<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
[x] OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13
[ ] OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File No. 000-22519
KAYNAR TECHNOLOGIES INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0591091
- ------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 N. State College Blvd., Suite 1000, Orange, California 92868-1638
- ---------------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714)712-4900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
--------------------------------
Common Stock, $.01 par value
Securities registered pursuant to Section 12(g) of the Act:
None
- -------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES /X/ NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $66.2 million as of January 30, 1998 based on
the closing sales price of $26.75 of the registrant's Common Stock as
reported on the NASDAQ National Market as of such date.
The number of shares of common stock outstanding on January 30, 1998 was
3,704,000.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
(a) Those sections of registrant's Annual Report to stockholders for
the year ended December 31, 1997 (the "1997 Annual Report"), incorporated
partially in Part I and Part II hereof (see Exhibit 13.1), and
(b) Those sections of registrant's Proxy Statement to be filed with the
Commission in connection with its 1998 Annual Meeting of stockholders to be
held on April 28, 1998 (the "1997 Proxy Statement"), incorporated partially
in Part III hereof.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain statements contained in the Form 10-K and documents incorporated
by reference are forward-looking statements. Statements in this annual
report on Form 10-K which address activities, events or developments that the
Company expects or anticipates will or may occur in the future, including
such things as future capital expenditures, expansion and growth of the
Company's and its customers' business and operations and other such matters
are forward-looking statements. These forward-looking statements are subject
to risks and uncertainties, including those identified as "Risk Factors" in
the Company's Pre-Effective Amendment No. 6 to the Registration Statement on
Form S-1 filed May 6, 1997. The foregoing should not be construed as an
exhaustive list of all factors which could cause actual results to differ
materially from those expressed in forward-looking statements made by the
Company. Actual results may materially differ from the anticipated results
described in these statements.
PART I
ITEM 1. BUSINESS
Kaynar Technologies Inc. (the "Company") designs, develops, and
manufactures a wide range of specialty components and tooling systems and
provides related services used primarily by original equipment manufacturers
(OEMs) and their subcontractors to produce aircraft and defense products. The
Company serves virtually all major airframe and aircraft OEMs including Boeing,
General Electric, Pratt & Whitney, Airbus, Lockheed Martin and Rolls Royce. In
addition, the Company serves the automotive, electrical and other industrial
markets and their associated after-markets.
The Company was formed as a Delaware corporation on October 20, 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 acquisition was
structured as a management buyout financed substantially by the General Electric
Capital Corporation ("GECC"). The Company was known as Kaynar Holdings Inc.
from October 20, 1993 to May 6, 1997.
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 approximately $12.2 million and the assumption of
certain liabilities.
In May 1997, the Company completed its initial public offering of shares of
Common Stock pursuant to an underwriting agreement with Lehman Brothers Inc. and
PaineWebber Incorporated acting as representatives. Of the 2.3 million shares
sold, 200,000 shares were on behalf of GECC as selling stockholder. GECC
indirectly owns approximately 23% of PaineWebber Group,
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which is the holding company of PaineWebber Incorporated. As a result, the
Offering was subject to the requirements of Rule 2720 of the National
Association of Securities Dealers, Inc., which required that the offering
price be no higher than that recommended by a "qualified independent
underwriter", meeting certain standards. In accordance with that
requirement, Lehman Brothers Inc. recommended the public offering price,
performed due diligence investigations, and reviewed and participated in the
preparation of the prospectus and registration statement in connection with
the Offering.
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 Recoil business unit manufactures thread
insert systems used in a broad range of markets, including the automotive and
electronics market.
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
1997, approximately 33% were made to airframe OEMs and their subcontractors,
and approximately 18% were made to aircraft engine OEM's and their
subcontractors. In addition, the 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.
The Company's commercial aircraft sales depend substantially on aircraft
manufacturer's production rates, which in turn depend upon orders of new
aircraft. 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.
The Company's defense sales could be adversely affected by reductions in
defense spending and other government budgetary pressures which would result
in reductions, delays or stretch-outs of existing and future programs. Some
of the Company's contracts in the defense market are subject to termination
at the convenience of the customer (as well as for default). In the event of
termination for convenience, the customer generally is required to pay the
costs incurred by the Company and certain other fees through the date of
termination.
Kaynar Products
Kaynar is a leading producer of precision, self-locking internally
threaded nuts used in the manufacture of commercial aircraft and defense
products. In 1997, sales of Kaynar products accounted for approximately 74%
of the Company's net sales. 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.
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Microdot Products
Microdot, which accounted for approximately 12% of the Company's
1997 net sales, designs, engineers and manufactures threaded inserts and
studs used primarily in environmentally-demanding assembly applications,
where factors such as resistance to extreme temperature or vibration may be
critical. Microdot's products are used principally in the commercial aircraft
engine and defense industries.
Industrial Products and Services
The products designed and manufactured by the Company's 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 Products
Recoil produces helically-wound wire thread inserts that increase
the strength of a fastening assembly and assist in the reduction of thread
wear. In addition, 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
worldwide network of distributors utilizes custom designed point-of-sale
displays, industrial product catalogs and direct sales to market the thread
repair kits and bulk wire thread inserts. Principal uses for the thread
repair kits include automotive repair and the maintenance and repair of
industrial machinery.
K-FAST Products and Services
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.
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. The Company
purchases raw materials, which include the various metals, composites and
finishes used in production, from over twenty different suppliers.
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 more of the
Company's patents would have a material adverse effect on the business or
prospects of the Company.
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Major Customers
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., General Electric Company ("GE") and the
Pratt & Whitney Aircraft business of United Technologies Corporation
accounted for approximately $36.8 million, $12.7 million and $9.6 million of
sales, respectively, which amounted to 24.4%, 8.5% and 6.4%, respectively of
total sales. Sales to Boeing Co., General Electric Company and Pratt &
Whitney are diversified over a number of different commercial and military
programs.
Backlog
At December 31, 1997, backlog believed to be firm was approximately
$92.5 million, compared to $65.5 million at December 31, 1996. Approximately
$83.8 million of total backlog is expected to be delivered during 1998.
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. 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 part of Emhart Industrial which is 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 inserts
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 uses perchloroethylene to clean products at various stages
of the manufacturing process in order to meet military and civilian
specifications for aircraft and aerospace parts. The Company's products must
be manufactured in strict compliance with such specifications in order to
ensure that aircraft safety and performance standards are met.
Perchloroethylene has been detected in some soils beneath one of the
Company's Fullerton, California leased facilities in the vicinity of former
degreasing operations. Environmental consultants retained by the Company
have determined that this may have been caused by the former degreasing
operations on the property. The Company anticipates that remediation of the
perchloroethylene at this site can be accomplished at a cost of approximately
$200,000 over the course of two years. In connection with the AFSG
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acquisition in January 1994, the Company established reserves that management
believes are sufficient to cover this remediation.
The Company anticipates that during the period from 1998 through 1999 it
will make 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.
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 was significantly below the Company's actual 1997 usage. However, the
Company entered into an agreement with the local air district that permitted
the Company to exceed the usage restriction. The Company has installed a new
automated cadmium-plating system that includes improved emissions control
features, which should result in the imposition of a usage restriction that
will accommodate current production levels and future growth. However, the
South Coast Air Quality Management District approval of the Company's
emission controls is pending. There can be no assurance, however, that
approval will be granted or that the failure to obtain approval will not have
a material adverse effect on the Company.
Employees
At December 31, 1997, the Company employed approximately 1,388 people.
Industry Segment Information
The Company operates primarily in the aerospace industry segment.
Information About Foreign and Domestic Operations and Export Sales
The information under the Notes to Consolidated Financial Statements
under the caption "Geographic Sales Information" on pages 30-31 of the 1997
Annual Report is incorporated herein by reference (see Exhibit 13.1).
ITEM 2. PROPERTIES
The Company utilizes 11 facilities with a total area of approximately
347,800 square feet, including both owned and leased properties. At December
31, 1997, facilities were as follows:
<TABLE>
<CAPTION>
APPROX.
SQUARE EXPIRATION
LOCATION FUNCTION FEET OF LEASE
- -------------------- ------------------ ------- ---------------
<S> <C> <C> <C>
Fullerton, CA Kaynar Division 200,000 October 31, 2007
headquarters:
Administration,
product develop-
ment, engineer-
ing, manufactur-
ing and distri-
bution
Fullerton, CA Kaynar Division 57,000 August 13, 2003
manufacturing
and product
development
6
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Placentia, CA Microdot Division 40,000 September 30, 2001
headquarters:
Administration,
product develop-
ment, engineer-
ing, manufactur-
ing and distri-
bution
Oakleigh, VIC, Australia Recoil Pty 24,000 August 1, 2000
headquarters:
Administration,
product develop-
ment, engineer-
ing, manufactur-
ing and distri-
bution
Fullerton, CA Kaynar Division: 8,300 April 7, 2000
raw material
storage
Nemesuamos, Hungary K.T.I. Femipari 6,200 Owned
KFT:
manufacturing
Orange, CA The Company 4,600 April 1, 2003
headquarters:
Administration
Carmel, IN Recoil (U.S.): 4,300 December 31, 1998
Sales and mar-
keting of
Recoil products
Wolverhampton, U.K. Recoil (Europe) 1,700 December 25, 2001 Ltd.:
Sales and mar-
keting of
Recoil products
Lutterworth, U.K. Kaynar Technologies 1,000 January 2, 2002
Ltd headquarters:
Kaynar and K-Fast
sales office
Aalst, Belgium Recoil Marketing 700 April 20, 2003
BVBA:
Sales and market-
ing of Recoil
products
</TABLE>
The Company currently is in the process of increasing the size of its
manufacturing facility in Nemesuamos, Hungary from 6,200 square feet to
approximately 20,000 square feet. The Company anticipates that the facility
expansion will be completed and operational by the end of 1998. In March
1998, the Company signed a lease for an 11,600 square feet facility in
Hesparia, California which the Company anticipates will be operational by
mid-1998.
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While the Company believes that its facilities (including those
mentioned in the above paragraph) 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.
Although the Company maintains standard property casualty insurance
covering its properties, the Company does not carry any earthquake insurance
because of the cost of such insurance. Most of Company's properties are
located in Southern California, an area subject to frequent and sometimes
severe earthquake activity.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information under the caption "Quarterly Common Stock Price
Information" on page 31 of the 1997 Annual Report is incorporated herein by
reference. No dividends were paid by the Company's subsidiaries to the
Company during 1997.
The number of stockholders of record for the Company's Common Stock as
of March 16, 1998 was approximately 1,022.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Consolidated Financial and
Operating Information" appearing on page 12 of the 1997 Annual Report is
incorporated herein by reference (see Exhibit 13.1).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" appearing on pages 13
through 17 of the 1997 Annual Report is incorporated herein by reference (see
Exhibit 13.1).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data under the captions
"Consolidated Statements of Income," "Consolidated Balance Sheets,"
"Consolidated Statements of Cash Flows," "Consolidated Statements of Changes
in Shareholders' Equity," and "Notes to Consolidated Financial Statements,"
together with the report thereon of Arthur Andersen LLP dated February 12,
1998, appearing on pages 18 through 32 of the 1997 Annual Report are
incorporated herein by reference (see Exhibit 13.1).
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Registrant
The information under the caption "Information Regarding Nominees" in
the 1998 Proxy Statement is incorporated herein by reference.
Executive Officers of the Registrant
All executive officers of the Company are named below and are appointed
by the Board of Directors. The date that each officer was first appointed to
the position is indicated. No officer listed was appointed as a result of
any arrangement between him and any other person as that phrase is understood
under the Securities Exchange Act regulations. No family relationship exists
among the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE(*) EXPERIENCE AND POSITION HELD
- ------------------- ------ -------------------------------------
<S> <C> <C>
Jordan A. Law 55 Chairman of the Board of Directors,
President and Chief Executive
Officer(1993). Previously President
of AFSG of Old Microdot(1991).
David A. Werner 45 Executive Vice President(1996),
Secretary and Director(1993).
Previously Vice President and Treasurer
(1993), and Vice President and Chief
Financial Officer of Old Microdot(1990).
Robert L. Beers 51 Senior Vice President, Marketing and
Business Development(1996). Previously
Vice President, Sales and Marketing(1994)
and Vice President, Sales and Marketing,
of AFSG(1991).
LeRoy A. Dack 53 President, Kaynar and K-FAST business
units(1996). Previously Vice President
and General Manager Kaynar business
unit(1994) and Vice President and General
Manager of the Kaynar division of Old
Microdot(1991).
Joseph M. Varholick 46 President, Recoil business unit(1997) and
Microdot business unit(1996). Previously
Vice President and General Manager Microdot
business unit(1994) and Vice President and
General Manager of the Microdot Inserts
division of Old Microdot(1993).
</TABLE>
(*) as of December 31, 1997
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ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation" in the 1998
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1998 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Election of Directors" contained in
the paragraph immediately following the table in the 1998 Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of Kaynar
Technologies Inc. and subsidiaries, included in the 1997
Annual Report, are incorporated by reference in Item 8 of
this report. Page numbers refer to the 1997 Annual Report:
<TABLE>
<CAPTION>
Financial Statements Page
-------------------------------------------- -----
<S> <C>
Consolidated Statements of Income - Years
ended December 31, 1997, 1996 and 1995. 18
Consolidated Balance Sheets - December 31,
1997 and 1996. 19
Consolidated Statements of Changes in
Shareholders' Equity - Years Ended December
31, 1997, 1996 and 1995. 20
Consolidated Statements of Cash Flows - Years
ended December 31, 1997, 1996 and 1995. 21
Notes to Consolidated Financial Statements 22-31
Report of Independent Public Accountants 32
</TABLE>
2. Financial Statement Schedules
Financial statement schedules not filed have been omitted for the
reason that the required information is shown in the financial
statements or notes thereto, the amounts involved are not significant,
or the required matter is not present.
