<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1997
REGISTRATION NO. 333-22345
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
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. It is currently estimated that the initial public offering price
of the Common Stock will be between $14.00 and $16.00 per share. 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.......................... $ $ $ $
Total(3)........................... $ $ $ $
</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 $ 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 $ ,
$ , $ and $ , 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 , 1997.
---------------------
LEHMAN BROTHERS PAINEWEBBER INCORPORATED
, 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."
Proposed 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....................... $ 0.79
---------
---------
Pro forma shares used in computing pro forma earnings per share,
as adjusted................................................... 8,139
</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 $ 41,779
Total assets............................................................................ 73,689 84,534
Total long-term debt, excluding capital leases.......................................... 46,633 33,789
Stockholders' equity.................................................................... 10,626 35,061
</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 1,339,000
shares of Common Stock offered by the Company hereby at an estimated initial
public offering price of $15.00 per share (the midpoint of the estimated
filing range) 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 461,000 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 estimated initial public offering price
of $15.00 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 5, 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 $2.8 million in net proceeds, based upon
an initial public offering price of $15.00 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
Assuming an initial public offering price of $15.00 per share, investors
participating in the Offering will incur an immediate dilution of $11.83 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
Assuming an initial public offering price of $15.00 per share, the net
proceeds to the Company from the sale of the Common Stock offered hereby are
estimated to be $24.4 million ($28.6 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 25,849
Retained earnings.................................................................... 8,838 8,838
Currency translation adjustment...................................................... 288 288
--------- -------
Total stockholders' equity......................................................... 10,626 35,061
--------- -------
Total capitalization............................................................. $ 57,724 $ 69,315
--------- -------
--------- -------
</TABLE>
- ------------------------
(1) As adjusted to reflect (i) the sale of 1,800,000 shares of Common Stock
offered by the Company hereby at an estimated initial public offering price
of $15.00 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 (assuming an initial public
offering price of $15.00 per share), the Company's net tangible book value at
December 31, 1996 would have been $27.2 million, or $3.17 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 $2.76 per share to existing stockholders
and an immediate
15
<PAGE>
dilution in net tangible book value of $11.83 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>
Assumed initial public offering price per share of Common
Stock...................................................... $ 15.00
Net tangible book value per share at December 31, 1996... $ 0.41
Increase in net tangible book value per share
attributable to new investors.......................... $ 2.76
---------
Net tangible book value per share after the Offering......... $ 3.17
---------
Dilution per share to new investors.......................... $ 11.83
---------
</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 assumed initial public offering price
of $15.00 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 5.3% $ 0.22
New investors....................................... 1,800,000 20.9 27,000,000 94.7 15.00
---------- ----- ------------- -----
Total........................................... 8,600,000 100.0% $ 28,500,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</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................ $ 0.79
---------
---------
Pro forma shares used in computing pro forma earnings per
share, as adjusted..................................... 8,139
</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 $ 41,779
Total assets...................................................... 35,051 43,336 73,689 84,534
Total long-term debt, excluding capital leases.................... 23,176 25,148 46,633 33,789
Stockholders' equity.............................................. 2,944 5,157 10,626 35,061
</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 1,339,000
shares of Common Stock offered by the Company hereby at an estimated initial
public offering price of $15.00 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 461,000 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 estimated initial public offering price
of $15.00 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 fiscal quarter ended March 31, 1997. For
the fiscal 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
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. As a result, the Company has relocated its executive
offices from Fullerton, California to the Orange site.
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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 entered 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 , 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........................................................
PaineWebber Incorporated...................................................
-----------------
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
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ 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 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.
48
<PAGE>
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 will be negotiated between the
Company and the Representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
capital structure, estimates of the business potential and earnings prospects of
the Company and its industry in general, an 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, subject to official notice
of issuance, 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.
49
<PAGE>
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 , 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.................................. --
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 , 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
, 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......................................................
Blue Sky qualification fees and expenses..........................................
Transfer Agent and Registrar fees................................................. 2,000
Miscellaneous fees and expenses...................................................
----------
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
None.
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 6, 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 April , 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.
- ------------------------
+ To be filed by pre-effective amendment.
* Previously filed with the initial Registration Statement on February 26,
1997.
** Previously filed with Pre-Effective Amendment No. 1 on April 1, 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. 4 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 4th 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. 3 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 4, 1997
- ------------------------------------- Board
Jordan A. Law (Principal Executive Officer)
/s/ DAVID A. WERNER Executive Vice President and Director May 4, 1997
- ------------------------------------- (Principal Financial Officer)
David A. Werner
* Controller May 4, 1997
- ------------------------------------- (Principal Accounting Officer)
Robert M. Nelson
* Director May 4, 1997
- -------------------------------------
Norman A. Barkeley
* Director May 4, 1997
- -------------------------------------
Burton J. Kloster, Jr.
* Director May 4, 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 6, 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 April , 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>
- ------------------------
+ To be filed by pre-effective amendment.
* Previously filed with the initial Registration Statement on February 26,
1997.
** Previously filed with Pre-Effective Amendment No. 1 on April 1, 1997.
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN KAYNAR HOLDINGS INC. AND
KAYNAR TECHNOLOGIES INC.
THIS AGREEMENT is entered into as of May __, 1997, between KAYNAR
HOLDINGS INC., a Delaware corporation ("BUYER"), and its wholly-owned
subsidiary, KAYNAR TECHNOLOGIES INC., a Delaware corporation ("TARGET").
The parties agree as follows:
ARTICLE 1 -- THE MERGER
1.1 THE MERGER. Subject to the conditions of this Agreement, TARGET
will merge with and into BUYER (the "Merger"). BUYER will be the surviving
corporation, and its Certificate of Incorporation and Bylaws as in effect
immediately prior to the Merger will be the Certificate of Incorporation and
Bylaws of the surviving corporation, except with respect to the corporate name.
1.2 EFFECTIVE DATE. The Merger will become effective on the date
(the "Effective Date") the Certificate of Merger is filed with the Delaware
Secretary of State in accordance with Delaware General Corporation Law.
1.3 CONVERSION OF SHARES. On the Effective Date, (i) each
outstanding share of Common Stock, par value $.01 per share, of TARGET will be
cancelled and TARGET will cease to exist, (ii) each outstanding share of Series
A Convertible Preferred Stock, par value $.01 per share, of BUYER will be
exchanged for 9.953 shares of Common Stock of BUYER and 58.047 shares of a new
class of capital stock of BUYER, Series C Convertible Preferred Stock, par value
$.01 per share ("Series C Preferred Stock"), and (iii) each outstanding share of
Series B Preferred Stock, par value $.01 per share, of BUYER will be exchanged
for 68 shares of Series C Preferred Stock.
1.4 CHANGE OF NAME. Upon the Effective Date, the BUYER, as the
surviving entity, will be renamed "Kaynar Technologies Inc."
<PAGE>
ARTICLE 2 -- REPRESENTATIONS AND WARRANTIES
2.1 DUE AUTHORIZATION, EXECUTION, AND DELIVERY. Each of TARGET and
BUYER represents that this Agreement has been duly authorized by their
respective boards of directors and stockholders and that this Agreement will be
executed and delivered by respective officers thereof as required by Section 251
of the Delaware General Corporation Law.
2.2 LEGAL PROCEEDINGS. Each of TARGET and BUYER represents that
(a) there is no pending or threatened judicial or administrative proceeding or
investigation affecting it or any of its subsidiaries, that if resolved
adversely to it could reasonably be expected to impair its ability to consummate
the Merger; and (b) it is not aware of any judicial or administrative decision
affecting it or any of its subsidiaries that could reasonably be expected to
impair its ability to consummate the Merger.
ARTICLE 3 -- COVENANTS
3.1 AFFIRMATIVE COVENANTS.
(a) FILINGS AND APPROVALS. Each party will cooperate with the other
in the preparation and filing, as soon as possible, of all necessary
applications, and other documents with respect to the Merger.
(b) STOCKHOLDERS' ACTIONS. Each party will submit this Agreement to
its stockholders for approval as soon as practicable after this Agreement is
approved by each party's respective board of directors.
ARTICLE 4 -- CLOSING PROCEDURES
The closing under this Agreement will take place on the Effective
Date.
2
<PAGE>
ARTICLE 5 -- TERMINATION
This Agreement, whether or not approved by the stockholders of BUYER
or TARGET, may be terminated on or before the Effective Date unilaterally by
action of the board of directors of TARGET or of BUYER. If termination occurs,
no party will have any further liability or obligation under this Agreement to
the other parties or to any stockholder, director, officer, employee, agent or
representative of the other parties.
ARTICLE 6 -- MISCELLANEOUS
6.1 NOTICES. Any notice under this Agreement may be orally or in
writing and either delivered in person, telexed or telecopied.
6.2 EXPENSES. Each party will pay its own expenses.
6.3 TERMINATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each party will terminate on the Effective
Date.
6.4 ASSIGNABILITY. Neither this Agreement nor any rights or
obligations under it are assignable.
6.5 GOVERNING LAW. This Agreement will be governed by the laws of
the State of Delaware.
6.6 AMENDMENT. This Agreement may be amended in accordance with
applicable law.
[remainder of the page intentionally left blank]
3
<PAGE>
IN WITNESS WHEREOF, Kaynar Holdings Inc. and Kaynar Technologies Inc.
have each caused this Agreement to be executed by its authorized officer as of
the Effective Date first above written.
KAYNAR HOLDINGS INC. KAYNAR TECHNOLOGIES INC.
By_______________________ By _______________________
Title: Title:
By_______________________ By _______________________
Title: Title:
S - 1
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
KAYNAR HOLDINGS INC.
Kaynar Holdings Inc. (the "Corporation"), a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the Corporation is Kaynar Holdings Inc. The Corporation
was originally incorporated under the name MKQ Acquisition Holding
Corp., which was changed in a Certificate of Amendment filed with the
Secretary of State of Delaware on December 17, 1993. The original
Certificate of Incorporation was filed on October 22, 1993.
SECOND: Pursuant to Sections 242 and 245 of the General Corporation Law of
Delaware, this Restated Certificate of Incorporation restates,
integrates and further amends the Corporation's existing Certificate
of Incorporation.
THIRD: Pursuant to a resolution of the Corporation's Board of Directors, the
stockholders have approved this amendment and restatement by written
consent in accordance with Section 228 of the General Corporation Law
of Delaware.
FOURTH: The text of the existing Certificate of Incorporation is hereby
amended and restated to read in its entirety as follows:
ARTICLE I
The name of the Corporation is Kaynar Holdings Inc.
ARTICLE II
The name and address of the registered agent of the Corporation in the
State of Delaware is:
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, New Castle County, Delaware
<PAGE>
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of capital stock,
designated Common Stock and Preferred Stock. The total number of shares which
the Corporation shall have authority to issue is thirty million (30,000,000)
shares, consisting of twenty million (20,000,000) shares of Common Stock, par
value $0.01 per share ("Common Stock") and ten million (10,000,000) shares of
Preferred Stock, par value $0.01 per share ("Preferred Stock").
The express terms and provisions of the shares classified and
designated as Series C Convertible Preferred Stock are as follows (and such
terms and provisions may be referred to as the "Certificate of Designation" or
"Designation" for such series):
1. DESIGNATION. The designation of the series of Preferred Stock
created by this Designation shall be Series C Convertible Preferred Stock, $0.01
par value, of the Corporation (hereinafter referred to as "Convertible
Preferred"), and the number of shares constituting such series shall be
5,206,000, which number may be increased (but not above the total number of
shares of Preferred Stock of the Corporation) or decreased (but not below the
number of shares then outstanding) from time to time by the Board of Directors
or any authorized committee thereof, and the affirmative vote, to the extent
required by the terms of this Designation, of the holders of a majority of the
outstanding shares of Convertible Preferred. The Convertible Preferred shall
rank prior to the Common Stock with respect to the distribution of assets upon
the liquidation, dissolution or winding up of the Corporation.
2. DIVIDEND RIGHTS. Each holder of shares of Convertible Preferred shall
be entitled to receive a payment of any dividend or other distribution declared
on outstanding shares of Common Stock and payable in cash or other property
(including any dividend or distribution payable in securities issued by the
Corporation or any other person, other than a dividend payable solely in shares
of Common Stock), pari passu with, and at the same time as (with delivery of the
same notice, if any), such dividend or other distribution is payable to holders
of shares of Common Stock, on the same basis (hereinafter "As Converted Basis")
as if the shares of Convertible Preferred held by such person had been converted
into shares of Common Stock, and at the
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<PAGE>
Conversion Rate (as defined below), in each case in effect immediately prior to
the record date for determining holders of Common Stock of record entitled to
receive such dividend or distribution.
3. LIQUIDATION PREFERENCES.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
Convertible Preferred shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders an amount equal to $0.22
per share (the "Liquidation Value") of Convertible Preferred plus an amount
equal to any declared but unpaid dividends thereon to and including the date of
such distribution, and no more, before any distribution shall be made to the
holders of Common Stock or any other class of stock of the Corporation ranking
junior to the Convertible Preferred as to the distribution of assets upon any
such liquidation, dissolution or winding up. After payment of such liquidating
distributions, the holders of shares of Convertible Preferred will not be
entitled to any further participation in any distribution of assets by the
Corporation.
(b) In the event the assets of the Corporation available for distribution
to stockholders upon any liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, shall be insufficient to
pay in full the amounts payable with respect to the Convertible Preferred and
any other shares of Preferred Stock ranking on a parity with the Convertible
Preferred as to the distribution of assets upon any such liquidation,
dissolution or winding up (the "Parity Preferred Stock"), the holders of
Convertible Preferred and the holders of such Parity Preferred Stock shall share
ratably in any distribution of assets of the Corporation in proportion to the
full respective preferential amounts to which they are entitled.
(c) The merger or consolidation of the Corporation into or with any other
corporation, the merger or consolidation of any other corporation into or with
the Corporation or the sale of the assets of the Corporation substantially as an
entirety shall not be deemed a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this Section 3.
