK has been President of the Company's Microdot operating
unit since December 1996. From January 1994 to December 1996, Mr. Varholick
served as Vice President and General Manager of the Microdot business unit. From
September 1993 to January 1994, Mr. Varholick was Vice President and General
Manager of the Microdot Inserts division of Old Microdot. From May 1992 to
September 1993, Mr. Varholick was Managing Director of Microdot Aerospace
Limited (U.K.), a subsidiary of Old Microdot. Prior to May 1992, Mr. Varholick
was the Director of Sales of the Kaynar division of Old Microdot.
KENNETH D. JONES has been Group Chief Executive Officer of the Company's
Recoil business unit since August 1996. From August 1994 to August 1996, Mr.
Jones was the Group Chief Executive Officer of
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<PAGE>
Recoil Pty Ltd, the entity from which the Company purchased the Recoil business
unit. Prior to August 1994, Mr. Jones served as Chief Executive Officer of
Polycure Pty. Ltd., a manufacturer of specialty, high technology coatings.
IMRE BERECZ has been Vice President, Product Research and Development, and
Managing Director, K.T.I. Femipari KFT, since December 1996. From January 1994
to December 1996, Mr. Berecz was the Company's Vice President, Research and
Development. From 1983 to January 1994, Mr. Berecz served as Vice President,
Engineering of AFSG.
JOSEPH F. BLOMBERG has been Director of Human Resources of the Company since
January 1994. From June 1984 to January 1994, Mr. Blomberg served as Director of
Human Resources of AFSG.
NORMAN A. BARKELEY has been a Director of the Company since March 1997. Mr.
Barkeley has been chairman of Ducommun Incorporated, an aerospace equipment
manufacturer ("Ducommun"), since July 1988. Mr. Barkeley served as Chief
Executive Officer of Ducommun from July 1988 to December 1996 and President of
Ducommun from July 1988 to December 1995. Mr. Barkeley is also a director of
Dames and Moore Inc., an engineering and consulting firm, Golden Systems, Inc.,
an electrical components manufacturer, and RHR International Co., a
privately-held management consulting firm.
BURTON J. KLOSTER, JR. has been a Director of the Company since March 1997.
Mr. Kloster has been retired since September 1995. Prior to his retirement, Mr.
Kloster had served as a Director of GECC since September 1989, Senior Vice
President of GECC since October 1984 and Vice President, General Counsel and
Secretary of GECC since March 1976. Pursuant to the New Stockholders Agreement,
GECC designated Mr. Kloster as an individual to be nominated to the Board of
Directors by the Company.
RICHARD P. STRUBEL has been a Director of the Company since March 1997. Mr.
Strubel has been Managing Director of Tandem Partners, Inc., a management
services firm, since June 1990. From January 1984 to October 1994, Mr. Strubel
served as President and Chief Executive Officer of Old Microdot. Mr. Strubel is
a director of Children's Memorial Medical Center and Children's Memorial
Hospital, both of which are located in Chicago, and a trustee of the University
of Chicago. Mr. Strubel also is a trustee of 35 mutual funds for which Goldman,
Sachs & Co. serves as investment adviser and 16 mutual funds for which The
Northern Trust Company serves as investment adviser. Pursuant to the New
Stockholders Agreement, GECC designated Mr. Strubel as an individual to be
nominated to the Board of Directors by the Company.
As discussed above, each of Messrs. Law, Werner, Beers, Dack, Varholick and
Strubel served as an officer or key employee of Old Microdot. In June 1993, Old
Microdot filed a petition under Chapter 11 of the federal bankruptcy laws. See
"The Company--Formation of the Company."
DIRECTORS COMPENSATION
Prior to March 1997, members of the Company's Board of Directors did not
receive any compensation for their services as directors. Commencing in March
1997, however, non-employee directors will be paid $10,000 per year plus $1,000
per meeting for attending meetings of the Board of Directors or meetings of any
committee thereof not immediately preceding or following a meeting of the full
Board. Non-employee directors may also participate in the Company's 1997 Stock
Incentive Plan. See "--Stock Incentive Plan-- Non-Employee Director Options."
Except as set forth below in "--Executive Compensation," directors who are
employees of the Company will not be paid for their services as directors. All
directors, however, are reimbursed for certain expenses in connection with
attendance at Board of Directors and committee meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a Compensation
Committee. As long as the outstanding Series C Preferred Stock represents 40% or
more of the Fully Diluted Shares, each of these committees will include two
directors that were designated by the holder of the Series C Preferred Stock for
nomination to the Board of Directors. As long as the outstanding Series C
Preferred Stock
36
<PAGE>
represents 25% or more (but less than 40%) of the Fully Diluted Shares, each of
these committees will include one director that was designated by the holder of
the Series C Preferred Stock for nomination to the Board of Directors. See
"Description of Capital Stock--The New Stockholders Agreement."
The Audit Committee reviews, acts on and reports to the Board of Directors
with respect to various auditing and accounting matters, including the selection
of the Company's independent auditors, the scope of annual audits, fees to be
paid to auditors, the performance of the auditors and the accounting practices
of the Company. The Audit Committee currently consists of Messrs. Kloster and
Strubel.
The Compensation Committee, which consists of Messrs. Barkeley, Kloster and
Strubel, determines the salaries and incentive compensation of the Company's
officers and provides recommendations for the salaries and incentive
compensation of the other employees of, and any consultants to, the Company. The
Compensation Committee also administers the Company's incentive compensation,
stock and benefit plans.
The By-laws of the Company provide that the Board of Directors may also
establish other committees from time to time.
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation awarded to,
earned by, or paid to the Chief Executive Officer of the Company and each of the
four most highly compensated executive officers of the Company (other than the
Chief Executive Officer) whose total annual salary and bonus for the year ended
December 31, 1996 was in excess of $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ------------------------------------------------------------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Jordan A. Law .................................................... 1996 $ 175,000 $ 181,000 --
Chief Executive Officer 1995 164,000 123,000 --
1994 156,000 81,000 --
David A. Werner .................................................. 1996 150,000 144,000 --
Executive Vice President 1995 139,000 98,000 --
1994 132,000 66,000 --
Robert L. Beers .................................................. 1996 124,000 77,000 $ 4,769(1)
Senior Vice President, Marketing and 1995 118,000 52,000 --
Business Development 1994 112,000 36,000 --
LeRoy A. Dack .................................................... 1996 122,000 80,000 --
Division President, Kaynar 1995 118,000 53,000 --
1994 112,000 42,000 --
Joseph M. Varholick .............................................. 1996 110,000 67,000 --
Division President, Microdot 1995 101,000 39,000 --
1994 96,000 23,000 3,504(2)
</TABLE>
- ------------------------
(1) This amount compensated Mr. Beers for vacation time not taken.
(2) This payment reimbursed Mr. Varholick for certain taxes incurred as a result
of an overseas assignment undertaken at the request of the Company.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In May 1997, the Company will enter into employment agreements with Messrs.
Law, Werner, Dack, Beers, Varholick and Berecz. The agreements provide for
annual base salaries of $190,000, $170,000,
37
<PAGE>
$137,000, $136,000, $125,000 and $124,000, respectively, which are subject to
discretionary increases and annual review. The duration of each agreement is one
year (two years for Messrs. Law and Werner); however, each agreement contains an
automatic renewal provision that takes effect every six months unless notice
that the agreement will not be renewed is given at least 30 days prior to a
renewal date. The agreements provide for participation in all annual bonus,
incentive, savings and retirement and benefit plans offered generally to Company
employees. If the Company terminates an agreement other than for cause or as a
result of death or disability, the Company will make payments equal to the
employee's annual base salary (two times annual base salary in the case of
Messrs. Law and Werner). If a change in control of the Company occurs within one
year, and either the Company terminates an agreement other than for cause or an
employee terminates his agreement for good reason, the Company will pay an
amount equal to the sum (or, for Messrs. Law and Werner, twice the sum) of (i)
the highest annual base salary paid to the employee during the three most recent
calendar years ending prior to the year the change in control occurs and (ii)
the amount of the highest bonus or bonuses paid to the employee for any calendar
year ending prior to the year the change in control occurs.
In August 1996, the Company also entered into an employment agreement with
Mr. Jones, which provides for a base salary of $184,000 (Australian dollars) per
year, a contribution to a superannuation fund equaling 10% of base salary and
certain fringe benefits. Mr. Jones will be entitled to a bonus equal to 1% of
base salary for every 1% increase in Recoil's annual net profit before
depreciation, interest and taxes from the previous twelve month period. Although
the agreement is not limited in duration, either party may terminate the
agreement by giving four months written notice; however, should his employment
be terminated within the first three years after the commencement of the
agreement, Mr. Jones will be entitled to an additional special payment equal to
six months of his total compensation package.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1996, Messrs. Law and Werner were the only executive officers of the
Company who participated in deliberations of the Company's Board of Directors
concerning executive compensation. The Compensation Committee of the Board of
Directors was not formed until March 1997. See "--Committees of the Board of
Directors."
STOCK INCENTIVE PLAN
In May 1997, the Company adopted its 1997 Stock Incentive Plan (the "Plan").
The Plan provides an additional means to attract, motivate, retain and reward
key employees (including executive officers), as well as outside consultants and
advisors, of the Company and its subsidiaries and to attract, motivate, and
retain experienced and knowledgeable independent directors.
SHARES THAT MAY BE ISSUED UNDER THE PLAN. A maximum of 500,000 shares of
Common Stock, or approximately 5.8% of the issued and outstanding shares of
Common Stock (on a fully diluted basis), has been reserved for issuance as
grants and awards under the Plan. The maximum number of shares that may be
subject to options and stock appreciation rights ("SARs") granted to any
participant in the Plan during any calendar year will not exceed 45,000. The
number and kind of shares available under the Plan are subject to adjustment in
the event of any reclassification, recapitalization, stock split (including a
stock split in the form of a stock dividend), extraordinary dividend or other
distribution with respect to the Common Stock, reverse stock split,
reorganization, merger, combination, consolidation, split-up, spin-off,
combination, repurchase or exchange of Common Stock or other securities of the
Company, or there shall occur any similar corporate transaction or event with
respect to the Common Stock or a sale of substantially all assets of the
Company.
ADMINISTRATION AND ELIGIBILITY. The Plan will be administered by the
Compensation Committee, each member of which must be an outside director as
defined in Section 162(m) of the Internal Revenue Code (the "Code"). The Plan
empowers the Compensation Committee, among other things, to interpret the Plan,
to make all determinations deemed necessary or advisable for the administration
of the Plan and to award to officers and other employees of the Company as well
as other persons, such as significant
38
<PAGE>
consultants and advisors, selected by the Compensation Committee (collectively,
"Eligible Persons"), options (including incentive stock options ("ISOs")) as
defined in the Code, SARs, performance shares, other awards valued by reference
to Common Stock and such factors as the Compensation Committee deems relevant,
and certain Cash-Based Awards (as defined in the Plan). The various types of
awards under the Plan are collectively referred to as "Awards." It is expected
that after the consummation of the Offering there will be approximately 50
officers and other employees eligible to participate in the Plan.
TRANSFERABILITY. Generally speaking, Awards are not transferable other than
by will or the laws of descent and distribution, are exercisable only by the
participant and may be paid only to the participant or the participant's
beneficiary or representatives. However, the Compensation Committee may
establish conditions and procedures under which exercise by and transfers and
payments to certain third parties are permitted, to the extent permitted by law.
OPTIONS. An option is the right to purchase shares of Common Stock at a
future date at a specified price. The option price is generally one hundred
percent of the closing price for a share of Common Stock as reported on any
national securities exchange ("fair market value") on the date of grant.
An option may be granted as an ISO or a nonqualified stock option. An ISO
may not be granted to a person who, at the time the ISO is granted, owns more
than 10% of the total combined voting power of all classes of stock of the
Company and its subsidiaries unless the option price is at least 110% of the
fair market value of shares of Common Stock subject to the option and such
option by its terms is not exercisable after expiration of five years from the
date such option is granted. The aggregate fair market value of shares of Common
Stock (determined at the time the option is granted) for which ISOs may be first
exercisable by an option holder during any calendar year under the Plan or any
other plan of the Company or its subsidiaries may not exceed $100,000. A
nonqualified stock option is not subject to any of these limitations.
SARS. The Plan authorizes the Compensation Committee to grant SARs
independent of any other Award or concurrently (and in tandem) with the grant of
options. An SAR granted in tandem with an option is only exercisable when and to
the extent that the related option is exercisable. An SAR entitles the holder to
receive upon exercise the excess of the fair market value of a specified number
of shares of Common Stock at the time of exercise over the option price. This
amount may be paid in Common Stock (valued at its fair market value on the date
of exercise), cash or a combination thereof, as the Compensation Committee may
determine.
PERFORMANCE SHARE AWARDS. The Compensation Committee may, in its
discretion, grant Performance Share Awards to Eligible Persons based upon such
factors as the Compensation Committee deems relevant in light of the specific
type and terms of the Award. The amount of cash or shares or other property that
may be deliverable pursuant to these Awards will be based upon the degree of
attainment, over a specified period of not more than ten years (a "performance
cycle") as may be established by the Compensation Committee, of such measures of
the performance of the Company (or any part thereof) or the participant as may
be established by the Compensation Committee. The Compensation Committee may
provide for full or partial credit, prior to completion of a performance cycle
or the attainment of the performance achievement specified in the Award, in the
event of the participant's death, retirement, or disability, a Change in Control
Event (as defined in the Plan) or in such other circumstances as the
Compensation Committee may determine.
SPECIAL PERFORMANCE-BASED AWARDS. In addition to Awards granted under other
provisions of the Plan, performance-based awards within the meaning of Section
162(m) of the Code ("Performance-Based Awards"), which depend on the achievement
of pre-established performance goals, may be granted under the Plan. The
specific performance goals will be selected by the Compensation Committee in its
sole discretion and the specific targets will be pre-established so that their
attainment is substantially uncertain at the time of establishment. The
permitted performance goals under the Plan may include earnings per share,
return on equity, cash flow and total stockholder return. However, the
applicable performance measurement period may not be less than one nor more than
ten years.
39
<PAGE>
The eligible class of persons for Performance-Based Awards consists of the
executive officers of the Company. The maximum number of shares of Common Stock
that may be delivered as Performance-Based Awards to any participant in any
calendar year shall not exceed 75,000 shares. Furthermore, the maximum amount of
compensation to be paid to any participant in respect of any Cash-Based Awards
that are granted in any calendar year may not exceed $200,000. Before any
Performance-Based Award is paid, the Committee must certify that the material
terms of the Performance-Based Award were satisfied. The Committee will have
discretion to determine the restrictions or other limitations of the individual
Awards.
STOCK BONUSES. The Compensation Committee may grant a stock bonus to any
Eligible Person to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the Compensation
Committee. The number of shares so awarded shall be determined by the
Compensation Committee and may be granted independently or in lieu of a cash
bonus.
TERM AND EXERCISE PERIOD OF AWARDS. The Plan provides that awards may be
granted for such terms as the Compensation Committee may determine but options
to acquire Common Stock may not have terms greater than ten years after the date
of the Award. The Plan also generally imposes a six-month minimum vesting period
on Awards and vesting at a rate not in excess of 25% per year. The Compensation
Committee will set forth in each Award the effect of termination of employment
upon the rights and benefits conferred and may make distinctions based on the
cause of termination. In the event of termination other than for cause, the
Compensation Committee may, in its discretion, increase the portion of an Award
otherwise available or extend the exercise period of such Award. For
non-employee directors, if the director's service with the Company terminates by
reason of death or disability, his or her options shall become immediately
exercisable and may be exercised for a period of two years after the date of
such termination or until the options expire, whichever occurs first. If a
non-employee director is terminated for any other reason, his or her exercisable
options will expire at the earlier of six months or the expiration of the stated
term and options not exercisable will be terminated. Other than as specified in
the Plan, the Committee has the authority to accelerate the exercisability of
options or (within the maximum ten-year term) extend the exercisability periods.
TERMINATION, AMENDMENT AND ADJUSTMENT. The Plan may be terminated by the
Compensation Committee or by the Board of Directors at any time. In addition,
the Compensation Committee or the Board may amend the Plan from time to time,
without the authorization or approval of the Company's stockholders, unless that
approval is required by the certificate of designation relating to the Series C
Preferred Stock, any law or agreement or the rules of any exchange upon which
the stock of the Company is listed. No Award may be granted under the Plan more
than ten years after the effective date of the Plan, although Awards previously
granted may thereafter be amended consistent with the terms of the Plan.
Upon the occurrence of a change in control event, in addition to
acceleration of vesting, an appropriate adjustment to the number and type of
shares or other securities or property subject to an Award and the price thereof
may be made in order to prevent dilution or enlargement of rights under Awards.
Individual awards may be amended by the Compensation Committee in any manner
consistent with the Plan, including amendments that effectively reprice options
without changes to other terms. Amendments that adversely affect the holder of
an Award, however, are subject to his or her consent. The Plan is not exclusive
and does not limit the authority of the Board of Directors or the Compensation
Committee to grant other awards, in stock or cash, or to authorize other
compensation, under any other plan or authority.
NON-EMPLOYEE DIRECTOR OPTIONS. The Plan provides for automatic initial and
subsequent annual grants of non-qualified stock options, with five-year terms,
to non-employee directors. Each person who becomes a non-employee director will
receive an initial grant of options to purchase 1,000 shares of Common Stock.
Under the subsequent automatic grant, each non-employee director then in office
will be granted options to purchase 500 shares each January 31. Each
non-employee director option will vest at
40
<PAGE>
the rate of 25% per year commencing one year after the initial award date and
each of the next three years thereof. Upon the occurrence of a change in control
event, each non-employee director option will become immediately exercisable in
full, provided that no option will be accelerated to a date prior to six months
after its grant date. To the extent any non-employee director option is not
exercised prior to (i) dissolution of the Company or (ii) a merger or other
corporate event that the Company does not survive, and no provision is made for
the assumption, conversion, substitution or exchange of such option, such option
will terminate upon the occurrence of the change in control event.
INITIAL GRANTS OF OPTIONS. The Company anticipates granting certain options
or shares under the Plan within three-to-six months following the consummation
of the Offering. Options to purchase approximately 100,000 shares are
anticipated to be granted to all executive officers and employees as a group.
These options are anticipated to have a term of five years and to vest in equal
annual installments over four years. The options will have an exercise price at
least equal to the then prevailing market price per share.
CERTAIN TRANSACTIONS
FINANCING ARRANGEMENTS
The Company and Operating Company have entered into the following financing
arrangements with GECC which, although not resulting from competitive bids, are
believed by the Company to have been obtained on commercially reasonable terms:
FIXED RATE LOANS
TERM LOAN AGREEMENT. In January 1994, in connection with the capitalization
of the Company, the Company and GECC entered into a Term Loan Agreement (the
"Term Loan Agreement"), pursuant to which GECC loaned $4.8 million to the
Company, which is due and payable on January 3, 1999 and secured by the stock of
Operating Company. Interest on this term loan, which is payable quarterly and
may be added to the original principal, accrued at the rate of 9.5% for the
period from January 3, 1994 to December 31, 1995 and, pursuant to the terms of
the Term Loan Agreement, will accrue at the rate of 11.5% from January 1, 1996
until the loan is paid in full. As of December 31, 1996, approximately $6.5
million in total principal and interest was outstanding under this term loan.
Interest expense on the loan was approximately $476,000, $525,000, and $712,000
for 1994, 1995 and 1996 respectively.
PAYMENT-IN-KIND (PIK) DIVIDEND NOTE AGREEMENT. In lieu of quarterly cash
dividends on the Series A and Series B Preferred Stock, the Company has issued
PIK Dividend Notes to GECC. As of December 31, 1996, principal and interest on
twelve PIK Dividend Notes for each such series of Preferred Stock were
outstanding in the aggregate amounts of $84,000 for the Series A Preferred Stock
and $247,000 for the Series B Preferred Stock. Interest on the PIK Dividend
Notes, which is payable quarterly and may be added to the original principal of
a Note, accrued at the rate of 9.5% for the period from January 3, 1994 to
December 31, 1995 and will accrue at the rate of 11.5% from January 1, 1996
until each PIK Dividend Note is paid in full. Total interest expense on all PIK
Dividend Notes was approximately $5,000, $12,000, and $26,000 for 1994, 1995 and
1996, respectively.
VARIABLE RATE LOANS
CREDIT AGREEMENT. In January 1994, Operating Company entered into a
separate Credit Agreement (the "Credit Agreement") with GECC, which contains
both a term loan provision and the Revolver. The term loan under the Credit
Agreement, which is secured by substantially all of the Company's assets, was
initially issued in the amount of $15.8 million for use in connection with the
AFSG acquisition. Amendments to the Credit Agreement in December 1994, August
1995, August 1996 and December 1996 increased that amount to $28.2 million, the
proceeds of which have been used for working capital purposes and capital
expenditures. Quarterly principal repayments commenced April 1, 1995 and are
payable through the maturity date, January 3, 1999. Interest is payable monthly
at a rate equal to the prime rate
41
<PAGE>
plus 1.5% (which was 9.75% as of December 31, 1996). Interest expense on the
loan was approximately $1.4 million, $1.9 million and $2.0 million, for 1994,
1995 and 1996, respectively.
TERM LOAN AGREEMENT. In August 1996, GECC loaned an additional $4.0 million
to the Company under the Term Loan Agreement for the Recoil acquisition.
Interest on this loan is payable monthly at a rate equal to the prime rate plus
1.5% (which was 9.75% as of December 31, 1996). As of December 31, 1996, $4.0
million in total principal was outstanding under this loan. Interest expense on
the loan was approximately $154,000 for 1996.
RECOIL TERM LOAN AGREEMENT. Recoil Pty, an Australian subsidiary of the
Company that was formed to acquire the Recoil business unit, entered a separate
term loan agreement with GECC in August 1996 to finance the acquisition (the
"Recoil Term Loan"). At December 31, 1996, the outstanding principal under the
Recoil Term Loan, which is due and payable on January 3, 1999, was $6.0 million.
Interest on the Recoil Term Loan is payable monthly at a rate equal to the prime
rate plus 1.5% (which was 9.75% as of December 31, 1996). Interest expense on
the Recoil Term Loan for 1996 was approximately $231,000.
REVOLVING LINE-OF-CREDIT
The Revolver is a $15.0 million revolving credit facility, the availability
of which is limited by the lesser of a specified portion of qualified accounts
receivable and $15.0 million. Interest is payable monthly, beginning at the date
of advance, at a rate equal to the prime rate plus 1.5% (which was 9.75% as of
December 31, 1996). The Revolver expires on January 3, 1999. A principal balance
of approximately $746,000 was outstanding under the Revolver as of December 31,
1996, with availability of approximately $10 million as of such date. The
average amount outstanding under the Revolver was approximately $5.1 million,
$4.4 million and $6.9 million in 1994, 1995 and 1996, respectively. Interest
expense on the Revolver was approximately $447,000, $462,000, $682,000 for 1994,
1995 and 1996, respectively.