10
<PAGE>
3. Exhibits and Index to Exhibits
<TABLE>
<CAPTION>
Number Description
------ ------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement (4)
2.1 Agreement and Plan of Merger, dated May 5, 1997 (3)
2.2 Asset Purchase Agreement, dated January 9, 1996, among
Emhart Industries, Inc., Emhart, Inc. and Operating
Company (1)
2.3(a) Australian Asset Sale Agreement, dated August 9, 1996, among
the Vendors (as defined therein), Recoil Inc., RCL Pty. and
Operating Company (1)
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 (1)
2.4 Recapitalization Agreement with General Electric Capital
Corporation ("GECC"), dated May 5, 1997 (5)
3.1 Amended and Restated Certificate of Incorporation of the
Company (3)
3.2 Amended and Restated By-laws of the Company (3)
4.1 Specimen of Common Stock Certificate (3)
4.2 Kaynar Technologies Inc. 1997 Stock Incentive Plan (formerly
known as the Kaynar Holdings Inc. 1997 Stock Incentive
Plan), including the Form of Eligible Director Nonqualified
Stock Option Agreement (6)
4.3 Form of Incentive Stock Option Agreement (6)
4.4 Form of Nonqualified Stock Option Agreement (6)
10.1 Amended and Restated Term Loan Agreement, dated August 12,
1996, between the Company and GECC (1)
10.2(a) Amended and Restated Credit Agreement, dated August 12, 1996,
between Operating Company and GECC (1)
10.2(b) First Amendment, Consent, and Limited Waiver to Amended and
Restated Credit Agreement, dated December 17, 1996, between
Operating Company and GECC (1)
10.2(c) Amendment and Limited Waiver with GECC, dated April 30,
1997 (5)
10.2(d) Third Amendment and Limited Waiver with GECC, dated June 25,
1997 (5)
10.2(e) Fourth Amendment to the Amended and Restated Credit
Agreement, dated October 23, 1997, between the Company and
GECC.
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10.2(f) Fifth Amendment to the Amended and Restated Credit Agreement,
dated December 5, 1997, between the Company and GECC.
10.2(g) Sixth Amendment to the Amended and Restated Credit Agreement,
dated January 21, 1998, between the Company and GECC.
10.3(a) Term Loan Agreement, dated August 12, 1996, between RCL Pty.
and GECC. (1)
10.3(b) First Amendment to the Term Loan Agreement, dated October 23,
1997, between Recoil Pty. (formerly RCL Pty.) and GECC.
10.3(c) Second Amendment to the Term Loan Agreement, dated December
5, 1997, between Recoil Pty. (formerly RCL Pty.) and GECC.
10.4 PIK Dividend Note Agreement, dated January 3, 1994, among the
Company, GECC and certain other parties identified
therein (1)
10.5 Lease with The Prudential Insurance Co. of America regarding
the Fullerton, California facility (1)
10.6(a) Lease with West L.A. Properties regarding the Placentia,
California facility (1)
10.6(b) Amendment to Lease with West L.A. Properties dated August 21,
1996 (5)
10.7 Lease with Enfield View Pty. Ltd. regarding the Oakleigh,
VIC, Australia facility (1)
10.8(a) General Terms Agreement, dated September 20, 1996, between
the Company and Boeing (1)
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) (4)
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) (4)
10.9(b) Boeing Commercial Airplane Group Purchase Order Terms and
Conditions (3)
10.10 Stockholders Agreement, dated as of May 6, 1997 (3)
13.1 1997 Annual Report
21.1 List of Subsidiaries
23.1 Consent of Independent Public Accountants
12
<PAGE>
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
27.3 Amended and Restated Financial Data Schedule
99.1 Form of 1997 Stock Incentive Plan of the Company (1)
99.2 Form of Employment Agreement for Messrs. Law and Werner (1)
99.3 Form of Employment Agreement for Messrs. Beers, Dack, Berecz
and Varholick (1)
99.4 Form of Director Indemnification Agreement (1)
99.5 Indemnification and Contribution Agreement with GECC, dated
May 5, 1997 (5)
</TABLE>
--------------------------
(1) Incorporated by reference from the Initial Registration
Statement on Form S-1 of the Registrant filed on February 26,
1997 (SEC file No. 333-22345).
(2) Incorporated by reference from Pre-Effective Amendment No. 1
to the Registration Statement filed on April 1, 1997 (SEC
file No. 333-22345).
(3) Incorporated by reference from Pre-Effective Amendment No. 4
to the Registration Statement filed on May 5, 1997 (SEC file
No. 333-22345).
(4) Incorporated by reference from Pre-Effective Amendment No. 6
to the Registration Statement filed on May 6, 1997 (SEC file
No. 333-22345).
(5) Incorporated by reference from the Registrants Form 10-Q for
the period ended June 29,1997 filed on August 6, 1997 (SEC
file No. 000-22519).
(6) Incorporated by reference from the Registrant's Form S-8
filed on January 29, 1997 (SEC file No. 333-45185).
(b) Reports on Form 8-K
During the last quarter of 1997, no reports of Form 8-K were filed.
SIGNATURES
Pursuant to the requirements of the section 13 or 15(d) of the Securities
Act of 1934, the Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Orange,
State of California on this 19th day of March, 1998.
13
<PAGE>
KAYNAR TECHNOLOGIES INC.
By: /s/ Jordan A. Law
--------------------------------------
Jordan A. Law
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
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 March 19, 1998
- -------------------------- Chairman of the Board
Jordan A. Law (Principal Executive Officer)
/s/ David A. Werner Executive Vice President and Director March 19, 1998
- -------------------------- (Principal Financial Officer)
David A. Werner
/s/ Robert M. Nelson Controller March 19, 1998
- -------------------------- (Principal Accounting Officer)
Robert M. Nelson
/s/ Norman A. Barkeley Director March 19, 1998
- --------------------------
Norman A. Barkeley
/s/ Burton J. Kloster, Jr. Director March 19, 1998
- --------------------------
Burton J. Kloster, Jr.
/s/ Richard P. Strubel Director March 19, 1998
- --------------------------
Richard P. Strubel
</TABLE>
<PAGE>
FOURTH AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT dated
as of October 23, 1997 (this "FOURTH AMENDMENT"), is entered into between Kaynar
Technologies Inc., a Delaware corporation (the "BORROWER") and General Electric
Capital Corporation, a New York corporation (the "LENDER") and relates to that
certain Amended and Restated Credit Agreement dated as of August 12, 1996,
between the Borrower and the Lender (as previously amended as of December 17,
1996, April 30, 1997, and June 25, 1997, the "CREDIT AGREEMENT").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have entered into the Credit
Agreement; and
WHEREAS, the Borrower has requested that the Lender amend the Credit
Agreement (i) to add the Commercial Paper Rate (as defined herein) as a basis
for determining the rate of interest payable on the Term Loan and the Revolving
Loans, (ii) to convert the Term Loan and Revolver Loans from Index Rate to
Commercial Paper Rate as of the date of this amendment and (iii) to effect other
amendments, all as more fully described herein.
NOW, THEREFORE, in consideration of the above premises, the Borrower
and the Lender agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined
herein have the meanings assigned to them in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Effective Date" (as
defined in SECTION 4 below), the Credit Agreement is hereby amended as follows:
2.1 AMENDMENTS TO SECTION 1.01. Section 1.01 of the Credit Agreement
is amended as follows:
(a) The following definition of Commercial Paper Rate is added in
proper alphabetical order:
"COMMERCIAL PAPER RATE" means the published rate (or the mid-point
in the range of such rates, if more than one rate is published) for
30-day dealer-placed commercial paper (high grade unsecured notes
sold through dealers by
<PAGE>
major corporations in multiples of $1,000) as quoted in the "Money
Rates" section of THE WALL STREET JOURNAL or, in the event such
report shall not so appear, in such other publication as Lender
may, from time to time, specify to Borrower. The Commercial Paper
Rate in effect for each month shall be determined as of the first
Business Day of that month.
(b) The following definition of Commercial Paper Rate Loan is added
in proper alphabetical order:
"COMMERCIAL PAPER RATE LOAN" means a Loan which bears interest as
provided in Section 2.04(a).
(c) The following definition of Convert, Conversion and Converted is
added in proper alphabetical order:
"CONVERT", "CONVERSION" and "CONVERTED" each refers to a conversion of
a Loan of one Type into a Loan of another Type pursuant to Section
2.07.
(d) The following definition of Index Rate Loan is added in proper
alphabetical order:
"INDEX RATE LOAN" means a Loan which bears interest at a rate per
annum equal at all times to the Index Rate, as in effect from time to
time as interest accrues.
(e) The following definition of Type is added in proper alphabetical
order:
"TYPE" of Loan means a Commercial Paper Rate Loan or an Index Rate
Loan, as the case may be.
2.2 AMENDMENT TO SECTION 2.04(a). Section 2.04(a) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
2.04. INTEREST. (a) RATE OF INTEREST. All Loans and the
outstanding principal balance of all other Obligations shall bear interest
on the unpaid principal amount thereof from the date such Loans are made
and such other Obligations are due and payable until paid in full, except
as otherwise provided in SECTION 2.04(C) or SECTION 2.07, at a rate per
annum equal at all times to the sum of the Commercial Paper Rate, as in
effect from time to time as interest accrues, plus 1.50% per annum.
2.3 AMENDMENT TO SECTION 2.04(c). Section 2.04(c) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
(c) DEFAULT INTEREST. Notwithstanding the rates of interest
specified in SECTION 2.04(a) or elsewhere in this Agreement, effective
immediately upon (i) the
2
<PAGE>
occurrence of an Event of Default described in SECTION 10.01(A) or (ii)
the occurrence of any other Event of Default and notice from the Lender
of the effectiveness of this SECTION 2.04(c), and for as long
thereafter as such Event of Default shall be continuing, the principal
balance of all Loans, and the principal balance of all other
Obligations, shall bear interest at a rate which is two percent (2.0%)
per annum in excess of the Index Rate.
2.4 NEW SECTION 2.07. A new Section 2.07 shall be added to the
Credit Agreement as follows:
2.07. INTEREST RATE PROTECTION. If either (a) by reason of
circumstances affecting the commercial paper market generally, adequate and
reasonable means do not exist for ascertaining the Commercial Paper Rate or
(b) the Commercial Paper Rate ceases to reflect adequately and fairly the
cost to the Lender (as determined by the Lender) of making or maintaining
Commercial Paper Rate Loans, the Lender shall as soon as practicable give
notice (which may be by telephone, followed by writing) thereof to the
Borrower. If such notice is given, any outstanding Commercial Paper Rate
Loans shall be Converted to Index Rate Loans. Until such notice is
withdrawn by the Lender, only Index Rate Loans shall be made. As soon as
practicable after withdrawing such notice, the Lender shall Convert any
outstanding Index Rate Loans to Commercial Paper Rate Loans.
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Lender that, as of the Effective Date and after giving effect to
this Fourth Amendment:
(a) All of the representations and warranties of the Borrower
contained in this Fourth Amendment, the Credit Agreement and the other Loan
Documents are true and correct in all material respects on and as of the
Effective Date, as if then made (other than representations and warranties
which expressly speak as of a different date, which shall be true and
correct in all material respects as of that date);
(b) No Potential Event of Default or Event of Default has occurred or
is continuing or will result after giving effect to this Fourth Amendment;
and
(c) The Borrower has not voluntarily, by operation of law or
otherwise, assigned, conveyed, transferred or encumbered, either directly
or indirectly, in whole or in part, any right to or interest in any of the
"Released Claims" (as defined in SECTION 6 below) purported to be released
by this Fourth Amendment.
4. EFFECTIVE DATE. This Fourth Amendment shall become effective as of
the date first written above (the "EFFECTIVE DATE") upon the satisfaction of
each of the following conditions:
3
<PAGE>
(a) the Lender shall have received each of the following documents,
in each case in form and substance satisfactory to the Lender:
(i) counterparts hereof executed by the Borrower and the Lender;
(ii) a certificate of the chief financial officer of the
Borrower certifying that all conditions precedent to the effectiveness
of this Fourth Amendment have been satisfied;
(iii) a certificate of the Secretary or Assistant Secretary of
the Borrower dated the Effective Date certifying (A) the names and
true signatures of the incumbent officers of the Borrower authorized
to sign this Fourth Amendment and the other Transaction Documents
executed in connection with this Fourth Amendment to which it is a
party, (B) that the By-laws of the Borrower have not been amended or
otherwise modified since the date of the most recent certification
thereof by the Secretary or Assistant Secretary of the Borrower
delivered to the Lender and remain in full force and effect as of the
Effective Date, (C) that the Articles of Incorporation of the Borrower
have not been amended or otherwise modified since the date of the most
recent certification thereof by the Secretary of State of Delaware
delivered to the Lender and remain in full force and effect as of the
Effective Date and (D) the resolutions of the Borrower's board of
directors approving and authorizing the execution, delivery and
performance of this Fourth Amendment and the other Transaction
Documents executed in connection with this Fourth Amendment to which
the Borrower is a party; and
(iv) such additional documentation as the Lender may reasonably
request;
(b) no law, regulation, order, judgment or decree of any Governmental
Authority shall, and the Lender shall not have received any notice that
litigation is pending or threatened which is likely to, enjoin, prohibit or
restrain the consummation of the transactions contemplated by this Fourth
Amendment, except for such laws, regulations, orders or decrees, or pending
or threatened litigation that in the aggregate could not reasonably be
expected to result in a Material Adverse Effect;
(c) all of the representations and warranties of the Borrower
contained in this Fourth Amendment, the Credit Agreement and the other Loan
Documents shall be true and correct in all material respects on and as of
the Effective Date, as if then made (other than representations and
warranties which expressly speak as of a different date, which shall be
true and correct in all material respects as of that date);
(d) all corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Fourth
4
<PAGE>
Amendment shall be satisfactory in all respects in form and substance to
the Lender; and
(e) no Event of Default or Potential Event of Default shall have
occurred and be continuing on the Effective Date or will result after
giving effect to this Fourth Amendment.