4. CONVERSION RIGHTS. The holders of shares of Convertible Preferred
shall have the right, at their option, to convert such shares into shares of
Common Stock on the following terms and conditions:
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<PAGE>
(a) Each share of Convertible Preferred shall be convertible at any time
into one (subject to adjustment as set forth in Section 4(d) below) fully paid
and nonassessable shares of Common Stock, $0.01 par value (the "Common Stock"),
of the Corporation, with no payment due the Corporation by the holder of such
share of Convertible Preferred. No payment or adjustment shall be made on
account of any dividends on the shares of Common Stock issued upon such
conversion subsequent to the record date for the determination of stockholders
entitled to such dividends.
(b) In order to convert shares of Convertible Preferred into Common Stock,
the holder thereof shall surrender the certificates therefor, duly endorsed if
the Corporation shall so require, or accompanied by appropriate instruments of
transfer satisfactory to the Corporation, to the Corporation, together with
written notice that such holder irrevocably elects to convert such shares of
Convertible Preferred. Such notice shall also state the name and address in
which such holder wishes the certificate for the shares of Common Stock issuable
upon conversion to be issued. As soon as practicable after receipt of the
certificates representing the shares of Convertible Preferred to be converted
and the notice of election to convert the same, the Corporation shall issue and
deliver a certificate for the number of shares of Common Stock issuable upon
conversion of the shares of Convertible Preferred surrendered for conversion to
the person entitled to receive the same. Shares of Convertible Preferred shall
be deemed to have been converted immediately prior to the close of business on
the date such shares are surrendered for conversion and notice of election to
convert the same is received by the Corporation in accordance with the foregoing
provision, and the person entitled to receive the Common Stock issuable upon
such conversion shall be deemed for all purposes as the record holder of such
Common Stock as of such date.
(c) No fractional shares of Common Stock shall be issued upon conversion
of any shares of Convertible Preferred. If more than one share of Convertible
Preferred is surrendered at one time by the same holder, the number of full
shares issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares so surrendered. If the conversion of any shares of
Convertible Preferred results in a fractional share of Common Stock, the
Corporation shall pay cash in lieu thereof in an amount equal to such fraction
multiplied by the closing price, determined as provided in subsection (vi) of
Section 4(d) below, on the date on which the shares of Convertible Preferred
were duly surrendered for conversion, or if such date is not a trading date, on
the next succeeding trading date.
4
<PAGE>
(d) The number of shares of Common Stock into which each share of
Convertible Preferred may be converted (the "Conversion Rate") shall be adjusted
from time to time as follows:
(i) In case the Corporation shall pay or make a dividend or other
distribution on shares of Common Stock payable in shares of Common Stock,
the Conversion Rate in effect at the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be adjusted by
multiplying such Conversion Rate by a fraction the numerator of which shall
be the sum of the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the total number
of shares constituting such dividend or other distribution and the
denominator of which shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination, such increase to become effective immediately after the
opening of business on the day following the date fixed for such
determination. For purposes of this subsection, the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock.
The Corporation will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the Corporation.
(ii) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in
effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall be combined
into a smaller number of shares of Common Stock, the Conversion Rate in
effect at the opening of business on the day following the day upon which
such combination becomes effective shall be proportionately decreased, such
increase or reduction, as the case may be, to become effective immediately
after the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iii) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or
merger to which Section 4(f) below applies) shall be deemed to be a
distribution of such securities to all holders of Common Stock as governed
by Section 2 of this Designation (and the effective date of such
reclassification shall be deemed to
5
<PAGE>
be "the date fixed for the determination of stockholders entitled to
receive such distribution").
(iv) The reclassification of Common Stock into securities that include
both Common Stock and securities other than Common Stock (other than any
reclassification upon a consolidation or merger to which Section 4(f) below
applies) shall be deemed to involve (A) a subdivision or combination, as
the case may be, of the number of shares of Common Stock outstanding
immediately prior to such reclassification into the number of shares of
Common Stock outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon which such
subdivision became effective" or "the day upon which such combination
becomes effective" as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of
subsection (ii) above) and (B) a distribution of the securities other than
Common Stock to all holders of Common Stock as governed by Section 2 of
this Designation (and the effective date of such reclassification shall be
deemed to be "the date fixed for the determination of stockholders entitled
to receive such distribution").
(v) No adjustment in the Conversion Rate for the Convertible
Preferred shall be required unless such adjustment would require an
increase or decrease of at least 0.10% in such Conversion Rate; PROVIDED,
HOWEVER, that any adjustments which by reason of this subsection (v) are
not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 4 shall be
made to the nearest one-tenth cent ($0.001) or to the nearest
one-thousandth of a share, as the case may be.
(e) Whenever the Conversion Rate shall be adjusted as herein provided (i)
the Corporation shall forthwith make available a statement describing in
reasonable detail the adjustment, the facts requiring such adjustment and the
method of calculation used; and (ii) the Corporation shall cause to be mailed by
first class mail, postage prepaid, as soon as practicable to each holder of
record of shares of Convertible Preferred a notice stating that the Conversion
Rate has been adjusted and setting forth the adjusted Conversion Rate.
(f) In the event of any consolidation of the Corporation with or merger of
the Corporation into any other corporation or a sale, lease or conveyance of the
assets of the Corporation as an entirety or substantially as an entirety, or any
statutory exchange of securities with another corporation, the holder of each
share of Convertible Preferred shall have the right, after
6
<PAGE>
such consolidation, merger, sale or exchange to convert such share into the
number and kind of shares of stock or other securities, and the amount of cash
or other property receivable upon such consolidation, merger, sale or exchange
by a holder of the number of shares of Common Stock issuable upon conversion of
such shares of Convertible Preferred immediately prior to such consolidation,
merger, sale or exchange. No provision shall be made for adjustments in the
Conversion Rate. The provisions of this Section 4(f) shall similarly apply to
any such successive consolidation, merger, sale or exchange.
(g) The Corporation shall pay any taxes that may be payable in respect of
the issuance of shares of Common Stock upon conversion of shares of Convertible
Preferred, but the Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance of shares of
Common Stock in the name other than that in which the shares of Convertible
Preferred so converted are registered, and the Corporation shall not be required
to issue or deliver any such shares unless and until the person requesting such
issuance in another name shall have paid to the Corporation the amount of any
such taxes, or shall have established to the satisfaction of the Corporation
that such taxes have been paid.
(h) The Corporation may make such increases in the Conversion Rate, in
addition to those required by subsections (i) through (iv) of Section 4(d)
above, as it considers to be advisable in order that any event treated for
federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(i) The Corporation shall at all times reserve and keep available out of
its authorized but unissued Common Stock the full number of shares of Common
Stock issuable upon the conversion of all shares of Convertible Preferred then
outstanding.
(j) In the event that:
(i) any capital reorganization of the Corporation, reclassification of
the capital stock of the Corporation, consolidation or merger of the
Corporation with or into another corporation (other than a merger in which
the Corporation is the surviving corporation and the holders of shares of
Common Stock do not receive any distribution of cash, other property or
other securities as a result thereof), or sale, lease or conveyance of the
assets of the Corporation as an entirety or substantially as an entirety to
another corporation occurs; or
7
<PAGE>
(ii) the voluntary or involuntary dissolution, liquidation or winding
up of the Corporation occurs;
the Corporation shall cause to be mailed to the holders of record of the
Convertible Preferred at least 20 days prior to the applicable date hereinafter
specified a notice stating the date on which such reorganization,
reclassification, consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding up is expected to take place, and the date, if any is to
be fixed, as of which holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, lease conveyance, dissolution, liquidation or winding up. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reorganization, reclassification, consolidation,
merger, sale, lease, conveyance, dissolution, liquidation or winding up.
(k) In the event "beneficial ownership" (as determined pursuant to
either Rule 13d-3 or Rule 16a-1(a)(2) adopted under the Securities Exchange Act
of 1934, as amended) of one or more shares of Convertible Preferred is acquired
by any person other than (i) the original holder of such share or (ii) any
"affiliate" (as such term is defined in Rule 144(a) adopted under the Securities
Act of 1933) of such original holder, such share or shares shall automatically,
and without any further action on behalf of the holder or the Corporation, be
converted into shares of the Corporation's Common Stock at the Conversion Rate
then in effect, and the certificates evidencing such shares of Convertible
Preferred shall thereafter evidence the beneficial ownership of the shares of
Common Stock into which such shares of Convertible Preferred were converted;
PROVIDED, HOWEVER, that until (i) the holder of the Convertible Preferred so
converted advises the Corporation in writing of its acquisition of such shares
and (ii) tenders the certificate(s) evidencing the shares of Convertible
Preferred that were so converted for reissuance as shares of Common Stock, such
shares of Common Stock shall not be deemed outstanding for purposes of any vote
taken by holders of Common Stock or for purposes of receiving notice, but shall
be deemed outstanding for purposes of receipt of dividends or other
distributions in respect of shares of Common Stock. At any time shares of
Convertible Preferred are outstanding, the holder of record will identify in
writing, upon request of the Corporation, the beneficial owner or owners of such
shares.
5. VOTING RIGHTS. Other than as required by applicable law, the
Convertible Preferred shall not have any voting powers either general or
special, except as follows:
8
<PAGE>
(a) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the affirmative vote or consent of holders
of a majority of all of the shares of the Convertible Preferred, and any one or
more other series of Parity Preferred Stock which by its terms provides for
similar voting rights and is similarly affected, at the time outstanding, given
in person or by proxy, either in writing or by a vote at a meeting called for
the purpose at which the holders of shares of the Convertible Preferred and any
such other series of Preferred Stock shall vote together as a separate and
single class, shall be necessary for (i) authorizing, adopting, effecting or
validating the amendment, alteration or repeal of, or any other change in, any
of the provisions of the Certificate of Incorporation or of any amendment or
supplement thereto (including this Designation or any other Certificate of
Designation or any similar document relating to any series of Preferred Stock
hereinafter proposed to be authorized by action of the Board of Directors) or
the Bylaws of the Corporation, which adversely affects the holders of the
Convertible Preferred or such other Parity Preferred Stock; (ii) any voluntary
or involuntary dissolution, liquidation or winding up of the Corporation; (iii)
any merger, consolidation or other reorganization of the Corporation with or
into another corporation or any other legal entity as a result of which (A)
shares of Common Stock or (B) shares of the Convertible Preferred or such other
Parity Preferred Stock in either case, are converted into, or will be entitled
to receive, other securities or cash or other property (including securities of
a different issuer); or (iv) any sale, lease or other conveyance, in one or more
related series of transactions, of all or substantially all of the assets of the
Corporation.
(b) Unless the affirmative vote or consent of holders of a majority
of all of the Convertible Preferred at the time outstanding, given in person or
by proxy, either in writing or by vote at a meeting called for the purpose of
such vote at which the holders of the Convertible Preferred shall vote as a
single class, the Corporation shall not (i) issue or agree in writing to issue
(whether or not such agreement is conditioned upon obtaining the affirmative
vote of holders of a majority of the Convertible Preferred at the time
outstanding) shares of Common Stock, or any option, warrant or other right to
acquire shares of Common Stock, or any security convertible into or exchangeable
for shares of Common Stock or another security convertible into or exchangeable
for shares of Common Stock (whether or not then so exercisable or convertible,
or only exercisable or convertible with the passage of time or the occurrence of
some event or satisfaction of some condition) by the terms thereof (hereinafter
a "Common Stock Equivalent"), if as a result of such issuance the aggregate
number of the shares of Common Stock and Common Stock Equivalents then
outstanding, when added to the number of shares
9
<PAGE>
of Common Stock or Common Stock Equivalents proposed to be issued or which are
the subject of the proposed agreement, would exceed the sum of (A) 7,608,400
plus (B) the number of shares of Common Stock issued by the Corporation and sold
pursuant to the Underwriting Agreement between the Corporation, Lehman Brothers
Inc. and others entered into in April 1997, (ii) issue or agree in writing to
issue (whether or not such agreement is conditioned upon obtaining the
affirmative vote of holders of a majority of the Convertible Preferred at the
time outstanding) any shares of any class or series of Preferred Stock, or (iii)
repurchase or redeem, or agree to repurchase or redeem (whether or not such
agreement is conditioned upon obtaining the affirmative vote of holders of a
majority of the Convertible Preferred at the time outstanding), in any single or
related series of transactions, an aggregate number of shares of Common Stock
and/or Common Stock Equivalents which exceeds ten percent (10%) of the aggregate
number of shares of Common Stock plus Common Stock Equivalents at the time
outstanding.
(c) The special voting rights set forth in subsections (a) and (b) of
this Section 5 shall terminate and cease to be effective at all times thereafter
on the close of business on the date that the number of shares of Common Stock
issuable upon conversion in full of all outstanding shares of Convertible
Preferred at the Conversion Rate in effect on such date would constitute less
than twenty-five percent (25%) of the sum of (i) the total number of shares of
Common Stock then actually outstanding, (ii) the total number of shares of
Common Stock which would be issued upon conversion of all shares of Convertible
Preferred then outstanding at the Conversion Rate in effect on such date, plus
(iii) the maximum number of shares of Common Stock which would be issued if all
Common Stock Equivalents (other than Common Stock Equivalents in respect of the
Convertible Preferred) then exercisable or convertible, or exercisable or
convertible within 60 days of such date, were exercised or converted in full as
of such date.
6. REACQUIRED SHARES. Shares of Convertible Preferred converted,
redeemed, or otherwise purchased or acquired by the Corporation shall be
restored to the status of authorized but unissued shares of Preferred Stock
without designation as to series.
7. NO SINKING FUND. Shares of Convertible Preferred are not subject to
the operation of a sinking fund or other obligation of the Corporation to redeem
or retire the Convertible Preferred.
8. NO IMPAIRMENT. Other than in connection with or as a result of any
action (including amendment to this Certificate) which has been authorized or
approved by vote of holders of a
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<PAGE>
majority of the Convertible Preferred, the Corporation shall not take any action
or enter into any transaction or agreement which has the effect of avoiding the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation.
ARTICLE V
A. The Board of Directors is authorized, subject to applicable law,
to issue the shares of Preferred Stock in one or more classes and series and to
fix from time to time before issuance the number of shares to be included in any
class or series and the designation, relative powers, preferences and rights and
qualifications, limitations or restrictions of all shares of such classes or
series.