OTHER ARRANGEMENTS
In the ordinary course of business, the Company supplies fasteners, inserts
and other products to the Aircraft Engines Division of GE. GE is the indirect
parent company of GECC. The Company made direct sales of approximately $8.0
million, $8.8 million and $11.4 million to the GE Aircraft Engines Division in
1994, 1995 and 1996, respectively, representing approximately 14.6%, 12.7% and
11.5% of the Company's net sales in such years, respectively. The Company
believes that its sales to the GE Aircraft Engines Division have been conducted
at competitive market rates. The Company believes that its financial
transactions with GECC have not played a role in the bids or related
negotiations with the GE Aircraft Engines Division.
42
<PAGE>
PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock and Common Stock equivalents after
giving effect to the Reorganization, and as adjusted to reflect the sale of the
Common Stock offered hereby, by (i) each person or entity known to the Company
to own beneficially more than 5% of the Common Stock or Common Stock equivalents
following the Reorganization, (ii) each of the Company's directors and executive
officers, (iii) the Selling Stockholder and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
OR COMMON STOCK
EQUIVALENTS SHARES OF COMMON STOCK
BENEFICIALLY OWNED OR COMMON STOCK
AFTER THE EQUIVALENTS
REORGANIZATION, BUT BENEFICIALLY OWNED
PRIOR TO THE AFTER THE
OFFERING(2) OFFERING(2)(3)
NAME AND ADDRESS OF ----------------------- -----------------------
BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------------- ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
General Electric Capital Corporation(4)................... 5,406,000 79.5% 200,000 5,206,000 60.5%
201 High Ridge Road
Stamford, CT 06927
Jordan A. Law............................................. 369,444 5.4% -- 369,444 4.3%
David A. Werner........................................... 341,564 5.0% -- 341,564 4.0%
Robert L. Beers........................................... 229,976 3.4% -- 229,976 2.7%
LeRoy A. Dack............................................. 229,976 3.4% -- 229,976 2.7%
Berecz Family Trust(5).................................... 139,400 2.1% -- 139,400 1.6%
Joseph M. Varholick....................................... 55,760 * -- 55,760 *
Blomberg Family Trust(6).................................. 27,880 * -- 27,880 *
All directors and executive officers as a group (11
persons)................................................ 1,394,000 20.5% -- 1,394,000 16.2%
</TABLE>
- ------------------------
* Less than 1%.
(1) The address of each person other than GECC is 500 N. State College Blvd.,
Orange, California 92868.
(2) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as
to which the individual has sole or shared voting power or investment power
and also any shares which the individual has the right to acquire within 60
days after May 9, 1997. The inclusion herein of such shares, however, does
not constitute an admission that the named stockholder is a direct or
indirect beneficial owner of such shares. Unless otherwise indicated, each
person or entity named in the table has sole voting power and investment
power (or shares such power with his or her spouse) with respect to all
shares of capital stock listed as owned by such person or entity.
(3) Assumes that the Underwriters' over-allotment option is not exercised.
(4) Includes 5,206,000 shares of Series C Preferred Stock, which represent all
issued and outstanding shares of Series C Preferred Stock. The Series C
Preferred Stock is convertible at any time into Common Stock at a one-to-one
conversion rate, subject to adjustment in certain circumstances. See
"Description of Capital Stock--Series C Preferred Stock."
(5) Imre Berecz, the Company's Vice President, Product Research and Development,
and Managing Director, K.T.I. Femipari KFT, is the trustee of the Berecz
Family Trust.
(6) Joseph F. Blomberg, the Company's Director of Human Resources, is the
trustee of the Blomberg Family Trust.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of December 31, 1996, there were (i) 20,500 shares of Common Stock
outstanding, held of record by seven holders, (ii) 20,094 shares of Series A
Preferred Stock outstanding, held of record by one holder, (iii) 59,406 shares
of Series B Preferred Stock outstanding, held of record by one holder and (iv)
no options or warrants to purchase shares of Common Stock outstanding. After the
Reorganization, the Company's authorized capital stock will consist of
20,000,000 shares of Common Stock and 10,000,000 shares of Series C Preferred
Stock. As a result of the Reorganization, 1,594,000 shares of Common Stock, held
of record by eight stockholders, 5,206,000 shares of Series C Preferred Stock,
held of record by one stockholder and no options or warrants to purchase Common
Stock will be outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See
"Dividends." In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and satisfaction of preferential rights
of any outstanding preferred stock. Common Stock has no preemptive or conversion
rights or other subscription rights. The outstanding shares of Common Stock are,
and the shares to be issued upon completion of the Offering will be, fully paid
and non-assessable.
SERIES C PREFERRED STOCK
LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Company, the holders of the Series C Preferred Stock will be
entitled to receive out of the assets of the Company available for distribution
to stockholders an amount equal to $0.22 per share, plus any accrued and unpaid
dividends thereon, before any distribution is made to the holders of Common
Stock.
CONVERTIBILITY. Each share of Series C Preferred Stock is convertible at
any time into one share of Common Stock (the "Conversion Rate"), with no payment
due from the Selling Stockholder to the Company. Any shares of Series C
Preferred Stock that the Selling Stockholder transfers to a non-affiliate will
automatically convert to Common Stock at the Conversion Rate. The Conversion
Rate is subject to certain anti-dilution adjustments that may be triggered any
time the Company (i) issues rights or warrants to the holders of Common Stock
entitling them to purchase Common Stock at below market price, (ii) effects any
stock splits or reverse stock splits of the Common Stock, (iii) reclassifies the
Common Stock into any other security or securities, (iv) is consolidated with,
or merges into, another entity or (v) sells substantially all of its assets.
Except as set forth above, the Conversion Rate will not be adjusted upon future
issuances of Common Stock by the Company.
VOTING RIGHTS. As long as the Selling Stockholder holds 25% or more of the
Fully Diluted Shares, it is entitled to vote its Series C Preferred Stock as a
separate class on (i) any liquidation, dissolution or winding-up of the Company,
(ii) any amendment to the Company's Certificate of Incorporation or By-laws
that, in any case, adversely affects any rights of the Series C Preferred Stock,
(iii) the creation of any other class or series of preferred stock, (iv) the
issuance of authorized shares of any class of capital stock, (v) any merger or
consolidation resulting in shares of Common Stock or Series C Preferred Stock
being converted into other securities or the right to receive cash or other
property, (vi) the sale, lease or other conveyance of all or substantially of
the Company's assets, whether in one transaction or a series of related
transactions or (vii) any transaction, or related series of transactions,
resulting in the redemption or repurchase of securities (other than Series C
Preferred Stock) that aggregate 10% or more of the Fully Diluted Shares.
DIVIDENDS. A holder of the Series C Preferred Stock will participate in any
dividends paid on the Common Stock, whether in cash, securities or other
property, as if such holder's Series C Preferred Stock had been converted into
Common Stock at the Conversion Rate at that time.
44
<PAGE>
OTHER PREFERRED STOCK
The Board of Directors, with the approval of the holder of the Series C
Preferred Stock (to the extent required), is authorized to issue additional
series of Preferred Stock and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. Although the
Company has no present plans to issue any shares of Preferred Stock following
consummation of the Offering, the issuance of additional series of Preferred
Stock may have the effect of delaying, deterring or preventing a change in
control of the Company without further action of the stockholders. The issuance
of any Preferred Stock with voting and conversion rights may adversely affect
the voting power of the holders of Common Stock, including the loss of voting
control to others.
THE NEW STOCKHOLDERS AGREEMENT
The New Stockholders Agreement provides that as long as the outstanding
Series C Preferred Stock represents 40% or more of the Fully Diluted Shares, (i)
the holder thereof will have the right to designate two individuals that the
Company will nominate for election to the Board of Directors each year and (ii)
each of the Audit Committee and the Compensation Committee will include two
directors who were so designated by the holder of the Series C Preferred Stock.
As long as the outstanding Series C Preferred Stock represents 25% or more (but
less than 40%) of the Fully Diluted Shares, (i) the holder thereof will have the
right to designate one individual that the Company will nominate for election to
the Board of Directors each year and (ii) each of the Audit Committee and the
Compensation Committee will include one director who was so designated by the
holder of the Series C Preferred Stock.
The New Stockholders Agreement also provides that, beginning 180 days after
the Offering, the Selling Stockholder will have the right to request on two
separate occasions that the Company file a registration statement under the
Securities Act covering shares of Common Stock issued to the Selling Stockholder
upon conversion of Series C Preferred Stock ("Demand Registration Rights"). The
Selling Stockholder will be entitled to three additional Demand Registration
Rights if the Company becomes eligible to file a Registration Statement on Form
S-3. If, under certain other circumstances, the Company files a registration
statement covering shares of Common Stock, the Selling Stockholder will be
entitled to notice of such registration and, on two separate occasions, may
include in the offering shares of Common Stock issued to the Selling Stockholder
upon conversion of Series C Preferred Stock ("Piggyback Registration Rights").
The Selling Stockholder will receive additional Piggyback Registration Rights to
the extent that such rights are granted to any other stockholder of the Company.
The Company will pay the costs of any offering in which the Selling Stockholder
exercises its Demand or Piggyback Registration Rights, except that the Selling
Stockholder will pay its own legal fees and expenses and a proportionate share
of any underwriting discounts and commissions. The Selling Stockholder will be
entitled to additional Demand and Piggyback Registration Rights to the extent
that it agrees to pay a pro rata share of all offering costs.
THE OLD STOCKHOLDERS AGREEMENT
The Company, the Selling Stockholder and each management stockholder are
parties to a Stockholders Agreement, dated as of January 3, 1994 (the "Old
Stockholders Agreement"). The Old Stockholders Agreement provides, among other
things, for the manner of election of directors, certain preemptive rights of
stockholders, and the treatment of shares held by the management of the Company.
Upon the consummation of the Offering, however, the Old Stockholders Agreement
and all provisions thereto will terminate.
CERTAIN ANTI-TAKEOVER EFFECTS
SPECIAL PROVISIONS FOR SPECIAL MEETINGS OF THE STOCKHOLDERS OR BOARD OF
DIRECTORS. The Certificate of Incorporation provides that, if no one person
beneficially owns securities representing 25% or more of the
45
<PAGE>
Fully Diluted Shares, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting,
with advance notice given to the Company, and may not be taken by written action
in lieu of a meeting. The By-laws further provide that special meetings of the
stockholders may only be called by the Chairman of the Board of Directors (or,
if none, the President of the Company) or the holders of 25% or more of the
outstanding Common Stock. The foregoing provisions could have the effect of
delaying until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Common Stock, because such person or entity, even
if it acquired a majority of the outstanding voting securities of the Company,
would be able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders meeting, and not by
written consent.
DIRECTORS' EXCULPATION AND INDEMNIFICATION. The Certificate of
Incorporation contains certain provisions permitted under the Delaware Law
relating to the liability of directors. The provisions eliminate a director's
liability for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the By-laws contain provisions to indemnify
the Company's directors to the fullest extent permitted by the Delaware Law. The
Company has also entered into indemnification agreements with each director. The
Company believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors. In addition, Mr. Kloster
has entered into a separate indemnification agreement with the Selling
Stockholder, pursuant to which the Selling Stockholder will indemnify Mr.
Kloster to the extent his indemnifiable losses are not recoverable from the
Company or any insurer of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services. Its telephone number is (213) 553-9700.
SHARES ELIGIBLE FOR FUTURE SALE
Assuming that the Underwriters' over-allotment option is not exercised, upon
completion of the Offering, the Company will have outstanding 3,394,000 shares
of Common Stock and 5,206,000 shares of Series C Preferred Stock, which is
convertible into Common Stock at any time at a one-to-one conversion rate,
subject to adjustment in certain circumstances. The 2,000,000 shares of Common
Stock sold in the Offering (2,300,000 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradable without restriction under
the Securities Act, except for shares held by an "affiliate" of the Company, as
such term is defined under Rule 144 of the Securities Act. The remaining
6,600,000 shares of Common Stock (including 5,206,000 shares receivable upon
conversion of the outstanding Series C Preferred Stock) (the "Restricted
Shares") were issued and sold by the Company in private transactions and may be
publicly sold only if registered under the Securities Act or sold in accordance
with an applicable exemption from registration, such as Rule 144.
All of the shares of Common Stock held by existing stockholders, which were
acquired in October 1993, are subject to lock-up agreements (as described below)
which restrict their sale prior to 180 days from the date of the Prospectus. A
total of approximately 1,394,000 shares of Common Stock (or 6,600,000 shares of
Common Stock if all outstanding Series C Preferred Stock were converted) subject
to these lock-up agreements will become eligible for sale beginning 180 days
from the date of the Prospectus, or earlier in the discretion of Lehman Brothers
Inc., upon expiration of these lock-up agreements, in accordance with certain
restrictions of Rule 144.
In general, under Rule 144 as currently in effect, beginning on the 91st day
after the Offering (but subject to the lock-up agreements), a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares as to
which two years have elapsed between the later of the date of acquisition of
46
<PAGE>
the securities from the Company or from an affiliate of the Company, is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of 1% of the then-outstanding number of shares of Common Stock
(33,940 shares immediately after the Offering) or the average weekly trading
volume of the Common Stock on the Nasdaq National Market System during the four
calendar weeks preceding the sale. Sales under Rule 144 are subject to certain
"manner of sale" provisions and notice requirements and to the availability of
current public information about the Company. The Securities and Exchange
Commission ("Commission") has adopted rule changes that will, effective April
29, 1997, reduce the Rule 144 holding period from two years to one.
The Company and its officers and directors and the Selling Stockholder have
agreed that, for a period of 180 days from the date of the Prospectus, they will
not, without the prior written consent of Lehman Brothers Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any other
capital stock of the Company.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing stockholders or the effect, if any, that sales of
shares by stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing stockholders could adversely affect prevailing market prices.
47
<PAGE>
UNDERWRITING
The underwriters of the Offering named below (the "Underwriters"), for whom
Lehman Brothers Inc. and PaineWebber Incorporated are acting as representatives
(the "Representatives"), have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, the form of which is filed as an
exhibit to the Registration Statement of which the Prospectus is a part, to
purchase from the Company and the Selling Stockholder, the aggregate number of
shares of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Lehman Brothers Inc........................................................ 620,000
PaineWebber Incorporated................................................... 620,000
ABN AMRO Chicago Corporation............................................... 55,000
Bear, Stearns & Co. Inc.................................................... 55,000
Credit Suisse First Boston Corporation..................................... 55,000
A.G. Edwards & Sons, Inc................................................... 55,000
Everen Securities, Inc..................................................... 55,000
Goldman, Sachs & Co........................................................ 55,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................... 55,000
Morgan Stanley & Co. Incorporated.......................................... 55,000
Oppenheimer & Co., Inc..................................................... 55,000
Salomon Brothers Inc....................................................... 55,000
Crowell, Weedon & Co....................................................... 30,000
Fahnestock & Co. Inc....................................................... 30,000
First of Michigan Corporation.............................................. 30,000
Gabelli & Company, Inc..................................................... 30,000
Legg Mason Weed Walker, Incorporated....................................... 30,000
Pennsylvania Merchant Group Ltd............................................ 30,000
Sutro & Co. Incorporated................................................... 30,000
-----------------
Total.................................................................... 2,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to approval of certain legal matters by counsel and to certain other
conditions, and that, if any of the foregoing shares of Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, all of the
shares of Common Stock agreed to be purchased by the Underwriters pursuant to
the Underwriting Agreement (other than those covered by the over-allotment
option described below) must be so purchased.
The Company and the Selling Stockholder have been advised that the
Underwriters propose to offer the shares of Common Stock directly to the public
initially at the public offering price set forth on the cover page of the
Prospectus, and to certain selected dealers (who may include the Underwriters)
at such public offering price less a selling concession not in excess of $0.57
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to certain brokers and dealers.
After the initial public offering, the public offering price, the concession to
selected dealers and the reallowance may be changed by the Representatives.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the
48
<PAGE>
Representatives may reduce that short position by purchasing Common Stock in the
open market. The Representatives also may elect to reduce any short position by
exercising all or part of the over-allotment option described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Company has granted to the Underwriters an option to purchase up to an
additional 300,000 shares of Common Stock at the public offering price, less the
aggregate underwriting discounts and commissions shown on the cover page of the
Prospectus, solely to cover over-allotments, if any. The option may be exercised
at any time up to 30 days after the date of the Underwriting Agreement. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
The Company has agreed that, without the prior written consent of Lehman
Brothers Inc., it will not, subject to certain limited exceptions, directly or
indirectly, offer, sell, contract to sell or otherwise issue or dispose of any
shares of Common Stock or any other capital stock of the Company for 180 days
after the date of the Prospectus. All of the stockholders of the Company,
including the Selling Stockholder, have agreed that, without the prior written
consent of Lehman Brothers Inc., they will not, subject to certain limited
exceptions, directly or indirectly, offer, sell or otherwise dispose of any
shares of Common Stock or any other capital stock of the Company for a period of
180 days after the date of the Prospectus.
GECC indirectly owns approximately 23% of PaineWebber Group, which is the
holding company of PaineWebber Incorporated. As a result of the foregoing, the
Selling Stockholder is deemed to be an affiliate of PaineWebber Incorporated,
and the Offering is subject to the provisions of Rule 2720 of the National
Association of Securities Dealers, Inc. (the "NASD"). Accordingly, the
underwriting arrangements for the Offering will conform with the requirements
set forth in Rule 2720. In particular, the public offering price of the Common
Stock can be no higher than that recommended by a "qualified independent
underwriter" meeting certain standards. In accordance with this requirement,
Lehman Brothers Inc. will serve in such role and will recommend the public
offering price in compliance with the requirements of Rule 2720. Lehman Brothers
Inc., in its role as qualified independent underwriter, has performed due
diligence investigations and reviewed and participated in the preparation of the
Prospectus and the Registration Statement of which the Prospectus forms a part.
Prior to the Offering, there has been no public market for the shares of
Common Stock. There can be no assurance that an active trading market will
develop for shares of the Common Stock or as to the price at which shares of the
Common Stock may trade in the public market from time to time subsequent to the
Offering. The initial public offering price was negotiated between the Company
and the Representatives. Among the factors considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, were the Company's historical performance, capital structure,
estimates of the business potential and earnings prospects of the Company and
its industry in general, an
49
<PAGE>
overall assessment of the Company, an assessment of the Company's management and
the market prices of securities of companies engaged in businesses similar to
that of the Company.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "KTIC."
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act and to contribute, under certain circumstances, to payments that
the Underwriters may be required to make in respect thereof.
Purchasers of the Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the country
of purchase in addition to the offering price set forth on the cover page
hereof.
The Representatives have informed the Company that they do not intend to
confirm sales of shares of Common Stock offered hereby to any accounts over
which they exercise discretionary authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by O'Melveny & Myers LLP. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Latham & Watkins.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and 1996, and for each of the three years in the period ended December 31, 1996,
and the consolidated financial statements of Recoil Pty Ltd and subsidiaries as
of June 30, 1996 and for the year then ended, appearing in the Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their reports with respect thereto, and are
included in reliance upon the authority of such firm as experts in giving said
reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
The Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement and the exhibits and schedules filed as a part
thereof. Statements contained in the Prospectus as to the contents of contracts
or other documents are summaries of the material provisions thereof. Copies of
each contract or document referred to herein are filed as exhibits to the
Registration Statement. Copies of the Registration Statement, including exhibits
and schedules thereto, may be inspected without charge at the Commission's
principal office in Washington, D.C., or obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W. Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60606. Copies of such materials may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a web
site at http://www.sec.gov that contains reports, proxy information statements
and other information regarding registrants, like the Company, that file
electronically with the Commission. As long as the Common Stock is quoted and
traded on the Nasdaq National Market, such reports, proxy and information
statements and other information can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company intends to furnish to its stockholders annual reports containing
audited financial information and furnish quarterly reports containing condensed
unaudited financial information for each of the first three quarters of each
fiscal year.
50
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
KAYNAR TECHNOLOGIES INC.