5. OUTSTANDING INDEBTEDNESS. The Borrower hereby acknowledges and agrees
that as of September 30, 1997, the aggregate outstanding principal amount of the
Revolving Loans under the Credit Agreement was $103,636.19 and that the
aggregate outstanding principal amount of the Term Loan under the Credit
Agreement was $21,625,000 and that such principal amounts are payable pursuant
to the Credit Agreement, as amended hereby, without offset, withholding,
counterclaim or deduction of any kind. The Borrower, for itself and on behalf
of its officers and directors, and its respective predecessors, successors and
assigns (collectively, the "RELEASORS"), hereby waives, releases and forever
discharges the Lender, and its parent corporation, Subsidiaries and Affiliates,
officers, directors, shareholders employees, attorneys, agents and servants, and
its respective predecessors, successors, heirs and assigns (collectively, the
"LENDER PARTIES"), from any and all claims of every type, kind, nature,
description or character, known and unknown, whensoever arising out of any
actions or omissions of the Lender Parties, except all such claims of Affiliates
of Lender arising out of sales of inventory in the ordinary course of business,
occurring any time up to and including the date hereof, which in any way arise
out of, are connected with or relate to the Credit Agreement or any other Loan
Documents (the "RELEASED CLAIMS") and agrees not to bring any action in any
judicial, administrative or other proceeding against the Lender Parties,
alleging any such Released Claim or otherwise in connection with any such
Released Claim.
6. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the Effective Date, each reference in the Credit Agreement
to "this Agreement", "hereunder", "hereof" or words of like import, and
each reference in the other Loan Documents to the Credit Agreement, shall
mean and be a reference to the Credit Agreement as amended hereby.
(b) This Fourth Amendment shall be limited solely to the matters
expressly set forth herein and shall not (i) constitute an amendment of any
other term or condition of the Credit Agreement or any other Loan Document,
(ii) prejudice any right or rights which the Lender or Lender Parties may
now have or may have in the future under or in connection with the Credit
Agreement or any other Loan Document, (iii) require the Lender to agree to
a similar transaction on a future occasion, (iv) be deemed or construed as
an admission of liability with respect to the Released Claims or otherwise
by the Lender Parties or (v) create any rights herein to another Person or
other beneficiary or otherwise, except to the extent specifically provided
herein.
5
<PAGE>
(c) Except to the extent specifically consented to herein, the
respective provisions of the Credit Agreement and the other Loan Documents
shall not be amended, modified, impaired or otherwise affected hereby, and
such documents and the Obligations under each of them are hereby confirmed
in full force and effect.
7. MISCELLANEOUS. This Fourth Amendment is a Loan Document. The
headings herein are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof.
8. COUNTERPARTS. This Fourth Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
9. GOVERNING LAW. THIS FOURTH AMENDMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK.
6
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Fourth Amendment to be executed by their respective officers thereunto duly
authorized as of the date first above written.
KAYNAR TECHNOLOGIES INC.
By:
---------------------------
David A. Werner
Executive Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By:
---------------------------
Name:
Authorized Signatory
<PAGE>
FIFTH AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of December 5, 1997 (this "FIFTH AMENDMENT"), is entered into
between Kaynar Technologies Inc., a Delaware corporation (the "BORROWER") and
General Electric Capital Corporation, a New York corporation (the "LENDER")
and relates to that certain Amended and Restated Credit Agreement dated as of
August 12, 1996, between the Borrower and the Lender (as previously amended
as of December 17, 1996, April 30, 1997, June 25, 1997, and October 23, 1997,
the "CREDIT AGREEMENT").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have entered into the Credit
Agreement; and
WHEREAS, the Borrower has requested that the Lender amend the Credit
Agreement (i) to extend the scheduled maturity date of the loans, (ii) to
increase the permitted amounts for capital expenditures, capital leases,
purchase money indebtedness and investments and (iii) to effect other
amendments, all as more fully described herein.
NOW, THEREFORE, in consideration of the above premises, the Borrower
and the Lender agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined
herein have the meanings assigned to them in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Fifth Amendment
Effective Date" (as defined in SECTION 4 below), the Credit Agreement is
hereby amended as follows:
2.1 AMENDMENTS TO SECTION 1.01. Section 1.01 of the Credit Agreement
is amended as follows:
(a) The definition of "Scheduled Maturity Date" is hereby amended
to read in its entirety as follows:
"SCHEDULED MATURITY DATE" means January 3, 2001.
<PAGE>
(b) The definition of "RCL" is hereby amended to read in its
entirety as follows:
"RCL" means Recoil Pty (f/k/a RCL Pty), an unlimited liability
company organized under the laws of the State of Victoria, Australia.
2.2 AMENDMENT TO SECTION 2.01(d). Section 2.01(d) of the Credit
Agreement is hereby amended and restated to read in its entirety as follows:
(d) TERM NOTE; REPAYMENT OF THE TERM LOAN. (i) On the
Initial Closing Date, the Borrower executed and delivered to the Lender
a promissory note evidencing the Initial Term Loan. On the First
Amendment Effective Date, Borrower executed and delivered to the Lender
a substitute promissory note evidencing the Initial Term Loan and the
Supplemental Term Loan. On the Third Amendment Effective Date, Borrower
executed and delivered to the Lender a second substitute promissory
note evidencing the Initial Term Loan, the Supplemental Term Loan and
the Second Supplemental Term Loan. On the Amendment and Restatement
Effective Date, the Borrower executed and delivered to the Lender a
third substitute promissory note evidencing the Initial Term Loan, the
Supplemental Term Loan, the Second Supplemental Term Loan and the Third
Supplemental Term Loan. On the New First Amendment Effective Date, the
Borrower executed and delivered to the Lender a fourth substitute
promissory note, in substantially the form of EXHIBIT I attached hereto
and made a part hereof, evidencing the Term Loan (the "Term Note").
After the Fifth Amendment Effective Date, the Borrower shall make
quarterly installments of $100,000 each in respect of the outstanding
principal balance of the Term Loan, payable in equal installments on
the 1st day of January, April, July and October in each year,
commencing October 1, 1996, and ending October 1, 2000. The outstanding
principal balance of the Term Loan shall be payable in full on the
earlier of (x) the Scheduled Maturity Date (or, if not a Business Day,
the immediately preceding Business Day), and (y) the date of
acceleration of the Obligations or termination of the Commitments
pursuant hereto.
2.3 AMENDMENT TO SECTION 6.01(d)(ii). Section 6.01(d)(ii) of the
Credit Agreement is hereby amended to insert, immediately after the phrase "a
certificate", the following phrase: "substantially in the form of EXHIBIT M
attached hereto and made a part hereof".
2.4 AMENDMENT OF SECTION 8.01(iv). Section 8.01(iv) of the Credit
Agreement is hereby amended to delete the reference to "$3,000,000" in its
entirety and to substitute in lieu thereof "$5,000,000."
2.5 AMENDMENT TO SECTION 8.04(viii). Section 8.04(viii) of the
Credit Agreement is hereby amended to delete the reference to "$1,500,000" in
its entirety and to substitute in lieu thereof "$3,000,000."
2
<PAGE>
2.6 AMENDMENTS TO ARTICLE IX (FINANCIAL COVENANTS).
(a) AMENDMENT TO SECTION 9.01. Section 9.01 of the Credit
Agreement is hereby amended to amend and restate the Consolidated Cash
Flow table set forth therein as follows:
<TABLE>
<CAPTION>
Date Minimum Amount
------------------ --------------
<S> <C>
June 30, 1996 $ 8,000,000
September 30, 1996 $ 8,000,000
December 31, 1996 $ 8,000,000
March 31, 1997 $ 9,000,000
June 30, 1997 $ 9,000,000
September 30, 1997 $ 9,000,000
December 31, 1997 $ 9,000,000
March 31, 1998 $10,000,000
June 30, 1998 $12,000,000
September 30, 1998 $12,000,000
December 31, 1998 $15,000,000
March 31, 1999 $20,000,000
June 30, 1999 $20,000,000
September 30, 1999 $20,000,000
December 31, 1999 $20,000,000
March 31, 2000 $25,000,000
June 30, 2000 $25,000,000
September 30, 2000 $25,000,000
December 31, 2000 $25,000,000
</TABLE>
(b) AMENDMENT TO SECTION 9.02. Section 9.02 of the Credit
Agreement is hereby amended to amend and restate the Consolidated Interest
Coverage Ratio table set forth therein as follows:
<TABLE>
<CAPTION>
Date Minimum Ratio
------------------ -------------
<S> <C>
June 30, 1996 2.50 to 1
September 30, 1996 2.50 to 1
December 31, 1996 2.75 to 1
March 31, 1997 2.75 to 1
June 30, 1997 2.75 to 1
September 30, 1997 2.75 to 1
December 31, 1997 and thereafter 3.00 to 1
</TABLE>
3
<PAGE>
(c) AMENDMENT TO SECTION 9.03. Section 9.03 of the Credit
Agreement is hereby amended to amend and restate the Consolidated Total
Funded Indebtedness Coverage Ratio table set forth therein as follows:
<TABLE>
<CAPTION>
Date Minimum Ratio
------------------ -------------
<S> <C>
June 30, 1996 4.50 to 1
September 30, 1996 4.50 to 1
December 31, 1996, and thereafter 3.50 to 1
</TABLE>
(d) AMENDMENT TO SECTION 9.04. The text of Section 9.04 of the
Credit Agreement is hereby deleted in its entirety and in lieu thereof the
words "[Intentionally Omitted]" are substituted.
(e) AMENDMENT TO SECTION 9.05. Section 9.05 of the Credit
Agreement is hereby amended to read in its entirety as follows:
9.05. CAPITAL EXPENDITURES. The Borrower shall not make or incur,
and shall not permit any of its Subsidiaries to make or incur, Capital
Expenditures in any Fiscal Year in an aggregate amount greater than
$20,000,000, PROVIDED, HOWEVER, that solely for purposes of calculating
compliance with the SECTION 9.05, (a) the amount of Capital
Expenditures made or incurred by the Borrower and its Subsidiaries in
any Fiscal Year shall not include Capital Expenditures made or incurred
in such Fiscal Year as a direct result of (i) the Borrower's or any of
its Subsidiaries' response to any Release of a Contaminant, (ii) any
Remedial Action taken by the Borrower or any of its Subsidiaries or
(iii) any efforts or activities of the Borrower or any of its
Subsidiaries to comply with any Environmental Law, and (b) the amount
of Capital Expenditures made or incurred by the Borrower and its
Subsidiaries in Fiscal Year 1996 shall not include Capital Expenditures
directly resulting from the Recoil Acquisition.
2.7 AMENDMENT TO EXHIBITS. A new exhibit, Exhibit M, Form of
Compliance Certificate, is hereby added to the Credit Agreement in the form
of ANNEX A attached hereto and made a part hereof.
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Lender that, as of the Fifth Amendment Effective Date and
after giving effect to this Fifth Amendment:
(a) All of the representations and warranties of the Borrower
contained in this Fifth Amendment, the Credit Agreement and the other
Loan Documents are true and correct in all material respects on and as
of the Fifth Amendment Effective Date, as if then made (other than
representations and warranties which expressly speak as of a different
date, which shall be true and correct in all material respects as of
that date);
4
<PAGE>
(b) No Potential Event of Default or Event of Default has occurred
or is continuing or will result after giving effect to this Fifth Amendment;
and
(c) The Borrower has not voluntarily, by operation of law or
otherwise, assigned, conveyed, transferred or encumbered, either directly or
indirectly, in whole or in part, any right to or interest in any of the
"Released Claims" (as defined in SECTION 6 below) purported to be released by
this Fifth Amendment.