B. Without limiting the generality of the foregoing, as to each
class and series of Preferred Stock, the Board of Directors is authorized from
time to time to fix or alter, to the extent permitted by any Preferred Stock
Designation (as defined below) and applicable law, the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences, rights to subscribe for or purchase any securities of the
Corporation or any other corporation, and the number of shares constituting and
as shall be stated in a resolution or resolutions providing for the issuance of
such Preferred Stock ("Preferred Stock Designation").
C. The Board of Directors may increase (but not above the total
number of authorized shares of Preferred Stock) or decrease the number of
authorized shares in any class or series of Preferred Stock after the issue of
shares of that class or series, but not below the number of shares outstanding.
Should the number of shares be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such class or series.
D. The number of authorized shares of Preferred Stock may be
increased or decreased, but not below the number of shares then outstanding, by
the affirmative vote of the holders of each class or series of Preferred Stock,
but only to the extent permitted to vote by the applicable Preferred Stock
Designation.
E. Each holder of Common Stock entitled to vote shall have one vote
for each share thereof held.
F. Except as may be provided by the Board of Directors in a
Preferred Stock Designation or by applicable law, the Common Stock shall have
the exclusive right to vote for the
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election of directors and for all other purposes, and holders of Preferred Stock
shall not be entitled to receive notice of any meeting of stockholders at which
they are not entitled to vote or consent.
G. The Corporation shall be entitled to treat the person in whose
name any share of its stock is registered as the owner thereof for all purposes
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
ARTICLE VI
Subject to any voting rights or limitations set forth in a Preferred
Stock Designation, and in furtherance and not in limitation of the powers
conferred by the General Corporation Law of Delaware, the Bylaws of the
Corporation may be adopted, repealed, and amended only by (1) the Board of
Directors or (2) by majority vote of the holders of the outstanding shares of
Common Stock.
ARTICLE VII
A. The number of directors shall consist of not less than one (1)
director and not more than nine (9) directors, or such greater number as is
provided in the following paragraph. The Board of Directors shall consist of
five (5) directors, until the exact number is changed from time to time within
the foregoing limits by, or in such manner as may be provided in, the Bylaws.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, pursuant to the applicable Preferred Stock Designation, to elect
directors by voting separately as a class or series at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of such
Preferred Stock Designation.
B. Subject to any rights granted to holders of Preferred Stock
pursuant to a Preferred Stock Designation, any director may be removed with or
without cause only by a majority vote of the holders of Common Stock.
ARTICLE VIII
A. If, at any time, no one Person (as defined below) beneficially
owns securities constituting twenty-five percent
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(25%) or more of the Outstanding Common Stock on a Fully Diluted Basis (as
defined below), (i) all actions by stockholders of the Corporation thereafter
must be taken at either annual or special meetings of stockholders and (ii)
stockholders may not act by written consent.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust or
unincorporated organization. "Outstanding Common Stock on a Fully Diluted
Basis" means the sum of (i) the total number of shares of Common Stock then
actually outstanding, (ii) the total number of shares of Common Stock which
would be issued upon conversion of all shares of the Corporation's Series C
Convertible Preferred Stock, par value $0.01 per share ("Convertible
Preferred"), then outstanding at the conversion rate in effect on such date,
plus (iii) the maximum number of shares of Common Stock which would be issued if
all options, warrants or other rights to acquire shares of Common Stock, or any
security convertible into or exchangeable for shares of Common Stock or another
security convertible into or exchangeable for shares of Common Stock by the
terms thereof ("Common Stock Equivalents") (other than Common Stock Equivalents
in respect of the Convertible Preferred) then exercisable or convertible, or
exercisable or convertible within 60 days of such date, were exercised or
converted in full as of such date.
B. No vote at any meeting of stockholders need be by written ballot
unless the Bylaws shall otherwise provide or the Board of Directors, in its
discretion, or the officer of the Corporation presiding at the meeting, in his
or her discretion, specifically directs the use of a written ballot.
ARTICLE IX
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by
applicable law and all rights conferred on stockholders herein are subject to
this reservation.
ARTICLE X
A director of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of Delaware as the
same exists or may hereafter be amended. Any amendment, modification or repeal
of the foregoing sentence shall not adversely affect any right or protection of
a director of the Corporation hereunder in respect of any act or omission
occurring prior to the time of such amendment, modification or repeal.
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ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware as the Bylaws may provide. The books, documents and papers of the
Corporation may be kept, subject to applicable law, outside the State of
Delaware at places as may be designated from time to time by the Board of
Directors or the Bylaws.
ARTICLE XII
All of the powers of the Corporation, insofar as the same may be
lawfully vested by this Certificate of Incorporation in the Board of Directors,
are hereby conferred upon the Board of Directors of the Corporation.
ARTICLE XIII
Notwithstanding any contrary provision in applicable law, the
Corporation shall not be governed by the provisions of Section 203 of the
General Corporation Law of Delaware.
ARTICLE XIV
Upon the filing in the Office of the Secretary of State of the State
of Delaware of this Amended and Restated Certificate of Incorporation, each
share of Common Stock issued and outstanding immediately prior to such filing
shall be reclassified and changed into sixty-eight (68) shares of Common Stock.
Each holder of Common Stock shall be entitled to receive such number of whole
shares of Common Stock resulting from such stock split.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by David A. Werner, its authorized officer this
_____ day of May, 1997.
----------------------------------------
Title: Executive Vice President
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AMENDED AND RESTATED BYLAWS
OF
KAYNAR HOLDINGS INC.
(a Delaware corporation)
Dated as of March 26, 1997
ARTICLE I
STOCKHOLDERS
Section 1.1. ANNUAL MEETING. The annual meeting of stockholders for
the election of Directors and the transaction of such other business as may
properly come before such meeting shall be held on such date as shall be
determined by resolution of the Board of Directors, at such time and place,
within or without the State of Delaware, as shall be determined by resolution of
the Board of Directors. If the day fixed for the annual meeting is a legal
holiday, such meeting shall be held on the next succeeding business day. If the
election of Directors shall not be held on the day designated herein for the
annual meeting of stockholders, or at any adjournment thereof, the Board of
Directors shall cause such election to be held at a special meeting of
stockholders to be called as soon thereafter as is convenient.
Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders may
be called by the Chairman of the Board of Directors or, if none, the President,
or by the holders of 25% or more of the outstanding shares of Common Stock.
Special meetings of stockholders may be held at such time and place, within or
without the State of Delaware, as specified in the call of any such special
meeting. If not otherwise designated, the place of any special meeting shall be
the principal office of the Corporation in the State of California.
Section 1.3. NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written
notice of every meeting of stockholders, stating the place, date, time and
purposes thereof, shall, except when otherwise required by the Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation") or
applicable state law, be given at least ten but not more than 60 days prior to
such meeting to each stockholder of record entitled to vote thereat, in the
manner set forth in SECTION 11.1 of these Bylaws, by or at the direction of the
President or the Secretary or other person or persons authorized to call such a
meeting. Any meeting at which a quorum of stockholders is present, in person or
by proxy, may be adjourned from time to time without notice, other than
announcement at such meeting, until its business shall be completed. At such
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for
<PAGE>
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, written notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat as above provided.
Section 1.4. QUORUM. Except as otherwise provided by the laws of
the State of Delaware or other applicable state law, a majority of the shares of
capital stock of the Corporation entitled to vote on the matters to be voted on
at the meeting of stockholders, represented in person or by proxy, shall
constitute a quorum at any meeting of stockholders, notwithstanding the
subsequent withdrawal of enough stockholders to leave less than a quorum. If at
any meeting a quorum shall not be present, the chairman of such meeting shall,
if approved by the affirmative vote of a majority of the shares of capital stock
of the Corporation so represented, adjourn such meeting to another time and/or
place without notice other than announcement at such meeting. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, written notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote thereat as above
provided. At such adjourned meeting, if a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting, notwithstanding that a subsequent withdrawal of
stockholders may leave less than a quorum remaining.
Section 1.5. VOTING. Unless otherwise provided by these Bylaws or
the Certificate of Incorporation, each stockholder entitled to vote at any
meeting of stockholders shall be entitled to one vote for each share of capital
stock of the Corporation held of record. If a quorum shall be present, the
affirmative vote of a majority of the shares represented at the meeting and
entitled to vote on the question shall be the act of the stockholders, unless
the vote of a greater number or voting by classes is required by applicable
state law, the Certificate of Incorporation, any Certificate of Designation
adopted by the Board of Directors with respect to a class or series of Preferred
Stock, or these Bylaws.
Section 1.6. PROXIES. (a) At every meeting of stockholders, each
stockholder having the right to vote thereat shall be entitled to vote in person
or by proxy. Such proxy shall be filed with the Secretary before or at the time
of the meeting. No proxy shall be valid after three years from its date, unless
such proxy provides for a longer period.
(b) A stockholder may authorize another person or persons to act for
such stockholder as proxy (i) by executing a writing authorizing such person or
persons to act as such, which execution may be accomplished by such stockholder
or such stockholder's authorized officer, director, employee or agent signing
such writing or causing his or her signature to be affixed to such writing by
any reasonable means, including, but not limited to, facsimile signature, or
(ii) by transmitting or authorizing the transmission of a telegram, cablegram or
other means of electronic
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transmission (a "Transmission") to the person who will be the holder of the
proxy or to a proxy solicitation firm, proxy support service organization or
like agent duly authorized by the person who will be the holder of the proxy to
receive such Transmission; PROVIDED, HOWEVER, that any such Transmission must
either set forth or be submitted with information from which it can be
determined that such Transmission was authorized by such stockholder. The
Secretary or such other person or persons as shall be appointed from time to
time by the Board of Directors shall examine Transmissions to determine if they
are valid. If it is determined that a Transmission is valid, the person or
persons making that determination shall specify the information upon which such
person or persons relied. Any copy, facsimile telecommunication or other
reliable reproduction of such a writing or such a Transmission may be
substituted or used in lieu of the original writing or Transmission for any and
all purposes for which the original writing or Transmission could be used;
PROVIDED, HOWEVER, that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original writing or
Transmission.
Section 1.7. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. (a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing such record
date shall be adopted by the Board of Directors, and which record date shall not
be more than 60 nor fewer than ten days before the date of such meeting. If no
such record date shall have been fixed by the Board of Directors, such record
date shall be at the close of business on the day next preceding the day on
which such notice is given or, if such notice is waived, at the close of
business on the day next preceding the day on which such meeting shall be held.
A determination of stockholders of record entitled to notice of or to vote at
any meeting of stockholders shall apply to any adjournment of such meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or any
allotment of any rights or the stockholders entitled to exercise any rights in
respect of any change, conversion or exchange of any capital stock, or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing such record date shall be adopted by the Board of Directors, and which
record date shall not be more than 60 days prior to such payment, allotment or
other action. If no such record date shall have been fixed, such record date
shall be at the close of business on the day on which the Board of Directors
shall have adopted the resolution relating to such payment, allotment or other
action.
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Section 1.8. STOCKHOLDER LIST. The Secretary or any other officer
who has charge of the stock ledger of the Corporation, either directly or
through a transfer agent or transfer clerk appointed by the Board of Directors,
shall prepare, at least ten days prior to every meeting of stockholders, a
complete list of the stockholders entitled to vote at such meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to such meeting,
during ordinary business hours, during a period of not fewer than ten days prior
to such meeting, either at a place within the city where such meeting is to be
held, which place shall be specified in the notice of such meeting, or, if not
so specified, at the place where such meeting is to be held. The list shall
also be produced and kept at the time and place of such meeting during the whole
time thereof, and may be inspected by any stockholder that is present. Such
stock ledger shall be the only evidence as to the identity of the stockholders
entitled to examine such stock ledger, such list or the books of the Corporation
or to vote in person or by proxy at any meeting of stockholders.
Section 1.9. VOTING OF SHARES BY CERTAIN HOLDERS. (a) Shares of
capital stock of the Corporation standing in the name of another corporation,
domestic or foreign, and entitled to vote may be voted by such officer, agent or
proxy as the bylaws of such other corporation may prescribe or, in the absence
of such provision, as the board of directors of such other corporation may
determine.
(b) Shares of capital stock of the Corporation standing in the name
of a deceased person, a minor, an incompetent or a corporation declared bankrupt
and entitled to vote may be voted by an administrator, executor, guardian,
conservator or trustee, as the case may be, either in person or by proxy,
without transfer of such shares into the name of the official so voting.
(c) A stockholder whose shares of capital stock of the Corporation
are pledged shall be entitled to vote such shares unless the pledger has
expressly empowered the pledgee to vote such shares, in which case only the
pledgee, or such pledgee's proxy, may represent such shares and vote thereon.
(d) Shares of capital stock of the Corporation belonging to the
Corporation, or to another corporation if a majority of the shares entitled to
vote in the election of directors of such other corporation shall be held by the
Corporation, shall not be voted at any meeting of stockholders and shall not be
counted in determining the total number of outstanding shares for the purpose of
determining whether a quorum is present. Nothing in this SECTION 1.9 shall be
construed to limit the right of the Corporation to vote shares of capital stock
of the Corporation held by it in a fiduciary capacity.
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Section 1.10. ADVANCE NOTICE OF STOCKHOLDER BUSINESS. Unless
otherwise permitted under the Certificate of Incorporation or a Certificate of
Designation, at any meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
President or Secretary or other person or persons authorized to call such a
meeting or (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors. For business to be properly brought before
a meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the meeting date is
given or made to stockholders, notice by the stockholder to be timely must be
received not later than the close of business on the 10th day following the day
on which such notice of the meeting date was mailed or such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the meeting (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (b) the name and address,
as the appear on the Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any meeting except in accordance
with the procedures set forth in this Section 1.10. The presiding officer of
the meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting and in accordance with
the provisions of this Section 1.10, and if he or she should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted. The provisions of this Section 1.10
shall not apply to actions taken by written consent of the stockholders.