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Statements of Income for the years ended December 31, 1994, 1995 and 1996..................... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996....... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996................. F-7
Notes to Consolidated Financial Statements................................................................. F-8
RECOIL PTY LTD
Report of Independent Public Accountants................................................................... F-18
Consolidated Statement of Income for the year ended June 30, 1996.......................................... F-19
Consolidated Balance Sheet as of June 30, 1996............................................................. F-20
Consolidated Statement of Stockholders' Equity for the year ended June 30, 1996............................ F-22
Consolidated Statement of Cash Flows for the year ended June 30, 1996...................................... F-23
Notes to Consolidated Financial Statements................................................................. F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Kaynar Technologies Inc.:
We have audited the accompanying consolidated balance sheets of Kaynar
Technologies Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kaynar Technologies Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
May 6, 1997
F-2
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales, including $8,046, $8,755 and $11,437 in 1994, 1995 and 1996,
respectively, to a related party (see Note 13)........................ $ 55,117 $ 68,781 $ 99,023
Cost of sales........................................................... 41,117 51,940 72,924
------------ ------------ ------------
Gross profit.......................................................... 14,000 16,841 26,099
------------ ------------ ------------
Selling, general and administrative expenses............................ 9,048 10,018 13,263
------------ ------------ ------------
Operating income...................................................... 4,952 6,823 12,836
Interest expense, net................................................... 2,304 2,935 4,011
------------ ------------ ------------
Income before income taxes............................................ 2,648 3,888 8,825
Provision for income taxes.............................................. 1,129 1,577 3,530
------------ ------------ ------------
Net Income............................................................ $ 1,519 $ 2,311 $ 5,295
------------ ------------ ------------
------------ ------------ ------------
Earnings per share of common stock and common stock equivalents
outstanding........................................................... $ 0.22 $ 0.34 $ 0.78
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of shares of common stock and common stock
equivalents outstanding............................................... 6,800,000 6,800,000 6,800,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1995 AND 1996
ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash...................................................................................... $ 52 $ 909
Accounts receivable, including $1,487 and $1,987 in 1995 and 1996, respectively, from a
related party (see Note 13), net of allowance for doubtful accounts of $141 and $235 in
1995 and 1996, respectively............................................................. 11,382 15,392
Inventories............................................................................... 20,523 29,901
Prepaid expenses and other current assets................................................. 318 709
--------- ---------
Total current assets.................................................................. 32,275 46,911
--------- ---------
Property, plant and equipment, at cost...................................................... 13,994 24,160
Less accumulated depreciation and amortization............................................ (3,050) (5,451)
--------- ---------
10,944 18,709
--------- ---------
Intangible assets, net of accumulated amortization of $167 at December 31, 1996............. -- 7,815
Other assets................................................................................ 117 254
--------- ---------
$ 43,336 $ 73,689
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1995 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current liabilities:
Revolving line-of-credit, to a related party (see Note 13)................................ $ 4,306 $ 746
Current portion of long-term debt......................................................... 830 1,457
Current portion of capital lease obligations.............................................. 22 133
Accounts payable.......................................................................... 3,217 6,105
Accrued payroll and related expenses...................................................... 3,175 5,330
Other accrued expenses.................................................................... 1,306 2,664
Deferred income taxes..................................................................... 428 288
--------- ---------
Total current liabilities............................................................. 13,284 16,723
--------- ---------
Long-term debt, primarily to a related party (see Note 13).................................. 24,318 45,176
Capital lease obligations................................................................... 105 332
Deferred income taxes....................................................................... 472 832
--------- ---------
24,895 46,340
--------- ---------
Commitments and contingencies (Notes 6 and 9)
Stockholders' equity:
Series C Convertible Preferred Stock,$0.01 par value; Authorized--10,000,000; issued and
outstanding--5,206,000 shares........................................................... 52 52
Common stock, $.01 par value; Authorized--20,000,000 shares; issued and
outstanding--1,594,000.................................................................. 16 16
Additional paid-in capital................................................................ 1,432 1,432
Retained earnings......................................................................... 3,639 8,838
Currency translation adjustment........................................................... 18 288
--------- ---------
Total stockholders' equity............................................................ 5,157 10,626
--------- ---------
$ 43,336 $ 73,689
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
PREFERRED STOCK
SERIES C COMMON STOCK ADDITIONAL CURRENCY
----------------------- ----------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT
---------- ----------- ---------- ----------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
January 3, 1994................... 5,206,000 $ 52 1,594,000 $ 16 $ 1,432 $ -- $ --
Net income...................... -- -- -- -- -- 1,519 --
Dividends declared.............. -- -- -- -- -- (96) --
Currency translation
adjustment.................... -- -- -- -- -- -- 21
---------- --- ---------- --- ----------- ----------- -----
Balance, December 31, 1994........ 5,206,000 52 1,594,000 16 1,432 1,423 21
Net income...................... -- -- -- -- -- 2,311 --
Dividends declared.............. -- -- -- -- -- (95) --
Currency translation
adjustment.................... -- -- -- -- -- -- (3)
---------- --- ---------- --- ----------- ----------- -----
Balance, December 31, 1995........ 5,206,000 52 1,594,000 16 1,432 3,639 18
Net income...................... -- -- -- -- -- 5,295 --
Dividends declared.............. -- -- -- -- -- (96) --
Currency translation
adjustment.................... -- -- -- -- -- -- 270
---------- --- ---------- --- ----------- ----------- -----
Balance, December 31, 1996........ 5,206,000 $ 52 1,594,000 $ 16 $ 1,432 $ 8,838 $ 288
---------- --- ---------- --- ----------- ----------- -----
---------- --- ---------- --- ----------- ----------- -----
<CAPTION>
TOTAL
---------
<S> <C>
January 3, 1994................... $ 1,500
Net income...................... 1,519
Dividends declared.............. (96)
Currency translation
adjustment.................... 21
---------
Balance, December 31, 1994........ 2,944
Net income...................... 2,311
Dividends declared.............. (95)
Currency translation
adjustment.................... (3)
---------
Balance, December 31, 1995........ 5,157
Net income...................... 5,295
Dividends declared.............. (96)
Currency translation
adjustment.................... 270
---------
Balance, December 31, 1996........ $ 10,626
---------
---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 1,519 $ 2,311 $ 5,295
Adjustments to reconcile net income to net cash provided by (used in)
operating activities--
Depreciation and amortization............................................... 1,351 1,754 2,613
Loss on sale of property, plant and equipment................................. 30 -- 34
Changes in operating assets and liabilities--
Increase in accounts receivable............................................... (2,190) (3,528) (2,505)
Increase in inventories....................................................... (1,095) (3,368) (6,867)
(Increase) decrease in prepaid expenses....................................... (12) 37 (152)
(Increase) decrease in other assets........................................... (35) (82) 181
Increase in accounts payable.................................................. 1,706 1,114 2,361
Increase in accrued expenses.................................................. 34 1,111 3,172
Increase in deferred income taxes............................................. 399 501 186
--------- --------- ----------
Net cash provided by (used in) operating activities......................... 1,707 (150) 4,318
--------- --------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment.................................... (2,423) (3,324) (6,850)
Proceeds from sales of property, plant and equipment.......................... 5 169 43
Acquisition, net of acquired cash of $34...................................... -- -- (12,160)
Increase in intangible assets................................................. -- -- (1,231)
--------- --------- ----------
Net cash used in investing activities....................................... (2,418) (3,155) (20,198)
--------- --------- ----------
Cash flows from financing activities:
Net borrowings (payments) on line-of-credit, from a related party (see Note
13)......................................................................... (1,938) 1,244 (3,560)
Borrowings on long-term debt, primarily from a related party (see Note 13).... 2,480 2,666 21,245
Payments on long-term debt, primarily to a related party (see Note 13)........ -- (789) (898)
Principal payments on capital lease obligations............................... -- (6) (55)
--------- --------- ----------
Net cash provided by financing activities................................... 542 3,115 16,732
--------- --------- ----------
Effect of exchange rate changes on cash......................................... -- -- 5
--------- --------- ----------
Net increase (decrease) in cash................................................. (169) (190) 857
Cash, beginning of period....................................................... 411 242 52
--------- --------- ----------
Cash, end of period............................................................. $ 242 $ 52 $ 909
--------- --------- ----------
--------- --------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest.................................................................... $ 2,006 $ 2,968 $ 3,787
--------- --------- ----------
--------- --------- ----------
Income Taxes................................................................ $ 743 $ 722 $ 2,841
--------- --------- ----------
--------- --------- ----------
Noncash financing activities:
Capital lease obligations assumed for the purchase of equipment............. $ -- $ 157 $ 355
--------- --------- ----------
--------- --------- ----------
Borrowings on long-term debt for preferred stock dividends.................. $ 96 $ 95 $ 96
--------- --------- ----------
--------- --------- ----------
Issuance of debt for purchase of assets of predecessor company.............. $ 25,695 $ -- $ --
--------- --------- ----------
--------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF OPERATIONS AND FORMATION OF COMPANY
Kaynar Technologies Inc. (the "Company") is a manufacturer of specialty
fasteners, fastening systems and related components used primarily by original
equipment manufacturers and their subcontractors in the production of commercial
aircraft and defense products. In addition, the Company also manufactures other
specialty fasteners and related products for sale in the automotive, electronic
and other industrial markets, and their associated after-markets. The Company
designs and manufactures a substantial majority of its fasteners to its
customers' specifications and in a wide range of specialty metals, alloys and
composites.
The Company was originally incorporated (see Note 12) in Delaware in October
1993, and on January 3, 1994, purchased certain assets and assumed certain
liabilities of Microdot Inc., a Delaware corporation, that filed for protection
under Chapter 11 of the United States Bankruptcy Code and of Microdot Aerospace
Ltd., a United Kingdom corporation, which had filed for liquidation under the
laws of the United Kingdom.
The net assets acquired totaled approximately $25,695. The purchase price
was allocated to the net assets, based on the then fair market value (which
approximated net book value) as follows:
<TABLE>
<S> <C>
Current assets..................................................... $ 21,080
Property, plant and equipment...................................... 8,373
---------
Total assets....................................................... 29,453
Current liabilities................................................ 3,758
---------
Net assets..................................................... $ 25,695
---------
---------
</TABLE>
The acquisition was financed by the issuance of approximately $25,000 of
debt to the lender referred to in Note 6 who was also a secured lender to
Microdot Inc.
On August 11, 1996, the Company acquired substantially all of the assets of
Recoil Pty Ltd., an Australian corporation ("Recoil"). Recoil is a manufacturer
and distributor of thread inserts used primarily in the automotive, electronic
and other industrial markets, and their associated after-markets. The purchase
price of $12,194 was paid in cash (primarily obtained under terms of various
credit agreements, see Note 6). The total purchase price was allocated to the
net assets, based on the then fair market value, as follows:
<TABLE>
<S> <C>
Current assets..................................................... $ 4,245
Property, plant and equipment...................................... 3,044
Other noncurrent assets............................................ 300
Intangible assets.................................................. 6,687
---------
Total assets................................................... 14,276
Current liabilities................................................ 800
Noncurrent liabilities............................................. 1,282
---------
Net assets..................................................... $ 12,194
---------
---------
</TABLE>
F-8
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF OPERATIONS AND FORMATION OF COMPANY (CONTINUED)
The following unaudited pro forma consolidated statements of income
information present the results of the Company's operations for the years ended
December 31, 1995 and 1996, as though the acquisition of Recoil had occurred as
of the beginning of each respective fiscal year:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Net sales.............................................................. $ 77,449 $ 105,015
--------- ----------
--------- ----------
Net income............................................................. $ 2,793 $ 5,432
--------- ----------
--------- ----------
Earnings per share..................................................... $ 0.41 $ 0.80
--------- ----------
--------- ----------
</TABLE>
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 year 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Kaynar
Technologies Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
C. REVENUE RECOGNITION
Sales and related costs are recorded by the Company upon shipment of
product. Revenues related to the leasing of the Company's K-Fast tools, which
are not significant, are recognized monthly over the term of the lease.
D. CURRENCY TRANSLATION ADJUSTMENT
Assets and liabilities of foreign subsidiaries are translated into United
States dollars at the year-end rate of exchange. Income and expense items are
translated at the average rates of exchange for the period. Gains and losses
resulting from translating foreign currency financial statements are accumulated
in a separate component of stockholders' equity. Foreign currency transaction
gains and losses are insignificant.
F-9
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined
on a first-in, first-out (FIFO) method and market based upon the lower of
replacement cost or estimated realizable value. Inventory costs include
material, labor and factory overhead.
F. PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed on the straight-line method over the estimated
useful lives of the depreciable assets (ranging from five to ten years). Cost
and accumulated depreciation for property retired or disposed of are removed
from the accounts and any gains or losses are reflected in operations. Major
renewals and betterments that extend the useful life of an asset are
capitalized.
G. INTANGIBLE ASSETS
Intangible assets primarily represent the excess of purchase price over fair
value of net assets acquired and related acquisition costs incurred in the
acquisition of Recoil. Intangibles are amortized using the straight-line method
from the date of acquisition over the expected period to be benefited, currently
estimated at 20 years. The Company assesses the recoverability of intangible
assets in accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of."
H. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable and accounts payable
approximate their fair value as of December 31, 1995 and 1996. The carrying
amounts of the line-of-credit and long-term debt approximate fair value because
the obligations bear interest at rates that fluctuate with the market rate. The
carrying amount of the term loans approximates fair value because the obligation
compares favorably with fixed rate obligations that would be currently available
to the Company.
I. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes," which
requires an asset and liability approach in accounting for income taxes payable
or refundable at the date of the financial statements as a result of all events
that have been recognized in the financial statements and as measured by the
provisions of enacted laws.
J. EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
shares of common stock and common stock equivalents outstanding. The outstanding
Series C Convertible Preferred Stock are common share equivalents.
F-10
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. INVENTORIES
Inventories consist of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Finished goods.......................................................... $ 4,914 $ 8,781
Components.............................................................. 3,715 4,628
Work in progress........................................................ 6,482 9,151
Raw materials........................................................... 2,080 2,790
Supplies and small tools................................................ 3,332 4,551
--------- ---------
$ 20,523 $ 29,901
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31, 1995
and 1996:
<TABLE>
<CAPTION>
YEARS OF
ESTIMATED
USEFUL LIFE 1995 1996
------------- --------- ---------
<S> <C> <C> <C>
Land..................................................... -- $ -- $ 30
Factory equipment........................................ 7 to 10 7,707 12,825
Equipment rented to others............................... 7 3,656 5,651
Office equipment......................................... 5 848 1,374
Leasehold improvements................................... Lease term 381 628
Construction in progress................................. -- 1,194 3,089
Equipment under capital lease............................ Lease term 208 563
--------- ---------
13,994 24,160
Accumulated depreciation and amortization................ (3,050) (5,451)
--------- ---------
$ 10,944 $ 18,709
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. INCOME TAXES
The components of the net accumulated deferred income tax liability at
December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current deferred tax (asset) liability:
Inventory reserves........................................................ $ 1,161 $ 818
Accrued vacation.......................................................... (232) (205)
AMT credit................................................................ (472) --
Other..................................................................... (29) (325)
--------- ---------
$ 428 $ 288
--------- ---------
--------- ---------
Long-term deferred tax (asset) liability:
Foreign income............................................................ $ 59 $ (48)
Foreign tax credit........................................................ (53) --
Depreciation.............................................................. 466 880
--------- ---------
$ 472 $ 832
--------- ---------
--------- ---------
</TABLE>
The provision for income taxes includes income taxes currently payable and
those deferred because of temporary differences between the financial statements
and tax bases of assets and liabilities. The provision differs from the
statutory rates primarily due to permanent differences. The provision for income
taxes for the years ended December 31, 1994, 1995 and 1996, consists of the
following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current provision:
Federal........................................................ $ 559 $ 854 $ 2,590
State.......................................................... 171 222 720
Deferred provision:
Federal........................................................ 355 456 69
State.......................................................... 44 45 151
--------- --------- ---------
$ 1,129 $ 1,577 $ 3,530
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of the Company's deferred income tax provision for the years
ended December 31, 1994, 1995 and 1996, which arise from tax credits and timing
differences between financial and tax reporting, are presented below:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Inventory reserves................................................. $ 1,109 $ 52 $ (343)
Accrued vacation................................................... (57) (175) 27
AMT credit......................................................... (656) 184 472
Foreign income..................................................... -- 59 (107)
Foreign tax credit................................................. -- (53) 53
Depreciation....................................................... 9 457 414
Other.............................................................. (6) (23) (296)
--------- --------- ---------
$ 399 $ 501 $ 220
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. INCOME TAXES (CONTINUED)
Variations from the federal statutory rate for the years ended December 31,
1994, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------ ------------------------ -------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
--------- ------------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate.......................... $ 900 34.0% $ 1,322 34.0% $ 3,001 34.0%
State income taxes, net of federal benefit...... 138 5.2 202 5.2 485 5.5
Foreign sales corporation benefit............... -- -- -- -- (141) (1.6)
Other........................................... 91 3.4 53 1.4 185 2.1
--------- --- --------- --- --------- ---
$ 1,129 42.6% $ 1,577 40.6% $ 3,530 40.0%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
6. DEBT ARRANGEMENTS
The Company has entered into Credit Agreements (the "Agreements") with
General Electric Capital Corporation (the "Lender"), who is also a significant
stockholder of the Company. The Agreements contain significant financial and
operating covenants, including limitations on the ability of the Company to
incur additional indebtedness and restrictions on, among other things, the
Company's ability to pay dividends or take certain other corporate actions. The
Agreements also require the Company to be in compliance with certain financial
ratios. In addition to the Agreements, the Company has entered into promissory
notes with other lenders for the purchase of equipment.
The following schedule summarizes the future annual minimum principal
payments due under the variable rate term loans (the "Term Loans"), other fixed
rate loans (the "Loans"), promissory notes (the "Notes") and Australian Trade
Commission Loan (the "ATC Loan") as of December 31, 1996:
<TABLE>
<CAPTION>
TERM
LOANS THE LOANS THE NOTES ATC LOAN TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1997.............................................................. $ 1,100 $ -- $ 249 $ 108 $ 1,457
1998.............................................................. 2,200 -- 273 216 2,689
1999.............................................................. 34,925 6,844 366 216 42,351
2000.............................................................. -- -- 27 109 136
--------- --------- --------- --------- ---------
$ 38,225 $ 6,844 $ 915 $ 649 $ 46,633
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Debt arrangements are described as follows:
A. TERM LOANS
During the year ended December 31, 1996, the Company amended an existing
Term Loan agreement, increasing the borrowing capacity of the Term Loan to
$28,225, with principal payable quarterly. Additionally, the Company (in
connection with its purchase of the net assets of Recoil, see Note 1)
entered into new Term Loans of $10,000. Each of the aforementioned Term
Loans is due and payable on January 3, 1999 and bears interest, payable
monthly, at the prime rate plus one and one-half percent (which was 9.75% at
December 31, 1996). At December 31, 1996, outstanding principal under the
Term Loans totaled $38,225. Interest expense for December 31, 1994, 1995 and
1996 was
F-13
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. DEBT ARRANGEMENTS (CONTINUED)
approximately $1,384, $1,904 and $2,400, respectively. The Term Loans are
secured by substantially all of the Company's assets.
B. THE LOANS
In association with its purchase of net assets from Microdot Inc. and
Microdot Aerospace Ltd. (see Note 1) and payment of dividends to the
preferred stockholder (see Note 13), the Company borrowed additional amounts
under other fixed rate loan agreements with the Lender. The principal on the
Loans is due and payable on January 3, 1999, while interest, which is
payable quarterly and may be added to the outstanding principal balance,
accrues at 11.5 percent. At December 31, 1996, there was approximately
$6,844 in principal, interest and dividends outstanding related to these
agreements.
C. THE NOTES
The Company has promissory notes with financing institutions which are
secured by certain machinery and equipment. At December 31, 1996, the
outstanding balance under the Notes was $915. The Notes bear interest at
interest rates ranging from 8.9 percent to 10.5 percent per annum. Monthly
payments are payable through June 2000.
D. ATC LOAN
The Company has a loan with the Australian Trade Commission which was
assumed as part of the Recoil asset purchase (see Note 1). At December 31,
1996, outstanding principal under the ATC Loan was $649. Interest accrues on
the outstanding principal balance at an effective interest rate of nine and
three quarters percent. Principal and interest payments are due
semi-annually beginning September 1997.
E. LINE-OF-CREDIT
The Line-of-Credit (LOC) is a $15,000 revolving credit facility, limited
by the lesser of a specified portion of qualified accounts receivable and
$15,000.
Interest is payable monthly, at the prime rate plus one and one-half
percent (which was 9.75% as of December 31, 1996). The LOC, which expires
January 3, 1999, had approximately $746 outstanding at December 31, 1996.
Interest expense for the years ended December 31, 1994, 1995 and 1996 was
approximately $447, $462 and $682, respectively. The weighted average
interest rate for all borrowings under the LOC was 8.6 percent, 10.3 percent
and 9.8 percent at December 31, 1994, 1995 and 1996, respectively.
7. SERIES C CONVERTIBLE PREFERRED STOCK
Each share of the Series C Preferred Stock is convertible at any time into
one share of Common Stock. The conversion rate is subject to certain
anti-dilutive adjustments. The Series C Preferred stock will participate in any
dividends paid on the Common Stock as if the Series C Preferred Stock had been
converted into Common Stock.
F-14
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. SERIES C CONVERTIBLE PREFERRED STOCK (CONTINUED)
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series C Preferred Stock will be entitled to receive a
liquidation preference out of the assets available for distribution in an amount
equal to $0.22 per share, plus any accrued and unpaid dividends, before any
distribution is made to the holders of the Common Stock.
8. SAVINGS AND RETIREMENT PLAN
The Company sponsors a defined contribution plan (the "Retirement Plan"),
which provides benefits to all employees who have completed six months of
service. Employees may make contributions between one and 14 percent of their
annual compensation. The Company may make contributions to the Retirement Plan
at its own discretion.
The Company contributed approximately $236, $400 and $577 to the Retirement
Plan in the years ended December 31, 1994, 1995 and 1996, respectively.
9. COMMITMENTS AND CONTINGENCIES
A. OPERATING LEASES
The Company leases certain facilities and equipment under long-term
operating leases with varying terms. The leases generally provide that the
Company pay taxes, maintenance and insurance costs and some leases contain
renewal and/or purchase options. Total rental expense under operating leases
amounted to approximately $1,097, $1,209 and $1,187 in the years ended 1994,
1995 and 1996, respectively. Minimum rental expenses on commitments for the
years subsequent to December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1997................................................................ $ 1,314
1998................................................................ 1,184
1999................................................................ 980
2000................................................................ 423
2001................................................................ 146
Thereafter.......................................................... 15
---------
$ 4,062
---------
---------
</TABLE>
F-15
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
B. CAPITAL LEASES
The Company has entered into capital lease agreements for equipment.
Future lease payments due under the agreements are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1997................................................................ $ 139
1998................................................................ 133
1999................................................................ 125
2000................................................................ 107
2001................................................................ 36
---------
540
Amounts representing interest....................................... (75)
---------
465
Current portion..................................................... (133)
---------
$ 332
---------
---------
</TABLE>
C. CONTINGENCIES
The Company is, from time to time, subject to claims and disputes for
legal, environmental and other matters in the normal course of its business.
While the results of such matters cannot be predicted with certainty,
management does not believe that the final outcome of any pending matters
will have a material effect on the consolidated financial position and
results of operations.
10. SIGNIFICANT CUSTOMERS
For the years ended December 31, 1994, 1995 and 1996, two customers
accounted for approximately 13 and 15 percent, 15 and 13 percent and 18 and 12
percent of net sales, respectively. No other customer accounted for 10 percent
or more of net sales in the years ended December 31, 1994, 1995 and 1996.
Accounts receivable balances from these same two customers accounted for
approximately 10 and 13 percent of accounts receivable at December 31, 1995 and
15 and 13 percent at December 31, 1996. No other customer represents 10 percent
or more of the Company's gross accounts receivable at December 31, 1995 and
1996.
F-16
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. GEOGRAPHIC SALES INFORMATION
Net sales for the years ended December 31, 1994, 1995 and 1996 were made to
geographic regions approximately as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------------------- ---------------------- ----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
United States............................... $ 50,346 91.4% $ 62,041 90.2% $ 85,069 85.9%
Europe...................................... 2,800 5.1% 2,906 4.2% 8,378 8.5%
Pacific Rim................................. 404 0.7% 1,379 2.0% 2,256 2.3%
Other....................................... 1,567 2.8% 2,455 3.6% 3,320 3.3%
--------- ----- --------- ----- --------- -----
$ 55,117 100.0% $ 68,781 100.0% $ 99,023 100.0%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
Sales for the Company's foreign operations represented less than 10 percent of
net sales during each of the years ended December 31, 1994, 1995 and 1996.
12. REORGANIZATION
In May 1997, Kaynar Technologies Inc. (Operating Company) merged with and
into Kaynar Holdings Inc. (Holding Company). The surviving corporation (Holding
Company) changed its name to Kaynar Technologies Inc. In connection with the
reorganization, each outstanding share of Common Stock of the Company was
exchanged for 68 shares of Common Stock, each outstanding share of Series A
Preferred Stock was exchanged for 9.953 shares of Common Stock and 58.047 shares
of Series C Convertible Preferred Stock, par value .01 per share, and each
outstanding share of Series B Preferred Stock was exchanged for 68 shares of
Series C Preferred Stock. The effect of the reorganization and stock conversion
has been retroactively reflected in the accompanying financial statements for
all years presented.