4. FIFTH AMENDMENT EFFECTIVE DATE. This Fifth Amendment shall become
effective as of the date first written above (the "FIFTH AMENDMENT EFFECTIVE
DATE") upon the satisfaction of each of the following conditions:
(a) the Lender shall have received each of the following
documents, in each case in form and substance satisfactory to the Lender:
(i) counterparts hereof executed by the Borrower and the
Lender;
(ii) a certificate of the chief financial officer of the
Borrower certifying that all conditions precedent to the effectiveness of
this Fifth Amendment have been satisfied;
(iii) a certificate of the Secretary or Assistant Secretary of
the Borrower dated the Fifth Amendment Effective Date certifying (A) the names
and true signatures of the incumbent officers of the Borrower authorized to
sign this Fifth Amendment and the other Transaction Documents executed in
connection with this Fifth Amendment to which it is a party, (B) that the
By-laws of the Borrower have not been amended or otherwise modified since the
date of the most recent certification thereof by the Secretary or Assistant
Secretary of the Borrower delivered to the Lender and remain in full force
and effect as of the Fifth Amendment Effective Date, (C) that the Articles of
Incorporation of the Borrower have not been amended or otherwise modified
since the date of the most recent certification thereof by the Secretary of
State of Delaware delivered to the Lender and remain in full force and effect
as of the Fifth Amendment Effective Date and (D) the resolutions of the
Borrower's board of directors approving and authorizing the execution,
delivery and performance of this Fifth Amendment and the other Transaction
Documents executed in connection with this Fifth Amendment to which the
Borrower is a party; and
(iv) such additional documentation as the Lender may
reasonably request;
(b) no law, regulation, order, judgment or decree of any
Governmental Authority shall, and the Lender shall not have received any
notice that litigation is pending or threatened which is likely to, enjoin,
prohibit or restrain the consummation
5
<PAGE>
of the transaction contemplated by this Fifth Amendment, except for such
laws, regulations, orders or decrees, or pending or threatened litigation
that in the aggregate could not reasonably be expected to result in a
Material Adverse Effect;
(c) all of the representations and warranties of the Borrower
contained in this Fifth Amendment, the Credit Agreement and the other Loan
Documents shall be true and correct in all material respects on and as of the
Fifth Amendment Effective Date, as if then made (other than representations
and warranties which expressly speak as of a different date, which shall be
true and correct in all material respects as of that date);
(d) all corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Fifth Amendment shall be satisfactory in all respects in
form and substance to the Lender; and
(e) no Event of Default or Potential Event of Default shall have
occurred and be continuing on the Fifth Amendment Effective Date or will
result after giving effect to this Fifth Amendment.
5. OUTSTANDING INDEBTEDNESS. The Borrower hereby acknowledges and
agrees that as of September 30, 1997, the aggregate outstanding principal
amount of the Revolving Loans under the Credit Agreement was $103,636.19 and
that the aggregate outstanding principal amount of the Term Loan under the
Credit Agreement was $21,625,000 and that such principal amounts are payable
pursuant to the Credit Agreement, as amended hereby, without offset,
withholding, counterclaim or deduction of any kind. The Borrower, for itself
and on behalf of its officers and directors, and its respective predecessors,
successors and assigns (collectively, the "RELEASORS"), hereby waives,
releases and forever discharges the Lender, and its parent corporation,
Subsidiaries and Affiliates, officers, directors, shareholders employees,
attorneys, agents and servants, and its respective predecessors, successors,
heirs and assigns (collectively, the "LENDER PARTIES"), from any and all
claims of every type, kind, nature, description or character, known and
unknown, whensoever arising out of any actions or omissions of the Lender
Parties, except all such claims of Affiliates of Lender arising out of sales
of inventory in the ordinary course of business, occurring any time up to and
including the date hereof, which in any way arise out of, are connected with
or relate to the Credit Agreement or any other Loan Documents (the "RELEASED
CLAIMS") and agrees not to bring any action in any judicial, administrative
or other proceeding against the Lender Parties, alleging any such Released
Claim or otherwise in connection with any such Released Claim.
6. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the Fifth Amendment Effective Date, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import, and
6
<PAGE>
each reference in the other Loan Documents to the Credit Agreement, shall
mean and be a reference to the Credit Agreement as amended hereby.
(b) This Fifth Amendment shall be limited solely to the matters
expressly set forth herein and shall not (i) constitute an amendment of any
other term or condition of the Credit Agreement or any other Loan Document,
(ii) prejudice any right or rights which the Lender or Lender Parties may now
have or may have in the future under or in connection with the Credit
Agreement or any other Loan Document, (iii) require the Lender to agree to a
similar transaction on a future occasion, (iv) be deemed or construed as an
admission of liability with respect to the Released Claims or otherwise by
the Lender Parties or (v) create any rights herein to another Person or other
beneficiary or otherwise, except to the extent specifically provided herein.
(c) Except to the extent specifically consented to herein, the
respective provisions of the Credit Agreement and the other Loan Documents
shall not be amended, modified, impaired or otherwise affected hereby, and
such documents and the Obligations under each of them are hereby confirmed in
full force and effect.
7. MISCELLANEOUS. This Fifth Amendment is a Loan Document. The
headings herein are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof.
8. COUNTERPARTS. This Fifth Amendment may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
9. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH
THE LAW OF THE STATE OF NEW YORK.
7
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Fifth Amendment to be executed by their respective officers thereunto duly
authorized as of the date first above written.
KAYNAR TECHNOLOGIES INC.
By:
---------------------------
David A. Werner
Executive Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By:
---------------------------
Name:
Authorized Signatory
<PAGE>
SIXTH AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT dated as
of January 21, 1998 (this "SIXTH AMENDMENT"), is entered into between Kaynar
Technologies Inc., a Delaware corporation (the "BORROWER") and General Electric
Capital Corporation, a New York corporation (the "LENDER") and relates to that
certain Amended and Restated Credit Agreement dated as of August 12, 1996,
between the Borrower and the Lender (as previously amended as of December 17,
1996, April 30, 1997, June 25, 1997, October 23, 1997 and December 5, 1997, the
"CREDIT AGREEMENT").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have entered into the Credit
Agreement; and
WHEREAS, the Borrower has requested that the Lender amend the Credit
Agreement to permit the Borrower to consummate the acquisition of all of the
assets and assumption of certain of the liabilities (the "ACQUISITION") of
Aerospace Precision Systems, Inc. (the "TARGET") from the Burns Heirs' Trust
(the "SELLER"), as described in the draft dated January 18, 1998 of the Asset
Purchase Agreement between the Borrower and the Seller;
NOW, THEREFORE, in consideration of the above premises, the Borrower
and the Lender agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
have the meanings assigned to them in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Effective Date" (as
defined in SECTION 4 below), the Credit Agreement is hereby amended as follows:
2.1 AMENDMENTS TO SECTION 1.01. Section 1.01 of the Credit
Agreement is amended by adding the following definitions in proper alphabetical
order:
"APSI" means Aerospace Precision Systems, Inc., a California
corporation.
<PAGE>
"APSI PURCHASE AGREEMENT" means the Asset Purchase Agreement
between the Borrower and the Burns Heirs' Trust with respect to the
purchase by the Borrower of the assets of APSI, as delivered to and
approved by the Lender.
2.2 AMENDMENT TO SECTION 7.13. Section 7.13 of the Credit
Agreement is hereby amended by adding the following at the beginning of the
first sentence thereof:
Other than in the case of the Facility Leases (as defined in the APSI
Purchase Agreement),
2.3 AMENDMENT TO SECTION 8.01. Section 8.01 of the Credit
Agreement is hereby amended by deleting the word "and" at the end of clause
(xi) thereof, substituting "; and" in place of the period at the end of
clause (xii) thereof and adding the following new clause (xiii):
(xiii) Indebtedness assumed pursuant to the APSI Purchase
Agreement in an aggregate principal amount not to exceed $1,500,000,
PROVIDED that such Indebtedness shall be paid in full on or before the
second Business Day after the closing of the purchase by the Borrower
of the assets of APSI.
2.3 AMENDMENT TO SECTION 8.03. Section 8.03 of the Credit
Agreement is hereby amended by deleting the word "and" at the end of clause
(iii) thereof, substituting "; and" in place of the period at the end of clause
(iv) thereof and adding the following new clause (v):
(v) Liens on assets of APSI securing Indebtedness permitted
under SECTION 8.01(xiii).
2.4 AMENDMENT TO SECTION 8.04. Section 8.04 of the Credit
Agreement is hereby amended by deleting the word "and" at the end of clause
(viii) thereof, substituting "; and" in place of the period at the end of clause
(ix) thereof and adding the following new clause (x):
(x) the Investment in the assets, and assumption of certain
liabilities, of APSI pursuant to the APSI Purchase Agreement.
2.5 AMENDMENT TO SECTION 8.12. Section 8.12 of the Credit
Agreement is hereby amended by deleting the word "and" at the end of clause
(iii) thereof, substituting "; and" in place of the period at the end of clause
(iv) thereof and adding the following new clause (v):
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<PAGE>
(v) Common Stock issued as consideration for the purchase of assets
of APSI pursuant to the APSI Purchase Agreement.
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Lender that, as of the Effective Date and after giving effect to
this Sixth Amendment:
(a) All of the representations and warranties of the Borrower
contained in this Sixth Amendment, the Credit Agreement and the other Loan
Documents are true and correct in all material respects on and as of the
Effective Date and on and as of the consummation of the Acquisition (the
"ACQUISITION CLOSING DATE"), in each case as if then made (other than
representations and warranties which expressly speak as of a different
date, which shall be true and correct in all material respects as of that
date);
(b) No Potential Event of Default or Event of Default has occurred or
is continuing or will result after giving effect to this Sixth Amendment
and the consummation of the Acquisition; and
(c) The representations and warranties of the Sellers (as defined in
the APSI Purchase Agreement) set forth in the APSI Purchase Agreement are
true and correct in all material respects on and as of the Acquisition
Closing Date, in each case as if then made (other than representations and
warranties which expressly speak as of a different date, which shall be
true and correct in all material respects as of that date).
4. EFFECTIVE DATE. This Sixth Amendment shall become effective as of the
date first written above (the "EFFECTIVE DATE") upon the satisfaction of each of
the following conditions:
(a) the Lender shall have received each of the following documents,
in each case in form and substance satisfactory to the Lender:
(i) counterparts hereof executed by the Borrower and the Lender;
(ii) a certificate of the chief financial officer of the
Borrower certifying that all conditions precedent to the effectiveness
of this Sixth Amendment have been satisfied;
(iii) a certificate of the Secretary or Assistant Secretary of
the Borrower dated the Effective Date certifying (A) the names and
true signatures of the incumbent officers of the Borrower authorized
to sign this Sixth Amendment and the APSI Purchase Agreement, (B) that
the By-laws of the Borrower have not been amended or otherwise
modified since the date of the most recent certification thereof by
the Secretary or Assistant Secretary of the
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<PAGE>
Borrower delivered to the Lender and remain in full force and
effect as of the Effective Date, (C) that the Articles of
Incorporation of the Borrower have not been amended or otherwise
modified since the date of the most recent certification thereof by
the Secretary of State of Delaware delivered to the Lender and
remain in full force and effect as of the Effective Date, (D) the
resolutions of the Borrower's board of directors approving and
authorizing the execution, delivery and performance of this Sixth
Amendment and the APSI Purchase Agreement and the purchase of the
assets of APSI and (E) that the APSI Purchase Agreement (including
the exhibits and schedules thereto), as delivered to the Lender,
has not been amended or modified since the date of its delivery to
the Lender and remains in full force and effect;
(iv) evidence of publication of notice and filing with
Governmental Authorities pursuant to applicable bulk sales laws
(including without limitation Division 6 of the Uniform Commercial
Code);
(v) search reports (under APSI and each other name used within
the past five years to conduct the business to which the assets of
APSI relate) with respect to filings under the Uniform Commercial Code
(as in effect in each applicable jurisdiction) in each jurisdiction in
which assets of APSI are, or may be deemed to be, located;
(vi) a list of the street addresses of all offices and other
locations at which assets of APSI with an aggregate value in excess of
$50,000 are, or are proposed to be, located;
(vii) a list of all defined benefit plans as defined in Section
3(35) of ERISA (other than a "multiemployer plan") subject to Title IV
of ERISA in respect of which APSI or any of its ERISA Affiliates
(determined by substituting "APSI" for "Borrower" in the definition of
"ERISA Affiliate") is, or within the immediately preceding six (6)
years was, an "employer" as defined in Section 3(5) of ERISA; and
(viii) such additional documentation as the Lender may
reasonably request;
(b) no law, regulation, order, judgment or decree of any Governmental
Authority shall, and the Lender shall not have received any notice that
litigation is pending or threatened which is likely to, enjoin, prohibit or
restrain the consummation of the Acquisition or any other transactions
contemplated by this Sixth Amendment, except for such laws, regulations,
orders or decrees, or pending or threatened litigation that in the
aggregate could not reasonably be expected to result in a Material Adverse
Effect;
4
<PAGE>
(c) all of the representations and warranties of the Borrower
contained in this Sixth Amendment, the Credit Agreement and the other Loan
Documents shall be true and correct in all material respects on and as of
the Effective Date and on and as of the Acquisition Closing Date, in each
case as if then made (other than representations and warranties which
expressly speak as of a different date, which shall be true and correct in
all material respects as of that date);
(d) all corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Acquisition and
any other transactions contemplated by this Sixth Amendment shall be
satisfactory in all respects in form and substance to the Lender; and
(e) no Event of Default or Potential Event of Default shall have
occurred and be continuing on the Effective Date or the Acquisition Closing
Date or will result after giving effect to this Sixth Amendment and the
consummation of the Acquisition.
5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the Effective Date, each reference in the Credit Agreement
to "this Agreement", "hereunder", "hereof" or words of like import, and
each reference in the other Loan Documents to the Credit Agreement, shall
mean and be a reference to the Credit Agreement as amended hereby.
(b) This Sixth Amendment shall be limited solely to the matters
expressly set forth herein and shall not (i) constitute an amendment of any
other term or condition of the Credit Agreement or any other Loan Document,
(ii) prejudice any right or rights which the Lender or Lender Parties may
now have or may have in the future under or in connection with the Credit
Agreement or any other Loan Document, (iii) require the Lender to agree to
a similar transaction on a future occasion or (iv) create any rights herein
to another Person or other beneficiary or otherwise, except to the extent
specifically provided herein.