ARTICLE II
DIRECTORS
Section 2.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
Section 2.2. NUMBER, ELECTION AND TERM OF OFFICE OF DIRECTORS. The
Board of Directors shall consist of five Directors. Directors shall be elected
annually by the stockholders as provided by SECTIONS 1.1 or 1.5 of these Bylaws
and as may be provided by
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<PAGE>
the Certificate of Incorporation. Each Director elected shall hold office until
his or her successor shall have been duly elected and shall have qualified or
until his or her earlier death, or resignation or removal pursuant to
Article IV. Directors need not be residents of the State of Delaware or
stockholders of the Corporation.
Section 2.3. NOMINATION OF DIRECTORS. (a) The names of qualified
individuals may be placed in nomination for election as directors by the
affirmative vote of a majority of the directors then serving on the Board of
Directors. The Board of Directors shall submit to the stockholders for their
consideration for election as directors the names of the individuals so
nominated.
(b) Any nomination by a stockholder must be made by written notice to
the Secretary delivered or mailed to the principal executive offices of the
Corporation (1) not less than sixty (60) days nor more than ninety (90) days
prior to the meeting, or (2) if less than seventy (70) days notice or prior
public disclosure of the meeting date is given or made to the stockholders, not
later than the close of business on the tenth day following the day on which the
notice of the meeting was mailed, or if earlier, the day on which such public
disclosure was made. A stockholder's notice to the Secretary shall set forth
(1) as to each person whom the stockholder proposes to nominate for election or
re-election as a director: (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of stock of the Corporation which are
beneficially owned by such person (as determined for the purposes of the
Regulations under Section 13 and 14 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), and (D) such other information relating to such
person that would be required to be disclosed in solicitations of proxies for
the election of such person as a director of the Corporation pursuant to
Regulation 14A under the Exchange Act and (2) as to the stockholder giving
notice (A) the name and address, as they appear on the Corporation's records, of
such person and (B) the class and number of shares beneficially owned (as
determined by clause (1)(C) above) by such stockholder.
(c) At the request of the Board of Directors, any person nominated
under Section 2.3(b) shall deliver within ten (10) days a signed, written
acknowledgement of the willingness of such person to serve as a director, and
confirming the accuracy of the information set forth in the stockholder's notice
referred to in Section 2.3(b)(1). The chairman of the meeting at which a
stockholder's nomination is presented shall, if the facts so warrant, determine
and declare to the meeting that such nomination was not made in accordance with
the procedures described in this Section 2.3, and in such event the defective
nomination shall be disregarded.
Section 2.4. PLACE OF MEETINGS. Meetings of the Board of Directors
may be held at such places, within or without the
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State of Delaware, as the Board of Directors may from time to time determine or
as may be specified in the call of any such meeting.
Section 2.5. REGULAR MEETINGS. A regular annual meeting of the
Board of Directors shall be held, without call or notice, immediately after and
at the same place as the annual meeting of stockholders, for the purpose of
organizing the Board of Directors, electing officers and transacting any other
business that may properly come before such meeting. Additional regular
meetings of the Board of Directors may be held without call or notice at such
times as shall be fixed by resolution of the Board of Directors.
Section 2.6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board of Directors or, if none,
the President, or by any Director. Notice of each special meeting shall be
mailed by the Secretary to each Director at least two days before such meeting,
or be given by the Secretary personally or by telegraph or telecopy at least 24
hours before such meeting, in the manner set forth in SECTION 11.1 of these
Bylaws. Such notice shall set forth the date, time and place of such meeting
but need not, unless otherwise required by applicable state law, state the
purpose of such meeting.
Section 2.7. QUORUM AND VOTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. The act of the majority of the Directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, unless otherwise provided by applicable state law, the
Certificate of Incorporation or these Bylaws. A majority of the Directors
present at any meeting at which a quorum shall be present may adjourn such
meeting to any other date, time or place without further notice other than
announcement at such meeting. If at any meeting a quorum shall not be present,
a majority of the Directors present may adjourn such meeting to any other date,
time or place without notice other than announcement at such meeting.
Section 2.8. TELEPHONIC MEETINGS. Members of the Board of Directors
or of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or such committee through conference telephone
or similar communications equipment by means of which all persons participating
in such meeting can hear each other, and participation in any meeting conducted
pursuant to this SECTION 2.8 shall constitute presence in person at such
meeting.
Section 2.9. COMPENSATION. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority to
fix the compensation of Directors. The Directors shall be paid their reasonable
expenses, if any, of attendance at each meeting of the Board of Directors or a
committee thereof and may be paid a fixed sum for attendance at each such
meeting and an annual retainer or salary for services as a Director
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or committee member. No such payment shall preclude any Director from serving
the Corporation in any other capacity and receiving compensation therefor.
Section 2.10. PRESUMPTION OF ASSENT. Unless otherwise provided by
applicable state laws, a Director who is present at a meeting of the Board of
Directors or a committee thereof at which action is taken on any corporate
matter shall be presumed to have assented to the action taken unless his or her
dissent shall be entered in the minutes of such meeting or unless he or she
shall file his or her written dissent to such action with the person acting as
secretary of such meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary immediately after the adjournment of
such meeting. Such right to dissent shall not apply to a Director who voted in
favor of such action.
Section 2.11. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or any committee
thereof, may be taken without a meeting if a written consent thereto is signed
by all members of the Board of Directors or of such committee, as the case may
be, and such written consent is filed with the minutes of proceedings of the
Board of Directors or such committee.
Section 2.12. PRESIDING OFFICER. The presiding officer at any
meeting of the Board of Directors shall be the Chairman of the Board of
Directors or, in his or her absence and if a Director, the President. If
neither the Chairman nor the President is present, then any other Director
elected chairman by vote of a majority of the Directors present at such meeting
shall preside.
Section 2.13. EXECUTIVE COMMITTEE. The Board of Directors may, in
its discretion, by resolution passed by a majority of the entire Board of
Directors, designate an Executive Committee consisting of such number of
Directors (not less than three) as the Board of Directors shall determine. The
Executive Committee shall have and may exercise all of the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation with respect to any matter which may require action prior to, or
which in the opinion of the Executive Committee may be inconvenient,
inappropriate or undesirable to be postponed until, the next meeting of the
Board of Directors; PROVIDED, HOWEVER, that the Executive Committee shall not
have the power or authority of the Board of Directors in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of such a
dissolution, amending these Bylaws, declaring a dividend, authorizing the
issuance of capital stock of the Corporation or adopting a certificate of
ownership and merger. Any member of the
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Board of Directors may request the chairman of the Executive Committee to call a
meeting of the Executive Committee with respect to a specified subject.
Section 2.14. OTHER COMMITTEES. The Board of Directors may from time
to time, in its discretion, by resolution passed by a majority of the entire
Board of Directors, designate other committees of the Board of Directors
consisting of such number of Directors (not less than two) as the Board of
Directors shall determine, which shall have and may exercise such lawfully
delegable powers and duties of the Board of Directors as shall be conferred or
authorized by such resolution. The Board of Directors shall have the power to
change at any time the members of any such committee, to fill vacancies and to
dissolve any such committee.
Section 2.15. ALTERNATES. The Board of Directors may from time to
time designate from among the Directors alternates to serve on any committee of
the Board of Directors to replace any absent or disqualified member at any
meeting of such committee. Whenever a quorum cannot be secured for any meeting
of any committee from among the regular members thereof and designated
alternates, the member or members of such committee present at such meeting and
not disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another Director to act at such meeting in place of any
absent or disqualified member.
Section 2.16. QUORUM AND MANNER OF ACTING - COMMITTEES. A majority
of the members of any committee of the Board of Directors shall constitute a
quorum for the transaction of business at any meeting of such committee, and the
act of a majority of the members present at any meeting at which a quorum is
present shall be the act of such committee.
Section 2.17. COMMITTEE CHAIRMAN, BOOKS AND RECORDS, ETC. The
chairman of each committee of the Board of Directors shall be selected from
among the members of such committee by the Board of Directors.
Each committee shall keep a record of its acts and proceedings, and
all actions of each committee shall be reported to the Board of Directors at its
next meeting.
Each committee shall fix its own rules of procedure not inconsistent
with these Bylaws or the resolution of the Board of Directors designating such
committee and shall meet at such times and places and upon such call or notice
as shall be provided by such rules.
Section 2.18. RELIANCE UPON RECORDS. Every Director, and every
member of any committee of the Board of Directors, shall, in the performance of
his or her duties, be fully protected in relying in good faith upon the records
of the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of the Corporation's officers or employees,
or
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committees of the Board of Directors, or by any other person as to matters the
Director or member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, including, but not limited to, such records,
information, opinions, reports or statements as to the value and amount of the
assets, liabilities and/or net profits of the Corporation, or any other facts
pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid, or with which the Corporation's
capital stock might properly be purchased or redeemed.
Section 2.19. INTERESTED DIRECTORS. The presence of a Director, who
is directly or indirectly a party in a contract or transaction with the
Corporation, or between the Corporation and any other corporation, partnership,
association or other organization in which such Director is a director or
officer or has a financial interest, may be counted in determining whether a
quorum is present at any meeting of the Board of Directors or a committee
thereof at which such contract or transaction is discussed or authorized, and
such Director may participate in such meeting to the extent permitted by
applicable law, including Section 144 of the General Corporation Law of the
State of Delaware.
ARTICLE III
OFFICERS
Section 3.1. NUMBER AND DESIGNATION. The officers of the
Corporation shall be a President, one or more Vice Presidents, a Secretary and a
Treasurer, and such Assistant Secretaries, Assistant Treasurers or other
officers or agents as may be elected or appointed by the Board of Directors.
The Board of Directors may, if it so determines, choose a Chairman of the Board
of Directors from among its members. The Board of Directors is also authorized
to create any other appropriate office and to elect or appoint officers thereto.
Any two or more offices may be held by the same person unless the Certificate of
Incorporation or these Bylaws provide otherwise.
Section 3.2. ELECTION AND TERM OF OFFICE. The officers of the
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after the election of Directors. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as may be convenient. Vacancies may be filled or new
offices created and filled at any meeting of the Board of Directors. Each
officer shall hold office until his or her successor shall have been duly
elected and shall have qualified or until his or her earlier death, or
resignation or removal pursuant to Article IV.
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Section 3.3. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall in general supervise and control all of the
business and affairs of the Corporation. The President may execute, alone or
with the Secretary or any other officer of the Corporation authorized by the
Board of Directors, any deeds, mortgages, bonds, contracts or other instruments
which the Board of Directors or a committee thereof has authorized to be
executed, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or a committee thereof or by these Bylaws to
some other officer or agent of the Corporation, or shall be required by law to
be otherwise executed, and in general he or she shall perform all duties
incident to the office of President and such other duties as from time to time
may be prescribed by the Board of Directors or a committee thereof.
Section 3.4. THE VICE PRESIDENTS. In the absence of the President
or in the event of his or her inability or refusal to act, the Vice President
(or in the event there shall be more than one Vice President, the Vice
Presidents in the order determined by the Board of Directors or, if there shall
have been no such determination, then in the order of their election) shall
perform the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Board
of Directors may also designate certain Vice Presidents as being in charge of
designated divisions, plants or functions of the Corporation's business and add
appropriate descriptions to their titles. In addition, any Vice President shall
perform such duties as from time to time may be assigned to him or her by the
President or the Board of Directors.
Section 3.5. THE SECRETARY. The Secretary shall (a) keep the
minutes of proceedings of the stockholders, the Board of Directors and any
committee of the Board of Directors in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of the seal of the Corporation; (d) affix the seal of the
Corporation or a facsimile thereof, or cause it to be affixed, and, when so
affixed, attest the seal by his or her signature, to all certificates for shares
of capital stock of the Corporation prior to the issue thereof and to all other
documents the execution of which on behalf of the Corporation under its seal is
duly authorized by the Board of Directors or otherwise in accordance with the
provisions of these Bylaws; (e) keep a register of the post office address of
each stockholder, Director or committee member, which shall be furnished to the
Secretary by such stockholder, Director or member; (f) have general charge of
the stock transfer books of the Corporation; and (g) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him or her by the President or the Board of Directors.
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Section 3.6. THE TREASURER. The Treasurer shall have charge and
custody of and be responsible for all funds and securities of the Corporation;
receive and give receipts for moneys due and payable to the Corporation from any
source whatsoever, deposit all such moneys in the name of the Corporation in
such banks, trust companies or other depositories as shall be selected in
accordance with the provisions of Article VI of these Bylaws, disburse the funds
of the Corporation as ordered by the Board of Directors or the President or as
otherwise required in the conduct of the business of the Corporation and render
to the President or the Board of Directors, upon request, an accounting of all
his or her transactions as Treasurer and a report on the financial condition of
the Corporation. The Treasurer shall in general perform all the duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him or her by the President or the Board of Directors. If required
by the Board of Directors, the Treasurer shall give a bond (which shall be
renewed regularly), in such sum and with such surety or sureties as the Board of
Directors shall determine, for the faithful discharge of his or her duties and
for the restoration to the Corporation, in case of his or her death, resignation
or removal pursuant to Article IV, or retirement from office, of all books,
papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
Section 3.7. ASSISTANT TREASURERS AND SECRETARIES. In the absence
of the Secretary or the Treasurer, as the case may be, or in the event of his or
her inability or refusal to act, the Assistant Secretaries and the Assistant
Treasurers, respectively, in the order determined by the Board of Directors (or
if there shall have been no such determination, then in the order of their
election), shall perform the duties and exercise the powers of the Secretary or
the Treasurer, as the case may be. In addition, the Assistant Secretaries and
the Assistant Treasurers shall, in general, perform such duties as may be
assigned to them by the President, the Secretary, the Treasurer or the Board of
Directors. Each Assistant Treasurer shall, if required by the Board of
Directors, give a bond (which shall be renewed regularly), in such sum and with
such surety or sureties as the Board of Directors shall determine, for the
faithful discharge of his or her duties.
Section 3.8. SALARIES. The salaries of the officers and agents of
the Corporation shall be fixed from time to time by the Board of Directors or by
such officer as it shall designate for such purpose. No officer shall be
prevented from receiving such salary by reason of the fact that he or she is
also a director of the Corporation.