13. RELATED PARTY MATTERS
As discussed in Notes 1 and 6, the primary lender to the Company is General
Electric Capital Corporation ("GECC"). Subsequent to the Reorganization and
immediately prior to the Offering, GECC will own 12.5 percent of the outstanding
Common Stock and 100 percent of the outstanding Series C Convertible Preferred
Stock, which equates to 79.5 percent of the total outstanding Common Stock and
Common Stock equivalents. As discussed in Note 1, this lender was also a secured
primary lender to Microdot Inc.
GECC is also an affiliated entity to a customer (the Aircraft Engines
Division of GE) that accounted for approximately 12 percent of 1996 net sales
and 13 percent of accounts receivable at December 31, 1996.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Kaynar Technologies Inc.:
We have audited the accompanying consolidated balance sheet of Recoil Pty
Ltd (see Note 7) and Subsidiaries as of June 30, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Recoil Pty Ltd and
Subsidiaries as of June 30, 1996, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Melbourne, Australia
February 21, 1997
F-18
<PAGE>
RECOIL PTY LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
Net sales....................................................................... $9,707,335
Cost of sales................................................................... 4,218,327
---------
Gross profit.................................................................... 5,489,008
---------
Bad debts and provision for doubtful accounts................................... 9,847
Selling, general and administrative expenses.................................... 4,251,743
---------
Operating income................................................................ 1,227,418
Other expenses.................................................................. 60,348
Non-operating income............................................................ 147,355
Interest expense, net........................................................... 49,595
---------
Income before income taxes...................................................... 1,264,830
Provision for income taxes...................................................... 404,283
---------
Net income...................................................................... $ 860,547
---------
---------
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
F-19
<PAGE>
RECOIL PTY LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 1996
ASSETS
<TABLE>
<CAPTION>
Current Assets:
<S> <C>
Cash............................................................................ $ 105,459
Accounts receivable, including $56,228 from a related party, net of allowance
for doubtful accounts of $32,996.............................................. 1,888,810
Inventories..................................................................... 2,295,380
Prepaid expenses and other current assets....................................... 120,120
---------
Total current assets............................................................ 4,409,769
---------
Property, plant and equipment, at cost.......................................... 2,276,343
Less accumulated depreciation and amortization.................................. (962,464)
---------
1,313,879
---------
Goodwill, net of accumulated amortization of $34,162............................ 37,134
Other assets.................................................................... 882
---------
Total non-current assets........................................................ 1,351,895
---------
Total assets.................................................................... $5,761,664
---------
---------
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
F-20
<PAGE>
RECOIL PTY LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Current Liabilities:
<S> <C>
Lines of credit, secured by substantially all assets............................ $ 451,514
Current portion of capital lease obligations.................................... 14,900
Accounts payable................................................................ 802,923
Accrued expenses................................................................ 408,691
Income taxes payable............................................................ 365,236
---------
Total current liabilities....................................................... 2,043,264
---------
Long-term debt.................................................................. 649,481
Capital lease obligation........................................................ 33,384
---------
Total non-current liabilities................................................... 682,865
---------
Total liabilities............................................................... 2,726,129
---------
Commitments and contingencies (Note 5)
Stockholders' Equity:
Common stock, par value $0.24
Authorized--10,100,000 shares
Issued and outstanding--1,372,968 shares...................................... 324,693
Common stock, par value $0.79
Authorized--5,000,000 shares
Issued and outstanding--892,859 shares........................................ 703,841
Additional Paid-in Capital...................................................... 1,050,297
Retained earnings............................................................... 956,704
---------
Total stockholders' equity...................................................... 3,035,535
---------
Total liabilities and equity.................................................... $5,761,664
---------
---------
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
F-21
<PAGE>
RECOIL PTY LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK ADDITIONAL
PAR VALUE PAR VALUE PAID-IN
$0.24 $0.79 CAPITAL RETAINED EARNINGS TOTAL
-------------- -------------- -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995......... $ 324,693 $ 703,841 $ 1,050,297 $ 96,157 $ 2,174,988
Net income..................... -- -- -- 860,547 860,547
-------------- -------------- -------------- -------- ------------
Balance, June 30, 1996......... $ 324,693 $ 703,841 $ 1,050,297 $ 956,704 $ 3,035,535
-------------- -------------- -------------- -------- ------------
-------------- -------------- -------------- -------- ------------
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
F-22
<PAGE>
RECOIL PTY LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net income....................................................................... $ 860,547
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 295,626
Loss on sale of property, plant and equipment.................................. (10,291)
Decrease in accounts receivable................................................ 136,049
Increase in inventories........................................................ (679,772)
Increase in prepaid expenses................................................... (84,570)
Increase in other assets....................................................... (86,925)
Decrease in accounts payable................................................... (240,066)
Increase in accrued expenses................................................... 128,315
Decrease in deferred income taxes.............................................. (24,384)
---------
Net cash provided by operating activities........................................ 294,529
---------
Cash Flows from Investing Activities:
Purchases of plant and equipment................................................. (741,239)
Proceeds from sales of property, plant and equipment............................. 250,811
---------
Net cash used in investing activities............................................ (490,428)
---------
Cash Flows from Financing Activities:
Net borrowings (payments) on line-of-credit...................................... 340,338
Dividends paid................................................................... (141,894)
Principal payments on capital lease obligation................................... (22,103)
Net cash provided by financing activities........................................ 176,341
Net increase/(decrease) in cash.................................................. (19,558)
Cash, beginning of period........................................................ 125,017
---------
Cash, end of period.............................................................. $ 105,459
---------
---------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest....................................................................... $ 42,631
---------
---------
Income taxes................................................................... $ 348,633
---------
---------
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
F-23
<PAGE>
RECOIL PTY LTD AND SUBSIDIARIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED ACCOUNTS
FOR THE YEAR ENDED JUNE 30, 1996
NOTE 1. LINE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The company manufactures and distributes thread inserts and related products
used primarily in the electronic, automotive and other industrial markets, and
their associated after-markets. The company is headquartered in Oakleigh,
Australia, which is outside Melbourne. The consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting
principles.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Recoil Pty Ltd
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
(b) Goodwill
Goodwill is amortized on a straight line basis over 20 years.
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation or amortization. The carrying amount of property, plant and
equipment is reviewed annually to ensure it is not in excess of the recoverable
amount from those assets. The recoverable amount is assessed on the basis of the
expected net cash flows which will be received from the assets employment and
subsequent disposal. The expected net cash flows have not been discounted to
present values in determining recoverable amount.
The depreciable amounts of all fixed assets, including capitalized leased
assets, are depreciated over their estimated useful lives commencing from the
time the asset is held ready for use.
(d) Income Tax
The company uses the liability method of tax-effect accounting whereby the
income tax expense shown in the profit and loss account is based on the pre-tax
accounting profit adjusted for any permanent differences.
Temporary differences which arise due to the different accounting periods in
which items of revenue and expense are included in the determination of
operating profit before income tax and taxable income are recorded either as
provision for deferred income tax or an asset described as future income tax
benefit at the rate of income tax applicable to the period in which the benefit
will be received or the liability will become payable.
Future income tax benefits are not recorded unless realization of the asset
is assured. The amount of benefits recorded which may be realized in the future
is based on the assumption that no adverse change will occur in income taxation
legislation, and the anticipation that the company will derive sufficient future
taxable income and comply with the conditions of deductibility imposed by the
law to permit a future income tax benefit to be obtained.
The provision for income taxes is as follows:
<TABLE>
<S> <C>
Tax at 36% statutory rate......................................... $ 455,339
Increase/(decrease) in income tax expense due to:
Non-allowance items............................................. 869
Tax incentives and sundry items................................. (50,288)
Net operating loss carry-forwards not realized.................. 42,034
Tax effect of intercompany profit in inventory.................. (41,391)
Other........................................................... (2,280)
---------
Income tax expense................................................ $ 404,283
---------
---------
</TABLE>
F-24
<PAGE>
RECOIL PTY LTD AND SUBSIDIARIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED ACCOUNTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1996
NOTE 1. LINE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
(e) Foreign Currency
TRANSACTIONS
Foreign currency transactions during the year are converted to the
Australian dollar at rates of exchange applicable at the dates of the
transactions. Amounts receivable and payable in foreign currencies at the
balance sheet date are converted at the rates of exchange ruling at that date.
The gains and losses from conversion of short-term assets and liabilities,
whether realized or unrealized, are included in operating profit before income
tax as they arise.
TRANSLATION OF FINANCIAL STATEMENTS
The Australian dollar is the functional currency. These financial statements
have been translated into US dollars using the year-end exchange rate for the
consolidated balance sheet and the average exchange rate for the year for the
consolidated statement of income.
(f) Inventories
Inventories are measured at the lower of cost and net realizable value.
Costs are assigned on a first-in, first-out basis and include direct materials,
direct labor and an appropriate portion of variable and fixed overhead expenses.
Inventories are composed of the following at June 30, 1996:
<TABLE>
<S> <C>
Raw materials................................................... $ 380,123
Work in progress................................................ 71,304
Finished goods.................................................. 1,843,953
---------
$2,295,380
---------
---------
</TABLE>
NOTE 2. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<S> <C>
Fixtures and fittings--at cost.................................. $ 156,662
Less: Accumulated depreciation.................................. (54,561)
---------
102,101
---------
Office equipment--at cost....................................... 486,264
Less: Accumulated depreciation.................................. (292,546)
---------
193,718
---------
Motor vehicles--at cost......................................... 132,492
Less: Accumulated depreciation (58,443)
---------
74,049
---------
Plant and equipment--at cost.................................... 1,324,363
Less: Accumulated depreciation.................................. (548,009)
---------
776,354
---------
</TABLE>
F-25
<PAGE>
RECOIL PTY LTD AND SUBSIDIARIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED ACCOUNTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1996
NOTE 2. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
<TABLE>
<S> <C>
Capital equipment--work in progress............................. 134,569
---------
Leased motor vehicles........................................... 41,993
Less: Accumulated amortization.................................. (8,905)
---------
33,088
---------
$1,313,879
---------
---------
</TABLE>
NOTE 3. ACCRUED EXPENSES
<TABLE>
<S> <C>
Other creditors................................................... $ 261,618
Wages and payroll related......................................... 147,073
---------
$ 408,691
---------
---------
</TABLE>
NOTE 4. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
<TABLE>
<S> <C>
Loan--Government Agency (Australian Trade Commission)............. $ 649,481
---------
</TABLE>
This loan is unsecured and bears interest at an effective interest rate of
9.75% per annum. Principal and interest payments are due semi-annually beginning
in September 1997.
Principal repayments for the years ended December 31 are as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 108,061
1998.......................................................... 216,062
1999.......................................................... 216,062
2000.......................................................... 109,296
---------
$ 649,481
---------
---------
Financing Arrangements
The company has a finance facility of:........................ $ 945,960
---------
---------
At June 30, 1996 this facility was drawn upon in the amount
of:......................................................... $ 451,514
---------
---------
</TABLE>
F-26
<PAGE>
RECOIL PTY LTD AND SUBSIDIARIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED ACCOUNTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1996
NOTE 5. LEASE COMMITMENTS
<TABLE>
<S> <C>
(a) Capital Lease Commitments Payable:
--not later than one year....................................... $ 16,390
--later than one year and not later than two years.............. 13,544
--later than two years and not later than five years............ 23,755
---------
Minimum lease payments.......................................... 53,689
Less: Future finance charges.................................... (5,405)
---------
Total........................................................... $ 48,284
---------
---------
Representing:
--Current....................................................... $ 14,900
--Non-Current................................................... 33,384
---------
$ 48,284
---------
(b) Operating Lease Commitments Payable:
--not later than one year....................................... $ 175,492
--later than one year and not later than two years.............. 180,248
--later than two years and not later than five years............ 571,465
---------
Total operating lease commitments............................... $ 927,205
---------
</TABLE>
NOTE 6. SEGMENT REPORTING
The economic entity operates in the manufacturing sector where it
manufactures Recoil thread inserts in Australia and distributes its products
throughout Australia, USA, UK and other international markets.
NOTE 7. SUBSEQUENT EVENT
In August 1996 the company sold a majority of its assets to Kaynar
Technologies Inc., a US business involved in the manufacture and sale of
specialty fasteners, fastening system and components, for approximately $12.2
million. Subsequent to the asset sale, the company changed its name to Scuba Pty
Ltd.
F-27
<PAGE>
[IMAGE MATERIAL: PICTURE OF AIRCRAFT IN FLIGHT.]
<PAGE>
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 8
The Company.......................................... 13
The Reorganization................................... 13
Use of Proceeds...................................... 14
Dividend Policy...................................... 14
Capitalization....................................... 15
Dilution............................................. 15
Selected Consolidated Financial and Operating
Information........................................ 17
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 19
Recent Developments.................................. 23
Business............................................. 24
Management........................................... 35
Certain Transactions................................. 41
Principal Stockholders and Selling Stockholder....... 43
Description of Capital Stock......................... 44
Shares Eligible for Future Sale...................... 46
Underwriting......................................... 48
Legal Matters........................................ 50
Experts.............................................. 50
Additional Information............................... 50
Index to Consolidated Financial Statements........... F-1
</TABLE>
---------------------
UNTIL MAY 31, 1997 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,000,000 SHARES
[LOGO]
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
May 6, 1997
---------------------
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates,
except the SEC registration fee and the NASD fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee.............................................................. $ 11,152
NASD fee.......................................................................... 21,970
Printing and engraving expenses................................................... 127,060
Legal fees and expenses........................................................... 200,000
Accounting fees and expenses...................................................... 200,000
Blue Sky qualification fees and expenses.......................................... 2,500
Transfer Agent and Registrar fees................................................. 2,000
Miscellaneous fees and expenses................................................... 110,318
----------
Total......................................................................... $ 675,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation, as amended, of the Company contains a
provision eliminating the personal liability of the directors to the Company or
its stockholders to the fullest extent set forth in Section 102(b)(7) of the
Delaware General Corporation Law. The By-laws of the Company provide for
indemnification of directors, officers, employees and agents of the Company
consistent with the provisions of Section 145 of the Delaware General
Corporation Law. The Company has also entered into indemnification agreements
with each director and certain executive officers that provide for the maximum
protection against liability permitted by law. The indemnification agreements
also provide that, to the extent the Company purchases directors and officers
insurance, the directors and officers who are parties to such agreements will be
covered. The Company, however, has no obligation to purchase such insurance.
Reference is also made to Section 9 of the Underwriting Agreement, contained in
Exhibit 1 hereto, indemnifying officers and directors of the Company against
certain liabilities.
Burton J. Kloster, Jr., an outside director of the Company and the nominee
of GECC, has entered into a separate indemnification agreement with GECC. Under
the agreement, GECC will indemnify Mr. Kloster for losses, liabilities, damages
and expenses incurred as a result of his acting properly on behalf of GECC, to
the extent such amounts are not recoverable from the Company or any insurer of
the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Reorganization, the Company will issue shares of
Common Stock and Series C Preferred Stock to the Selling Stockholder in exchange
for the shares of Series A and Series B Preferred Stock held by the Selling
Stockholder, as further described in "The Reorganization." The exchange of
shares is exempt from registration under Section 3(a)(9) of the Securities Act
of 1933, as amended.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
***2.1 Agreement and Plan of Merger, dated May 5, 1997
*2.2 Asset Purchase Agreement, dated January 9, 1996, among Emhart Industries, Inc., Emhart, Inc.
and Operating Company
*2.3 (a) Australian Asset Sale Agreement, dated August 9, 1996, among the Vendors (as defined
therein), Recoil Inc., RCL Pty. and Operating Company
*2.3 (b) US Asset Sale Agreement, dated August 9, 1996, among Recoil Inc., Operating Company, Recoil
Pty. Ltd., the Advent Group and the Price Interests (as defined therein)
***3.1 Amended and Restated Certificate of Incorporation of the Company
***3.2 Amended and Restated By-laws of the Company
***4.1 Specimen of Common Stock Certificate
***5.1 Opinion of O'Melveny & Myers LLP regarding the legality of the Common Stock to be issued
*10.1 Amended and Restated Term Loan Agreement, dated August 12, 1996, between the Company and
GECC
*10.2 (a) Amended and Restated Credit Agreement, dated August 12, 1996, between Operating Company and
GECC
*10.2 (b) First Amendment, Consent, and Limited Waiver to Amended and Restated Credit Agreement, dated
December 17, 1996, between Operating Company and GECC
*10.3 Term Loan Agreement, dated August 12, 1996, between RCL Pty. and GECC
*10.4 PIK Dividend Note Agreement, dated January 3, 1994, among the Company, GECC and certain
other parties identified therein
*10.5 Lease with The Prudential Insurance Co. of America regarding the Fullerton, California
facility
*10.6 Lease with West L.A. Properties regarding the Placentia, California facility
*10.7 Lease with Enfield View Pty. Ltd. regarding the Oakleigh, VIC, Australia facility
*10.8 (a) General Terms Agreement, dated September 20, 1996, between the Company and Boeing
10.8 (b) Special Business Provisions, dated September 20, 1996, between the Company and Boeing
(portions omitted and filed separately with Commission pursuant to an application for
confidential treatment)
10.9 (a) Contract Award Letter of Agreement, dated April 28, 1994, between the Company and Boeing
(portions omitted and filed separately with Commission pursuant to an application for
confidential treatment)
***10.9 (b) Boeing Commercial Airplane Group Purchase Order Terms and Conditions
***10.10 Stockholders Agreement, dated as of May 6, 1997
*21.1 List of Subsidiaries
23.1 Consent of Independent Auditors
***23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------------
*24.1 Powers of Attorney for Jordan A. Law, David A. Werner, and Robert M. Nelson
<C> <S>
**24.2 Powers of Attorney for Norman A. Barkeley, Burton J. Kloster, Jr., and Richard P. Strubel
***27.1 Financial Data Schedule
*99.1 Form of 1997 Stock Incentive Plan of the Company
*99.2 Form of Employment Agreement for Messrs. Law and Werner
*99.3 Form of Employment Agreement for Messrs. Beers, Dack, Berecz and Varholick
*99.4 Employment Agreement for Kenneth D. Jones
*99.5 Form of Director Indemnification Agreement
</TABLE>
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Commission are provided in the Notes to the Consolidated
Financial Statements included elsewhere in this Registration Statement or are
not required under the applicable instructions or are inapplicable and therefore
have been omitted.
- ------------------------
* Previously filed with the initial Registration Statement on February 26,
1997.
** Previously filed with Pre-Effective Amendment No. 1 on April 1, 1997.
*** Previously filed with Pre-Effective Amendment No. 4 on May 5, 1997.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 5 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Orange,
State of California on this 6th day of May, 1997.
KAYNAR TECHNOLOGIES INC.
By: /s/ JORDAN A. LAW
--------------------------------------
Jordan A. Law
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ----------------------------------------------- ----------------
<S> <C> <C>
/s/ JORDAN A. LAW Chief Executive Officer and Chairman of the May 6, 1997
- ------------------------------------- Board
Jordan A. Law (Principal Executive Officer)
/s/ DAVID A. WERNER Executive Vice President and Director May 6, 1997
- ------------------------------------- (Principal Financial Officer)
David A. Werner
* Controller May 6, 1997
- ------------------------------------- (Principal Accounting Officer)
Robert M. Nelson
* Director May 6, 1997
- -------------------------------------
Norman A. Barkeley
* Director May 6, 1997
- -------------------------------------
Burton J. Kloster, Jr.
* Director May 6, 1997
- -------------------------------------
Richard P. Strubel
*By: /s/ DAVID A. WERNER
--------------------------------
David A. Werner
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
***2.1 Agreement and Plan of Merger, dated May 5, 1997
*2.2 Asset Purchase Agreement, dated January 9, 1996, among Emhart Industries, Inc., Emhart, Inc.
and Operating Company
*2.3 (a) Australian Asset Sale Agreement, dated August 9, 1996, among the Vendors (as defined
therein), Recoil Inc., RCL Pty. and Operating Company
*2.3 (b) US Asset Sale Agreement, dated August 9, 1996, among Recoil Inc., Operating Company, Recoil
Pty. Ltd., the Advent Group and the Price Interests (as defined therein)
***3.1 Amended and Restated Certificate of Incorporation of the Company
***3.2 Amended and Restated By-laws of the Company
***4.1 Specimen of Common Stock Certificate
***5.1 Opinion of O'Melveny & Myers LLP regarding the legality of the Common Stock to be issued
*10.1 Amended and Restated Term Loan Agreement, dated August 12, 1996, between the Company and
GECC
*10.2 (a) Amended and Restated Credit Agreement, dated August 12, 1996, between Operating Company and
GECC
*10.2 (b) First Amendment, Consent, and Limited Waiver to Amended and Restated Credit Agreement, dated
December 17, 1996, between Operating Company and GECC
*10.3 Term Loan Agreement, dated August 12, 1996, between RCL Pty. and GECC
*10.4 PIK Dividend Note Agreement, dated January 3, 1994, among the Company, GECC and certain
other parties identified therein
*10.5 Lease with The Prudential Insurance Co. of America regarding the Fullerton, California
facility
*10.6 Lease with West L.A. Properties regarding the Placentia, California facility
*10.7 Lease with Enfield View Pty. Ltd. regarding the Oakleigh, VIC, Australia facility
*10.8 (a) General Terms Agreement, dated September 20, 1996, between the Company and Boeing
10.8 (b) Special Business Provisions, dated September 20, 1996, between the Company and Boeing
(portions omitted and filed separately with the Commission pursuant to an application for
confidential treatment)
10.9 (a) Contract Award Letter of Agreement, dated April 28, 1994, between the Company and Boeing
(portions omitted and filed separately with the Commission pursuant to an application for
confidential treatment)
***10.9 (b) Boeing Commercial Airplane Group Purchase Order Terms and Conditions
***10.10 Stockholders Agreement, dated as of May 6, 1997
*21.1 List of Subsidiaries
23.1 Consent of Independent Auditors
***23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
*24.1 Powers of Attorney for Jordan A. Law, David A. Warner, and Robert M. Nelson
**24.2 Powers of Attorney for Norman A. Barkeley, Burton J. Kloster, Jr., and Richard P. Strubel
***27.1 Financial Data Schedule
*99.1 Form of 1997 Stock Incentive Plan of the Company
*99.2 Form of Employment Agreement for Messrs. Law and Werner
*99.3 Form of Employment Agreement for Messrs. Beers, Dack, Berecz and Varholick
*99.4 Employment Agreement for Kenneth D. Jones
*99.5 Form of Director Indemnification Agreement
</TABLE>
- ------------------------
* Previously filed with the initial Registration Statement on February 26,
1997.
** Previously filed with Pre-Effective Amendment No. 1 on April 1, 1997.
*** Previously filed with Pre-Effective Amendment No. 4 on May 5, 1997.
<PAGE>
2,000,000
KAYNAR TECHNOLOGIES INC.
COMMON STOCK
UNDERWRITING AGREEMENT
May 5, 1997
LEHMAN BROTHERS INC.