(c) Except to the extent specifically consented to herein, the
respective provisions of the Credit Agreement and the other Loan Documents
shall not be amended, modified, impaired or otherwise affected hereby, and
such documents and the Obligations under each of them are hereby confirmed
in full force and effect.
6. MISCELLANEOUS. This Sixth Amendment is a Loan Document. The headings
herein are for convenience of reference only and shall not alter or otherwise
affect the meaning hereof.
7. COUNTERPARTS. This Sixth Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when
5
<PAGE>
so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
8. GOVERNING LAW. THIS SIXTH AMENDMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Sixth
Amendment to be executed by their respective officers thereunto duly authorized
as of the date first above written.
KAYNAR TECHNOLOGIES INC.
By:
---------------------------
David A. Werner
Executive Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By:
---------------------------
Name:
Authorized Signatory
6
<PAGE>
FIRST AMENDMENT
TO
TERM LOAN AGREEMENT
THIS FIRST AMENDMENT TO TERM LOAN AGREEMENT, dated as of October 23,
1997 (this "FIRST AMENDMENT"), is entered into between Recoil Pty (f/k/a RCL
Pty), an unlimited liability company organized under the laws of the State of
Victoria, Australia (the "BORROWER"), and General Electric Capital Corporation,
a New York corporation (the "LENDER") and relates to that certain Term Loan
Agreement dated as of August 12, 1996, between the Borrower and the Lender (the
"CREDIT AGREEMENT").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have entered into the Credit
Agreement; and
WHEREAS, the Borrower has requested that the Lender amend the Credit
Agreement (i) to add the Commercial Paper Rate (as defined herein) as a basis
for determining the rate of interest payable on the Term Loan, (ii) to convert
the Term Loan from Index Rate to Commercial Paper Rate as of the date of this
amendment and (iii) to effect other amendments, all as more fully described
herein.
NOW, THEREFORE, in consideration of the above premises, the Borrower
and the Lender agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined
herein have the meanings assigned to them in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Effective Date" (as
defined in SECTION 4 below), the Credit Agreement is hereby amended as follows:
2.1 AMENDMENTS TO SECTION 1.01. Section 1.01 of the Credit Agreement
is amended as follows:
(a) The following definition of Commercial Paper Rate is added in
proper alphabetical order:
"COMMERCIAL PAPER RATE" means the published rate (or the mid-point
in the range of such rates, if more than one rate is published) for
30-day dealer-placed commercial paper (high grade unsecured notes
sold through dealers by major corporations in multiples of $1,000)
as quoted in the "Money Rates" section of THE WALL STREET JOURNAL
or, in the event such report shall not so
<PAGE>
appear, in such other publication as Lender may, from time to time,
specify to Borrower. The Commercial Paper Rate in effect for each
month shall be determined as of the first Business Day of that
month.
(b) The following definition of Commercial Paper Rate Loan is added
in proper alphabetical order:
"COMMERCIAL PAPER RATE LOAN" means a Term Loan which bears interest as
provided in Section 2.02(a).
(c) The following definition of Convert, Conversion and Converted is
added in proper alphabetical order:
"CONVERT", "CONVERSION" and "CONVERTED" each refers to a conversion of
a Term Loan of one Type into a Term Loan of another Type pursuant to
Section 2.04.
(d) The following definition of Index Rate Loan is added in proper
alphabetical order:
"INDEX RATE LOAN" means a Term Loan which bears interest at a rate per
annum equal at all times to the Index Rate, as in effect from time to
time as interest accrues.
(e) The following definition of Type is added in proper alphabetical
order:
"TYPE" of Term Loan means a Commercial Paper Rate Loan or an Index
Rate Loan, as the case may be.
2.2 AMENDMENT TO SECTION 2.02(a). Section 2.02(a) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
2.02. INTEREST. (a) RATE OF INTEREST. The Term Loan and the
outstanding principal balance of all other Obligations shall bear interest
on the unpaid principal amount thereof from the date the Term Loan is made
and such other Obligations are due and payable until paid in full, except
as otherwise provided in SECTION 2.02(c) or SECTION 2.04, at a rate per
annum equal at all times to the sum of the Commercial Paper Rate, as in
effect from time to time as interest accrues, plus 1.50% per annum.
2.3 AMENDMENT TO SECTION 2.02(c). Section 2.02(c) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
(c) DEFAULT INTEREST. Notwithstanding the rates of interest
specified in SECTION 2.02(a) or elsewhere in this Agreement, effective
immediately upon (i) the occurrence of an Event of Default described in
SECTION 10.01(a) or (ii) the occurrence
2
<PAGE>
of any other Event of Default and notice from the Lender of the
effectiveness of this SECTION 2.02(c), and for as long thereafter as
such Event of Default shall be continuing, the principal balance of the
Term Loan, and the principal balance of all other Obligations, shall
bear interest at a rate which is two percent (2.0%) per annum in excess
of the Index Rate.
2.4 NEW SECTION 2.04. A new Section 2.04 shall be added to the
Credit Agreement as follows:
2.04. INTEREST RATE PROTECTION. If either (a) by reason of
circumstances affecting the commercial paper market generally, adequate and
reasonable means do not exist for ascertaining the Commercial Paper Rate or
(b) the Commercial Paper Rate ceases to reflect adequately and fairly the
cost to the Lender (as determined by the Lender) of making or maintaining
Commercial Paper Rate Loans, the Lender shall as soon as practicable give
notice (which may be by telephone, followed by writing) thereof to the
Borrower. If such notice is given, any outstanding Commercial Paper Rate
Loans shall be Converted to Index Rate Loans. As soon as practicable after
withdrawing such notice, the Lender shall Convert any outstanding Index
Rate Loans to Commercial Paper Rate Loans.
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Lender that, as of the Effective Date and after giving effect to
this First Amendment:
(a) All of the representations and warranties of the Borrower
contained in this First Amendment, the Credit Agreement and the other Loan
Documents are true and correct in all material respects on and as of the
Effective Date, as if then made (other than representations and warranties
which expressly speak as of a different date, which shall be true and
correct in all material respects as of that date);
(b) No Potential Event of Default or Event of Default has occurred or
is continuing or will result after giving effect to this First Amendment;
and
(c) The Borrower has not voluntarily, by operation of law or
otherwise, assigned, conveyed, transferred or encumbered, either directly
or indirectly, in whole or in part, any right to or interest in any of the
"Released Claims" (as defined in SECTION 6 below) purported to be released
by this First Amendment.
4. EFFECTIVE DATE. This First Amendment shall become effective as of the
date first written above (the "EFFECTIVE DATE") upon the satisfaction of each of
the following conditions:
(a) the Lender shall have received each of the following documents,
in each case in form and substance satisfactory to the Lender:
3
<PAGE>
(i) counterparts hereof executed by the Borrower and the Lender;
(ii) a certificate of the chief financial officer or a director
of the Borrower certifying that all conditions precedent to the
effectiveness of this First Amendment have been satisfied;
(iii) a certificate of an officer or director of the Borrower
dated the Effective Date certifying (A) the names and true signatures
of the incumbent officers of the Borrower authorized to sign this
First Amendment and the other Transaction Documents executed in
connection with this First Amendment to which it is a party, (B) that
the Organizational Documents of the Borrower have not been amended or
otherwise modified since the date of the most recent certification
thereof by an officer or director of the Borrower delivered to the
Lender and remain in full force and effect as of the Effective Date
and (C) the resolutions of the board of directors of a direct or
indirect Parent of Borrower approving and authorizing the execution,
delivery and performance of this First Amendment and the other
Transaction Documents executed in connection with this First Amendment
to which the Borrower is a party; and
(iv) such additional documentation as the Lender may reasonably
request;
(b) no law, regulation, order, judgment or decree of any Governmental
Authority shall, and the Lender shall not have received any notice that
litigation is pending or threatened which is likely to, enjoin, prohibit or
restrain the consummation of the transactions contemplated by this First
Amendment, except for such laws, regulations, orders or decrees, or pending
or threatened litigation that in the aggregate could not reasonably be
expected to result in a Material Adverse Effect;
(c) all of the representations and warranties of the Borrower
contained in this First Amendment, the Credit Agreement and the other Loan
Documents shall be true and correct in all material respects on and as of
the Effective Date, as if then made (other than representations and
warranties which expressly speak as of a different date, which shall be
true and correct in all material respects as of that date);
(d) all corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this First Amendment shall be satisfactory in all respects
in form and substance to the Lender; and
(e) no Event of Default or Potential Event of Default shall have
occurred and be continuing on the Effective Date or will result after
giving effect to this First Amendment.
4
<PAGE>
5. OUTSTANDING INDEBTEDNESS. The Borrower hereby acknowledges and agrees
that as of September 30, 1997, the aggregate outstanding principal amount of the
Term Loan under the Credit Agreement was $4,000,000 and that such principal
amount is payable pursuant to the Credit Agreement, as amended hereby, without
offset, withholding, counterclaim or deduction of any kind. The Borrower, for
itself and on behalf of its officers and directors, and its respective
predecessors, successors and assigns (collectively, the "RELEASORS"), hereby
waives, releases and forever discharges the Lender, and its parent corporation,
Subsidiaries and Affiliates, officers, directors, shareholders employees,
attorneys, agents and servants, and its respective predecessors, successors,
heirs and assigns (collectively, the "LENDER PARTIES"), from any and all claims
of every type, kind, nature, description or character, known and unknown,
whensoever arising out of any actions or omissions of the Lender Parties, except
all such claims of Affiliates of Lender arising out of sales of inventory in the
ordinary course of business, occurring any time up to and including the date
hereof, which in any way arise out of, are connected with or relate to the
Credit Agreement or any other Loan Documents (the "RELEASED CLAIMS") and agrees
not to bring any action in any judicial, administrative or other proceeding
against the Lender Parties, alleging any such Released Claim or otherwise in
connection with any such Released Claim.
6. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the Effective Date, each reference in the Credit Agreement
to "this Agreement", "hereunder", "hereof" or words of like import, and
each reference in the other Loan Documents to the Credit Agreement, shall
mean and be a reference to the Credit Agreement as amended hereby.
(b) This First Amendment shall be limited solely to the matters
expressly set forth herein and shall not (i) constitute an amendment of any
other term or condition of the Credit Agreement or any other Loan Document,
(ii) prejudice any right or rights which the Lender or Lender Parties may
now have or may have in the future under or in connection with the Credit
Agreement or any other Loan Document, (iii) require the Lender to agree to
a similar transaction on a future occasion, (iv) be deemed or construed as
an admission of liability with respect to the Released Claims or otherwise
by the Lender Parties or (v) create any rights herein to another Person or
other beneficiary or otherwise, except to the extent specifically provided
herein.
(c) Except to the extent specifically consented to herein, the
respective provisions of the Credit Agreement and the other Loan Documents
shall not be amended, modified, impaired or otherwise affected hereby, and
such documents and the Obligations under each of them are hereby confirmed
in full force and effect.
7. MISCELLANEOUS. This First Amendment is a Loan Document. The headings
herein are for convenience of reference only and shall not alter or otherwise
affect the meaning hereof.
5
<PAGE>
8. COUNTERPARTS. This First Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
9. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK.
6
<PAGE>
IN WITNESS WHEREOF, this First Amendment has been duly executed as of
the date first above written.
SIGNED by David A. Werner )
as authorized representative of )
Recoil Pty in the presence of: ) ------------------------------
) By executing this First
) Amendment the signatory
) warrants that the signatory is
) duly authorized to execute
- ------------------------------ ) this First Amendment on behalf
Signature of Witness ) of Recoil Pty.
)
)
SIGNED by Peter C. Keenoy )
as authorized representative of )
General Electric Capital Corporation )
in the presence of: )
) ------------------------------
) By executing this First
) Amendment the signatory
- ------------------------------ ) warrants that the signatory is
Signature of Witness ) duly authorized to execute
this First Amendment on behalf
of General Electric Capital
Corporation.
<PAGE>
SECOND AMENDMENT
TO
TERM LOAN AGREEMENT
THIS SECOND AMENDMENT TO TERM LOAN AGREEMENT, dated as of December 5,
1997 (this "SECOND AMENDMENT"), is entered into between Recoil Pty (f/k/a RCL
Pty), an unlimited liability company organized under the laws of the State of
Victoria, Australia (the "BORROWER"), and General Electric Capital Corporation,
a New York corporation (the "LENDER") and relates to that certain Term Loan
Agreement dated as of August 12, 1996, between the Borrower and the Lender (as
previously amended as of October 23, 1997, the "CREDIT AGREEMENT").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have entered into the Credit
Agreement; and
WHEREAS, the Borrower has requested that the Lender amend the Credit
Agreement (i) to extend the scheduled maturity date of the loan and (ii) to
effect other amendments, all as more fully described herein.
NOW, THEREFORE, in consideration of the above premises, the Borrower
and the Lender agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined
herein have the meanings assigned to them in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Effective Date" (as
defined in SECTION 4 below), the Credit Agreement is hereby amended as
follows:
2.1 AMENDMENT TO SECTION 1.01. The definition of "Scheduled Maturity
Date" in Section 1.01 of the Credit Agreement is hereby amended to read as
follows:
"SCHEDULED MATURITY DATE" means January 3, 2001.
2.2 AMENDMENT TO SECTION 8.01(iv). Section 8.01(iv) of the Credit
Agreement is hereby amended to delete the reference to "$3,000,000" in its
entirety and to substitute in lieu thereof "$5,000,000."