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ARTICLE IV
RESIGNATIONS AND REMOVAL
Section 4.1. RESIGNATIONS. Any director, officer or agent of the
Corporation may, subject to contrary provision in any applicable contract,
resign at any time by giving written notice to the Board of Directors or the
President, or the Secretary of the Corporation, and any member of any Committee
may resign at any time by giving notice either as aforesaid or to the Committee
of which he or she is a member or to the chairman thereof. Any such resignation
shall take effect at the time specified therein or, if the time be not
specified, upon receipt thereof; and unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective.
Section 4.2. REMOVALS. (a) Except as otherwise required by the
applicable state law or the Certificate of Incorporation, any director may be
removed, with or without cause, by the affirmative vote of the holder of holders
of shares possessing a majority of the voting power of the outstanding shares of
the Corporation entitled to vote in the election of directors.
(b) Any officer, employee or agent or member of any Committee may be
removed at any time, with or without cause, by the affirmative vote of the
holder of holders of shares possessing a majority of the voting power of the
outstanding shares of the Corporation entitled to vote in the election of
directors, such removal to take effect forthwith or at such other time as may be
specified in such vote.
(c) The Board of Directors may also at any time remove, with or
without cause and without reference to or action by stockholders, any officer,
employee, agent or member of any Committee, whether or not elected, appointed by
it or hired with its approval or otherwise.
(d) Any such removal shall be without prejudice to any rights the
person removed shall have under existing contracts, agreements or arrangements
with the Corporation.
ARTICLE V
VACANCIES
Section 5.1. AMONG DIRECTORS. Except as otherwise required by the
Certificate of Incorporation of the Corporation or applicable state law, any
vacancy occurring in the Board of Directors, including a vacancy created by an
increase in the number of directors, may be filled for the remainder of the
unexpired term by the affirmative vote of a majority of the directors then
serving on the Board of Directors, although less than a quorum. Except as
otherwise required by the Certificate of Incorporation of the
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Corporation or applicable state law, when one or more directors shall resign
from the Board of Directors, effective at the future date, a majority of the
directors then in office, including those who have so resigned, shall have the
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this SECTION 5.1 for the filling of
other vacancies.
Section 5.2. AMONG OFFICERS, ETC. If the office of the President,
any Vice President, the Secretary or the Treasurer or of any other officer,
employee or agent or member of any Committee, become vacant at any time by
reason of death, resignation, retirement, disqualification, removal from office,
or otherwise, such vacancy or vacancies shall be filled by the Board of
Directors or as authorized by it.
ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 6.1. CONTRACTS. The Board of Directors may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.
Section 6.2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in the name of the
Corporation unless authorized by or pursuant to a resolution adopted by the
Board of Directors. Such authority may be general or confined to specific
instances.
Section 6.3. CHECKS, DRAFTS. ETC. All checks, drafts or other
orders for payment of money issued in the name of the Corporation shall be
signed by such officers, employees or agents of the Corporation as shall from
time to time be designated by the Board of Directors, the President or the
Treasurer.
Section 6.4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as shall be designated from
time to time by the Board of Directors, the President or the Treasurer; and such
officers may designate any type of depository arrangement (including, but not
limited to, depository arrangements resulting in net debits against the
Corporation) as may from time to time be offered or made available.
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ARTICLE VII
CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 7.1. CERTIFICATES OF STOCK. Shares of capital stock of the
Corporation shall be represented by certificates which shall be in such form as
may be determined by the Board of Directors, shall be numbered and shall be
entered on the books of the Corporation as they are issued. Such certificates
shall indicate the holder's name and the number of shares evidenced thereby and
shall be signed by the President or a Vice President and by the Secretary or an
Assistant Secretary. If any stock certificate shall be manually signed (a) by a
transfer agent or an assistant transfer agent or (b) by a transfer clerk acting
on behalf of the Corporation and a registrar, the signature of any officer of
the Corporation may be facsimile. In case any such officer whose facsimile
signature has been used on any such stock certificate shall cease to be such
officer, whether because of death, resignation or removal pursuant to
Article IV, or otherwise, before such stock certificate shall have been
delivered by the Corporation, such stock certificate may nevertheless be
delivered by the Corporation as though the person whose facsimile signature has
been used thereon had not ceased to be such officer.
Section 7.2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors in individual cases, or by general resolution or by delegation to the
transfer agent for the Corporation, may direct that a new stock certificate or
certificates for shares of capital stock of the Corporation be issued in place
of any stock certificate or certificates theretofore issued by the Corporation
claimed to have been lost, stolen or destroyed, upon the filing of an affidavit
to that effect by the person claiming such loss, theft or destruction. When
authorizing such an issuance of a new stock certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to such
issuance, require the owner of such lost, stolen or destroyed stock certificate
or certificates to advertise the same in such manner as the Corporation shall
require and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the stock certificate or certificates claimed to have been lost,
stolen or destroyed.
Section 7.3. TRANSFERS OF STOCK. Upon surrender to the Corporation
or the transfer agent of the Corporation of a stock certificate for shares of
capital stock of the Corporation duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer or, if the relevant stock
certificate for shares of capital stock of the Corporation is claimed to have
been lost, stolen or destroyed, upon compliance with the provisions of
SECTION 7.2 of these Bylaws, and upon payment of applicable taxes with respect
to such transfer, and in compliance with any restrictions on transfer applicable
to such stock certificate or the shares represented thereby of which the
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Corporation shall have notice and subject to such rules and regulations as the
Board of Directors may from time to time deem advisable concerning the transfer
and registration of stock certificates for shares of capital stock of the
Corporation, the Corporation shall issue a new stock certificate or certificates
for such shares to the person entitled thereto, cancel the old stock certificate
and record the transaction upon its books. Transfers of shares shall be made
only on the books of the Corporation by the registered holder thereof or by such
holder's attorney or successor duly authorized as evidenced by documents filed
with the Secretary or transfer agent of the Corporation. Whenever any transfer
of shares of capital stock of the Corporation shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of transfer
if, when the stock certificate or certificates representing such shares are
presented to the Corporation for transfer, both the transferor and transferee
request the Corporation to do so.
Section 7.4. STOCKHOLDERS OF RECORD. The Corporation shall be
entitled to treat the holder of record of any share of capital stock of the
Corporation as the holder thereof and shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by applicable state law.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1. FISCAL YEAR. The fiscal year of the Corporation shall
be as determined by resolution of the Board of Directors.
Section 8.2. SEAL. The corporate seal of the Corporation shall have
inscribed thereon the name of the Corporation and the words "CORPORATE SEAL" and
"DELAWARE"; and it shall otherwise be in the form approved by the Board of
Directors. Such seal may be used by causing it, or a facsimile thereof, to be
impressed or affixed or otherwise reproduced.
ARTICLE IX
OFFICES
Section 9.1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be located at The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle, Delaware. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
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Section 9.2. OTHER OFFICES. The Corporation may have offices at
such other places, both within or without the State of Delaware, as shall be
determined from time to time by the Board of Directors or as the business of the
Corporation may require.
ARTICLE X
INDEMNIFICATION
Section 10.1. GENERAL. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he or she is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement or conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application
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that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem proper.
(c) To the extent that a Director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b) of this
SECTION 10.1, or in defense of any claim, issue or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this
SECTION 10.1 (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in paragraphs (a)
and (b) of this SECTION 10. Such determination shall be made (i) by the Board
of Directors by a majority vote of a quorum consisting of Directors who were not
parties to such action, suit or proceeding, (ii) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested Directors so
directs, by independent legal counsel designated by a majority of such
disinterested Directors in a written opinion or (iii) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by a director or
officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation pursuant to this Article X. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article X shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any law, bylaw, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office.
(g) For purposes of this Article X, references to the "Corporation"
shall include, in addition to the resulting or surviving corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees
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or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article X with
respect to the resulting or surviving corporation as he or she would have with
respect to such constituent corporation if its separate existence had continued.
(h) For purposes of this Article X, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article X.
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article X shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such person.
Section 10.2. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have the power
to indemnify him or her against such liability under the provisions of
Section 145 of the General Corporation Law of the State of Delaware or other
applicable state law.
ARTICLE XI
NOTICES
Section 11.1. MANNER OF NOTICE. Except as otherwise provided by law,
whenever under the provisions of applicable state law, the Certificate of
Incorporation or these Bylaws notice is required to be given to any stockholder,
Director or member of any committee of the Board of Directors, such notice may
be given by personal delivery or by depositing it, in a sealed envelope, in the
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United States mails, air mail or first class, postage prepaid, addressed, or by
delivering it to a telegraph company, charges prepaid, for transmission, or by
transmitting it via telecopier, to such stockholder, Director or member either
at the address of such stockholder, Director or member as it appears on the
books of the Corporation or, in the case of such a Director or member, at his or
her business address; and such notice shall be deemed to be given at the time
when it is thus personally delivered, deposited, delivered or transmitted, as
the case may be. Such requirement for notice shall also be deemed satisfied,
except in the case of stockholder meetings with respect to which written notice
is required by law, if actual notice is received orally or by other writing by
the person entitled thereto as far in advance of the event with respect to which
notice is being given as the minimum notice period required by applicable state
law or these Bylaws.
Whenever notice is required to be given under any provision of the
laws of the State of Delaware or other applicable state law, the Certificate of
Incorporation or these Bylaws to any stockholder to whom (i) notice of two
consecutive annual meetings of stockholders, and all notices of meetings of
stockholders or of the taking of action by stockholders by written consent
without a meeting to such stockholder during the period between such two
consecutive annual meetings, or (ii) all, and at least two, payments (if sent by
first class mail) of dividends or interest on securities of the Corporation
during a 12-month period, have been mailed addressed to such stockholder at the
address of such stockholder as shown on the records of the Corporation and have
been returned undeliverable, the giving of such notice to such stockholder shall
not be required. Any action or meeting which shall be taken or held without
notice to such stockholder shall have the same force and effect as if such
notice had been duly given. If any such stockholder shall deliver to the
Corporation a written notice setting forth the then current address of such
stockholder, the requirement that notice be given to such stockholder shall be
reinstated.
Section 11.2. WAIVER OF NOTICE. Whenever any notice is required to
be given under any provision of the laws of the State of Delaware or other
applicable state law, the Certificate of Incorporation or these Bylaws, a
written waiver thereof, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
such notice. Attendance by a person at a meeting, including participation by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, shall
constitute a waiver of notice of such meeting, except when such person attends
such meeting for the express purpose of objecting, at the beginning of such
meeting, to the transaction of any business because such meeting has not been
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of stockholders, the Board of
Directors or a committee of the Board of Directors need be specified in any
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written waiver of notice unless so required by applicable state law, the
Certificate of Incorporation or these Bylaws.
ARTICLE XII
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends, in cash, in property or in shares of capital
stock of the Corporation, on its outstanding shares of capital stock in the
manner and upon the terms and conditions provided by law and by the Certificate
of Incorporation.
ARTICLE XIII
AMENDMENTS
Except to the extent otherwise provided in the Certificate of
Incorporation or these Bylaws, these Bylaws shall be subject to alteration,
amendment or repeal, and new Bylaws may be adopted (i) by the affirmative vote
of the holders of not less than a majority of the voting power of all
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors or (ii) by the affirmative vote of not
less than a majority of the entire Board of Directors at any meeting of the
Board of Directors at which there is a quorum present and voting.
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<TABLE>
<S><C>
[LOGO]
NUMBER SHARES
KT
KAYNAR TECHNOLOGIES INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 486605 10 8
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
KAYNAR TECHNOLOGIES INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
CERTIFICATE OF STOCK
Dated:
/s/ D.A. Werner [SEAL] /s/ Jordan A. Law
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- .............Custodian.............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ...............................
in common (State)
UNIF TRF MIN ACT -- .........Custodian (until age......)
(Cust)
............under Uniform Transfers
(Minor)
to Minors Act .....................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
__________________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
__________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
__________________________________________________________________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated _________________________________________________
X __________________________________________________________________________
X __________________________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.
- ----------------------------------------------------
AMERICAN BANK NOTE COMPANY APR 14, 1997 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 050052bk
(562) 989-2333
(FAX) (562) 426-7450 Proof /s/ Illegible NEW
- ----------------------------------------------------
</TABLE>
<PAGE>
May
5th
1 9 9 7
(213) 669-6000 445,876-009
LA1-744465
Kaynar Technologies Inc.
Kaynar Holdings Inc.
500 N. State College Boulevard
Suite 1000
Orange, California 92868
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
At your request, we have examined the above-referenced
Registration Statement on Form S-1, SEC File No. 333-22345 (the "Registration
Statement"), filed by you with the Securities and Exchange Commission in
connection with the registration under the Securities Act of 1933, as amended,
of 2,000,000 shares (2,300,000 if the over-allotment option is exercised in
full) of your Common Stock, $0.01 par value (the "Shares").
We are familiar with the proceedings heretofore taken, and with
the additional proceedings proposed to be taken, by you in connection with the
authorization and proposed issuance and sale of the Shares.
<PAGE>
Page 2 - Kaynar Technologies Inc. - May 5, 1997
It is our opinion that, subject to said proceedings being duly
taken and completed by you prior to the issuance and sale of the Shares, upon
the issuance and sale thereof in the manner referred to in the Registration
Statement, the Shares will be legally and validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Registration Statement and the Prospectus which
forms a part thereof.
Respectfully submitted,
O'MELVENY & MYERS LLP
<PAGE>
SPECIAL BUSINESS PROVISIONS
SPECIAL BUSINESS PROVISIONS
between
THE BOEING COMPANY
and
KAYNAR TECHNOLOGIES INCORPORATED
Number STD-65751-025
-------------
** Filed under an application for confidential treatment.
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.
** Filed under an application for confidential treatment.
<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.
<PAGE>
Exhibit 10.9(b)
BOEING COMMERCIAL AIRPLANE GROUP
PURCHASE ORDER TERMS AND CONDITIONS
1. 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 Order. Whether or not such
term or condition will materially alter this Order. Seller's commencement
of performance, or acceptance of this Order, in any manner shall
conclusively evidence agreement to this Order, as written.