PAINEWEBBER INCORPORATED
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Ladies and Gentlemen:
Kaynar Technologies Inc., a Delaware corporation (the "COMPANY"), and
General Electric Capital Corporation, a New York corporation (the "SELLING
STOCKHOLDER") propose to sell an aggregate of 2,000,000 shares (the "FIRM
SHARES") of the Company's Common Stock, par value $.01 per share (the "COMMON
STOCK") to the several Underwriters named in Schedule 1 hereto (the
"UNDERWRITERS"). Of the 2,000,000 shares of the Firm Shares, 1,800,000 shares
are being sold by the Company and 200,000 shares by the Selling Stockholder. In
addition, the Company proposes to grant to the Underwriters an option to
purchase up to an additional 300,000 shares of the Common Stock on the terms and
for the purposes set forth in Section 3 (the "OPTION SHARES"). The Firm Shares
and the Option Shares, if purchased, are hereinafter collectively referred to as
the "SHARES." The Company and the Selling Stockholder are hereinafter
collectively referred to as the "SELLERS."
Immediately prior to the First Delivery Date (as hereinafter defined),
Kaynar Technologies Inc., a Delaware corporation ("KAYNAR"), shall be merged
with and into its wholly-owned parent, Kaynar Holdings Inc., a Delaware
corporation ("HOLDINGS"), with Holdings as the surviving corporation.
Immediately following the merger, the surviving corporation shall be renamed
Kaynar Technologies Inc. The foregoing transactions are collectively referred to
herein as the "REORGANIZATION". Unless otherwise noted herein, the term
"COMPANY" shall mean Holdings, as the corporation surviving the merger.
This is to confirm the agreement concerning the purchase of the Shares
from the Company and the Selling Stockholder by the Underwriters.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents, warrants and agrees that:
(a) The Registration statement on Form S-1 (File No. 333-22345)
with respect to the Shares has (i) been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and the rules and regulations (the "RULE AND
REGULATIONS") of the Securities and Exchange Commission (the "COMMISSION")
thereunder, (ii) been filed with the Commission under the Securities Act
and (iii) become effective under the Securities Act or will become
effective not later than 10:00 a.m., New York
<PAGE>
City time, on the date of this Agreement or at such later date and time as
the Underwriters may approve. Copies of the Registration Statement have
been delivered by the Company to each of you as the representatives (the
"REPRESENTATIVES") of the Underwriters. As used in this Agreement,
"EFFECTIVE TIME" means the date and the time as of which the Registration
Statement, or the most recent post-effective amendment thereto, if any, was
declared effective by the Commission; "EFFECTIVE DATE" means the date of
the Effective Time; "PRELIMINARY PROSPECTUS" means each prospectus included
in such Registration Statement before it became effective under the
Securities Act and any prospectus filed with the Commission by the Company
with the consent of the Representatives pursuant to Rule 424(a) of the
Rules and Regulations; "REGISTRATION STATEMENT" means such registration
statement, as amended at the Effective Time, including a registration
statement (if any) filed pursuant to Rule 462(b) under the Securities Act
and all information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 6(a) hereof and deemed to be a part of the
Registration Statement as of the Effective Time pursuant to paragraph (b)
of Rule 430A of the Rules and Regulations; and "PROSPECTUS" means such
final prospectus, as first filed with the Commission pursuant to paragraph
(1) or (4) of Rule 424(b) of the Rules and Regulations. The Commission has
not issued any order preventing or suspending the use of the Registration
Statement or any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to the
requirements of the Securities Act and the Rules and Regulations and do not
and will not (i) as of the Effective Date, as to the Registration
Statement, contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) as of the applicable filing
date, as to the Prospectus and any amendment or supplement thereto, contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; PROVIDED that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The Company and each of its subsidiaries (as set forth on
Schedule 2 hereto) has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on its
business as it is currently being conducted and as described in the
Registration Statement and the Prospectus and to own, lease and operate it
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires
such qualification. Except for Recoil, none of the subsidiaries of the
Company is a "SIGNIFICANT SUBSIDIARY" as such term is defined in Rule 405
of the Rules and Regulations.
(d) All the outstanding shares of capital stock or other
securities evidencing equity ownership of the Company (including the Shares
to be sold by the Selling Stockholder) have been and, after consummation of
the Reorganization, will be duly authorized and validly issued and, after
consummation of the Reorganization, will be fully paid, non-assessable and
not subject to any preemptive or similar rights. The Shares to be issued
and sold by the Company
2
<PAGE>
hereunder have been duly authorized and, when issued and delivered to the
Representatives for the account of each Underwriter against payment
therefor as provided in this Agreement, will have been validly issued and
will be fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights. The authorized, issued
and outstanding stock of the Company was as of December 31, 1996 and will
be immediately after giving effect to the consummation of this Offering and
the Reorganization, as set forth in the Registration Statement and the
Prospectus under the captions "CAPITALIZATION" and "DESCRIPTION OF CAPITAL
STOCK." After giving effect to the Offering, the Reorganization and the
application of the proceeds thereof as described in the Registration
Statement and the Prospectus under the caption "USE OF PROCEEDS," the
Company's consolidated capitalization as of December 31, 1996 would have
been as set forth under the "AS ADJUSTED" column under the caption
"CAPITALIZATION." The table under the caption "CAPITALIZATION" sets forth
the amount of all outstanding long-term indebtedness of the Company for
monies borrowed and capital lease obligations, on a consolidated basis,
prior to and after giving effect to the Offering and Reorganization. The
authorized capital stock of the Company, including the Shares, conforms as
to legal matters to the description thereof contained in the Registration
Statement and the Prospectus. Except as set forth in the Registration
Statement and the Prospectus, there are no outstanding rights, warrants, or
options to acquire, or instruments convertible into or exchangeable for,
any shares of capital stock or other equity interest in the Company.
(e) This Agreement has been duly authorized, executed and
delivered by the Company and is a legally valid and binding agreement of
the Company, enforceable against it in accordance with its terms except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally (including laws relating to fraudulent
transfers or conveyances), by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law) and, as to rights of indemnification and contribution, by federal and
state securities laws and principles of public policy.
(f) The execution, delivery and performance of this Agreement,
compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby and as described in
the Prospectus under the caption "REORGANIZATION" will not conflict with or
constitute a breach or violation of any of the terms or provisions of, or
constitute a default under, any material indenture, mortgage, deed of
trust, loan agreement or other material agreement or instrument to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will such
actions conflict with or constitute a breach of any of the terms or
provisions of, or constitute a default under, the charter or by-laws of the
Company or any of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties or
assets; and except for the registration of the Shares under the Securities
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and applicable
state securities laws in connection with the purchase and distribution of
the Shares by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or governmental
agency or body is required by the Company for the execution, delivery and
performance of this Agreement by the Company and the issuance and sale of
the Shares.
3
<PAGE>
(g) Except as provided in the Stockholders Agreement by and
between the Company, the Selling Stockholder and the Management Investors
(as defined therein), there are no contracts, agreements or understandings
between the Company and any person granting such person the right (other
than rights which have been waived or satisfied) to require the Company
to file a Registration Statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other Registration Statement filed by
the Company under the Securities Act.
(h) Except as described in the Prospectus, the Company has not
sold or issued any shares of Common Stock during the six-month period
preceding the date of the Prospectus, including any sales pursuant to Rule
144A under, or Regulations D or S of, the Securities Act.
(i) Neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any material change in
the capital stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus.
(j) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at the
dates and for the periods indicated, and have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved.
(k) Arthur Andersen LLP, who has certified certain financial
statements of the Company, whose report appears in the Prospectus and who
has delivered the initial letter referred to in Section 9(i) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations during the periods covered by the financial
statements on which they reported contained in the Prospectus.
(l) The Company and each subsidiary has (i) good and marketable
title to all of the properties and assets necessary for the operation of
its business as described in the Registration Statement and the Prospectus
as owned by it, free and clear of all liens, charges, encumbrances and
restrictions except such as are described in the Prospectus, including any
Exhibits thereto, or such as do not materially affect the value of such
property and do not materially interfere with the use of such property by
the Company, (ii) peaceful and undisturbed possession under all leases to
which it is party as lessee, (iii) all licenses, certificates, permits,
authorizations, approvals, franchises and other rights from, and will have
made all declarations and filings with, all federal, state and local
authorities, all self-regulatory authorities and all courts or governmental
agencies, bodies or administrative agencies or authorities (each an
"AUTHORIZATION") necessary to engage in the business conducted by it in the
manner described in
4
<PAGE>
the Registration Statement and the Prospectus and] (iv) no reason to
believe that any governmental body or agency is considering limiting,
suspending or revoking any such Authorization. All such Authorizations are
valid and in full force and effect. The Company and each subsidiary is in
compliance in all material respects with the terms and conditions of all
such Authorizations and with the rules and regulations of the regulatory
authorities having jurisdiction with respect thereto. All leases to which
the Company and each subsidiary is a party are valid and binding and, to
the knowledge of the Company, no default by the Company or any such
subsidiary has occurred and is continuing thereunder and no defaults by the
landlord are existing under any such lease.
(m) The Company and its subsidiaries carries, or is covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of its business and the value of its properties and as is customary
for companies engaged in similar businesses in similar industries.
(n) The Company, together with its subsidiaries, owns and
possesses all right, title and interest in and to, or has duly licensed or
otherwise obtained from third parties, all patents, patent applications,
trademarks, service marks, trade names, trademark registrations, service
mark registrations, copyrights, licenses or any other proprietary right
("TRADE RIGHTS") which are material to the business of the Company.
Neither the Company nor any of its subsidiaries has received any notice of
infringement, misappropriation or conflict from any third party as to such
Trade Rights which has not been resolved or disposed of and to the
knowledge of the Company and its subsidiaries, neither the Company nor any
of its subsidiaries has infringed, misappropriated or otherwise conflicted
with Trade Rights of any third parties.
(o) There are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any
property or assets of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its subsidiaries,
would have a material adverse effect on the consolidated financial
position, stockholders' equity, results of operations, business or
prospects of the Company and its subsidiaries; and to the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(p) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(q) No relationship, direct or indirect, exists between or among
the Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is required
to be described in the Prospectus which is not so described.
(r) There is (i) no significant unfair labor practice complaint
pending or, to the knowledge of the Company, threatened against the Company
or any subsidiary before the National Labor Relations Board, any state or
local labor relations board of or any foreign labor relations board, and no
significant grievance or significant arbitration proceeding arising out of
or under any collective bargaining agreement is so pending or, to the
knowledge of the Company
5
<PAGE>
and its subsidiaries, threatened against the Company or any subsidiary and
(ii) no pending union representation question exists with respect to the
employees of the Company or any subsidiary. To the knowledge of the
Company and its subsidiaries, no union organizing activities are taking
place. Neither the Company nor any subsidiary has violated in any material
respect (A) any federal, state or local law, statute, rule or regulation or
foreign law, statute rule or regulation relating to discrimination in
hiring, promotion or pay of employees or (B) any applicable wage or hour
laws.
(s) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA").
(t) The Company has filed all federal, state and local income
and franchise tax returns required to be filed through the date hereof and
has paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had, nor does
the Company have any knowledge of any tax deficiency which, if determined
adversely to the Company or any of its subsidiaries, would have, a material
adverse effect on the consolidated financial position, stockholders'
equity, results of operations, business or prospects of the Company and its
subsidiaries.
(u) Since the date of the Prospectus through the date hereof,
and except as may otherwise be disclosed in the Prospectus, the Company has
not (i) issued or granted any securities, (ii) incurred any liability or
obligation, direct or contingent, other than liabilities and obligations
which were incurred in the ordinary course of business, (iii) entered into
any transaction not in the ordinary course of business or (iv) declared or
paid any dividend on its capital stock.
(v) The Company and each subsidiary (i) makes and keeps accurate
books and records and (ii) maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are recorded
as necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D) the
reported accountability for its assets is compared with existing assets at
reasonable intervals.
(w) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws or (ii) is in default in any material
respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a material default, in the due performance or
observance of any term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which any
of its properties or assets is subject.
(x) Neither the Company nor any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company or any of its subsidiaries, (i) has used
any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expense relating to political activity, (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official
or employee from corporate funds, (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices
6
<PAGE>
Act of 1977 or (iv) made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.
(y) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of toxic
wastes, medical wastes, hazardous wastes or hazardous substances by the
Company or any of its subsidiaries (or, to the knowledge of the Company,
any of their predecessors in interest) at, upon or from any of the property
now or previously owned or leased by the Company or its subsidiaries in
violation of any applicable law, ordinance, rule, regulation, order,
judgment, decree or permit or which would require remedial action under any
applicable law, ordinance, rule, regulation, order, judgment, decree or
permit, except for any violation or remedial action which would not have,
or could not be reasonably likely to have, singularly or in the aggregate
with all such violations and remedial actions, a material adverse effect on
the general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries; there has
been no material spill, discharge, leak, emission, injection, escape,
dumping or release of any kind onto such property or into the environment
surrounding such property of any toxic wastes, medical wastes, solid
wastes, hazardous wastes or hazardous substances due to or caused by the
Company or any of its subsidiaries or with respect to which the Company or
any of its subsidiaries have knowledge, except for any such spill,
discharge, leak, emission, injection, escape, dumping or release which
would not have or would not be reasonably likely to have, singularly or in
the aggregate with all such spills, discharges, leaks, emissions,
injections, escapes, dumpings and releases, a material adverse effect on
the general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries; and the terms
"HAZARDOUS WASTES," "TOXIC WASTES," "HAZARDOUS SUBSTANCES" and "MEDICAL
WASTES" shall have the meanings specified in any applicable local, state,
federal and foreign laws or regulations with respect to environmental
protection.
(z) Neither the Company nor any subsidiary is an "INVESTMENT
COMPANY" or a company "CONTROLLED" by an "INVESTMENT COMPANY" within the
meaning of the Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder (the "1940 ACT").
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SELLING
STOCKHOLDER. The Selling Stockholder represents, warrants and agrees that:
(a) The Selling Stockholder owns, and immediately prior to the
First Delivery Date, the Selling Stockholder will own the Shares to be sold
by the Selling Stockholder on such date free and clear of all adverse
claims (within the meaning of Section 8-302 of the Uniform Commercial Code
as in effect in the State of New York) and upon delivery of such Shares and
payment therefor pursuant hereto, the several Underwriters will own such
Shares, free and clear of all adverse claims assuming the Underwriters
purchased such Shares pursuant to this Agreement in good faith and without
notice of such adverse claim.
(b) The Selling Stockholder has corporate power and authority to
enter into this Agreement; the execution, delivery and performance of this
Agreement by the Selling Stockholder and the consummation by the Selling
Stockholder of the transactions contemplated hereby will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Selling Stockholder
is a party or by which the Selling
7
<PAGE>
Stockholder is bound or to which any of the property or assets of the
Selling Stockholder is subject, nor will such actions result in any
violation of the charter or by-laws of the Selling Stockholder or any
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdictions over the Selling Stockholder or the
property or assets of the Selling Stockholder, and, except for the
registration of the Shares under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Shares by the
Underwriters, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required by the Selling Stockholder for the execution, delivery and
performance of this Agreement by the Selling Stockholder and the
consummation by the Selling Stockholder of the transactions contemplated
hereby.
(c) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by the Selling
Stockholder in its capacity as Selling Stockholder expressly for use
therein, such Preliminary Prospectus and the Registration Statement did
not, and the Prospectus and any further amendments or supplements to the
Registration Statement and the Prospectus, as of the applicable Effective
Date and as of the applicable filing date (as to the Prospectus and any
amendment or supplement thereto), will not, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS. On the basis of the
representations and warranties contained herein, and subject to the terms and
conditions of this Agreement, the Company agrees to sell 1,800,000 shares of the
Firm Shares and the Selling Stockholder hereby agrees to sell 200,000 shares of
the Firm Shares to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of Firm Shares set
forth opposite that Underwriter's name in Schedule 1 hereto. The respective
purchase obligations of the Underwriters with respect to the Firm Shares shall
be rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Company grants to the Underwriters an option to
purchase up to 300,000 shares of Option Shares. Such option is granted solely
for the purpose of covering over-allotments in the sale of Firm Shares and is
exercisable as provided in Section 5 hereof. Shares of Option Shares shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Shares set forth opposite the name of such Underwriters
in Schedule 1 hereto. The respective purchase obligations of each Underwriter
with respect to the Option Shares shall be adjusted by the Representatives so
that no Underwriter shall be obligated to purchase Option Shares other than in
100 share amounts. The price of both the Firm Shares and any Option Shares
shall be $14.50 per share.
8
<PAGE>
The Company and the Selling Stockholder shall not be obligated to
deliver any of the Shares to be delivered on the First Delivery Date or the
Option Delivery Date (as hereinafter defined), as the case may be, except upon
payment for all the Shares to be purchased on such Delivery Date (as hereinafter
defined) as provided herein.
4. OFFERING OF STOCK BY THE UNDERWRITERS. Upon authorization by the
Representatives of the release of the Firm Shares, the several Underwriters
propose to offer the Firm Shares for sale upon the terms and conditions set
forth in the Prospectus.
It is understood that 96,515 shares of the Firm Shares will initially
be reserved by the several Underwriters for offer and sale upon the terms and
conditions set forth in the Prospectus and in accordance with the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD")
to employees who have heretofore delivered to the Representatives offers to
purchase shares of Firm Shares in form satisfactory to the Representatives, and
that any allocation of such Firm Shares among such persons will be made in
accordance with timely directions received by the Representatives from the
Company; PROVIDED, that except as otherwise provided herein, under no
circumstances will the Representatives or any Underwriter be liable to the
Company or to any such person for any action taken or omitted in good faith in
connection with such offering to employees and persons having business
relationships with the Company and its subsidiaries. It is further understood
that any shares of such Firm Shares which are not purchased by such persons will
be offered by the Underwriters to the public upon the terms and conditions set
forth in the Prospectus.
5. DELIVERY OF AND PAYMENT FOR THE STOCK. Delivery of and payment
for the Firm Shares shall be made at the office of O'Melveny & Myers LLP, 400
South Hope Street, 15th Floor, Los Angeles, California 90071, at 10:00 A.M.,
New York City time, on the third full business day following the date of this
Agreement or at such other date or place as shall be determined by agreement
between the Representatives and the Company. This date and time are sometimes
referred to as the "FIRST DELIVERY DATE." On the First Delivery Date, the
Company and the Selling Stockholder shall deliver or cause to be delivered
certificates representing the Firm Shares to the Representatives for the account
of each Underwriter against payment to or upon the order of the Company and the
Selling Stockholder of the purchase price by certified or official bank check or
checks payable in New York Clearing House (same-day) funds. Time shall be of
the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Firm Shares shall be registered in such names and
in such denominations as the Representatives shall request in writing not less
than two full business days prior to the First Delivery Date. For the purpose
of expediting the checking and packaging of the certificates for the Firm
Shares, the Company and the Selling Stockholder shall make the certificates
representing the Firm Shares available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the First Delivery Date.
At any time, and from time to time, on or before the 30th day after
the date of this Agreement, the option granted in Section 3 may be exercised, in
whole or in part, by written notice to the Company by the Representatives. Such
notice shall set forth the aggregate number of Option Shares as to which the
option is being exercised, the names in which the Option Shares are to be
registered, the denominations in which the Option Shares are to be issued and
the date and time, as determined by the Representatives, when the Option Shares
are to be delivered; PROVIDED, HOWEVER, that this date and time shall not be
(i) earlier than the First Delivery Date nor earlier than the third business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The dates and times the Option Shares are delivered are sometimes
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referred to as the "OPTION DELIVERY DATE" and the First Delivery Date and the
Option Delivery Date are sometimes each referred to as a "DELIVERY DATE").
Delivery of and payment for the Option Shares shall be made at the
place specified in the first sentence of the first paragraph of this Section 5
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Option Delivery Date. On the Option Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Shares to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by certified or official bank
check or checks payable in New York Clearing House (same-day) funds. Time shall
be of the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Shares shall be registered in such names
and in such denominations as the Representatives shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Shares, the Company shall make the certificates
representing the Option Shares available for inspection by the Representatives
in New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Option Delivery Date.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than the Commission's close of business on the
second business day following the execution and delivery of this Agreement
or, if applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Securities Act; to make no further amendment or any supplement to
the Registration Statement or to the Prospectus except as permitted herein;
to advise the Representatives, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with copies
thereof; to advise the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Stock for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal.
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with
the Commission, including all consents and exhibits filed therewith.
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably request:
(i) conformed copies of the Registration Statement as originally filed with
the Commission and each amendment thereto (in each case excluding exhibits
other than this Agreement and the computation of per share earnings) and
(ii) each Preliminary Prospectus, the Prospectus and any amended or
supplemented
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Prospectus and, if the delivery of a prospectus is required at any time
after the Effective Time in connection with the offering or sale of the
Shares or any other securities relating thereto and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the Prospectus in
order to comply with the Securities Act to notify the Representatives and,
upon their request, to file such document and to prepare and furnish
without charge to each Underwriter and to any dealer in securities as many
copies as the Representatives may from time to time reasonably request of
an amended or supplemented Prospectus which will correct such statement or
omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the reasonable judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission.
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the Underwriters and obtain
the consent of the Representatives to the filing.
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver to the
Representatives an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Securities
Act and the Rules and Regulations (including, at the option of the Company,
Rule 158).
(g) For a period of three years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder.
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Shares for offering
and sale under the securities laws of such United States and Canadian
jurisdictions as the Representatives may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution
of the Shares; PROVIDED that in connection therewith the Company shall not
be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction.
(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, offer for sale, sell or otherwise dispose
of (or enter into any transaction or device which is designed to, or could
be expected to, result in the disposition by any person at any time in the
future of) any shares of Common Stock (other than the Shares and shares
issued pursuant to employee benefit plans, qualified stock option plans or
other employee compensation plans
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existing on the date hereof or pursuant to currently outstanding options,
warrants or rights), or sell or grant options, rights or warrants with
respect to any shares of Common Stock (other than the grant of options
pursuant to option plans existing on the date hereof), without the prior
written consent of Lehman Brothers Inc.; and to cause each executive
officer and director of the Company to furnish to the Representatives,
prior to the First Delivery Date, a letter or letters, in the form attached
hereto as Exhibit A, pursuant to which each such person shall agree not to,
directly or indirectly, offer for sale, sell or otherwise dispose of (or
enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person during such 180-day
period of) any shares of Common Stock for a period of 180 days from the
date of the Prospectus, without the prior written consent of Lehman
Brothers Inc.
(j) Prior to the Effective Date, to apply for listing of the
Shares on the NASDAQ National Market System and to use its best efforts to
complete that listing, subject only to official notice of issuance and
evidence of satisfactory distribution, prior to the First Delivery Date.
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the Underwriters and receive and consider its
comments thereon, and to deliver promptly to the Representatives a signed
copy of each report on Form SR filed by it with the Commission.
(l) The Company will effect the Reorganization and will apply
the net proceeds from the sale of the Shares being sold by the Company as
set forth in the Prospectus.