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Lender that, as of the Effective Date and after giving effect to
this Second Amendment:
<PAGE>
(a) All of the representations and warranties of the Borrower
contained in this Second Amendment, the Credit Agreement and the other Loan
Documents are true and correct in all material respects on and as of the
Effective Date, as if then made (other than representations and warranties
which expressly speak as of a different date, which shall be true and
correct in all material respects as of that date);
(b) No Potential Event of Default or Event of Default has occurred or
is continuing or will result after giving effect to this Second Amendment;
and
(c) The Borrower has not voluntarily, by operation of law or
otherwise, assigned, conveyed, transferred or encumbered, either directly
or indirectly, in whole or in part, any right to or interest in any of the
"Released Claims" (as defined in SECTION 6 below) purported to be released
by this Second Amendment.
4. EFFECTIVE DATE. This Second Amendment shall become effective as of
the date first written above (the "EFFECTIVE DATE") upon the satisfaction of
each of the following conditions:
(a) the Lender shall have received each of the following documents,
in each case in form and substance satisfactory to the Lender:
(i) counterparts hereof executed by the Borrower and the Lender;
(ii) a certificate of the chief financial officer or a director
of the Borrower certifying that all conditions precedent to the
effectiveness of this Second Amendment have been satisfied;
(iii) a certificate of an officer or director of the Borrower
dated the Effective Date certifying (A) the names and true signatures
of the incumbent officers of the Borrower authorized to sign this
Second Amendment and the other Transaction Documents executed in
connection with this Second Amendment to which it is a party, (B) that
the Organizational Documents of the Borrower have not been amended or
otherwise modified since the date of the most recent certification
thereof by an officer or director of the Borrower delivered to the
Lender and remain in full force and effect as of the Effective Date
and (C) the resolutions of the board of directors of a direct or
indirect Parent of Borrower approving and authorizing the execution,
delivery and performance of this Second Amendment and the other
Transaction Documents executed in connection with this Second
Amendment to which the Borrower is a party; and
(iv) such additional documentation as the Lender may reasonably
request;
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<PAGE>
(b) no law, regulation, order, judgment or decree of any Governmental
Authority shall, and the Lender shall not have received any notice that
litigation is pending or threatened which is likely to, enjoin, prohibit or
restrain the consummation of the transactions contemplated by this Second
Amendment, except for such laws, regulations, orders or decrees, or pending
or threatened litigation that in the aggregate could not reasonably be
expected to result in a Material Adverse Effect;
(c) all of the representations and warranties of the Borrower
contained in this Second Amendment, the Credit Agreement and the other Loan
Documents shall be true and correct in all material respects on and as of
the Effective Date, as if then made (other than representations and
warranties which expressly speak as of a different date, which shall be
true and correct in all material respects as of that date);
(d) all corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Second Amendment shall be satisfactory in all respects
in form and substance to the Lender; and
(e) no Event of Default or Potential Event of Default shall have
occurred and be continuing on the Effective Date or will result after
giving effect to this Second Amendment.
5. OUTSTANDING INDEBTEDNESS. The Borrower hereby acknowledges and agrees
that as of September 30, 1997, the aggregate outstanding principal amount of the
Term Loan under the Credit Agreement was $4,000,000 and that such principal
amount is payable pursuant to the Credit Agreement, as amended hereby, without
offset, withholding, counterclaim or deduction of any kind. The Borrower, for
itself and on behalf of its officers and directors, and its respective
predecessors, successors and assigns (collectively, the "RELEASORS"), hereby
waives, releases and forever discharges the Lender, and its parent corporation,
Subsidiaries and Affiliates, officers, directors, shareholders employees,
attorneys, agents and servants, and its respective predecessors, successors,
heirs and assigns (collectively, the "LENDER PARTIES"), from any and all claims
of every type, kind, nature, description or character, known and unknown,
whensoever arising out of any actions or omissions of the Lender Parties, except
all such claims of Affiliates of Lender arising out of sales of inventory in the
ordinary course of business, occurring any time up to and including the date
hereof, which in any way arise out of, are connected with or relate to the
Credit Agreement or any other Loan Documents (the "RELEASED CLAIMS") and agrees
not to bring any action in any judicial, administrative or other proceeding
against the Lender Parties, alleging any such Released Claim or otherwise in
connection with any such Released Claim.
6. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the Effective Date, each reference in the Credit Agreement
to "this Agreement", "hereunder", "hereof" or words of like import, and
each reference
3
<PAGE>
in the other Loan Documents to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended hereby.
(b) This Second Amendment shall be limited solely to the matters
expressly set forth herein and shall not (i) constitute an amendment of any
other term or condition of the Credit Agreement or any other Loan Document,
(ii) prejudice any right or rights which the Lender or Lender Parties may
now have or may have in the future under or in connection with the Credit
Agreement or any other Loan Document, (iii) require the Lender to agree to
a similar transaction on a future occasion, (iv) be deemed or construed as
an admission of liability with respect to the Released Claims or otherwise
by the Lender Parties or (v) create any rights herein to another Person or
other beneficiary or otherwise, except to the extent specifically provided
herein.
(c) Except to the extent specifically consented to herein, the
respective provisions of the Credit Agreement and the other Loan Documents
shall not be amended, modified, impaired or otherwise affected hereby, and
such documents and the Obligations under each of them are hereby confirmed
in full force and effect.
7. MISCELLANEOUS. This Second Amendment is a Loan Document. The
headings herein are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof.
8. COUNTERPARTS. This Second Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
9. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK.
4
<PAGE>
IN WITNESS WHEREOF, this Second Amendment has been duly executed as of
the date first above written.
SIGNED by David A. Werner )
as authorized representative of )
Recoil Pty in the presence of: )
) ----------------------------------
) By executing this Second
) Amendment the signatory
- --------------------------------- ) warrants that the signatory is
Signature of Witness ) duly authorized to execute
) this Second Amendment on
) behalf of Recoil Pty.
SIGNED by Peter C. Keenoy )
as authorized representative of )
General Electric Capital Corporation )
in the presence of: )
) ----------------------------------
) By executing this Second
) Amendment the signatory
- --------------------------------- ) warrants that the signatory is
Signature of Witness ) duly authorized to execute
) this Second Amendment on
behalf of General Electric
Capital Corporation.
<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 Annual Report. The Company was incorporated in October 1993 and began
operations on January 3, 1994 when it acquired substantially all of the assets
of the Aerospace Fastening Systems Group (AFSG) from another company. The
selected consolidated financial and operating information for the years ended
December 31, 1997, 1996, 1995 and 1994 is derived from the audited Consolidated
Financial Statements of the Company. The selected consolidated financial and
operating information of AFSG for the year ended December 31, 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 AFSG's former parent company are not
meaningful to the Company. The unaudited selected consolidated financial and
operating information for AFSG is provided for information purposes only.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT EARNINGS AFSG
PER SHARE DATA) 1997 1996(1) 1995 1994 1993
(unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $150,429 $99,023 $68,781 $55,117 $46,378
Cost of sales 104,390 72,924 51,940 41,117 35,933
-------- ------- ------- ------- -------
Gross profit 46,039 26,099 16,841 14,000 10,445
Selling, general and
administrative expenses (2) 21,454 13,263 10,018 9,048 8,239
-------- ------- ------- ------- -------
Operating income 24,585 12,836 6,823 4,952 2,206
Interest expense, net 3,602 4,011 2,935 2,304
-------- ------- ------- -------
Income before income taxes 20,983 8,825 3,888 2,648
Provision for income taxes 8,393 3,530 1,577 1,129
-------- ------- ------- -------
Net income $ 12,590 $ 5,295 $ 2,311 $ 1,519
-------- ------- ------- -------
-------- ------- ------- -------
Earnings per share
Basic $ 4.23 $ 3.26 $ 1.39 $ 0.89
Diluted $ 1.54 $ 0.78 $ 0.34 $ 0.22
Weighted average number of
shares of common stock and
common stock equivalents
Basic 2,967 1,594 1,594 1,594
Diluted 8,173 6,800 6,800 6,800
BALANCE SHEET DATA:
Working capital $ 38,700 $30,188 $18,991 $15,563
Total assets 101,656 73,689 43,336 35,051
Long-term obligations 27,992 46,340 24,895 22,051
Stockholders' equity 49,433 10,626 5,157 2,944
- ------------------------------------------------------------------------------------------------------
</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. 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.
(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 AFSG's
former parent company, such as risk management services, tax reporting and
similar corporate administrative functions.
KAYNAR TECHNOLOGIES INC.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" includes forward-looking statements which involve risks and
uncertainties. The Company's actual future results and trends may differ
materially from those anticipated. Factors that might cause such a difference
include, but are not limited to, the Company's dependence on conditions in
the airline industry, the commercial aircraft build rates (primarily Boeing
and Airbus), the level of defense spending, competitive pricing pressures,
cost of material and labor, and other risks described from time to time in
the Company's registration statements and reports filed with the Securities
Exchange Commission.
GENERAL The Company designs, develops and manufactures a wide range of
specialty components and tooling systems, and provides related services used
primarily by OEMs and their subcontractors to produce aircraft and defense
products. In addition, the Company serves the automotive, electrical 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, Lockheed Martin,
McDonnell Douglas and 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 24%, 9% and 6% of
the Company's 1997 net sales, respectively. In 1997 approximately 61% of the
Company's net sales were made directly to OEMs and subcontractors. The
remaining 39% of the Company's 1997 net sales were made to a global network
of independent distributors, who sell the Company's products to OEMs,
subcontractors and other customers. OEMs often will determine whether the
Company sells a product directly to the OEM or through an independent
distributor.
In August 1996, the Company purchased its Recoil business for approximately
$12.2 million in cash and the assumption of certain liabilities. 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 the last three years, the Company's financial objectives have focused on
increasing sales and profitability. The Company's success in achieving these
objectives is due to, among other factors, its ability to take advantage of
increased demand for fasteners from rising commercial aircraft build rates,
the expansion of product lines through acquisitions and new product
development, and increases in efficiencies and productivity. The Company's
financial results over this period reflect a high degree of leverage
resulting from debt incurred to finance the formation of the Company in
January 1994 and to finance internal growth and subsequent acquisitions.
Using the net proceeds of its initial public offering in May 1997, the
Company reduced its leverage by retiring approximately $24 million of debt.
KAYNAR TECHNOLOGIES INC. 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 69.4 73.6 75.5
----- ----- -----
Gross profit 30.6 26.4 24.5
Selling, general and
administrative expenses 14.2 13.4 14.6
----- ----- -----
Operating income 16.4 13.0 9.9
Interest expense, net 2.4 4.1 4.2
Provision for income taxes 5.6 3.6 2.3
----- ----- -----
Net income 8.4% 5.3% 3.4%
----- ----- -----
----- ----- -----
- -----------------------------------------------------------
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased 51.9%, or $51.4 million, to $150.4 million in
1997 from $99.0 million in 1996. This growth was primarily the result of an
increase 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 introduction of new products. The Company's acquisition of Recoil
accounted for approximately $12.6 million of net sales for the year.
GROSS PROFIT. Gross profit increased 76.3% to $46.0 million or 30.6% of net
sales in 1997 from $26.1 million or 26.4% of net sales in 1996. This
improvement in gross profit margin was primarily due to the increase in sales
volume (which resulted in a greater absorption of fixed costs) and improved
productivity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 61.7% to $21.5 million in 1997 from $13.3
million in 1996, and were up 0.8% as a percentage of sales. The $8.2 million
increase in these expenses 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 other
business units.
INTEREST EXPENSE. Interest expense decreased 10.0% to $3.6 million in 1997
from $4.0 million in 1996, as a result of using proceeds received from the
initial public offering in May 1997 to decrease outstanding debt by $24.0
million.
NET INCOME. The Company recorded net income of $12.6 million for 1997, or
$1.54 per share, compared to $5.3 million, or $0.78 per share, in 1996.
BACKLOG. Backlog at December 31, 1997 increased 41.2% or $27.0 million, to
$92.5 million from $65.5 million at December 31, 1996.
14 KAYNAR TECHNOLOGIES INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
the KELOX product line accounted for approximately $5 million of the increase
in net sales for the year.
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 benefitted 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 other business units.
INTEREST EXPENSE. Interest expense increased 37.9% to $4.0 million in 1996
from $2.9 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.
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.
BACKLOG. Backlog at December 31, 1996 increased 59.0% or $24.3 million, to
$65.5 million from $41.2 million at December 31, 1995.
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 General Electric Capital Corporation ("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 $38.7 million as of December 31,
1997, compared to $30.2 million as of December 31, 1996.
The Company has a Credit Agreement with GECC (the "Credit Agreement") which
includes a revolving line-of-credit (the "Revolver") and certain variable
rate term loans for use in connection with acquisitions, working capital
purposes and capital
KAYNAR TECHNOLOGIES INC. 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
expenditures (collectively, the Variable Rate Loans"). In June 1997, the
Company increased the amount available under the Revolver from $15.0 million
to $21.0 million, the availability of which is limited by the lesser of the
sum of specified portions of qualified accounts receivable and inventory, and
$21.0 million. In October 1997, the Company amended the Credit Agreement to
reduce the effective interest rate by approximately 3% and extend the
expiration date for an additional two years to January 3, 2001. Principal
payments of $100,000 are due quarterly on the Variable Rate Loans through
December 31, 2000, with a final payment for the remaining outstanding
balance due on the expiration date. 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 was in compliance with all such financial ratios and
covenants at December 31, 1997. Borrowings under the Credit Agreement bear
interest at the 30-day commercial paper rate plus 1.5% (which was 7.1% as of
December 31, 1997). At December 31, 1997, the aggregate outstanding principal
under the Variable Rate Loans was $25.5 million and the amount available for
borrowing on the Revolver was approximately $21 million.