2. DEFINITIONS. Whenever used in this Order, (a) "Customer" means any
customer of Buyer, any subsequent owner, operator or user of the Goods, and
any other individual, partnership, corporation or person or entity which
has or acquires any interest in the Goods from, through or under Buyer:
(b) "FAR" means the United States Government Federal Acquisition
Regulations: (c) "Goods" means all of the goods, services, documents, data,
software and other information or items furnished or to be furnished to
Buyer under this Order: and (d) "Order" means this purchase order,
including the provisions on its face, these Purchase Order Terms and
Conditions, and all of the specifications, technical descriptions,
statements of work, drawings, designs, documents, and other requirements
and provisions attached to, incorporated into or otherwise made a part of
this purchase order by Buyer.
3. SHIPMENT/DELIVERY. Shipments or deliveries, as specified in this Order,
shall be strictly in accordance with: the specified quantities, without
shortage or excess: the specified schedules, neither ahead of nor behind
schedule: and the other requirements of this Order. Seller shall promptly
notify Buyer in writing of any anticipated or actual delay, the reasons
therefor, and the actions being taken by Seller to overcome or minimize the
delay. If requested by Buyer, Seller shall, at Seller's expense, ship
Goods via air or other fast mode of transportation to avoid or minimize the
delay to the maximum extent possible.
4. PACKING AND SHIPPING. Seller shall prepare and pack the Goods to prevent
damage and deterioration, and shall comply with carrier tariffs. Charges
for preparation, packing, crating and cartage are included in the price
unless separately specified in the Order. Goods sold F.O.B. place of
shipment shall be forwarded collect. Seller shall make no declaration
concerning value of Goods shipped, except for Goods on which tariff
rating is dependent upon released or declared value, in which event Seller
shall release or declare such value at maximum value within the lowest
rating.
5. INVOICE AND PAYMENT. Seller shall issue a separate invoice for each
delivery and shall not issue any invoice prior to the Order schedule date
or actual delivery date, whichever is later. Payment will be made after
receipt of Goods and correct invoice. Unless freight or other charges are
itemized, any discount may be taken on the full amount of invoice. Payment
due date, including discount periods, shall be computed from the date of
receipt of Goods or correct invoice (whichever is later) or the date
Buyer's check is mailed or otherwise tendered. Seller shall promptly repay
to Buyer any amounts paid in excess of amounts due Seller.
6. EXAMINATION OF RECORDS. Seller shall maintain complete and accurate
records showing the sales volume of all Goods. Such records shall support
all services performed, allowances claimed and costs incurred by Seller in
the performance of the Order, including but not limited to those factors
which comprise or affect direct labor hours, direct labor rates, material
costs, burden rates and subcontracts. Such records and other data shall be
capable of verification through audit and analysis by Buyer and shall be
available to Buyer at Seller's facility for Buyer's examination and audit at
all reasonable times from the date of the Order until three (3) years after
final payment under the Order. Seller shall provide assistance to
interpret such data if required by Buyer. Such examination shall provide
Buyer with complete information regarding Seller's performance for use in
price negotiations with Seller relating to existing or future orders for
Goods (including but not limited to negotiation of equitable adjustments
pursuant to Clause 11, "CHANGES," and Clause 12, "TERMINATION FOR
CONVENIENCE"). Buyer shall treat such information as confidential.
7. INSPECTION. Buyer's acceptance of Goods shall be subject to Buyer's final
inspection within a reasonable time after receipt at destination,
notwithstanding any payment or prior test or inspection. In addition,
Buyer and the Federal Aviation Administration (if nondomestic an equivalent
government agency) may inspect and evaluate Seller's plant, including but
not limited to facilities, systems, equipment, testing, data, personnel and
all work-in-process and completed goods manufactured for installation on
Buyer's airplanes. No inspection, test or prior approval or acceptance,
and no delay or failure to inspect, test or give prior approval or
acceptance, or failure to discover any defect or other noncompliance, shall
relieve Seller of any of its obligations nor impair any rights or remedies
of Buyer or Customers.
8. REJECTION. Buyer may reject or revoke acceptance ("rejection" herein) of
any or all Goods, including any tender thereof which are not strictly in
conformance with all of the requirements of this Order, and shall notify
Seller of such rejection by notice, rejection tag or other communication.
At Seller's risk and expense, all such Goods will be returned to Seller for
immediate Seller repair, replacement or other correction and redelivery to
Buyer: provided, however, that with respect to any or all such Goods, at
Buyer's election and at Seller's risk and expense, Buyer may: (a) hold,
retain or return such Goods, without permitting any repair, replacement or
other correction by Seller: (b) hold or retain such Goods for repair by
Seller or, at Buyer's election, for repair by Buyer with such assistance
from Seller as Buyer may require: (c) hold such Goods until Seller has
delivered conforming replacements for such Goods: (d) hold such Goods until
conforming replacements are obtained from a third party: or (e) return such
Goods with instructions to Seller as to whether the Goods shall be repaired
or replaced and as to the manner of redelivery. All repair, replacement
and other correction and redelivery shall be completed within such time as
Buyer may require. All costs and expenses and loss of value incurred as a
result of or in connection with nonconformance and repair, replacement or
other correction may be recovered from Seller by equitable price reduction,
setoff or credit against any amounts which may be owed to Seller under this
Order or otherwise.
9. WARRANTIES. Seller warrants to Buyer and Customers that Goods shall: (a)
conform in all respects to all of the requirements of this Order: (b) be
free from all defects in materials and workmanship: and (c) to the extent
not manufactured pursuant to detailed designs furnished by Buyer, be free
from all defects in design and be fit for the intended purposes.
10. INDEMNITY/INFRINGEMENT. Seller shall indemnify, defend, and save Buyer
and Customers harmless from all claims, suits, actions, awards (including
but not limited to awards based on intentional infringement of patents
known to Seller at the time of such infringement and those exceeding
actual damages and/or including attorneys' fees), liabilities, damages,
costs and attorneys' fees related to the actual or alleged infringement
of any United States or foreign intellectual property right (including
but not limited to any right in a patent, copyright, industrial design or
semiconductor mask work, or based on misappropriation or wrongful use of
information of documents) and arising out of the manufacture, sale or use
of Goods by Buyer or Customers, Buyer and/or Customers shall duly notify
Seller of any such claim, suit or action: and Seller shall, at its own
expense, fully defend such claim, suit or action on behalf of Buyer
and/or Customers. Seller shall have no obligation under this clause with
regard to any infringement arising from: (a) Seller's compliance with
formal specifications issued by Buyer where infringement could not be
avoided in complying with such specifications or (b) use or sale of Goods
in combination with other items when such infringement would not have
occurred from the use or sale of those Goods solely for the purpose for
which they were designed or sold by Seller. For purposes of this Clause
10 only, the term Customer shall not include the U.S. Government and the
term Buyer shall include The Boeing Company (Boeing) and all Boeing
subsidiaries and all officers, agents, and employees of Boeing or any
Boeing subsidiary.
11. CHANGES. Buyer's Materiel Representative may from time to time direct
changes in writing within the general scope of this Order in any one or
more of the following: (a) technical requirements and descriptions,
specifications, statements of work, drawings or designs: (b) shipment or
packing methods: (c) place of delivery, inspection of acceptance: (d)
reasonable adjustments in quantities or delivery schedules or both: and (e)
amount of Buyer-furnished property. Seller shall comply immediately with
such direction and avoid unnecessary costs related thereto. If any such
change causes an increase or decrease in the cost of or the time required
for performance of this Order, an equitable adjustment in the prices and
schedules of this Order shall be made to reflect such increase or decrease,
and this Order shall be modified in writing accordingly. Unless otherwise
agreed in writing, any Seller claim for adjustment must be delivered to
Buyer in writing within thirty (30) days after Seller's receipt of such
direction. Seller shall make available for Buyer's examination relevant
books and records to verify Seller's claim for adjustment. Failure of
Buyer and Seller to agree upon any adjustment shall not excuse Seller from
performing in accordance with such direction. If Seller considers the
conduct of any of Buyer's employees to have constituted a change hereunder:
Seller shall notify Buyer immediately in writing as to the nature of such
conduct and its effect upon Seller's performance. Pending direction from
Buyer's Materiel Representative, Seller shall take no action to implement
any such change.
12. TERMINATION FOR CONVENIENCE. Buyer may terminate this Order in whole or
from time to time in part, effective as of the date specified by Buyer, in
accordance with the provisions of FAR 52.249-2 (APR 1984: without
Alternates), which provisions are incorporated herein by reference. In FAR
52.249-2, "Government" and "Contracting Officer" shall mean Buyer:
"Contractor" shall mean Seller and "this Contract" and "the Contract"
shall mean this Order. All references to one (1) year in paragraph (d) of
such clause are changed to six (6) months, and all references to a
"Disputes" clause are deleted.
13. CANCELLATION FOR DEFAULT. Buyer may cancel this Order in whole or from time
to time in part, effective as of the date specified by Buyer. In
accordance with the
(CONTINUED ON REVERSE SIDE)
<PAGE>
provisions of FAR 52.249-8 (APR 1984: without Alternates), which provisions
are incorporated herein by reference, in the event of any Seller default,
or in the event of Seller's suspension of business, insolvency,
reorganization or arrangement or liquidation proceedings, assignment for the
benefit of creditors or Seller's trustee in bankruptcy or Seller as debtor
in possession not assuming this Order pursuant to a Federal Bankruptcy
Court's approval within sixty (60) days after the bankruptcy petition was
filed, or appointment or a receiver for Seller's property. In FAR
52.249-8, "Government" and "Contracting Officer," shall mean Buyer except
in paragraph (e). "Contractor" shall mean Seller, "this Contract" and
"the Contract" shall mean this Order, and all references to a "Disputes"
clause are deleted. If Buyer and Seller fail to agree on the amount to be
paid for manufacturing materials referred to in paragraph (e) of FAR
52.249-8, the amount shall be the reasonable value thereof but shall not
exceed that portion of the price of this Order which is reasonably
allocable to such materials.
14. RESPONSIBILITY FOR PERFORMANCE. Buyer's issuance of this Order is based
in part on Buyer's reliance on Seller's ability, expertise and awareness
of the intended use of Goods, and Seller's continuing compliance with all
applicable laws and regulations during the performance of this Order.
Further, Seller shall not, by contract, operation of law, or otherwise,
assign any of its rights or interest in this Order (including but not
limited to any right to monies due or to become due), delegate any of its
duties or obligations under this Order, or subcontract all or
substantially all of its performance of this Order to one or more third
parties, without Buyer's prior written consent. No assignment,
delegation or subcontracting by Seller with or without Buyer's consent
shall relieve Seller of any of its obligations under this Order. Buyer
may unilaterally assign any rights or title to property under this Order
to any wholly owned subsidiary of The Boeing Company. Seller shall have
a continuing obligation to promptly notify Buyer of any violation of or
deviation from Seller's approved inspections quality control system and
to advise Buyer of the quantity and specific identity of any Goods
delivered to Buyer during the period of any such violation or deviation.
15. PUBLICITY. Seller shall not, and shall require that its subcontractors
and suppliers (of any tier) shall not, cause or permit to be released any
publicity, advertisement, news release, public announcement, or denial or
confirmation of same, in whatever form, regarding any aspect of this
Order or the Goods or program to which they pertain without Buyer's prior
written approval.
16. COMPLIANCE WITH LAWS. Seller shall be responsible for complying with all
laws, including, but not limited to, any statute, rule, regulation,
judgment, decree, order or permit applicable to its performance under this
Order. Seller further agrees (1) to notify Buyer of any obligation under
this Order which is prohibited under any applicable environmental law, at
the earliest opportunity but in all events sufficiently in advance of
Seller's performance of such obligation so as to enable the identification
of alternative methods of performance, and (2) to notify Buyer at the
earliest possible opportunity of any aspect of its performance which
becomes subject to additional environmental regulation or which Seller
reasonably believes will become subject to additional environmental
regulation during performance of this Order.
17. RESPONSIBILITY FOR PROPERTY. Unless otherwise specified, upon delivery to
Seller or manufacture or acquisition by Seller of any materials, parts,
tooling, data or other property, title to which is in Buyer. Seller
assumes the risk of and shall be responsible for any loss thereof or damage
thereto. In accordance with the provisions of this Order, but in any event
upon completion thereof. Seller shall return such property to Buyer in the
condition in which it was received except for reasonable wear and tear and
except for such property as has been reasonably consumed in the performance
of this Order.
18. CONFIDENTIAL, PROPRIETARY, AND/OR TRADE SECRET INFORMATION AND ITEMS.
Buyer and Seller shall each keep confidential and protect from disclosure
all (a) confidential, proprietary, and/or trade secret information: (b)
tangible items containing, conveying, or embodying such information: and (c)
tooling obtained from and/or belonging to the other in connection with this
Order (collectively referred to as "Proprietary Materials"). Buyer and
Seller shall each use Proprietary Materials of the other only in the
performance of and for the purpose of this Order. Provided, however, that
despite any other obligations or restrictions imposed by this Clause 18,
Buyer shall have the right to use and disclose Seller's Proprietary
Materials for purposes of testing, certification, use, sale, or support of
any item delivered under an Order or any airplane including such an item:
and any such disclosure by Buyer shall, whenever appropriate, include a
restrictive legend suitable to the particular circumstances. The
restrictions on disclosure or use of Proprietary Materials by Seller shall
apply to all materials derived by Seller or others from Buyer's Proprietary
Materials. Upon Buyer's request at any time, and in any event upon the
completion, termination or cancellation of this Order. Seller shall return
all of Buyer's Proprietary materiels, and all materials derived from
Buyer's Proprietary Materials, to Buyer unless specifically directed
otherwise in writing by Buyer. Seller shall not, without the prior written
authorization of Buyer, sell or otherwise dispose of (as scrap or
otherwise) any materials containing, conveying, embodying, or made in
accordance with or by reference to any Proprietary Materials of Buyer.