(m) To take such steps as shall be necessary to ensure that
neither the Company nor any subsidiary shall become an "INVESTMENT COMPANY"
or "CONTROLLED" by an "INVESTMENT COMPANY" within the meaning of the 1940
Act.
7. FURTHER AGREEMENTS OF THE SELLING STOCKHOLDER. The Selling
Stockholder agrees:
(a) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, offer for sale, sell or otherwise dispose
of (or enter into any transaction or device which is designed to, or could
be expected to, result in the disposition by any person at any time in the
future of) any shares of Common Stock (other than the Shares), without the
prior written consent of Lehman Brothers Inc.
(b) That the Shares to be sold by the Selling Stockholder
hereunder is subject to the interest of the Underwriters and that the
obligations of the Selling Stockholder hereunder shall not be terminated by
any act of the Selling Stockholder, by operation of law or the occurrence
of any other event, except in accordance with the terms of this Agreement.
8. EXPENSES. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Shares and any taxes
payable in that connection, (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto, (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement, (d) the costs of printing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and
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delivery of the stock, (e) the filing fees incident to securing any required
review by the NASD of the terms of sale of the Shares, (f) any applicable
listing or other similar fees, (g) the reasonable fees and expenses of
qualifying the Shares under the securities laws of the several jurisdictions as
provided in Section 6(h) and of preparing, printing and distributing a Blue Sky
Memorandum (including related fees and expenses of counsel to the Underwriters
in connection therewith), and (h) all other costs and expenses incident to the
performance of the obligations of the Company and the Selling Stockholder under
this Agreement; PROVIDED that, except as provided in this Section 8 and in
Section 12, the Underwriters shall pay their own costs and expenses, including
the costs and expenses of their counsel, any transfer taxes on the Shares which
they may sell and the expenses of advertising any offering of the Shares made by
the Underwriters, and the Selling Stockholder shall pay the fees and expenses of
its counsel, and any transfer taxes payable in connection with the sale of its
Shares to the Underwriters.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Stockholder contained herein, to the performance by the Company
and the Selling Stockholder of their respective obligations hereunder, and to
each of the following additional terms and conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on each Delivery Date
with the same force and effect as if made on and as of such Delivery Date.
(b) The Registration Statement shall have become effective not
later than 10:00 a.m., New York City time, on the date of this Agreement or
at such later date and time as the Representatives may approve; the
Prospectus shall have been timely filed with the Commission in accordance
with Section 6(a); no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement or the Prospectus or otherwise
shall have been complied with.
(c) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration Statement
or the Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of Latham & Watkins, counsel for
the Underwriters, is material or omits to state a fact which, in the
opinion of such counsel, is material and is required to be stated therein
or is necessary to make the statements therein not misleading.
(d) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Shares, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall
be reasonably satisfactory in all material respects to counsel for the
Underwriters, and the Company and the Selling Stockholder shall have
furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(e) O'Melveny & Myers LLP shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed
to the Underwriters and dated such
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Delivery Date, in form and substance reasonably satisfactory to the
Representatives, to the effect that:
(i) Each of the Company and its subsidiaries has been duly
incorporated, and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation with
corporate power to own its properties and carry on its business as
described in the Registration Statement;
(ii) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, 10,000,000 shares of Series C
Preferred Stock. The authorized capital stock of the Company,
including the Shares, conforms as to legal matters to the description
thereof contained in the Registration Statement and the Prospectus;
(iii) The Shares have been duly authorized by all necessary
corporate action on the part of the Company and, upon payment for and
delivery of the Shares in accordance with the Agreement and the
countersigning of the certificate or certificates representing the
Shares by a duly authorized signatory of the registrar for the
Company's Common Stock, the Shares will be validly issued, fully paid
and non-assessable;
(iv) Holders of the capital stock of the Company are not
entitled to any preemptive right to subscribe to any additional shares
of the Company's capital stock under the Company's Certificate of
Incorporation or Bylaws;
(v) The execution, delivery and performance of the
Agreement have been duly authorized by all necessary corporate action
on the part of the Company, and the Agreement has been duly executed
and delivered by the Company;
(vi) The execution and delivery by the Company of, and
performance of its obligations on or prior to the date of this opinion
under, the Agreement do not violate (i) the Company's Certificate of
Incorporation or Bylaws or (ii) any California or federal statute or
regulation that we have, in the exercise of customary professional
diligence, recognized as applicable to the Company or to transactions
of the type contemplated by the Agreement, except that we express no
opinion regarding any federal securities laws, or Blue Sky or state
securities laws or Section 10 of this Agreement except as otherwise
expressly stated herein.
(vii) No order, consent, permit or approval of any
California or federal governmental authority is required on the part
of the Company for the execution and delivery of the Agreement or for
the issuance and sale of the Shares, except such as have been obtained
under the Act and such as may be required under applicable Blue Sky or
state securities laws;
(viii) The execution, delivery and performance of the Merger
Agreement have been duly authorized by all necessary corporate action
on the part of the Company and Operating Company, and the Merger
Agreement has been duly executed and delivered by the Company and
Operating Company;
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(ix) The performance by each of the Company and Operating
Company of its obligations on or prior to the date of this opinion
under the Merger Agreement do not violate (i) its Certificate of
Incorporation or Bylaws or (ii) any statute, rule or regulation that
we have, in the exercise of customary professional diligence,
recognized as applicable to the Company or Operating Company or to
transactions of the type contemplated by the Merger Agreement;
(x) No order, consent, permit or approval of any California
or federal governmental authority that we have, in the exercise of
customary professional diligence, recognized as applicable to the
Company or Operating Company or to transactions of the type
contemplated by the Merger Agreement is required on the part of either
the Company or Operating Company for the execution and delivery of,
and performance of its obligations under, the Merger Agreement, except
for such as have been obtained;
(xi) We have not, since January 1, 1994 given substantive
attention on behalf of the Company to, or represented the Company in
connection with, any actions, suits or proceedings pending or
threatened against the Company before any court, arbitrator or
governmental agency, which (i) seek to affect the enforceability of
the Agreement or (ii) seek damages in excess of $10,000. We call your
attention to the fact that our engagement is limited to specific
matters as to which we are consulted by the Company;
(xii) The Registration Statement has been declared effective
under the Act, and, no stop order suspending the effectiveness of the
Registration Statement has been issued and, to the knowledge of such
counsel, no proceeding for that purpose is pending or threatened by
the Commission;
(xiii) The Registration Statement, on the date it was filed,
appeared on its face to comply in all material respects with the
requirements as to form for registration statements on Form S-1 under
the Act and the related rules and regulations in effect at the date of
filing, except that we express no opinion concerning the financial
statements and other financial information contained therein;
(xiv) The statements set forth in the Prospectus under the
headings "Risk Factors--Concentration of Stock Ownership; --Benefits
of Offering to Existing Stockholders; --Anti-Takeover Provisions;
--Shares Eligible for Future Sale," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources," "Business--Properties; Environmental
Matters," "Management," "Certain Transactions," "Principal
Stockholders and Selling Stockholder," "Description of Capital Stock,"
"Shares Eligible for Future Sale," and Item 14 of the Registration
Statement, insofar as such statements constitute a summary of the
terms of legal matters, documents,
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agreements or other instruments or governmental, regulatory or other
legal proceedings, are fair and accurate in all material respects;
(xv) Neither the Company nor any subsidiary is an
"INVESTMENT COMPANY" within the meaning of the 1940 Act;
(xvi) We do not know of any contract or other document of a
character required to be filed as an exhibit to the Registration
Statement which is not filed as required;
(xvii) The Company's execution and delivery of, and
performance of its obligations on or prior to the date of this opinion
under, the Agreement do not (i) violate, breach, or result in a
default under, any existing obligation of or restriction on the
Company under any other agreement (the "Other Agreements") identified
in the Company Certificate, or (iii) breach or otherwise violate any
existing obligation of or restriction on the Company under any order,
judgment or decree of any California or federal court or governmental
authority binding on the Company identified in the Company
Certificate;
(xviii) To the best of such counsel's knowledge, except as
provided in the Agreement and the Stockholders Agreement there are no
contracts, agreements or understandings between the Company or any
subsidiary and any person granting such person the right (other than
rights which have been waived or satisfied) to require the Company to
file a Registration Statement under the Securities Act with respect to
any securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other Registration Statement filed by
the Company under the Securities Act; and
(xix) In connection with our participation in the
preparation of the Registration Statement and the Prospectus, we have
not independently verified the accuracy, completeness or fairness of
the statements contained therein, and the limitations inherent in the
examination made by us and the knowledge available to us are such that
we are unable to assume, and we do not assume, any responsibility for
such accuracy, completeness or fairness (except as otherwise
specifically stated in paragraph 9(e)(x) above). However, on the
basis of our review and participation in conferences in connection
with the preparation of the Registration Statement and the Prospectus,
and relying as to materiality to a large extent upon opinions of
officers and other representatives of the Company, we do not believe
that the Registration Statement as of its effective date contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and we do not believe that the Prospectus on
the date hereof, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. However, we
express no opinion or belief as to the financial statements and other
financial information contained in the Registration Statement or the
Prospectus.
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(f) Lyon, P.C. shall have furnished to the Representatives his
written opinion, as counsel to the Company, addressed to the Underwriters
and dated such Delivery Date, in form and substance reasonably satisfactory
to the Representatives, to the effect that:
(i) The Company, together with its subsidiaries, owns and
possesses all right, title and interest in and to, or has duly
licensed or otherwise obtained from third parties, all patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses or any
other proprietary right ("TRADE RIGHTS") which are material to the
business of the Company. Neither the Company nor any of its
subsidiaries has received any notice of infringement, misappropriation
or conflict from any third party as to such Trade Rights which has not
been resolved or disposed of and to the knowledge of the Company and
its subsidiaries, neither the Company nor any of its subsidiaries has
infringed, misappropriated or otherwise conflicted with Trade Rights
of any third parties;
(g) The counsel for the Selling Stockholder (which may be an
employee of the Selling Stockholder) shall have furnished to the
Representatives its written opinion, as counsel to the Selling Stockholder,
addressed to the Underwriters and dated the First Delivery Date, in form
and substance reasonably satisfactory to the Representatives, to the effect
that:
(i) Selling Stockholder has corporate power and authority
to enter into this Agreement; the execution, delivery and performance
of this Agreement by the Selling Stockholder and the consummation by
the Selling Stockholder of the transactions contemplated hereby will
not result in any violation of the provisions of the charter or
by-laws of the Selling Stockholder such Selling Stockholder, and,
except for the registration of the Shares under the Securities Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase and
distribution of the Shares by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required by the Selling
Stockholder for the execution, delivery and performance of this
Agreement by Selling Stockholder and the consummation by the Selling
Stockholder of the transactions contemplated hereby;
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Stockholder;
(iii) Immediately prior to the First Delivery Date, the
Selling Stockholder owns the Shares, free and clear of all adverse
claims (within the meaning of Section 8-302 of the Uniform Commercial
Code as in effect in the State of New York) and has the full right,
power and authority to sell, assign, transfer and deliver such Shares
to the Underwriters;
(iv) Upon delivery of the Shares to be sold by the Selling
Stockholder under this Agreement to the several Underwriters, and
payment therefor pursuant to this Agreement, the Underwriters will
hold such Shares free and clear of all adverse claims (within the
meaning of Section 8-302 of the Uniform Commercial Code
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as in effect in the State of New York) assuming the Underwriters
purchased such Shares pursuant to this Agreement in good faith and
without notice of any such adverse claim.
(h) The Representatives shall have received from Latham &
Watkins, counsel for the Underwriters, such opinion or opinions, dated such
Delivery Date, with respect to the issuance and sale of the Shares, the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.
(i) Arthur Andersen LLP shall have furnished to the
Representatives a letter or letters in form and substance satisfactory to
each of the Representatives, addressed to the Underwriters and dated the
date hereof and such Delivery Date, containing statements and information
of the type ordinarily included in accountants' "COMFORT LETTERS" with
respect to the financial statements and financial information contained in
the Registration Statement and the Prospectus.
(j) The Company shall have furnished to the Representatives a
certificate of the Company, dated such Delivery Date, signed by the
Chairman of the Board, or the President and the principal financial or
accounting officer of the Company, in their capacities or such, stating
that:
(i) The representations, warranties and agreements of the
Company in Section 1 of this Agreement are true and correct as of the
date of this Agreement and as of such Delivery Date and, the Company
has complied with all the agreements and satisfied all the conditions
on their part to be performed;
(ii) They have carefully examined (A) the Registration
Statement and, in the Company's opinion (1) as of the Effective Date,
the Registration Statement did not include any untrue statement of a
material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and (2) since the Effective Date no event has occurred
which should have been set forth in an amendment to the Registration
Statement and (B) the Prospectus and, in the Company's opinion (1) as
of the Effective Date, the Prospectus did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, and (2) since the Effective Date no event has occurred
which should have been set forth in a supplement or amendment to the
Prospectus. The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the best of the
knowledge of the respective signers, no proceedings for that purpose
have been instituted or are pending or contemplated under the
Securities Act; and
(iii) Since the date of the most recent financial statements
included in the Registration Statement and the Prospectus (including
any amendment or supplement thereto), there has been no material
adverse change in the condition (financial or other), earnings,
business, properties or prospects of the Company and its
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subsidiaries, taken as a whole, from that set forth in the
Registration Statement and the Prospectus, whether or not arising from
transactions in the ordinary course of business, except as set forth
in the Registration Statement and the Prospectus (exclusive of any
amendment or supplement thereto).
(k) The Selling Stockholder shall have furnished to the
Representatives on the First Delivery Date a certificate, dated the First
Delivery Date, signed by, or on behalf of, the Selling Stockholder stating
that the representations, warranties and agreements of the Selling
Stockholder contained herein are true and correct as of the First Delivery
Date and that the Selling Stockholder has complied with all agreements
contained herein to be performed by the Selling Stockholder at or prior to
the First Delivery Date.
(l) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute, otherwise than as set forth or
contemplated in the Prospectus or (ii) since such date there shall not have
been any material change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any change, or any development
involving a prospective change, having a material effect on the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable to
proceed with the public offering or the delivery of the Shares being
delivered on such Delivery Date on the terms and in the manner contemplated
in the Prospectus.
(m) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange or in the over-the-counter market, or trading in any securities of
the Company on any exchange or in the over-the-counter market, shall have
been suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Shares
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(n) The Company and the Selling Stockholder, respectively, shall
not have failed at or prior to such Delivery Date to perform or comply with
any of the agreements herein contained and required to be performed or
complied with by the Company and the Selling Stockholder, respectively, at
or prior to such Delivery Date.
(o) All of the transactions contemplated by the Reorganization
have been consummated.
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<PAGE>
(p) Each executive officer and director of the Company shall
have furnished to the Representatives, prior to the First Delivery Date, a
letter or letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree not to,
directly or indirectly, offer for sale, sell or otherwise dispose of (or
enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person during the period set
forth in Sections 6(i) and 7(a)) any shares of Common Stock or other
capital stock of the Company owned by such person, without the prior
written consent of Lehman Brothers Inc.
(q) On or prior to such Delivery Date, the Company shall have
furnished to the Underwriters such further information, certificates and
documents as the Underwriters may reasonably request.
(r) No action shall have been taken and no statute, rule or
regulation or order shall have been enacted, adopted or issued by any
governmental agency that would as of such Delivery Date prevent the
issuance of the Shares; no injunction, restraining order or order of any
nature by a federal or state court of competent jurisdiction shall have
been issued as of such Delivery Date that would prevent the issuance of the
Shares; and, on such Delivery Date no action, suit or proceeding shall be
pending against or affect the Company or any of its subsidiaries, before
any court or arbitrator or any governmental body, agency or official that,
if adversely determined, would interfere with or adversely affect the
issuance of the Shares or would, except as disclosed in the Registration
Statement and the Prospectus, individually or in the aggregate have a
material adverse effect on the transactions contemplated by the
Reorganization or the Shares.
(s) The Nasdaq National Market System shall have approved the
Shares for listing, subject only to official notice of issuance and
evidence of satisfactory distribution.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless each
Underwriter, (including any Underwriter acting in its capacity as
"QUALIFIED INDEPENDENT UNDERWRITER" pursuant to Rule 2720 of the NASD) its
officers and employees and each person, if any, who controls any
Underwriter within the meaning of the 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 that Underwriter, officer, employee or controlling person
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 any Preliminary Prospectus, the Registration Statement,
the Prospectus or in any amendment or supplement thereto or (B) in any blue
sky application or other document prepared or executed by the Company (or
based upon any written information furnished by the Company) 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 any
20
<PAGE>
Preliminary Prospectus, the Registration Statement or the Prospectus, or in
any amendment or supplement thereto, or in any Blue Sky Application 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 any Underwriter in connection with, or
relating in any manner to, the Shares or the offering contemplated hereby,
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 the Company 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 such Underwriter through its gross negligence or
willful misconduct), and shall reimburse each Underwriter and each officer,
employee or controlling person promptly upon demand for any legal or other
expenses reasonably incurred by that Underwriter, 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 the Company
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 any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any such amendment or supplement, or in any Blue Sky
Application, in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for
inclusion therein. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Underwriter or to any
officer, employee or controlling person of that Underwriter.
(b) The Selling Stockholder agrees, subject to the limitation
set forth in Section 10(g), to indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who
controls any Underwriter within the meaning of the 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 that Underwriter, officer, employee or
controlling person 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 any Preliminary Prospectus, the
Registration Statement, the Prospectus or any amendment or supplement
thereto or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, 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, any preliminary prospectus, the Prospectus, or any
amendment or supplement thereto, in conformity with information provided in
writing by the Selling Stockholder to the Company specifically for use
therein and will reimburse each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling persons 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, any preliminary
prospectus, the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with
21
<PAGE>
written information furnished to the Company by or on behalf of any
Underwriter through the Representatives, specifically for use therein; or
(ii) if such statement or omission was contained or made in any preliminary
prospectus and corrected in the Prospectus and (1) any such loss, claim,
damage or liability suffered or incurred by an Underwriter (or any person
who controls any Underwriter) resulted from an action, claim or suit by any
person who purchased Shares which are the subject thereof from such
Underwriter in the offering and (2) such Underwriter failed to deliver or
provide a copy of the Prospectus to such person at or prior to the
confirmation of the sale of such Shares in any case where such delivery is
required by the Securities Act. This indemnity agreement will be in
addition to any liability which the Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, its officers and employees, each of its
directors (including any person who, with his or her consent, is named in
the Registration Statement as about to become a director of the Company),
the Selling Stockholder and each person, if any, who controls the Company
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof, to
which the Company or any such director, officer or controlling person 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 any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto, or (B) in any
Blue Sky Application or (ii) the omission or alleged omission to state in
any Preliminary Prospectus, the Registration Statement or the Prospectus,
or in any amendment or supplement thereto, or in any Blue Sky Application
any material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information concerning such Underwriter furnished to the Company through
the Representatives by or on behalf of that Underwriter specifically for
inclusion therein, and shall reimburse the Company and any such director,
officer, the Selling Stockholder or controlling person promptly upon demand
for any legal or other expenses reasonably incurred by the Company or any
such director, officer, the Selling Stockholder 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. The foregoing indemnity agreement is in addition to any
liability which any Underwriter may otherwise have to the Company or any
such director, officer, employee, the Selling Stockholder or controlling
person.
(d) Promptly after receipt by an indemnified party under this
Section 10 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 Section 10, 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
Section 10 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 Section 10. 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
thereof with counsel reasonably satisfactory to the indemnified
22
<PAGE>
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
Section 10 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than
reasonable costs of investigation; PROVIDED, HOWEVER, that the
Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective
officers, employees and controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Underwriters against the Company or the subsidiary under this Section 10
if, (i) the Company has failed to provide counsel reasonably satisfactory
to such indemnified party in a timely manner or (ii) counsel which has been
provided by the Company reasonably determines that its representation of
such indemnified party would present it with a conflict of interest, and in
that event the fees and expenses of such separate counsel shall be paid by
the Company or the subsidiary. 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.
(e) If the indemnification provided for in this Section 10 shall
for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 10(a) or 10(b) 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 the Company, the Selling
Stockholder and the Underwriters, 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 the Company, the Selling Stockholder and the
Underwriters, 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 the Company, the Selling Stockholder and
the Underwriters 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 the Company and the Selling Stockholder, and the total underwriting
discounts and commissions received by the Underwriters with respect to the
Shares purchased under this Agreement, bear to the total gross proceeds
from the offering of the Shares under this Agreement, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to whether 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 the Company, the Selling
Stockholder or the Underwriters, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The
23
<PAGE>
Company, the Selling Stockholder and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 10(e)
were to be determined by PRO RATA allocation (even if the Underwriters were
treated as one entity for such purpose) 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 Section 10(e) shall be deemed to
include, for purposes of this Section 10(e), any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 10(e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. 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. The
Underwriters' obligations to contribute as provided in this Section 10(e)
are several in proportion to their respective underwriting obligations and
not joint.
(f) The Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public offering of the
Shares by the Underwriters set forth on the cover page of, the legend
concerning over-allotments on the inside front cover page of and the
concession and reallowance figures appearing under the caption
"UNDERWRITING" in, the Prospectus are correct and constitute the only
information concerning such Underwriters furnished in writing to the
Company by or on behalf of the Underwriters specifically for inclusion in
the Registration Statement and the Prospectus.
(g) Notwithstanding any of the provisions of this Section 10,
the Selling Stockholder's liability to the Underwriters and/or the Company
and their officers, employees and controlling persons, shall not exceed the
net proceeds received by Selling Stockholders from the sale of the Shares
being sold by the Selling Stockholder pursuant to this Agreement to the
Underwriters, and in no event shall the Company have any right of
contribution from the Selling Stockholder for liability which the Company
may have to the Underwriters, their officers, employees and controlling
persons pursuant to Section 10(a) hereof, except under the circumstances
which give rise to liability by the Selling Stockholder under Section 10(b)
hereof.
11. DEFAULTING UNDERWRITERS.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting Underwriters shall be obligated to purchase the Shares which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Shares set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Shares set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
PROVIDED, HOWEVER, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Shares on such Delivery Date if the total
number of Shares which the defaulting Underwriter or Underwriters agreed but
failed to purchase on such date exceeds 9.09% of the total number of shares of
the Shares to be purchased on such Delivery Date, and any remaining non-
defaulting Underwriter shall not be obligated to purchase more than 110% of the
number of shares of the Shares which it agreed to purchase on such Delivery Date
pursuant to the terms of Section 3. If the foregoing
24
<PAGE>
maximums are exceeded, the remaining non-defaulting Underwriters, or those other
underwriters satisfactory to the Representatives who so agree, shall have the
right, but shall not be obligated, to purchase, in such proportion as may be
agreed upon among them, all the Shares to be purchased on such Delivery Date.