For the year ended December 31, 1997 net cash provided by operating
activities was $12.2 million, as compared to $4.3 million for the year ended
December 31, 1996. The primary sources of cash from operations during 1997
included net income of $12.6 million, non-cash charges for depreciation and
amortization of $3.8 million, an increase in accrued expenses of $4.9 million
(which was primarily attributable to accrued, Company-wide annual employee
bonuses) and an increase in accounts payable of $3.8 million, offset by
increases in accounts receivable and inventories of $8.0 million and $4.3
million, respectively. 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 accounts payable of $2.4
million and an increase in accrued expenses of $3.2 million (which was
primarily attributable to accrued, Company-wide annual employee bonuses),
offset by increases in accounts receivable and inventories of $2.5 million
and $6.9 million, respectively.
The Company's net cash used in investing activities in 1997 was $20.3
million, consisting primarily of $17.9 million in capital expenditures and
$3.1 million in net purchases of marketable securities, as compared to net
cash used in investing activities in 1996 of $20.2 million, which consisted
primarily of $6.9 million in capital expenditures and $12.2 million in
connection with the Recoil acquisition.
The Company's net cash provided by financing activities in 1997 was $7.8
million, consisting of $27.6 million in net proceeds from the initial public
offering in May 1997, which was offset by net payments of $19.8 million on
debt, as compared to net borrowings on debt of $16.7 million in 1996.
The Company believes that 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.
During the past three years, inflation has not had a significant impact on
the Company's operations.
16 KAYNAR TECHNOLOGIES INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTERNATIONAL SALES AND OPERATIONS
The Company generates a portion of its net sales from international
customers. Over the past three years, the Company's direct net sales to
foreign customers has gradually increased, representing approximately 16%,
14% and 10% of net sales for 1997, 1996 and 1995, respectively. Although most
of the Company's direct international sales are invoiced in U.S. dollars, a
portion may be invoiced in foreign currency.
During the last fiscal quarter in 1997, a number of countries located in Asia
experienced economic difficulties resulting in, among other consequences,
devaluation of certain foreign currencies and declines in economic growth
rates. The Company's direct net sales to the Pacific Rim accounted for 3.4%
of total net sales for 1997, and the Company's operations in Asia, including
Recoil (which is based in Australia), were exposed to the above mentioned
economic difficulties. While the Company does not believe that it will suffer
any short-term material adverse effects, prolonged economic difficulties in
the Pacific Rim may affect the Company in the long-term by reducing demand
for both direct sales of the Company's products, and for aerospace, defense
and commercial goods which incorporate the Company's products.
The Company does not actively manage its foreign currency exposure.
Fluctuations in exchange rates may result in quarterly variations of the
Company's net sales. The Company has historically mitigated the impact of
exchange rate fluctuations by adjusting the prices of its products, but there
is no assurance that the Company will be able to do so in the future,
particularly during periods of rapid and volatile exchange rate fluctuations.
YEAR 2000 COMPLIANCE
The Company has reviewed and assessed its exposure to potential Year 2000
compliance problems with its computer systems. The Company is in the process
of resolving any Year 2000 compliance problems through upgrades of its
computer software operating systems and applications, which are scheduled to
be completed by the end of 1998. In addition to being Year 2000 compliant,
the upgraded software will provide the Company with additional capabilities.
The Year 2000 compliance efforts are being carried out in conjunction with
pre-planned upgrades and expansions of the Company's systems. The specific
costs of achieving Year 2000 compliance have been, and are expected to be,
immaterial.
KAYNAR TECHNOLOGIES INC. 17
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales, including $12,961, $11,437 and $8,755
in 1997, 1996 and 1995, respectively, to a
related party (see Note 13) $150,429 $99,023 $68,781
Cost of sales 104,390 72,924 51,940
-------- ------- -------
Gross profit 46,039 26,099 16,841
-------- ------- -------
Selling, general and administrative expenses 21,454 13,263 10,018
-------- ------- -------
Operating income 24,585 12,836 6,823
Interest expense, net 3,602 4,011 2,935
-------- ------- -------
Income before income taxes 20,983 8,825 3,888
Provision for income taxes 8,393 3,530 1,577
-------- ------- -------
Net income $12,590 $5,295 $2,311
-------- ------- -------
-------- ------- -------
Earnings per share
Basic $4.23 $3.26 $1.39
Diluted $1.54 $0.78 $0.34
Weighted average number of shares of
common stock and common stock equivalents
Basic 2,967 1,594 1,594
Diluted 8,173 6,800 6,800
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18 KAYNAR TECHNOLOGIES INC.
<PAGE>
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 675 $ 909
Marketable securities 3,079 --
Accounts receivable, including$1,846 and $1,987
in 1997 and 1996, respectively, from a
related party (see Note 13), net of allowance
for doubtful accounts of $310 and $235 in
1997 and 1996, respectively 23,293 15,392
Inventories 34,231 29,901
Prepaid expenses and other current assets 647 709
Deferred tax asset 1,006 --
-------- -------
Total current assets 62,931 46,911
-------- -------
Property, plant and equipment, at cost 41,048 24,160
Less accumulated depreciation and amortization (8,797) (5,451)
-------- -------
32,251 18,709
-------- -------
Intangible assets, net of accumulated amortization
of $480 and $167 at December 31, 1997 and 1996,
respectively 6,409 7,815
Other assets 65 254
-------- -------
$101,656 $73,689
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line-of-credit, to a related party
(see Note 6) $ -- $ 746
Current portion of long-term debt 1,021 1,457
Current portion of capital lease obligations 272 133
Accounts payable 9,969 6,105
Accrued payroll and related expenses 8,546 5,330
Other accrued expenses 4,423 2,664
Deferred tax liability -- 288
-------- -------
Total current liabilities 24,231 16,723
-------- -------
Long-term debt, primarily to a related
party (see Note 6) 26,372 45,176
Capital lease obligations 484 332
Deferred tax liability 1,136 832
-------- -------
27,992 46,340
-------- -------
Commitments and contingencies (see Notes 6 and 10)
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; $0.01 par value;
Authorized--20,000,000 shares;
issued and outstanding--3,694,000 and
1,594,000 shares at December 31, 1997 and
1996, respectively 37 16
Additional paid-in capital 28,973 1,432
Retained earnings 21,394 8,838
Currency translation adjustment (1,023) 288
-------- -------
Total stockholders' equity 49,433 10,626
$101,656 $73,689
-------- -------
-------- -------
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
KAYNAR TECHNOLOGIES INC. 19
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Preferred Stock
Series C Common Stock Additional Currency
--------------- --------------- Paid-in Retained Translation
Shares Amount Shares Amount Capital Earnings Adjustment Total
------ ------ ------ ------ ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 5,206 $52 1,594 $16 $ 1,432 $ 1,423 $ 21 $ 2,944
Net income -- -- -- -- -- 2,311 -- 2,311
Dividends declared -- -- -- -- -- (95) -- (95)
Currency translation adjustment -- -- -- -- -- -- (3) (3)
----- --- ----- --- ------- ------- ------- -------
Balance, December 31, 1995 5,206 52 1,594 16 1,432 3,639 18 5,157
Net income -- -- -- -- -- 5,295 -- 5,295
Dividends declared -- -- -- -- -- (96) -- (96)
Currency translation adjustment -- -- -- -- -- -- 270 270
----- --- ----- --- ------- ------- ------- -------
Balance, December 31, 1996 5,206 52 1,594 16 1,432 8,838 288 10,626
Common stock issuance -- -- 2,100 21 27,541 -- -- 27,562
Net income -- -- -- -- -- 12,590 -- 12,590
Dividends declared -- -- -- -- -- (34) -- (34)
Currency translation adjustment -- -- -- -- -- -- (1,311) (1,311)
----- --- ----- --- ------- ------- ------- -------
Balance, December 31, 1997 5,206 $52 3,694 $37 $28,973 $21,394 $(1,023) $49,433
----- --- ----- --- ------- ------- ------- -------
----- --- ----- --- ------- ------- ------- -------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20 KAYNAR TECHNOLOGIES INC.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,590 $ 5,295 $ 2,311
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities-
Depreciation and amortization 3,818 2,613 1,754
Loss on sale of property, plant and equipment 154 34 --
Changes in operating assets and liabilities-
Increase in accounts receivable (7,990) (2,505) (3,528)
Increase in inventories (4,346) (6,867) (3,368)
(Increase) decrease in prepaid
expenses and other current assets 32 (152) 37
(Increase) decrease in other assets 187 181 (82)
Increase in accounts payable 3,800 2,361 1,114
Increase in accrued expenses 4,946 3,172 1,111
Increase (decrease) in deferred income taxes (990) 186 501
-------- ------- -------
Net cash provided by (used in)
operating activities 12,201 4,318 (150)
-------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (17,909) (6,850) (3,324)
Proceeds from sales of property, plant
and equipment 92 43 169
Net purchases of marketable securities (3,079) -- --
Acquisition, net of acquired cash of $34 -- (12,160) --
(Increase ) decrease in intangible assets 638 (1,231) --
-------- ------- -------
Net cash used in investing activities (20,258) (20,198) (3,155)
-------- ------- -------
Cash flows from financing activities:
Net (payments) borrowings on line-of-credit,
from a related party (see Note 6) (746) (3,560) 1,244
Borrowings on long-term debt, primarily from
a related party (see Note 6) 501 21,245 2,666
Payments on long-term debt, primarily from
a related party (see Note 6) (20,263) (898) (789)
Net principal (payments) borrowings on
capital lease obligations 795 (55) (6)
Net proceeds from issuance of common stock 27,562 -- --
-------- ------- -------
Net cash provided by
financing activities 7,849 16,732 3,115
-------- ------- -------
Effect of exchange rate changes on cash (26) 5 --
-------- ------- -------
Net increase (decrease) in cash (234) 857 (190)
Cash, beginning of period 909 52 242
-------- ------- -------
Cash, end of period $675 $ 909 $ 52
-------- ------- -------
-------- ------- -------
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Interest $ 3,943 $ 3,787 $ 2,968
-------- ------- -------
-------- ------- -------
Income taxes $ 8,395 $ 2,841 $ 722
-------- ------- -------
-------- ------- -------
Noncash financing activities:
Capital lease obligations assumed
for the purchase of equipment $ 507 $ 355 $ 157
-------- ------- -------
-------- ------- -------
Borrowings on long-term debt for
preferred stock dividends $ 34 $ 96 $ 95
-------- ------- -------
-------- ------- -------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
KAYNAR TECHNOLOGIES INC. 21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF OPERATIONS Kaynar Technologies Inc. (the "Company") designs,
develops and manufactures a wide range of specialty components and tooling
systems and provides related services used primarily by original equipment
manufacturers ("OEM's") and their subcontractors to produce aircraft and
defense products. In addition, the Company serves the automotive, electrical
and other industrial markets and their associated after-markets.
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, 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>
The following unaudited pro forma consolidated statements of income
information present the results of the Company's operations for the years
ended December 31, 1996 and 1995, as though the acquisition of Recoil had
occurred as of the beginning of each respective fiscal year:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Net sales $105,015 $77,449
Net income 5,432 2,793
Earnings per share
Basic 3.35 1.69
Diluted 0.80 0.41
</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.
22 KAYNAR TECHNOLOGIES INC.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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 rental 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 the Company's
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 included in the consolidated statements of income.
E. MARKETABLE SECURITIES The Company invests excess cash in a money market
fund that invests in short term (maturities of 397 days or less) direct
obligations of the U.S. Treasury.
F. 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.
G. PROPERTY, PLANT AND EQUIPMENT Depreciation is computed principally 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.
H. 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 benefitted, currently estimated at 20 years. The Company
assesses the recoverability of intangible assets in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
I. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash,
marketable securities, accounts receivable and accounts payable approximate
their fair value as of December 31, 1997 and 1996. The carrying amounts of
the line-of-credit and long-term debt approximate fair value as the
obligations bear interest at rates that fluctuate with the market rate. The
carrying amount of the term loans approximates fair value as the obligation
compares favorably with fixed rate obligations that would be currently
available to the Company.
KAYNAR TECHNOLOGIES INC. 23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
J. INCOME TAXES The Company accounts for income taxes under 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.
K. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, "Earnings per Share". This statement
provides for the presentation of (i) "basic" earnings per share, which is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding and (ii) "diluted" earnings per
share which is computed by dividing net income by the weighted average number
of common shares outstanding plus the dilutive effect of other securities.
The Company's other securities are (i) Series C Convertible Preferred stock
and (ii) outstanding common stock options.
The table below details the components of the basic and diluted earnings per
share ("EPS") calculations for the years ended December 31, 1997, 1996 and
1995.
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
------------------ ---------------- ----------------
Income Shares Income Shares Income Shares
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $12,590 2,967 $5,295 1,594 $2,311 1,594
Less: dividends on
previously issued preferred stock (34) -- (96) -- (95) --
------- ------ ------ ------ ------ ------
Income available to
common stockholders 12,556 2,967 5,199 1,594 2,216 1,594
Effect of Dilutive Securities
Series C Convertible Preferred stock 34 5,206 96 5,206 95 5,206
Options -- -- -- -- -- --
------- ------ ------ ------ ------ ------
Diluted EPS $12,590 8,173 $5,295 6,800 $2,311 6,800
------- ------ ------ ------ ------ ------
------- ------ ------ ------ ------ ------
</TABLE>
L. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS Nos. 130
and 131, "Reporting Comprehensive Income" and "Disclosures about Segments of
an Enterprise and Related Information". SFAS Nos. 130 and 131 are effective
for fiscal years beginning after December 15, 1997, with earlier adoption
permitted. The Company does not believe that adoption of these standards will
have a material impact on the Company's results of operations.