Prior to disposing of such materials as scrap, Seller shall render the
materials unusable. Buyer shall have the right to audit Seller's
compliance with this Clause 18. Seller may disclose Proprietary Materials
of Buyer to its subcontractors as required for the performance of this
Order, provided that each such subcontractor first assumes, by written
agreement, the same obligations imposed on Seller under this Clause 18
relating to such Proprietary Materials; and Seller shall be liable to
Buyer for any breach of such obligation by such subcontractor. The
provisions of this Clause 18 are effective in lieu of, and will apply
notwithstanding the absence of, any restrictive legencs or notices
applied to Proprietary Materials: and the provisions of this Clause 18
shall survive the performance, completion, termination or cancellation of
this Order. This Clause 18 supersedes and replaces any and all prior
agreements and understandings between the parties to the extent that such
agreements or understandings cover confidential, proprietary, and/or trade
secret information, or tangible items containing, conveying, or embodying
such information, related to any Goods, regardless of whether disclosed
to the receiving party before or after the effective date of these Purchase
Order Terms and Conditions.
19. INTEGRITY IN PROCUREMENT. Buyer's policy is to maintain high standards of
integrity in procurement. Buyer's employees must ensure that no favorable
treatment compromises their impartiality in the procurement process.
Accordingly, Buyer's employees must strictly refrain from soliciting or
accepting any payment, gift, favor, or thing of value which could
improperly influence their judgment with respect to either issuing a
purchase order or administering this Order. Consistent with this policy,
Seller agrees not to provide or offer to provide any employee of Buyer any
payment, gift, favor, or thing of value for the purpose of improperly
obtaining or regarding favorable treatment in connection with any purchase
order of this Order. Seller shall conduct its own procurement practices,
and shall ensure that its suppliers conduct their procurement practices,
consistent with these standards. If Seller has reasonable grounds to
believe that this policy may have been violated, Seller shall immediately
report such possible violation to the appropriate Director of Materiel or
Division Chief Counsel of Buyer.
20. NONWAIVER AND PARTIAL INVALIDITY. Any and all failure, delay or
forbearance of Buyer in insisting upon or enforcing at any time any of the
provisions of this Order, or in exercising any rights or remedies under
this Order, shall not be construed as a waiver or relinquishment of any
such provisions, rights or remedies in those or any other instances:
rather, the same shall be and remain in full force and effect. Further, if
any provision of this Order is or becomes void or unenforceable by law, the
remainder shall be valid and enforceable.
21. GOVERNMENT REQUIREMENTS. Within Seller's invoice or other form
satisfactory to Buyer, Seller shall certify that Goods covered by this
Order were produced in compliance with Sections 6, 7 and 12 of the Fair
Labor Standards Act as amended, and the regulations and orders of the
U.S. Department of Labor issued thereunder Paragraph (b) of the Equal
Opportunity clause set forth in FAR 52.222-26. FAR 52.222-35,
Affirmative Action for Special Disabled and Vietnam Era Veterans, and FAR
52.222-38, Affirmative Action for Handicapped Workers, are incorporated
herein by reference, except that "Contractor" shall mean Seller in such
FAR clauses. The appearance of a U.S. Government agency prime contract
number on the face of this Order incorporates into this Order, without
further notice of action, Boeing Form D1 4100 4050, entitled "Additional
Terms and Conditions-Government Contracts."
22. GOVERNING LAW. This Order and the performance thereof shall be governed by
the law of the State of Washington, U.S.A., exclusive of the choice of law
rules thereof.
23. ENTIRE AGREEMENT. This Order sets forth the entire agreement, and
supersedes any and all other agreements, understandings and communications
between Buyer and Seller related to the subject matter of this Order. No
amendment or modification of this Order shall be binding upon Buyer unless
set forth in a written instrument signed by Buyer's Materiel
Representative. The rights and remedies afforded to Buyer or Customers
pursuant to any provision of this Order are in addition to any other rights
and remedies afforded by any other provisions of this Order, by law or
otherwise.
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STOCKHOLDERS AGREEMENT
This Stockholders Agreement (this "AGREEMENT"), dated as of May __, 1997,
is entered into by and among Kaynar Technologies Inc., a Delaware corporation
formerly known as Kaynar Holdings Inc. (the "COMPANY"), General Electric Capital
Corporation, a New York corporation ("GECC"), Jordan A. Law, David A. Werner,
LeRoy A. Dack, Robert L. Beers, the Berecz Family Trust, Joseph Varholick and
the Blomberg Family Trust (each individually a "MANAGEMENT STOCKHOLDER" and
collectively, the "MANAGEMENT STOCKHOLDERS").
WHEREAS, immediately following the execution of this Agreement, the Company
will make an initial public offering (the "OFFERING") of 2,000,000 shares of its
Common Stock, par value $.01 per share (the "COMMON STOCK");
WHEREAS, GECC is the beneficial owner of 5,406,000 shares of Series C
Convertible Preferred Stock, par value $.01 per share, of the Company (the
"SERIES C PREFERRED STOCK"), which is convertible into shares of Common Stock at
one-to-one conversion rate, subject to certain adjustments set forth in the
Certificate of Designations (as defined below);
WHEREAS, immediately prior to the Offering, GECC will convert 200,000
shares of Series C Preferred Stock into 200,000 shares of Common Stock, all of
which will be sold in the Offering;
WHEREAS, the Management Stockholders beneficially own 1,394,000 shares of
Common Stock in the aggregate;
WHEREAS, the parties hereto desire to set forth their agreement as to
certain matters regarding the nomination of Directors of the Company, tag-along
transfer rights and registration rights granted to the Series C Preferred Stock;
and
NOW THEREFORE, in consideration of the promises, covenants and agreements
contained herein, the sufficiency and adequacy of which are hereby acknowledged,
and for other good and valuable consideration, the sufficiency and adequacy of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
<PAGE>
SECTION 1. OTHER DEFINITIONS AND USAGE. As used in this Agreement:
1.1 OTHER DEFINITIONS.
(a) "AFFILIATE" means, as to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control", when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
(b) "BOARD OF DIRECTORS" means the Board of Directors of the Company.
(c) "CERTIFICATE OF DESIGNATIONS" means the Certificate of Designations
relating to the Series C Preferred Stock.
(d) "COMMON STOCKHOLDERS" means all owners of the outstanding shares of
Common Stock.
(e) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(f) "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.
(g) "PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust or
unincorporated organization.
(h) "REGISTRABLE SECURITIES" means (i) Common Stock issuable or issued
upon conversion of Series C Preferred Stock, (ii) any Common Stock held by a
Management Stockholder and (iii) any Common Stock theretofore issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Series C Preferred Stock or the Common
Stock described in items (i) and (ii) above.
(i) "REGISTRATION EXPENSES" means all expenses incurred by the Company in
complying with Section 4 hereof, including all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent accountants
for the Company, blue sky fees and expenses, the fees and other costs and
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expense of any special audits incident to or required by any such registration
and the fees and other costs and expenses of any "independent" underwriter
required by the rules and regulations of the National Association of Securities
Dealers, Inc.; provided, however, that if any such independent underwriter is
required because the underwriter selected by the Series C Stockholder is an
Affiliate of, or otherwise related to, any Stockholder, such fees and other
costs and expenses of the independent underwriter shall be Selling Expenses.
(j) "REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement or document by the Securities and
Exchange Commission.
(k) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(l) "SELLING EXPENSES" means all underwriting discounts, selling
commissions and underwriters' expense allowances applicable to the sale of
Registrable Securities.
(m) "SERIES C STOCKHOLDER" means GECC (so long as it owns any Series C
Preferred Stock), together with any Affiliate of GECC to whom GECC Transfers any
shares of Series C Preferred Stock in accordance with the Certificate of
Designations.
(n) "STOCKHOLDER" means any Person that owns any shares of the outstanding
Common Stock or Series C Preferred Stock.
(o) The number of shares of Registrable Securities "THEN OUTSTANDING"
shall be the number of shares of Common Stock outstanding which are, and the
number of shares of Common Stock which upon issuance of then exercisable or
convertible securities will be, Registrable Securities.
(p) "TRANSFER" shall mean (and correlative words shall have correlative
meanings) the act of selling, giving, transferring, creating a trust (voting or
otherwise), assigning or otherwise disposing of (other than pledging,
hypothecating or otherwise transferring as security); PROVIDED, HOWEVER, that
any transfer or other disposition upon foreclosure by a secured creditor after
an event of default under or with respect to a pledge, hypothecation or other
transfer as security shall constitute a "Transfer".
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1.2. USAGE.
(a) References to a Person are also references to its assigns and
successors in interest (by means of merger, consolidation or sale of all or
substantially all the assets of such Person or otherwise, as the case may be).
(b) References to shares of capital stock "owned" by a Stockholder shall
include shares of capital stock beneficially owned by such Person but which are
held of record in the name of a nominee, trustee, custodian or other agent.
(c) References to a document are to it as amended, waived and otherwise
modified from time to time and references to a statute or other governmental
rule are to it as amended and otherwise modified from time to time (and
references to any provision thereof shall include references to any successor
provision).
(d) References to Sections are to sections hereof, unless the context
otherwise requires.
(e) The definitions set forth herein are equally applicable both to the
singular and plural forms and the feminine, masculine and neuter forms of the
terms defined.
(f) The term "including" and correlative terms shall be deemed to be
followed by "without limitation" whether or not followed by such words or words
of like import.
(g) The term "hereof" and similar terms refer to this Agreement as a
whole.
(h) The "date of" any notice or request given pursuant to this Agreement
shall be determined in accordance with SECTION 6.
(i) The terms "day" and "days" refer to calendar days unless preceded by
the term "business".
SECTION 2. NOMINATION OF DIRECTORS.
(a) So long as the number of shares of Common Stock issuable upon
conversion in full of the outstanding Series C Preferred Stock held by the
Series C Stockholder represents 40% or more of the number of Fully Diluted
Shares, (i) GECC shall have the right each year to designate, by written notice
thereof to the Company, two individuals (who are each legally, mentally and
physically capable of serving) for the Company to nominate for election to the
Board of Directors at the Company's annual meeting, and the Company shall so
nominate such individuals in accordance with its Bylaws and (ii) each of the
Company's Audit and Compensation Committees shall include both directors so
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designated by GECC. GECC shall deliver any such written notice at least 60 days
prior to the date set for the election of directors (or if not theretofore
notified by the Company of such date, at least 60 days prior to the first
anniversary of the Company's most recent annual meeting).
(b) So long as the number of shares of Common Stock issuable upon
conversion in full of the outstanding Series C Preferred Stock held by the
Series C Stockholder represents 25% or more (but less than 40%) of the number of
Fully Diluted Shares, (i) GECC shall have the right each year to designate, by
written notice thereof to the Company, one individual (who is legally, mentally
and physically capable of serving) for the Company to nominate for election to
the Board of Directors at the Company's annual meeting, and the Company shall so
nominate such individual in accordance with the Company's Bylaws and (ii) each
of the Company's Audit and Compensation Committees shall include the director
who was so designated by GECC. GECC shall deliver any such written notice at
least 60 days prior to the date set for the election of directors (or if not
theretofore notified by the Company of such date, at least 60 days prior to the
first anniversary of the Company's most recent annual meeting).
(c) At any time the Series C Stockholder is entitled to designate two or
one nominees for the Board of Directors pursuant to Section 2(a) or 2(b), as the
case may be, the Company shall identify any such nominee as the designee of the
Series C Stockholder in any proxy statement, information statement or other
document delivered to the Common Stockholders in which such nominees are named.
(d) The rights granted to the Series C Stockholder pursuant to this
Section 2 may not be, directly or indirectly, assigned or transferred.
SECTION 3. CERTAIN TRANSFER RIGHTS.
3.1. DELIVERY OF TRANSFER NOTICE. If the Series C Stockholder
proposes to Transfer, in one transaction or a series of related transactions, to
one Person or "group" (as defined in Rule 13d-5 promulgated under the Exchange
Act) of Persons, Series C Preferred Stock, Common Stock or other securities
representing, in the aggregate, more than 40% of the Fully Diluted Shares, and
the Transferee or Transferee group is not an Affiliate of the Series C
Stockholder, the Series C Stockholder shall deliver to the Company a notice that
sets forth: (i) the aggregate number of shares of Common Stock to be Transferred
(the "Offered Shares"); (ii) the proposed date, time and, if known, place of
Transfer; (iii) the amount and form of consideration to be received in the
aggregate and on a per-share basis by the Transferring Person (before deduction
for the expenses of Transfer) or, if the amount and form of consideration are
not then definite, an estimate (identified as such) of the range of
consideration being
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negotiated; (iv) the identity and address(es) of the Transferee or Transferees;
(v) any other material terms and conditions of the Transfer, together with
copies of any then-available Transfer documents (or the latest draft thereof)
related thereto (a "TRANSFER NOTICE").
3.2. RIGHTS. The Series C Stockholder shall not make any Transfer of
the type described in Section 3.1 unless the proposed Transferee has agreed, in
writing with the Company, to offer to acquire all of the outstanding Common
Stock of the Company for the same per-share price (comprised of the same per
share form(s) of consideration), and upon the same terms and conditions, as such
offerer purchases shares from the Series C Stockholder (as required to be set
forth in the Transfer Notice). Any such offer made by the proposed Transferee
must remain open for at least 30 days after receipt of the offer by the last of
the Stockholders to receive the offer in accordance with Section 6. For this
purpose, any tender offer by the offeror would commence upon publication in
accordance with Rule 14(d)-2 promulgated under the Exchange Act.
SECTION 4. REGISTRATION RIGHTS.