If the remaining Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery Date,
this Agreement (or, with respect to the Option Delivery Date, the obligation of
the Underwriters to purchase, and of the Company to sell, the Option Shares)
shall terminate without liability on the part of any non-defaulting Underwriter
or the Company, except that the Company will continue to be liable for the
payment of expenses to the extent set forth in Sections 8 and 13. As used in
this Agreement, the term "UNDERWRITER" includes, for all purposes of this
Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 11, purchases Firm Shares which
a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Shares of a defaulting
or withdrawing Underwriter, either the Representatives or the Company may
postpone the Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
12. TERMINATION. The obligations of the Underwriters hereunder may
be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Shares if, prior to that
time, any of the events described in Section 9(l) or 9(n) shall have occurred or
if the Underwriters shall decline to purchase the Shares for any reason
permitted under Section 9 or Section 11.
13. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) the Company
shall fail to tender the Shares for delivery to the Underwriters by reason of
any failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company is
not fulfilled (other than the conditions set forth in subdivision (m) of Section
9 hereof), the Company will reimburse the Underwriters for all reasonable out-
of-pocket expenses (including fees and disbursements of counsel) incurred by the
Underwriters in connection with this Agreement and the proposed purchase of the
Shares, and upon demand the Company shall pay the full amount thereof to the
Representatives. If this Agreement is terminated pursuant to Section 12 by
reason of the default of one or more Underwriters, the Company shall not be
obligated to reimburse any defaulting Underwriter on account of those expenses.
13. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526-6588), with a copy, in the case of any notice
pursuant to Section 10(d), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th
Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Mr. David Warner (Fax: 714-712-4904);
with a copy to C. James Levin, Esq.,
25
<PAGE>
O'Melveny & Myers LLP, 400 S. Hope Street, Los Angeles, California 90071
(Fax: 213-669-6407); and
(c) If to the Selling Stockholder, shall be delivered or sent by
mail, telex or facsimile transmission to General Electric Capital
Corporation, 201 High Ridge Road, Stamford, CT, 06927, Attention: Paul
Vitti, (Fax: 203-316-7894), with copies to General Electric Capital
Corporation, 201 High Ridge Road, Stamford, CT 06927, Attention:
Corporate Finance Group, Department Counsel (Fax: 203-316-7889), with a
copy to Sidley & Austin, 555 West 5th Street, Los Angeles, CA, 90013,
Attention: Edward D. Eddy, III (Fax: 213-896-6600).
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to
Section 10(d) shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its acceptance
telex to the Representatives, which address will be supplied to any other party
hereto by the Representatives upon request. Any such statements, requests,
notices or agreements shall take effect at the time of receipt thereof. The
Company shall be entitled to act and rely upon any request, consent, notice or
agreement given or made on behalf of the Underwriters by Lehman Brothers Inc. on
behalf of the Representatives.
15. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company, the
Selling Stockholder, and their respective successors. This Agreement and the
terms and provisions hereof are for the sole benefit of only those persons,
except that (A) the representations, warranties, indemnities and agreements of
the Company, and the Selling Stockholder, contained in this Agreement shall also
be deemed to be for the benefit of the person or persons, if any, who control
any Underwriter within the meaning of Section 15 of the Securities Act and (B)
the indemnity agreement of the Underwriters contained in Section 10(c) of this
Agreement shall be deemed to be for the benefit of directors of the Company,
officers of the Company who have signed the Registration Statement and any
person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section 15, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
16. SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Stockholder and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Shares and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
17. DEFINITION OF THE TERMS "BUSINESS DAY." For purposes of this
Agreement, (a) "business day" means any day on which the New York Stock
Exchange, Inc. is open for trading.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
26
<PAGE>
20. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
[SIGNATURE PAGES TO FOLLOW]
27
<PAGE>
If the foregoing correctly sets forth the agreement among the Company,
the Selling Stockholder and the Underwriters, please indicate your acceptance in
the space provided for that purpose below.
Very truly yours,
KAYNAR TECHNOLOGIES INC.
By
-------------------------------
Name
Title
GENERAL ELECTRIC CAPITAL CORPORATION
By
-------------------------------
Name
Title
S-1
<PAGE>
Accepted:
LEHMAN BROTHERS INC.
PAINEWEBBER INCORPORATED.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
--------------------------------
AUTHORIZED REPRESENTATIVE
S-2
<PAGE>
EXHIBIT A
Lehman Brothers Inc.
PaineWebber Incorporated
c/o Lehman Brothers Inc.
The World Financial Center
New York, NY 10285
Ladies and Gentlemen:
The undersigned understands that you and certain other firms propose
to enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of
Kaynar Technologies Inc. (the "Company") and that the Underwriters propose to
reoffer the Shares to the public.
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that without the prior written consent of Lehman
Brothers Inc. the undersigned will not sell, offer to sell, solicit an offer to
buy, contract to sell, grant any option to purchase, or otherwise transfer or
dispose of, any Shares of the Common Stock, or any securities convertible into
or exercisable or exchangeable for the Common Stock, for a period of 180 days
after the date of the final Prospectus relating to the offering of the Shares to
the public by the Underwriters.
The undersigned agrees that the provisions of this letter agreement
shall be binding also upon the successors, assigns, heirs and personal
representatives of the undersigned.
In furtherance of the foregoing, the Company and ChaseMellon
Shareholder Services, Inc., its Transfer Agent, are hereby authorized to decline
to make any transfer of securities if such transfer would constitute a violation
or breach of this letter agreement.
It is understood that, if the Underwriting Agreement does not become
effective, or if the Underwriting Agreement (other than the provisions thereof
which survive termination) shall terminate or be terminated prior to payment for
and delivery of the Shares, you will release me from all obligations under this
letter agreement.
Very truly yours,
------------------------------
[Name of Signatory]
Dated: May ___, 1997
<PAGE>
SCHEDULE 1
Number of
Underwriters Shares
------------ ----------
Lehman Brothers Inc.. . . . . . . . . . . . . . . . . . . 620,000
PaineWebber Incorporated. . . . . . . . . . . . . . . . . 620,000
ABN AMRO Chicago Corporation. . . . . . . . . . . . . . . 55,000
Bear, Stearns & Co. Inc.. . . . . . . . . . . . . . . . . 55,000
Credit Suisse First Boston Corporation. . . . . . . . . . 55,000
A.G. Edwards & Sons, Inc. . . . . . . . . . . . . . . . . 55,000
Everen Securities, Inc. . . . . . . . . . . . . . . . . . 55,000
Goldman, Sachs & Co.. . . . . . . . . . . . . . . . . . . 55,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . 55,000
Morgan Stanley & Co. Incorporated . . . . . . . . . . . . 55,000
Oppenheimer & Co., Inc. . . . . . . . . . . . . . . . . . 55,000
Salomon Brothers Inc. . . . . . . . . . . . . . . . . . . 55,000
Crowell, Weedon & Co. . . . . . . . . . . . . . . . . . . 30,000
Fahnestock & Co. Inc. . . . . . . . . . . . . . . . . . . 30,000
First of Michigan Corporation . . . . . . . . . . . . . . 30,000
Gabelli & Company, Inc. . . . . . . . . . . . . . . . . . 30,000
Legg Mason Wood Walker, Incorporated. . . . . . . . . . . 30,000
Pennsylvania Merchant Group Ltd . . . . . . . . . . . . . 30,000
Sutro & Co. Incorporated. . . . . . . . . . . . . . . . . 30,000
---------
Total . . . . . . . . . . . . . . . . . . . . 2,000,000
---------
---------
Sch-1
<PAGE>
SCHEDULE 2
Jurisdiction
Subsidiary of Incorporation
- ---------- ----------------
Kaynar Technologies Ltd..................................................England
K.T.I. Femipari Kft......................................................Hungary
Kaynar Technologies International Sales Corp............................Barbados
Recoil Holdings, Inc....................................................Delaware
Recoil Australia Holdings, Inc..........................................Delaware
Recoil Pty...................................................Victoria, Australia
Recoil (Europe) Ltd...............................................United Kingdom
Recoil Marketing BVBA.............................................Aalst, Belgium
Sch-2
<PAGE>
SPECIAL BUSINESS PROVISIONS
SPECIAL BUSINESS PROVISIONS
between
THE BOEING COMPANY
and
KAYNAR TECHNOLOGIES INCORPORATED
Number STD-65751-025
-------------
* Confidential portions omitted and filed separately with the Commission.
i
<PAGE>
SPECIAL BUSINESS PROVISIONS
TABLE OF CONTENTS
Section Item
- ------- ----
1.0 DEFINITIONS
2.0 PURCHASE ORDER NOTE
3.0 PRICES
3.1 Product Pricing
3.2 Manufacturing Configuration Baseline
3.3 Packaging
4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT
5.0 APPLICABLE LAW JURISDICTION
6.0 PRODUCT ASSURANCE
6.1 Governing Document
7.0 PAYMENT
7.1 Recurring Price
7.2 Non-Recurring Price/Special Charges
8.0 ACCELERATION/DECELERATION AT NO COST
9.0 NOTICES
9.1 Addresses
10.0 OBLIGATION TO PURCHASE AND SELL
11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY
12.0 CHANGES
12.1 Changes to the Statement of Work
12.2 Computation of Equitable Adjustment
12.3 Obsolescence
12.4 Change Absorption
12.5 Planning Schedule
12.6 Value Engineering
12.7 Reduction in Quantity to be Delivered
13.0 SPARES AND OTHER PRICING
13.1 Spares
13.2 Short Flow Production Requirements
13.3 Tooling
ii
<PAGE>
SPECIAL BUSINESS PROVISIONS
TABLE OF CONTENTS
Section Item
- ------- ----
13.4 Pricing of Boeing's Supporting Requirements
13.5 Pricing of Requirements for Modification or Retrofit
13.6 Similar Pricing
14.0 STATUS REPORTS/REVIEWS
15.0 PROVISIONS FOR OFFSET/BUSINESS STRATEGIES FOREIGN
PROCUREMENT REPORT
16.0 BOEING FURNISHED MATERIAL
17.0 ASSIGNMENT
Attachment 1, 1A Work Statement and Pricing
Attachment 2 Foreign Procurement Report
Attachment 3 Rates and Factors
Attachment 4 Boeing AOG Coverage
Attachment 5 Boeing AOG/Critical
Shipping Notification
Attachment 6 Economic Price Adjustment for Titanium
Seal Nuts
iii
<PAGE>
SPECIAL BUSINESS PROVISIONS
AMENDMENTS
AMEND
NUMBER DESCRIPTION DATE APPROVAL
- ------ ----------- ---- --------
1 Add BACN10JS part family to 12/3/96 see original
Attachment 1, page 1 and 2.
2 Correct pricing to reflect 4 12/9/96 see original
decimal places.
3 Add exhibit 1A and 6 for TN 1/17/97
pricing.
Add escalation for Attachment
1A to section 3.1.
Modify section 10.0 to denote
percent of requirements
purchased for Attachment 1A.
Modify sections: 3.1, 3.2, 3.3,
7.2, 10.0, 12.6.3, 13.1.3,
13.1.3.1, 13.1.3.2, 13.4, 13.5,
and 17.0 to include Attachment 1A.
iv
<PAGE>
SPECIAL BUSINESS PROVISIONS
SPECIAL BUSINESS PROVISIONS
THESE SPECIAL BUSINESS PROVISIONS are entered into as of September 20, 1996 by
and between Kaynar Technologies Incorporated, a California corporation with its
principal office in Fullerton, California ("Seller"), and The Boeing Company, a
Delaware corporation with an office in Seattle, Washington acting by and through
its division the Boeing Commercial Airplane Group ("Boeing").
RECITALS
--------
A. Boeing and Seller entered into a General Terms Agreement GTA #
BCA-65751-029 dated September 20, 1996, (the "Agreement") which is
incorporated herein and made a part hereof by this reference, for the sale
by Seller and purchase by Boeing of Products.
B. Boeing and Seller desire to include these special business provisions
("SBP") relating to the sale by Seller and purchase by Boeing of Products.
Now, therefore, in consideration of the mutual covenants set forth herein, the
parties agree as follows:
PROVISIONS
1.0 DEFINITIONS
The definitions used herein shall be the same as used in the Agreement.
2.0 PURCHASE ORDER NOTE
The following note shall be contained in any Order to which these SBP are
applicable:
This Order is subject to and incorporates by this reference SBP
STD-65751-025 between The Boeing Company and Kaynar Technologies
Incorporated dated September 20, 1996.
Each Order bearing such note shall be governed by and be deemed to include
the provisions of these SBP.
3.0 PRICES
3.1 PRODUCT PRICING
The prices and applicable period of performance of Products scheduled for
delivery under this SBP are set forth in Attachment 1 and 1A. Prices are
in United States dollars, F.O.B. Fullerton, California. Prices for
Products in Attachment 1A shall be subject to escalation as set forth in
Attachment 6.
1
<PAGE>
SPECIAL BUSINESS PROVISIONS
3.2 MANUFACTURING CONFIGURATION BASELINE
Unit pricing for each Product or part number shown in Attachment 1 and 1A
are based on the latest revisions of the engineering drawings or
specifications at the time of the signing of this SBP.
3.3 PACKAGING
The prices shown in Attachment 1 and 1A include packaging costs and all
materials and labor required to package Products identified in Attachment 1
and 1A. Packaging shall be furnished by the Seller in accordance with
Document M6-1025, Volume II, "Supplier Part Protection Guide", Document
D200-10038-2 "Supplier Packaging Requirements", or in accordance with
instructions specified on individual Order as applicable. In the case of
Products to be shipped directly to Customers, A.T.A. Specification 300
"Specification for Packaging of Airline Supplies" shall apply unless
otherwise directed by Boeing. Bulk packaging is acceptable for Products
shown on Attachment 1A.
4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT
All work performed under this SBP shall be in accordance with the following
document which is incorporated herein and made a part hereof by this
reference:
Document D1-9000, "Advanced Quality System for Boeing Suppliers," as
amended from time to time.
5.0 APPLICABLE LAW JURISDICTION
Each Order, including all matters of construction, validity and
performance, shall in all respects be governed by, and construed and
enforced in accordance only with the law of the State of Washington as
applicable to contracts entered into and to be performed wholly within such
State between citizens of such State, without reference to any rules
governing conflicts of law. Seller hereby irrevocably consents to and
submits itself exclusively to the jurisdiction of the applicable courts of
the State and the federal courts therein for the purpose of any suit,
action or other judicial proceeding arising out of or connected with any
Order or the performance or subject matter thereof. Seller hereby waives
and agrees not to assert by way of motion, as a defense, or otherwise, in
any such suit, action or proceeding, any claim that (a) Seller is not
personally subject to the jurisdiction of the above-named courts, (b) the
suit, action or proceeding is brought in an inconvenient forum or (c) the
venue of the suit, action or proceeding is improper.
6.0 PRODUCT ASSURANCE
6.1 GOVERNING DOCUMENT
Seller acknowledges that Boeing and Customers must be able to rely on each
Product performing as specified and that Seller will provide all required
support. Accordingly, the following provisions and document(s) are
incorporated herein and made a part hereof:
Seller warrants to Boeing and Customers that Products shall: (a) conform
in all respects to all the requirements of the Order; (b) be free from all
defects in materials and workmanship; and (c) to the extent not
manufactured pursuant to detailed designs furnished by Boeing, be free from
all defects in design and be fit for the intended purposes.
2
<PAGE>
SPECIAL BUSINESS PROVISIONS
7.0 PAYMENT
7.1 RECURRING PRICE
Unless otherwise provided in the applicable Order, payment of the recurring
price shall be made in accordance with Form X-27981 "Pay From Receipt -
Additional Terms and Conditions Regarding Invoicing and Payment". Payment
terms shall be net thirty (30) days except as otherwise agreed to by the
parties. All payments are subject to adjustment for shortages, credits and
rejections.
7.2 NON-RECURRING PRICE/SPECIAL CHARGES
Unless otherwise provided in the applicable Order, any non-recurring price
payable by Boeing under Attachment 1 or 1A shall be paid within the term
discount period or thirty (30) calendar days (whichever is later) after
receipt by Boeing of both acceptable Products and a correct invoice.
8.0 ACCELERATION/DECELERATION AT NO COST
Notwithstanding GTA Section 10.0, Boeing may make changes in the delivery
schedule without additional cost or change to the unit price stated in the
applicable Order if (a) the delivery date of the Product under such Order
is on or before the last date of contract, if applicable, and (b) Boeing
provides Seller with written notice of such changes.
9.0 NOTICES
9.1 ADDRESSES
Notices and other communications shall be given in writing by personal
delivery, United States mail, telex, teletype, telegram, facsimile, cable
or electronic transmission addressed to the respective party as follows:
To Boeing: Attention: Buyer: Hugh McCormick, M/S 38-FW
BOEING COMMERCIAL AIRPLANE GROUP
MATERIEL DIVISION
P.O. Box 3707
Seattle, Washington 98124-2207
To Seller: Attention: Paula Smith
KAYNAR TECHNOLOGIES INCORPORATED
800 S. State Collage Blvd.
Fullerton, CA 92634-3001
3
<PAGE>
SPECIAL BUSINESS PROVISIONS
10.0 OBLIGATION TO PURCHASE AND SELL
Boeing and Seller agree that in consideration of the prices set forth
under Attachment 1 and 1A, Boeing shall issue Orders for Products from
time to time to Seller for Boeing's requirements. For Product on
Attachment 1A * of Boeing's requirements shall be purchased from Seller.
If Seller maintains * performance for Product on Attachment 1A as measured
by Boeing *. If Seller fails to maintain * for Product on Attachment 1A.
Boeing *. Such Products shall be shipped at any scheduled rate of
delivery, as determined by Boeing, and Seller shall see to Boeing
Boeing's requirements of such Products, provided that, without
limitation on Boeing's right to determine its requirements. Boeing
shall not be obligated to issue any Orders for any given Product if:
A. *
B. Such Product is, in Boeing's reasonable judgment, not
technologically competitive at any time, for reasons including but
not limited to the *
C. Boeing gives reasonable notice to Seller of a change in any of
Boeing's aircraft which will result in Boeing no longer requiring
such Product for such aircraft:
D. Seller has materially defaulted in any of its obligations under
any Order, whether or not Boeing has issued a notice of default to
Seller pursuant to GTA Section 13.0; or,
E. * Seller cannot support Boeing's requirements for Products in the
amounts and within the delivery schedules Boeing requires.
11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY
Seller shall provide all necessary cost support data, source documents
for direct and indirect costs, and assistance at the Seller's facility
for cost performance reviews performed by Boeing pursuant to any Order.
Furthermore, Seller shall provide financial data, on a quarterly basis,
or as requested, to Boeing's Credit Office and Materiel Representative
for credit and financial condition reviews. Said data shall include
but not be limited to balance sheets, schedule of accounts payable and
receivable, major lines of credit, creditors, income statements (profit
and loss), cash flow statements, firm backlog, and headcounts. Copies
of such data are to be made available within 72 hours of any written
request by Boeing. This data is required in addition to the cost data
provided pursuant to GTA Section 9.0. All such information shall be
treated as confidential in accordance with GTA Section 20.0.
* Confidential portions omitted and filed separately with the Commission.
4
<PAGE>
SPECIAL BUSINESS PROVISIONS
12.0 CHANGES
12.1 CHANGES TO THE STATEMENT OF WORK
Boeing may direct Seller within the scope of the applicable Order and
in accordance with the provisions of GTA Section 10.0, to increase or
decrease the work to be performed by the Seller in the manufacture of
any Product.
12.2 COMPUTATION OF EQUITABLE ADJUSTMENT
NOT APPLICABLE
12.3 OBSOLESCENCE
Claims for obsolete or surplus material and work-in-process created by
change orders issued pursuant to this Section shall be subject to the
procedures set forth in GTA Section 12.0, except that Seller may not
submit a claim for obsolete or surplus material resulting from an
individual change order that has a total claim value of Twenty-Five
Hundred Dollars ($2500.00) or less. Payment for obsolete or surplus
materials shall be made by check deposited as first class mail to the
address designated by Seller in SBP Section 9.1. Payment will be made
on the tenth (10th) day of the month following the month of the
obsolescence claim settlement.
12.4 CHANGE ABSORPTION
12.4.1 NON-RECURRING AND RECURRING CHANGE ABSORPTION
NOT APPLICABLE
12.5 PLANNING SCHEDULE
Any planning schedule or quantity estimate provided by Boeing shall
be used solely for production planning. Boeing may purchase Products
in different quantities and specify different delivery dates as
necessary to meet Boeing's requirements. Such planning schedule and
quantity estimate shall be subject to adjustment from time to time.
Any such adjustment is not a change under GTA Section 10.0.
12.6 VALUE ENGINEERING
Seller may from time to time submit proposals to Boeing to change
drawings, designs, specifications or other requirements that:
a. decrease Seller's performance costs; or
b. produce a net reduction in the cost to Boeing of installation,
operation, maintenance or production of the Product.
Provided, that such change shall not impair any essential functions
or characteristics of the Products or Tooling.
5
<PAGE>
SPECIAL BUSINESS PROVISIONS
12.6.1 SUBMISSION OF PROPOSAL
Proposals shall be submitted to Boeing's Materiel Representative.
Boeing shall not be liable for any delay in acting upon a proposal.
Boeing's decision to accept or reject any proposal shall be final.
If there is a delay and the net result in savings no longer justifies
the investment, Seller will not be obligated to proceed with the
change. Seller has the right to withdraw, in whole or in part, any
proposal not accepted by Boeing within the time period specified in
the proposal. Seller shall submit, as a minimum, the following
information with the proposal:
a. description of the difference between the existing requirement
and the proposed change, and the comparative advantages and
disadvantages of each;
b. the specific requirements which must be changed if the proposal is
adopted;
c. the cost savings and Seller's implementation costs;
d. Each proposal shall include the need dates for engineering release
and the time by which a proposal must be approved so as to obtain
the maximum cost reduction.
12.6.2 ACCEPTANCE AND COST SHARING
Boeing may accept, in whole or in part, any proposal by issuing a
change order. Until such change has been issued, Seller shall remain
obligated to perform in accordance with the terms and requirements of
the original Order as written. Boeing and Seller shall share the
savings as follows:
* savings to Boeing;
* savings to Seller.
Seller shall include with each proposal verifiable cost records and
other data as required by Boeing for proposal review and analysis.
Each party shall be responsible for its own implementation costs,
including but not limited to non-recurring costs.
12.6.3 COST SAVINGS COMPUTATION
A change order shall be issued by Boeing and the unit price shall be
reduced in an amount equal to the savings portion attributable to
Boeing as set forth above. The applicable unit price as set forth in
Attachment 1 or 1A Statement of Work shall be amended to reflect such
change.
EXAMPLE:
Current Price: $600.00
Proposed Cost Savings: $100.00/unit
Boeing's Percentage: *
Seller's Percentage: *
* Confidential portions omitted and filed separately with the Commission.