24 KAYNAR TECHNOLOGIES INC.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. INVENTORIES Inventories consist of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials $ 2,593 $ 2,790
Work in progress 11,012 9,151
Components 5,325 4,628
Finished goods 9,550 8,781
Supplies and small tools 5,751 4,551
------- -------
$34,231 $29,901
------- -------
------- -------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
YEARS OF
ESTIMATED
USEFUL LIFE 1997 1996
----------- ------- -------
<S> <C> <C> <C>
Land -- -- $ 32 $ 30
Factory equipment 7 to 10 16,262 12,825
Equipment rented to others 7 8,581 5,651
Office equipment 5 2,751 1,374
Leasehold improvements Lease term 1,315 628
Construction in progress -- 11,037 3,089
Equipment under capital lease Lease term 1,070 563
------- -------
41,048 24,160
Accumulated depreciation and
amortization (8,797) (5,451)
------- -------
$32,251 $18,709
------- -------
------- -------
</TABLE>
5. INCOME TAXES The components of the net accumulated deferred income tax
(asset) liability at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -----
<S> <C> <C>
Current deferred tax (asset) liability:
Inventory reserves $ (87) $ 818
Accrued vacation (449) (205)
Other (470) (325)
------- -----
$(1,006) $ 288
------- -----
------- -----
Long-term deferred tax (asset) liability:
Depreciation $ 1,136 $ 880
Other -- (48)
------- -----
$ 1,136 $ 832
------- -----
------- -----
</TABLE>
KAYNAR TECHNOLOGIES INC. 25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The provision for income taxes includes income taxes currently payable and
those deferred due to temporary differences between the financial statements
and tax basis 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, 1997, 1996 and 1995, consists
of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current provision:
Federal $7,716 $2,590 $ 854
State 1,400 720 222
Foreign 267 -- --
Deferred provision:
Federal (707) 69 456
State (283) 151 45
------ ------ ------
$8,393 $3,530 $1,577
------ ------ ------
------ ------ ------
</TABLE>
Variations from the federal statutory rate for the years ended December 31,
1997, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate $7,344 35.0% $3,001 34.0% $1,322 34.0%
State income taxes, net of federal benefit 726 3.5 485 5.5 202 5.2
Foreign sales corporation benefit (220) (1.0) (141) (1.6) -- --
Foreign losses not currently benefitted 115 0.5 -- -- -- --
Utilization of foreign losses (114) (0.5) -- -- -- --
Non-deductible expenses 173 0.8 94 1.1 26 .7
Other 369 1.7 91 1.0 27 .7
------ ---- ------ ---- ------ ----
$8,393 40.0% $3,530 40.0% $1,577 40.6%
------ ---- ------ ---- ------ ----
------ ---- ------ ---- ------ ----
</TABLE>
6. DEBT ARRANGEMENTS The Company has entered into credit agreements (the
"Agreements") with General Electric Capital Corporation (the "Lender"), the
preferred 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.
26 KAYNAR TECHNOLOGIES INC.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following schedule summarizes the future annual minimum principal
payments due under the variable rate term loans (the "Term Loans"),
promissory notes (the "Notes") and Australian Trade Commission Loan (the "ATC
Loan") as of December 31, 1997:
<TABLE>
<CAPTION>
Term The ATC
Loans Notes Loan Total
------- ------ ---- -------
<S> <C> <C> <C> <C>
1998 $ 400 $ 466 $155 $ 1,021
1999 400 657 199 1,256
2000 400 295 96 791
2001 24,325 -- -- 24,325
------- ------ ---- -------
$25,525 $1,418 $450 $27,393
------- ------ ---- -------
------- ------ ---- -------
</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. Additionally, during 1996, the Company (in connection with
its purchase of the net assets of Recoil, see Note 1) entered into new Term
Loans of $10,000. Using a portion of the net Initial Public Offering
proceeds, approximately $19 million of term debt was paid in 1997. The Term
Loans bear interest, payable monthly, at the 30-day commercial paper rate
plus one and one-half percent (which was 7.1 percent at December 31, 1997).
Principal payments of $100 are due quarterly through December 31, 2000, with
a final payment of $24,325 due January 3, 2001. At December 31, 1997 and
1996, outstanding principal under the Term Loans totaled $25,525 and $38,225,
respectively. Interest expense for the years ended December 31, 1997, 1996
and 1995 was approximately $2,498, $2,400 and $1,904, respectively. The Term
Loans are secured by substantially all of the Company's assets.
B. OTHER FIXED RATE LOANS (THE "LOANS") The Company has borrowed additional
amounts under other fixed rate loan agreements (the "Loans") with the Lender.
The principal on the Loans was due and payable on January 3, 1999, while
interest, which was payable quarterly and was added to the outstanding
principal balance, accrued at 11.5 percent. At December 31, 1996, there was
approximately $6,844 in principal, interest and dividends outstanding related
to these agreements. The Loans were repaid during 1997.
C. THE NOTES The Company has promissory notes with financing institutions,
which are secured by certain machinery and equipment. At December 31, 1997
and 1996, the outstanding principal under the Notes was $1,418 and $915,
respectively. The Notes bear interest at interest rates ranging from 8.9
percent to 9.5 percent per annum. Monthly payments are payable through
October 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, 1997 and 1996, outstanding principal under the ATC Loan was $450
and $649, respectively. Interest accrues on the outstanding principal balance
at an effective interest rate of 9.75 percent. Principal and interest
payments are due semi-annually beginning September 1997.
KAYNAR TECHNOLOGIES INC. 27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
E. LINE-OF-CREDIT The line-of-credit with the Lender (the "LOC") is a $21,000
revolving credit facility, limited by the lesser of the sum of specified
portions of qualified accounts receivable and inventory, and $21,000.
Interest is payable monthly at the 30-day commercial paper rate plus one and
one-half percent (which was 7.1 percent at December 31, 1997). The LOC, which
expires January 3, 2001, had no borrowings at December 31, 1997 and $746 at
December 31, 1996. Interest expense for the years ended December 31, 1997,
1996 and 1995 was approximately $129, $682 and $462, respectively. The
weighted average interest rate for all borrowings under the LOC was 10.1
percent, 9.8 percent and 10.3 percent at December 31, 1997, 1996 and 1995,
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.
In the event of 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 $.022 per share, plus any accrued and unpaid dividends,
before any distribution is made to the holders of the common stock.
8. STOCK INCENTIVE PLAN In 1997, the Company adopted the Kaynar Technologies
Inc. 1997 Stock Incentive Plan (the "Plan") which authorized 500,000 stock
option grants to purchase the Company's common stock.
The Company has granted 115,400 options with a weighted average exercise
price of $24.77 under the Plan. These options were issued at fair market
value at the time of grant. Option grants are made at the discretion of the
Board of Directors. Options vest at 25 percent per year (beginning one year
from the grant date), may be exercisable in whole or in installments, and
expire five years from the grant date. Of the 115,400 outstanding options at
December 31,1997, none were exercisable.
Characteristics of options outstanding at December 31, 1997 are presented in
the table below:
<TABLE>
<CAPTION>
Exercise Weighted Average Options Options
Price Contractual Life Outstanding Exercisable
- -------- ---------------- ----------- -----------
<S> <C> <C> <C>
$14.50 4.3 years 3,000 --
$25.00 4.7 years 111,200 --
$29.50 4.8 years 1,200 --
</TABLE>
The Company accounts for the Plan under APB Opinion No. 25. SFAS No. 123
"Accounting for Stock-Based Compensation" was issued by the FASB in 1995 and,
if fully adopted, changes the methods for recognition of cost on plans
similar to those of the Company. Adoption of SFAS No. 123 is optional,
however pro forma disclosures as if the Company had adopted the cost
recognition
28 KAYNAR TECHNOLOGIES INC.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
method are required. Had compensation cost for stock options awarded under
the Plan been determined consistent with SFAS No. 123, the Company's net
income would have reflected the following pro forma amounts as of December
31, 1997:
<TABLE>
<S> <C> <C>
Net Income: As Reported $12,590
Pro Forma $12,439
Basic EPS: As Reported $4.23
Pro Forma $4.18
Diluted EPS: As Reported $1.54
Pro Forma $1.52
</TABLE>
For the above pro forma disclosures, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions: weighted average risk-free interest rate of
5.0 percent; a weighted average volatility of 56.5 percent; estimated option
life of 4 years; and no expected dividend yield. The weighted average fair
value of the Company's stock options granted in 1997 was $12.02. The weighted
average remaining contractual life for options issued is 4.6 years.
9. 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 discretion.
The Company contributed approximately $988, $577 and $400 to the Retirement
Plan in the years ended December 31, 1997, 1996 and 1995, respectively.
10. 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 totaled approximately $1,231, $1,187 and $1,209 in the years ended
December 31, 1997, 1996 and 1995, respectively. Minimum rental expenses on
commitments for the years subsequent to December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
<S> <C>
1998 $1,763
1999 1,572
2000 1,406
2001 1,199
2002 1,060
Thereafter 2,921
------
$9,921
------
</TABLE>
KAYNAR TECHNOLOGIES INC. 29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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>
Years ended December 31,
<S> <C>
1998 $ 321
1999 321
2000 174
2001 36
-----
852
Amounts representing interest (96)
-----
756
Current portion (272)
-----
$ 484
-----
-----
</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.
11. SIGNIFICANT CUSTOMERS For the years ended December 31, 1997, 1996 and
1995, two customers accounted for approximately 24 and nine percent, 18 and
12 percent and 15 and 13 percent of net sales, respectively. No other
customer accounted for 10 percent or more of net sales in the years ended
December 31, 1997, 1996 and 1995. Accounts receivable balances from these
same two customers accounted for approximately 14 and eight percent of
accounts receivable at December 31, 1997 and 15 and 13 percent of accounts
receivable at December 31, 1996. No other customer represents 10 percent or
more of the Company's gross accounts receivable at December 31, 1997 and 1996.
12. GEOGRAPHIC SALES INFORMATION Net sales for the years ended December 31,
1997, 1996 and 1995 were made to geographic regions as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
United States $126,845 84.4% $85,069 85.9% $62,041 90.2%
Europe 13,255 8.8 8,378 8.5 2,906 4.2
Pacific Rim 5,219 3.4 2,256 2.3 1,379 2.0
Other 5,110 3.4 3,320 3.3 2,455 3.6
-------- ----- ------- ----- ------- -----
$150,429 100.0% $99,023 100.0% $68,781 100.0%
-------- ----- ------- ----- ------- -----
-------- ----- ------- ----- ------- -----
</TABLE>
30 KAYNAR TECHNOLOGIES INC.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales for the Company's foreign operations represented less than 10 percent
of net sales during each of the years ended December 31, 1997, 1996 and 1995.
13. RELATED PARTY MATTERS As discussed in Note 6, the primary lender to the
Company is General Electric Capital Corporation ("GECC"). GECC owns 100
percent of the outstanding Series C Convertible Preferred Stock.
GECC is also an affiliated entity to a customer (the Aircraft Engines
Division of GE) that accounted for approximately nine, 12 and 13 percent of
1997, 1996 and 1995 net sales, respectively, and eight and 13 percent of
accounts receivable at December 31, 1997 and 1996, respectively.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------
1997 March 30 June 29 September 28 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $32,202 $37,250 $37,884 $43,093
Gross profit 9,233 11,036 11,903 13,867
Net income 2,169 2,933 3,388 4,100
Basic earnings per share 1.35 1.03 0.92 1.11
Diluted earnings per share 0.32 0.36 0.38 0.46
Stock price per share
High -- 19.87 30.25 34.12
Low -- 14.50 18.50 24.50
</TABLE>
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------
1996 March 31 June 30 September 29 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $20,662 $23,228 $26,013 $29,120
Gross profit 5,470 6,050 6,573 8,006
Net income 1,117 1,326 1,193 1,659
Basic earnings per share 0.69 0.82 0.73 1.03
Diluted earnings per share 0.16 0.20 0.18 0.24
</TABLE>
KAYNAR TECHNOLOGIES INC. 31
<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, 1997 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, 1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kaynar
Technologies Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
February 12, 1998
32 KAYNAR TECHNOLOGIES INC.
<PAGE>
<TABLE>
<CAPTION>
LIST OF SUBSIDIARIES
- ----------------------------------
<S> <C>
KAYNAR TECHNOLOGIES LTD.
Jurisdiction of Incorporation: United Kingdom
K.T.I. FEMIPARI KFT
Jurisdiction of Incorporation: Hungary
KT INTERNATIONAL SALES CORP.
Jurisdiction of Incorporation: Barbados
RECOIL HOLDINGS, INC.
Jurisdiction of Incorporation: Delaware
RECOIL AUSTRALIA HOLDINGS, INC.
Jurisdiction of Incorporation: Delaware
RECOIL PTY
Jurisdiction of Incorporation: Victoria, Australia
RECOIL (EUROPE) LTD.
Jurisdiction of Incorporation: United Kingdom
RECOIL MARKETING BVBA
Jurisdiction of Incorporation: Belgium
RECOIL PTE LTD.
Jurisdiction of Incorporation: Singapore
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<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement No. 333-45185.
ARTHUR ANDERSEN LLP
Orange County, California
March 20, 1998
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