4.1 DEMAND REGISTRATION RIGHTS.
(a) If the Company shall receive, at any time after the expiration of that
certain Agreement, dated as of April __, 1997, between GECC and the
Representatives (as defined therein) (the "Lock-up Agreement"), (i) a written
request from the Series C Stockholder that the Company file a registration
statement under the Securities Act covering the registration of at least 5% of
the Registrable Securities then outstanding (or any lesser percentage if the
anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $4,000,000) and (ii) a list of the jurisdictions in
which the Series C Stockholder intends to attempt to qualify such securities
under applicable state securities laws, the Company shall promptly give written
notice of such request to all Management Stockholders and shall as soon as
practicable file a registration statement and use its best efforts (subject to
the limitations of this SECTION 4) to effect the registration under the
Securities Act of the proposed Transfer of all such Registrable Securities which
the Series C Stockholder requests to be registered, together with all of the
Registrable Securities of any Management Stockholders who so request by notice
to the Company which is given within 30 days after the notice from the Company
described above. Notwithstanding the foregoing, if the Company shall furnish to
the Series C Stockholder a certificate signed by the Chief Executive Officer of
the Company stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Company for a registration statement to be
filed in the near future, then the Company's obligation to use its best efforts
to file a registration statement shall be
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deferred for a period not to exceed 90 days (or, at the option of the Series C
Stockholder, withdrawn without constituting a demand).
(b) If the Series C Stockholder intends to distribute the Registrable
Securities covered by its request by means of an underwriting through an
underwriter selected by the Series C Stockholder, it shall so advise the Company
as a part of its request made pursuant to this SECTION 4, and the Company shall
include such information in the written notice referred to in SECTION 4.1(a).
In such event, the right of any Management Stockholder to include its
Registrable Securities in such registration shall be conditioned upon such
Management Stockholder's participation in such underwriting and the inclusion of
such Management Stockholder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by the Series C Stockholder, the underwriter, the
Company and such Management Stockholder) to the extent permitted herein.
(c) The Series C Stockholder and all Management Stockholders proposing to
distribute their Registrable Securities through such underwriting (together with
the Company as provided in SECTION 4.3(e)) shall enter into an underwriting
agreement in customary form with the representative of the underwriter or
underwriters selected for such underwriting by the Series C Stockholder and
reasonably acceptable to the Company. Any Management Stockholder that (i) does
not elect to distribute Registrable Securities through such underwriting and
(ii) beneficially owns 1% or more of the total Common Stock outstanding as of
the effective date of the applicable registration statement, shall be
prohibited, for a period of 90 days from such effective date, from selling,
contracting to sell or otherwise disposing of any shares of Common Stock without
the underwriter's prior written consent. Notwithstanding any other provisions
of this SECTION 4, if the underwriter advises the Series C Stockholder in
writing that marketing factors require a limitation of the number of shares to
be underwritten, the Series C Stockholder shall so advise the Company, who shall
so advise all Management Stockholders, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated first to the Series C Stockholder, and then any remaining shares shall
be allocated among the Management Stockholders pro rata based on the number of
shares for which registration was requested. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration.
(d) The Company is obligated to effect only two demand registrations for
the Series C Stockholder pursuant to this SECTION 4.1; PROVIDED, HOWEVER, that
(i) if the Company is, at the time of any request, eligible to register
securities using a Registration Statement on Form S-3, the Company will be
obligated
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to effect up to three additional demand registrations at the request of the
Series C Stockholder pursuant to this SECTION 4.1 and (ii) the limitations set
forth in this SECTION 4.1(d) shall not apply to any demand registrations in
which the Series C Stockholder agrees to pay a pro rata share of both the
Registration Expenses and the Selling Expenses, which share shall be determined
by comparing the number of shares registered by the Series C Stockholder to the
total number of shares included in such registration.
(e) The rights granted to the Series C Stockholder pursuant to this
Section 4.1 may not be, directly or indirectly, assigned or transferred, other
than to another Series C Stockholder; provided, however, that the Series C
Stockholder may, on one occasion only, Transfer one demand registration right to
any one Person to whom the Series C Stockholder Transfers all or a portion of
the Common Stock into which the Series C Preferred Stock is convertible.
4.2 PIGGY-BACK REGISTRATION RIGHTS.
(a) If, at any time, the Company proposes to register (including a
registration effected by the Company for Stockholders other than the Series C
Stockholder) any of its securities under the Securities Act in connection with
the public offering of such securities (other than a registration form relating
to: (i) a registration of a stock option, stock purchase or compensation or
incentive plan or of stock issued or issuable pursuant to any such plan, or a
dividend investment plan; (ii) a registration of securities proposed to be
issued in exchange for securities or assets of or in connection with a merger or
consolidation with, another entity; or (iii) a registration of securities
proposed to be issued in exchange for, or as a right exercisable only by holders
of, other securities of the Company), the Company shall promptly (but in no
event later than 30 days after such notice) give GECC written notice of such
registration together with a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under applicable state securities
laws. Upon the written request of the Series C Stockholder given within 30 days
after receipt of such written notice from the Company in accordance with
SECTION 6, the Company shall, subject to the provisions of SECTION 4.3 (in the
case of an underwritten offering), include in the registration statement to be
filed by it under the Securities Act in connection with such offering all of the
Registrable Securities that the Series C Stockholder has requested to be
registered.
(b) The right of the Series C Stockholder to "piggyback" in an
underwritten public offering of the Company's securities pursuant to
SECTION 4.2(a) shall be conditioned upon the Series C Stockholder's
participation in such underwriting and the inclusion of the Series C
Stockholder's Registrable Securities in
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the underwriting to the extent provided herein. If the Series C Stockholder
proposes to distribute its securities through such underwriting, the Series C
Stockholder shall (together with the Company and any other Stockholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision
of this SECTION 4.2, if the underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the Company
shall so advise all Stockholders participating in the underwriting and
registration, and the number of securities that may be included in the
registration and underwriting shall be allocated first to the Company, and then
any remaining shares shall be allocated among such Stockholders pro rata based
on the number of shares for which registration was requested.
(c) The Series C Stockholder may only exercise piggyback registration
rights pursuant to Section 4.2(a) two times; provided, however, that this
limitation shall not apply to any piggy back registrations in which the Series C
Stockholder agrees to pay a pro rata share of both the Registration Expenses and
the Selling Expenses, which share shall be determined by comparing the number of
shares registered by the Series C Stockholder to the total number of shares
included in such registration.
(d) The rights granted to the Series C Stockholder pursuant to this
Section 4.2 may not be, directly or indirectly, assigned or transferred, other
than to another Series C Stockholder.
4.3 OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission ("SEC") a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective;
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish to the Stockholders participating in such registration such
numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as they may
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reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under the securities laws of such jurisdictions as
the Company believes shall be reasonably appropriate for the distribution of the
securities covered by the registration statement and, with respect to
registrations under Section 4.1, such jurisdictions as the Series C Stockholder
shall reasonably request, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such jurisdiction, and
further provided that (anything in this Agreement to the contrary
notwithstanding with respect to the bearing of expenses) if any jurisdiction in
which the securities shall be qualified shall require that expenses incurred in
connection with the qualification of the securities in that jurisdiction be
borne by selling Stockholders and provided there is no exemption from such
requirement by reason of the Company's obligation to pay such expenses pursuant
to SECTION 4.5, such expenses shall be payable pro rata by the Stockholders
participating in such registration, to the extent required by such jurisdiction;
and
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such offering. Each Stockholder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
4.4 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this SECTION 4 that
the selling Stockholders shall furnish to the Company in writing expressly for
inclusion in the registration statement, such information regarding themselves,
the Registrable Securities held by them and the intended method of disposition
of such securities as shall be required to effect the registration of their
Registrable Securities. In that connection, each selling Stockholder shall be
required to represent to the Company that all such information which is given is
both complete and accurate in all material respects.
4.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
SECTION 4 shall be borne by the Company, and all Selling Expenses shall be borne
by the Company and any Stockholders of the securities so registered pro rata on
the basis of the number of shares registered by the Company and such
Stockholders. Each Stockholder participating in any registration effected
pursuant to this Section 4 shall bear all of the fees and expenses of its own
counsel.
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4.6 INDEMNIFICATION. If any Registrable Securities are included in a
registration statement under this Agreement:
(a) To the maximum extent permitted by law, the Company will indemnify and
hold harmless each Stockholder participating in the registration, the officers,
directors, controlling persons and partners of each such Stockholder, and any
underwriter (as defined in the Securities Act) for any such Stockholder, against
any losses, claims, damages, or liabilities (joint or several) to which they or
any of them may become subject under the Securities Act, the Exchange Act or any
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise from or are based upon any of
the following: (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; or (ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading; and the Company will reimburse each such
Stockholder, officer, director, controlling person or partner or underwriter for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section 4.6(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises from or is based upon written information
furnished expressly for use in connection with such registration by any such
Stockholder, underwriter or controlling person.
(b) To the maximum extent permitted by law, each selling Stockholder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
(within the meaning of the Securities Act) for the Company, any person who
controls such underwriter, any other Stockholder selling securities in such
registration statement or any of its directors or officers or any person who
controls such other Stockholder against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, or underwriter or other such Stockholder or its
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act or any other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise from or
are based upon written information furnished by such Stockholder expressly for
use in connection with such
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registration; and each such Stockholder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or controlling person thereof, other
Stockholder, or officer, director or controlling person of such other
Stockholder in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this SECTION 4.6(b) shall not apply to amounts paid in settlement
of any such loss, claim damage, liability or action if such settlement is
effected without the consent of the Stockholder providing the indemnity which
consent shall not be unreasonably withheld; provided, that in no event shall any
indemnity under this SECTION 4.6(b) exceed the gross proceeds from the offering
received by the Stockholder.
(c) Promptly after receipt by an indemnified party under this SECTION 4.6
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this SECTION 4.6, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to notify an indemnifying party within
a reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
SECTION 4.6, but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this SECTION 4.6.
(d) The obligations of the Company and the Stockholders under this
SECTION 4.6 shall survive the completion of any offering of Registrable
Securities in a registration statement made under the terms of this Agreement.
4.7 ADDITIONAL REGISTRATION RIGHTS.
In addition to the registration rights granted to the Series C Stockholder
pursuant to Sections 4.1 and 4.2 hereof, the Series C Stockholder shall be
entitled to any other registration rights that the Company grants to any other
Stockholder during the term of this Agreement, subject to the same terms and
12
<PAGE>
conditions on which such registration rights are granted to such other
Stockholder.
SECTION 5. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, without the prior written consent of the Company, the Series C
Stockholder and, with respect to amendments, modifications or supplements to
Sections 4.2, 4.3, 4.5 and 4.6 that adversely affect such Persons, the holders
of a majority of the shares of Common Stock owned in the aggregate by the
Management Stockholders. Notwithstanding the foregoing, a waiver or consent to
departure from the provisions hereof with respect to a matter which relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a registration statement and which does not directly
or indirectly affect the rights of other holders of Registrable Securities may
be given by the holders of a majority of the Registrable Securities being sold;
provided, however, that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence.
SECTION 6. NOTICES. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one business day after being sent, when
sent by professional overnight courier service from and to locations within the
continental United States, or (c) five days after posting when sent by
registered or certified mail (return receipt requested), addressed to the
Company or a Stockholder at his, her or its address set forth on the signature
pages hereof. Any party hereto may from time to time by notice in writing
served upon the others as provided herein, designate a different mailing address
or a different person to which such notices or demands are thereafter to be
addressed or delivered.
SECTION 7. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall inure to the benefit of and be binding upon the
successors of each of the parties.
SECTION 8. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.
SECTION 9. CAPTIONS. Captions are provided herein for convenience only
and they are not to serve as a basis for
13
<PAGE>
interpretation or construction of this Agreement, nor as evidence of the
intention of the parties hereto.
SECTION 10. GOVERNING LAW. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the internal
laws, and not the laws pertaining to conflicts or choice of laws, of the State
of Delaware.
SECTION 11. SEVERABILITY. The provisions of this Agreement are
severable. The invalidity, in whole or in part, of any provision of this
Agreement shall not affect the validity or enforceability of any other of its
provisions. If one or more provisions hereof shall be declared invalid or
unenforceable, the remaining provisions shall remain in full force and effect
and shall be construed in the broadest possible manner to effectuate the
purposes hereof. The parties further agree to replace such void or
unenforceable provisions of this Agreement with valid and enforceable provisions
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provisions.
SECTION 12. ENTIRE AGREEMENT. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes all prior written and oral agreements, understandings,
commitments and practices between the parties, including all prior agreements
with respect to registration rights.
SECTION 13. TERMINATION. This agreement shall terminate on May __,
2007. In addition, Sections 4.1 and 4.2 shall terminate at such time as the
Series C Stockholder is entitled to sell Common Stock pursuant to Rule 144(k),
as adopted by the SEC, or any similar rule or federal statute permitting sales
without registration under the Securities Act, without regard to the holding
period, volume, manner of sale or type of transaction, and without regard to
whether or not the Company has then timely satisfied all of its filing
requirements under the Exchange Act.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
with the intent and agreement that the same shall be effective as of the day and
year first above written.
KAYNAR TECHNOLOGIES INC. (formerly known
as KAYNAR HOLDINGS INC.)
By:
-------------------------------------
David A. Werner,
Executive Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-------------------------------------
Name/title
----------------------------------------
Jordan A. Law
----------------------------------------
David A. Werner
----------------------------------------
LeRoy A. Dack
----------------------------------------
Robert L. Beers
----------------------------------------
Imre Berecz, as Trustee of the
Berecz Family Trust
----------------------------------------
Joseph Varholick
----------------------------------------
Joseph F. Blomberg, as Trustee of
the Blomberg Family Trust
S - 1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to all references to our
firm and to the use of our reports in this Registration Statement (Form S-1) and
Prospectus.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Orange County, California
May 2, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES AS OF
DEC 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 DEC 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 909
<SECURITIES> 0
<RECEIVABLES> 17,379
<ALLOWANCES> 1,987
<INVENTORY> 29,901
<CURRENT-ASSETS> 46,911
<PP&E> 24,160
<DEPRECIATION> 5,451
<TOTAL-ASSETS> 73,689
<CURRENT-LIABILITIES> 16,723
<BONDS> 0
0
52
<COMMON> 16
<OTHER-SE> 10,558
<TOTAL-LIABILITY-AND-EQUITY> 73,689
<SALES> 99,023
<TOTAL-REVENUES> 99,023
<CGS> 72,924
<TOTAL-COSTS> 72,924
<OTHER-EXPENSES> 13,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,011
<INCOME-PRETAX> 8,825
<INCOME-TAX> 3,530
<INCOME-CONTINUING> 12,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,295
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.78
</TABLE>