6
<PAGE>
SPECIAL BUSINESS PROVISIONS
12.6.3 COST SAVINGS COMPUTATION (Continued)
STEP BY STEP COMPUTATION:
1. $100.00 unit savings x * Boeing's percentage of savings = *
Boeing savings.
2. $100.00 unit savings x * Seller's percentage of savings = *
Seller savings.
3. Net affect to the unit cost = *
New Unit Price For Units = *
12.6.4 WEIGHT REDUCTION PROPOSALS
Seller is encouraged to submit proposals to Boeing that reduce the
Product's weight without impairing any essential functions or
characteristics of the Product.
Seller shall submit such proposals in accordance with SBP Section
12.6.1 above. The amount of any costs or savings that result from a
weight reduction proposal shall be agreed by Boeing and Seller.
Seller shall include with each proposal verifiable cost records and
other data as required by Boeing for proposal review and analysis.
Boeing may accept in whole or in part, any such proposal by issuing a
change order to the applicable Order.
12.7 REDUCTION IN QUANTITY TO BE DELIVERED
NOT APPLICABLE
13.0 SPARES AND OTHER PRICING
13.1 SPARES
For purposes of this Section, the following definitions shall apply:
A. AIRCRAFT ON GROUND (AOG) - means the highest Spares priority.
Seller will expend best efforts to provide the earliest possible
delivery of any Spare designated AOG by Boeing. Such effort
includes but is not limited to working twenty-four (24) hours a
day, seven days a week and use of premium transportation. Seller
shall specify the delivery date and time of any such AOG Spare
within two (2) hours of receipt of an AOG Spare request.
B. CRITICAL - means an imminent AOG work stoppage. Seller will expend
best efforts to provide the earliest possible delivery of any
Spare designated Critical by Boeing. Such effort includes but is
not limited to working two (2) shifts a day, five (5) days a week
and use of premium transportation. Seller shall specify the
delivery date and time of any such Critical Spare within the same
working day of receipt of a Critical Spare request.
* Confidential portions omitted and filed separately with the Commission.
7
<PAGE>
SPECIAL BUSINESS PROVISIONS
13.1 SPARES (Continued)
C. EXPEDITE (CLASS I) - means a Spare required in less than Seller's
normal lead-time. Seller will expend best efforts to meet the
requested delivery date. Such effort includes but is not limited
to working overtime and use of premium transportation.
D. ROUTINE (CLASS III) - means a Spare required in Seller's normal
lead-time.
E. POA REQUIREMENT (POA) - means any detail component needed to
replace a component on an End Item Assembly currently in Boeing's
assembly line process. Seller shall expend best efforts feasible
to provide the earliest possible delivery of any Spare designated
as POA by Boeing. Such effort includes but is not limited to
working twenty-four (24) hours a day, seven days a week and use
of premium transportation. Seller shall specify the delivery date
and time of any such POA within two (2) hours of an AOG Spare
request.
F. IN-PRODUCTION - means any Spare with a designation of AOG, Critical,
Expedite, Routine, POA or End Item Assembly which is in the
current engineering configuration for the Product and is used on
a model aircraft currently being manufactured by Boeing.
G. NON-PRODUCTION REQUIREMENTS - means any Spare with a designation of
AOG, Critical, Expedite and Routine requirements which is used on
model aircraft no longer being manufactured by Boeing (Post
Production) or is in a non-current engineering configuration for
the Product (Out of Production).
H. BOEING PROPRIETARY SPARE - means any Spare which is manufactured
(i) by Boeing, or (ii) to Boeing's detailed designs with Boeing's
authorization or (iii) in whole or in part using Boeing's
Proprietary Materials.
13.1.1 SPARES SUPPORT
Seller shall provide Boeing with a written Spares support process
describing Seller's plan for supporting AOG and Critical commitments
and manufacturing support. The process must provide Boeing with the
name and number of a twenty-four (24) hour contact for coordination
of AOG and Critical requirements. Such contact shall be equivalent
to the coverage provided by Boeing to its Customers as outlined in
Attachment 4 "Boeing AOG Coverage" which is incorporated herein and
made a part hereof by this reference.
Seller shall notify Boeing as soon as possible via fax, telecon, or
as otherwise agreed to by the parties of each AOG and Critical
requirement shipment using the force identified in Attachment 5
"Boeing AOG and Critical Shipping Notification". Such notification
shall include time and date shipped, quantity shipped, Order,
pack slip, method of transportation and air bill if applicable.
Seller shall also notify Boeing immediately upon the discovery of
any delays in shipment of any requirement and identify the
earliest revised shipment possible.
8
<PAGE>
SPECIAL BUSINESS PROVISIONS
13.1.2 RECLASSIFICATION OR RE-EXERCISES
Boeing may on occasion, instruct Seller to re-prioritize or
reclassify an existing requirement in order to improve or otherwise
change the established shipping schedule. Seller shall expend the
effort required to meet the revised requirement as set forth above in
the definitions of the requirements. Seller's commitment of a
delivery schedule shall be given in accordance with that set forth
above for the applicable classification but in no case shall it
exceed twenty-four (24) hours from notification by Boeing.
13.1.3 SPARE PRICING
Except as set forth in subsections 13.1.3.1 and 13.1.3.2 below, the
price for Spare(s) shall *.
13.1.3.1 AIRCRAFT ON GROUND (AOG), CRITICAL SPARES AND POA REQUIREMENT
The price for AOG and Critical Spares and POA requirements shall be
the price for such Products listed on Attachment 1 or 1A.
13.1.3.2 EXPEDITE SPARE (CLASS 1)
The price for Expedite Spares shall be the price for such Products
listed on Attachment 1 and 1A.
13.1.4 SPECIAL HANDLING
The price for all effort associated with the handling and delivery of
Spare(s) is deemed to be included in the price for such Spare(s).
Provided, that if Boeing directs delivery of Spares to an F.O.B.
point other than Seller's plant, Boeing shall reimburse Seller for
shipping charges, including insurance, paid by Seller from the plant
to the designated F.O.B. point. Such charges shall be shown
separately on all invoices.
13.2 SHORT FLOW PRODUCTION REQUIREMENTS
Boeing shall pay no expedite charges for production requirements
released less than Seller's current ROLT. Seller agrees to support
Boeing's short flow requirements with its best effort.
* Confidential portions omitted and filed separately with the Commission.
9
<PAGE>
SPECIAL BUSINESS PROVISIONS
13.3 TOOLING
13.3.1 RESPONSIBLE PARTY
Seller shall absorb all costs for Tooling manufactured and/or
purchased by Seller necessary for the manufacture and delivery of the
Products including but not limited to rework, repair and maintenance
of the Tooling.
13.3.2 BOEING FURNISHED TOOLING
In the event Boeing furnishes Tooling to Seller to support the
delivery of Product(s), Seller shall comply with the Terms and
Conditions applicable to the Blanket Tooling Purchase Control Order
established with Seller who possess or controls Tooling. No repair,
replacement or rework required shall be performed without Boeing's
prior written consent. Boeing shall notify Seller of, what if any,
action shall be required for all discrepant Tooling.
13.4 PRICING OF BOEING'S SUPPORTING REQUIREMENTS
Any Products required to assist Boeing's supporting requirements,
including but not limited to color and appearance samples, design
studies, product qualification, Boeing-owned simulators, test
requirements, factory support, flight test spares will be provided
for not more than the applicable price as set forth in Attachment 1
or 1A.
13.5 PRICING OF REQUIREMENTS FOR MODIFICATION OR RETROFIT
Any Products required by Boeing to support a modification or retrofit
program shall be provided for *.
13.6 SIMILAR PRICING
New Products ordered by Boeing that are similar to or within Product
families of Products currently being manufactured by Seller shall be
priced *.
14.0 STATUS REPORTS/REVIEWS
When requested by Boeing, Seller shall update and submit, as a
minimum, monthly status reports on data requested by Boeing using a
method mutually agreed upon by Boeing and Seller.
When requested by Boeing, Seller shall provide to Boeing a
manufacturing milestone chart identifying the major purchasing,
planning and manufacturing operations for the applicable Product(s).
Upon request by Boeing, a program review may be held between the
parties. The location of such review shall be mutually agreed to by
the parties. The purpose of the review is to improve communication
and understanding between the parties to ensure program success.
* Confidential portions omitted and filed separately with the Commission.
10
<PAGE>
SPECIAL BUSINESS PROVISIONS
15.0 PROVISIONS FOR OFFSET/BUSINESS STRATEGIES FOREIGN PROCUREMENT REPORT
Seller agrees to cooperate with Boeing in identifying possible
subcontractors for work under any Order that support Boeing's offset
or business strategies. Prior to releasing any request for proposal
to a subcontractor to support Boeing's offset or business strategy,
Seller shall coordinate with Boeing.
Seller shall document on Attachment 2 all offers to contract and
executed contracts with such subcontractors including the dollars
contracted. Seller shall provide to Boeing with an updated copy of
Attachment 2 for the six-month periods ending June 30 and December 31
of each year. The reports shall be submitted on the 1st of August
and the 1st of February respectively.
16.0 BOEING FURNISHED MATERIAL
NOT APPLICABLE
17.0 ASSIGNMENT
Boeing and Seller agree that Boeing may, in its discretion, assign,
in part or in whole, its purchasing obligations under the Agreement
or any Order, as applicable, at the prices set forth in Attachment 1
and 1A thereof. Boeing reserves the right to rescind its assignment
at anytime.
Boeing's assignment of purchasing obligation includes scheduling,
issuance of Order(s), receival and inspection of Products, acceptance
or rejection of Products, payment for accepted Products, and ensuring
conformance to the quality assurance system requirements.
Boeing shall retain all other rights and obligations pursuant to the
applicable terms and conditions. In addition, Boeing reserves the
right, where necessary, to coordinate with and mediate between Seller
and any assignee regarding such assignment.
EXECUTED in duplicate as of the date and year first set forth above by the duly
authorized representatives of the parties.
THE BOEING COMPANY KAYNAR TECHNOLOGIES
By and Through its Division INCORPORATED
Boeing Commercial Airplane Group
/s/ Hugh N. McCormick /s/ Robert L. Beers
Name: Hugh N. McCormick Name: Robert L. Beers
Title: Buyer Title: Vice President Sales and Marketing
Date: January 20, 1997 Date: January 23, 1997
---------------- ----------------
11
<PAGE>
SPECIAL BUSINESS PROVISIONS
ATTACHMENT 1A TO
SPECIAL BUSINESS PROVISIONS
WORK STATEMENT AND PRICING
All Items listed on attachment 1A are titanium seal nuts.
The Re-order lead time (ROLT) for all items is expressed in weeks.
Tolerances applicable to Orders placed under this contract are +1% -1% of the
total Order quantity.
The price for Products to be delivered on or before 12-31-2000, shall be as
follows:
Item # PART NUMBER UNIT PRICE LEAD TIME
- -----------------------------------------------------------------------------
1
2 * * *
3
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
SPECIAL BUSINESS PROVISIONS
ATTACHMENT 6 TO
SPECIAL BUSINESS PROVISIONS
ECONOMIC PRICE ADJUSTMENT FOR TITANIUM SEAL NUTS
1997 THROUGH 2000
1. This clause sets forth the method for adjusting base prices as a result of
abnormal escalation for 1997 through 2000 provided that:
A. An abnormal price increase shall be made to the base unit price only
if the actual cumulative index exceeds the baseline cumulative
forecast as defined in paragraph 5.B below.
B. An abnormal price decrease shall be made to the base unit price only
if the actual cumulative index is less than baseline cumulative
forecast as defined in paragraph 5.C. below.
2. Adjustment will be determined by the following index:
A. MATERIAL - Producer Price Index (PPI) Titanium Mill Shapes, Code
P102505 as reported by the U.S. Bureau of Labor Statistics.
B. CONTENT - Material content shall be * of the Contract unit prices
listed in Attachment 1.
3. Baseline price is defined as the unit prices in Attachment 1A to the
Special Business Provisions.
4. SPECIAL NOTES:
In the event the U.S. Bureau of Labor Statistics discontinues or alters its
current method of calculating the index specified above, both parties shall
agree upon an appropriate substitution for or adjustment of the indices to
be employed herein.
* Confidential portions omitted and filed separately with the Commission.
1
<PAGE>
SPECIAL BUSINESS PROVISIONS
5. BASELINE FORECAST:
A. The cum baseline forecast is developed from the actual December 1996
index with an annual forecast through December 1999 as follows:
12/96 12/97 12/98 12/99
Code 102505 * * * *
Composite Rate (+/-) * * *
Therefore, the cumulative baseline band is as follows:
B. ESCALATION INCREASE
12/96 12/97 12/98 12/99
Max * * * *
C. ESCALATION DECREASE
12/96 12/97 12/98 12/99
Min * * * *
6. CALCULATION OF ADJUSTMENT ABNORMAL ESCALATION
The general equation for the calculation of a price change for 1998 shall
be:
A = *
Where CA = *
A = Adjusted Price
B = Base Price
CA = Cum Actuals
CB = Cum Baseline for December for the year preceding the re-price year as
defined in 5B. & 5C.
M1 = PPI Code P102505 - Actual index for the month of December of the year
preceding the re-price year.
* Confidential portions omitted and filed separately with the Commission.
2
<PAGE>
SPECIAL BUSINESS PROVISIONS
7. ABNORMAL ESCALATION INCREASE EXAMPLE:
If the actual indices are as noted below, the calculation of the 1999 price
would be established by simply multiplying the base price by the ratio of
the 1998 actual cum rate to the corresponding 1998 cum baseline rate.
12/96 12/97 12/98 12/99
Code P102505
Percent Change * * * *
Cum Actuals
Cum Baseline
Example:
1999 Price = *
If the base price = *
Then base material, = *
base non-material = *
= *
= *
= *
Then the 1999 Price = *
8. ABNORMAL ESCALATION DECREASE EXAMPLE
If the actual indices are as noted below, the calculation of the 1999 price
would be:
12/96 12/97 12/98 12/99
Code P102505
Percent Change * * * *
Cum Actuals
Cum Baseline
Example:
1999 Price = *
If the base price = *
Then base material, = *
base non-material = *
= *
= *
= *
Then the 1999 Price = *
* Confidential portions omitted and filed separately with the Commission.
3
<PAGE>
SPECIAL BUSINESS PROVISIONS
9. Assuming a price adjustment occurs for either 1998 or 1999, and the
succeeding year's actual index line returns within the baseline parameters,
as described in paragraphs 5.B and 5.C. above, then the price will also
return to the base price level.
10. The unit prices listed in Attachment 1A to the Special Business Provisions
are firm fixed for quantities ordered in 1997. Therefore, the beginning
base for cumulative abnormal escalation is the actual index for December
1996 and any adjustment from the base prices will begin with the unit
prices for 1998 if the actual cumulative index falls outside the baseline
cumulative forecast band as defined in paragraphs 5.B and C. above.
4
<PAGE>
Exhibit A
6-5751-02-69
Ex. 10.9
SUBJECT: NAS1804, NAS1805, BACN1OHR NUT SERIES
CONTRACT AWARD LETTER OF AGREEMENT
Gentlemen:
The Boeing Commercial Airplane Group, the Buyer, will place orders as noted
in Exhibit B and referred to herein as the Procurement Package, with Kaynar,
Division of Kaynar Technologies, Inc., the Seller. This Letter of Agreement
states the provisions which apply to this Procurement Package and
Subsequently Placed Orders.
All other Boeing Companies, Divisions or Groups and Japan Aircraft Industry
(JAI) may purchase to this Agreement at the same pricing and terms afforded
to the Boeing Commercial Airplane Group.
GENERAL
The Seller agrees to accept Subsequently Placed Orders for unlimited
quantities from Boeing Commercial Airplane Group at the same prices stated in
Exhibit B and under the terms and conditions enclosed for the duration of
this Agreement.
In the event of short flow items, i.e. less than lead time away, the Seller
shall be given the first opportunity to supply such parts at the contract
price. Should the Seller be unable to supply items in quantities and schedule
required, the Buyer reserves the right to purchase such items from other
suppliers.
Supplier shall reserve, at all times, at least five (5) percent of the next
12 months requirements in stock to accommodate short flow requirements.
DURATION
The duration of this agreement will extend from the signature date of this
Letter of Agreement through August 15, 1999. Orders shall be entered with
the Seller lead time away (as defined by Seller) and scheduled for delivery
prior to November 13, 1999. In the event that the Seller fails to deliver
prior to November 14, 1999 as scheduled, such delinquent shipments will
continue to have the pricing and terms of the Procurement Package until
delivery is made.
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Exhibit A
6-5751-02-69
TERMS AND CONDITIONS
The Boeing Commercial Airplane Group Terms and Conditions, form D1 4100 4045,
Rev 5/92, Hill apply to all orders subsequently placed referencing this
Letter of Agreement (see note A52). In the event conflict exists between the
Terms and Conditions and this Letter of Agreement, the latter shall govern.
ADDITIONAL PROVISIONS PER PURCHASE ORDER NOTES
The Buyer and Seller have mutually agreed that the following purchase order
notes will apply to all orders subsequently placed referencing this Letter of
Agreement:
A18 - Seller agrees not to make any change in materials or design details
which would affect the part or any component part thereof with regard to (A)
part number identification, (B) physical or functional changeability, and (C)
repair and overhaul procedures and processes and material changes which
affect these procedures without prior written approval of buyer, and without
revising the part numbers and the originals of all drawings or data. (Seller
will place the above clause in all its subcontracts for supplier identified
purchased equipment whether such equipment is supplied to seller as an end
item or as a component part of an end item.)
A47 - The Seller shall at all times, keep adequate books and records relating
to all work under this purchase order. Those records shall include rates and
factors for direct labor (including labor hours), material costs, burden
rates and subcontracts costs. Representatives of Boeing shall be accorded
access to review, analyze and verify these books and records for the purpose
of collecting information for negotiation of prices for future orders, buyer
directed changes and termination claims.
C28 - The pack slip is the document required for receipt/payment processing. In
order to facilitate process of the receipt and subsequent payment, the following
information (when applicable) must be referenced on every pack slip:
1. Suppliers name, address and phone number
2. Boeing purchase order number
3. Date parts shipped
4. Total quantity shipped and quantity in each container
5. Part number shown on the purchase order
6. Bill of Lading (Required on Direct Shipments)
7. Legible pack slip number
<PAGE>
Exhibit A
6-5751-02-69
8. Multiple boxes with same pack slip must reference 1 of 3, 2 of 3,
etc. (if applicable)
9. Pack slip required on the outside of #1 box and inside each
individual box
10. Description/Nomenclature
11. Boeing Purchase Order item number
12. Unit of Measure
13. Sold to and/or ship to as applicable
14. Warranty data and certification data as applicable
15. Rejection tag number if applicable
Q06 - This order is subject to Document D1-8000A. Boeing reserves the right
to conduct surveillance at seller's plant.
Q09 - Seller certifies that material and/or finished parts shall be
controlled and tested in accordance with, and will meet, specified order
requirements, and that applicable records are on file subject to examination.
Seller agrees to furnish certified copies of test and/or control data upon
request from buyer.
Q87 - This order is subject to Document D1-9000. Boeing reserves the right
to conduct surveillance at seller's plant.
S01 - Work under this order is subject to Boeing surveillance at Seller's
plant. Boeing quality control representative may elect to conduct inspection
either on a random basis or to the extent of 100 percent inspection. Seller
will be notified if Boeing inspection is to be conducted on specific
shipments. No shipments are to be held for Boeing inspection unless
notification is received prior to, or at time of, material being ready for
shipment.
S68 - Representatives of the Buyer and/or Federal Aviation Administration (if
non-domestic, equivalent government agency) may inspect and evaluate Seller's
facilities' system, data, equipment, personnel and all completed articles
manufactured for installation on Boeing commercial production airplanes.
B39 - Strict adherence to the purchase order delivery schedule is required.
Immediate written notice of shipment delays must be given by the supplier to
the Boeing buyer.
H57 - Seller agrees that, notwithstanding the provisions of the termination
for convenience clause, any unshipped portion of this order may be terminated
by buyer without any cost, charge or liability to buyer, provided, buyer
notifies seller at least 120 days in advance of the shipping date specified
in the order.
L01 - Reschedule of the order will be at no charge
<PAGE>
Exhibit A
6-5751-02-69
ACCELERATION/DECELERATION NOTE
Purchase order schedule accelerations/decelerations will be at no charge.
PRICING
The pricing applying to the orders making up the Procurement Package and all
Subsequently Placed Orders referencing this Letter of Agreement is as listed
on Exhibit B. This pricing, as listed, will be firm for unlimited quantities
for orders placed from the date of this contract and scheduled for delivery
prior to August 15, 1999.
ACCEPTANCE
This Order is Buyer's offer to Seller, and acceptance is strictly limited to
its terms. Buyer shall not be bound by and specifically objects to any term
or condition whatsoever which is different from, or in addition to, the
provisions of this Agreement. Seller commencement or performance or
acceptance of this Agreement, in any matter, shall conclusively evidence
acceptance unless such term or condition is mutually agreed to by the parties
in writing.
Kaynar, Division of Kaynar Boeing Commercial
Technologies, Inc. Airplane Group
/s/ JORDAN LAW 4-28-94 /s/ KAE FARLEY 4-28-94
- --------------------------- --------------------------
Jordan Law Date Kae Farley Date
President Buyer
--------------------------
G.D. Neely Date
Lead Buyer
--------------------------
E.G. Beals Date
Manager
<PAGE>
EXHIBIT B, 6-5751-02-69
CONTRACT UNIT PRICES
NAS1804 ALLOY NUTS
NAS1805 STAINLESS NUTS
BACN10HR INCONEL NUTS
KAYNAR, DIVISION OF KAYNAR TECHNOLOGIES, INC.
FIVE YEARS - AUGUST 15, 1994 THROUGH AUGUST 15, 1999
- ---- ---- ----------------------------------------------- -----------
P/NS ITEM PART NUMBER UNIT PRICES
- ---- ---- ----------------------------------------------- -----------
* * * *
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
BACN10, NAS1804, NAS1805 NUT PACKAGE
KAYNAR/BOEING 5-YR CONTRACT
DURATION 4/28/1994 THROUGH 8/15/1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL KAYNAR
KAYNAR EST. QTY EST. QTY EST. QTY EST. QTY EST. QTY ESTIMATED GROUP
P/N PART NO. 12/93-11/94 12/94-11/95 12/95-11/96 12/96-11/97 12/97-11/98 QUANTITY PRICING EACH
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
* * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
BACN10, NAS1804, NAS1805 NUT PACKAGE
KAYNAR/BOEING 5-YR CONTRACT
DURATION 4/28/1994 THROUGH 8/15/1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL KAYNAR
KAYNAR EST. QTY EST. QTY EST. QTY EST. QTY EST. QTY ESTIMATED GROUP
P/N PART NO. 12/93-11/94 12/94-11/95 12/95-11/96 12/96-11/97 12/97-11/98 QUANTITY PRICING EACH
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
* * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the Commission.
